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Maybe you want to share your love of travel, your investing expertise, or your poetry with a larger audience. Whether you want to start a blog to share your thoughts with the world or to earn income (or both), you may wonder how much it costs to dive in. The good news is that the bare minimum blog startup costs can be quite low, perhaps even zero, or $100 or $200. That can help you start the blog and see if it’s something you want to do long-term.

Then, if you continue to build your blog and start making money, you can use some of your blog’s revenue to continue to pay for additional services and features. That lets you hopefully balance out your expenses with revenue, so that you don’t have to pay too much out of pocket to finance your blog.

But you are probably wondering what to expect in terms of the price tag to get started and what items you’ll need to check off your list before you go live with your blog. Read on to learn more, including:

•   What is a blog?

•   What does it cost to start a blog?

•   What do I need to buy to start a blog?

•   How much does it cost to run a blog?

What Is a Blog?

Blogs (originally short for weblog) have been around since the early days of the World Wide Web and come in all shapes and sizes. Since then, they have exploded in popularity, and the barriers to entry for starting your own blog are quite low. Some people start and run a blog only to share their own thoughts and opinions with a small audience. Others run blogs as a business to build up their passive income options.

Blog topics are as varied as the people who create them. Some want to share gluten-free recipes; others want to explore and sell collectibles or chronicle a home renovation project. Still others want to address mental health issues and perhaps offer counseling services. Whatever the case, blogs can be a satisfying personal endeavor as well as a way of making money from home.

Common Blog Startup Costs

The absolute minimum to start up a blog can be quite low. But if you want to create a site with bells and whistles or have extra capital such as from a money windfall that you’re ready to spend, you can choose to make a blog with many more features. To determine how much it is to start a blog, consider these common startup needs and costs:

Hardware

You’ll need some way to write, produce, manage, and publish your blog entries. While most blog software is in the cloud, you’ll probably need a laptop or other computer if you don’t already have one.

If you’re planning on taking your own pictures, you’ll need either a camera or a smartphone with a sufficient camera. If your blog will feature video, you may also need headphones or video processing software.

Domain Name

You can start a blog without your own domain name, using hosting platforms like Wix, Weebly, or WordPress. But if you do that, your blog won’t seem as professional as it would if it had its own domain name.

You can buy your own domain name through a registrar like GoDaddy or NameCheap, or you can get a domain name through your hosting provider (see below). Typical costs are in the $12 to $25 per year range.

You may want to buy a privacy service which keeps your name and personal information private in terms of your site. This can help prevent a deluge of marketing offers filling your email inbox.

Hosting

Web hosting involves the services required to launch and maintain a blog. Paying for hosting is not mandatory to start a blog, but if you don’t pay for hosting, you’ll be stuck on a subdomain like https://yourblogname.wordpress.com. While this may be sufficient if you’re just writing for friends or family, if you’re trying to use a blog as an actual business, you’re going to want to pay for hosting.

There are many different hosting companies out there, each with slightly different programs and costs. A basic hosting plan might cost around $10/month, though hosting companies often offer promotions, especially for new customers. As your site grows, you may end up wanting to upgrade your hosting, which can increase your total costs.

Blog Plugins

When you start a blog, unless you’re extremely tech-savvy, you’ll likely do it through blog software like WordPress. The basics of WordPress offer enough to make a simple blog, but adding plugins can help give your blog added functionality. For instance, perhaps you’d like to integrate a “Buy on Amazon” button on your blog; that feature will likely require a plugin.

Many blog plugins are free, while others require a one-time or recurring payment. Other blog plugins are “freemium” where the basic features are free but you can upgrade for additional features.

Blog Themes

Your blog’s theme determines the overall look and feel of your blog. This includes a color scheme as well as the overall layout of how your blog looks in desktop, tablet and mobile phone views. Your blog software (e.g. WordPress) will give you access to several blog themes for free, but you may find it worthwhile to pay for premium themes, which could cost between $50 and $70 or so.

Depending on your subject matter — whether recipes or tutorial videos — you may find a theme that’s specially designed to suit your topic. These layouts can really bring your blog to life and make it more engaging for visitors.

Recommended: 17 Ways to Make Financial Freedom a Reality

Email Marketing

As your blog grows, you might find yourself wanting to start and manage an email list. Most email marketing sites (like Mailchimp, Mailerlite or ConvertKit) offer plans that allow you a certain number of subscribers or email sends for free. But as your site becomes more popular, you may want to upgrade your email marketing plan. This can be anywhere from $10 to $50 or even more, depending on the size of your list and how many emails you send each month.

Social Media Marketing

Promoting your blog on social media is another important step in creating your blog and getting traffic. In fact, many content creators only have a basic blog but make a living on social media. You can do some basic social media marketing for free, but if you want to take your blog to the next level, you can also pay for apps (typically between $10 and $50 a month) that help automate your social media postings and potentially grow your audience, or even hire a virtual assistant to manage all your social media for you.

Security

Nobody wants their blog to get hacked, so it’s important to consider security when running a blog. Fortunately, you can take some basic steps to increase your security without any additional cost. This includes using reputable blog software, choosing a security-conscious host and maintaining strong passwords.

However, if you want added security to safeguard your blog, you could pay up to $200 a year for services.

Cost to Run a Blog: A Summary

The costs to run a blog will vary widely depending on your specific situation. And remember that many of these can be considered tax deductible expenses for freelancers. Here is a range of some costs:

•   Hardware — $0 to $1,000 or more (if you have to buy a computer)

•   Domain Name — $10 – $25

•   Hosting — $10 to $100 / year

•   Blog Plugins — $0 to $50

•   Blog Themes — $0 to $100

•   Email Marketing — $0 to $100 / month

•   Social Media Marketing — $0 to $50 / month

•   Security — $0 to $50 / month

The Takeaway

Just about anyone can start a blog for little to no money upfront, depending on your own skill set and expectations. Keeping expenses low can be a way to figure out if blogging is something that interests you and meets your goals. As your blog grows and starts earning money, you can use that revenue to make smart purchases that will help your blog grow even bigger.

If you’re starting a blog, you will need an account to receive revenue and pay your expenses. You might want to consider an online bank account like SoFi’s all-in-one Checking and Savings account. Eligible account holders can earn a competitive APY when you sign up for direct deposit and pay no fees, which can help your money grow faster.

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

FAQ

Can you start a blog for free?

You can absolutely start a blog for free. You don’t even have to pay for hosting if you’re okay having your blog be on a subdomain of a hosting company like Wix, WordPress, or Weebly. But if you are trying to use your blog as a business for making money from home, it will probably make sense to spend some money to make your site seem more professional.

What are the benefits of starting a blog?

Many people blog solely for the joy of writing and sharing their thoughts and opinions with friends and family. Others start a blog as a way of attaining financial freedom through passive income. Whatever your reasons are to start a blog, it makes sense to keep your initial expenses low and then spend money as you start receiving revenue.

Will starting a blog cost more if I do it full time?

Your upfront costs for starting a blog won’t change much if you do it full time. One benefit of working on your blog full time is that you may be able to devote sufficient time to helping the site grow (and make more money).

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Photo credit: iStock/Photobuay

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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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Too often, free time winds up costing us money, whether that means going to the movies, hitting the mall, or paying for an in-demand yoga class. But the truth is, passing time outside of work doesn’t have to be expensive.

Having hobbies can be a smart, creative, and moneywise way to fill your free time. The best endeavors are those that ignite a real passion and that we can’t wait to pursue.

Think that taking up a new hobby will break your budget? Not necessarily. You don’t necessarily have to pay high fees or purchase pricey equipment.

Here, we have compiled 19 fun, fulfilling pursuits that are also typically very affordable.There’s every chance that you will find at least a couple of these inexpensive hobbies to pique your interest.

Questions to Ask Before Starting a Hobby

Before you begin a new hobby, you may want to ask yourself the following questions.

What Is the Cost of the Hobby?

Even though there are a ton of inexpensive hobbies to choose from, start by making a list of the hobbies you know you are most interested in. From there, you can do some research to determine what the cost of the hobby is and if it fits into your budget (or if you need to pursue a less expensive pastime for now). Something with very specialized instruction, like making gold jewelry or blowing glass, is likely to push your budget limits. You might want to aim for more accessible pursuits to start.

Recommended: Pay Down My Debt or Save Money: What to Consider?

Is This Hobby Worth It?

No matter what the price tag of the hobby is, it can be helpful to think about whether or not the costs associated with the hobby are worth the enrichment and enjoyment the pursuit can bring to your life. Some hobbies may cost more, but may also give a higher return on investment if they offer an incredible experience and turbocharge your mood.

Recommended: Guide to Practicing Financial Self-Care

What Are the Benefits?

While most hobbies are fun, they can also bring a lot more to the table than just a good time. When evaluating hobbies, it can be helpful to think of what other benefits are associated with them. For example, a fitness-based pursuit is good for health. Gardening can be a terrific way to connect with nature and clear your head. And a creative endeavor, like painting or photography, can wind up turning into a part-time job and money-maker (which is a nice benefit of a side hustle like these).

Could This Hobby Be Cheaper?

If you are considering a hobby and are concerned about cost, you don’t need to limit yourself only to what would be classified as a cheap pastime. You might instead dive into what speaks to you but find a way to make it less costly.

For example, if someone wants to ride horses (which can be a very expensive hobby), they could pay to ride a horse by the hour at a local stable instead of buying a horse and paying for all of its care, food, and housing. Or they might find that volunteering at a local stable occasionally earns them some free time on horseback.

Recommended: 39 Passive Income Ideas to Build Wealth in 2022

Will This Hobby Hurt Future Finances?

Take into account the average cost of hobbies per month of any pastime that seems interesting. For instance, if you want to take up skiing, consider how it might affect future finances:

•   What equipment would you need?

•   How much would lessons cost and how many would you likely need?

•   What kind of transportation costs would be involved in pursuing skiing?

If a hobby is likely to drain your emergency savings or cause you to take on credit card debt, then it may be too expensive to pursue. Instead, do a little research and find options for hobbies that are cheap; there are plenty to choose from, as you will learn below.

19 Hobbies That Are Fun and Inexpensive

A cheap hobby can be just as fun and rewarding as an expensive hobby. Let’s take a look at some inexpensive, totally enjoyable pastimes.

1. Gardening

Spending time outdoors feels good; research has shown it can improve your mood, putting you in a more positive, peaceful frame of mind. Gardening is also a great way to make your home more enjoyable and better-looking. Try planting flower seeds in window boxes or creating a windowsill herb garden to start.

2. Camping

Travel can be an expensive hobby, but camping can be done on a budget and scratch that travel itch. After all, renting a campsite for a night is a lot cheaper than booking a hotel. Plus the sound of the birds and the view of the constellations at night can be priceless.

3. Discovering New Music

Instead of going to see only famous musicians play at large stadiums (ka-ching), try a creative way to save some money and check out some more affordable and unique local musicians. You’ll support the local musician scene, get out of the house, and enjoy live entertainment in one fell swoop. What’s more, many towns have totally free concerts in warmer weather.

4. Cooking

Learning to cook well is not only an affordable hobby, it’s also a great way to save money on food by not being as tempted to dine out. There are many ways to do this: Local extension courses, free videos on YouTube or public broadcasting shows, or simply by looking up recipes online and teaching yourself some new skills.

5. Painting

There’s no reason we need to leave arts and crafts behind once we finish elementary school. Spending some quiet time with a paintbrush in hand can be very relaxing. Whether you use oils, acrylics, or watercolors is totally up to you, as is the subject matter, from a self-portrait to a landscape to an abstract canvas. Again, you can find videos online, inexpensive books, and local classes that will teach you how to use basic materials in new ways.

6. Drawing

Like painting, drawing is a way to tap into your artistic side, and only requires paper and a pencil. Or buy a basic set of pastels or charcoal sticks (a dozen will set you back just a few dollars; perfect for trying out new shading techniques). And, if you are a student, you might benefit in other ways: There are scholarships for hobbies and extracurriculars available, including art.

7. Working Out and Exercising

Walking, swimming in a lake, or playing pickleball are all fun, inexpensive hobbies that can help keep you fit and healthy. Yes, you can spend a lot of money on private Pilates lessons, but you have plenty of other options that are absolutely free. (But if Pilates calls to you, check out free online videos first.)

8. Starting a Podcast

Are you passionate about a topic, whether it’s local politics, fiction, or travel? Start a podcast, and find a community that shares similar interests. This can be a very low-cost project; if you have a computer, you can get started experimenting, and see if you’d like a microphone, editing software, and then a podcast host. Your total investment can come in under $200.

9. Learning Smartphone Photography

Photography was once an expensive hobby, but you can skip all the pricey equipment and learn to get really good at smartphone photography. You may find that local nature centers offer free classes in photographing nature or wildlife. Simply shooting local architecture, bicycle races, and other areas of interest and playing with cropping and filtering can unleash your creativity.

10. Learning an Instrument

Another creative outlet is learning to play a musical instrument. If you have an instrument gathering dust, brush it off. Or check local Facebook groups, Craigslist, and freecycle sites to find one cheap.

11. Volunteering

Giving to the community may not feel like a hobby, but choosing a cause that matters to you — such as volunteering with animals or tutoring school-age kids — can be completely engaging.

12. Visiting a Museum

Become an art connoisseur: Museums change their exhibits all the time. Consider signing up for a membership to get exclusive invites to new exhibits and special events. Or scope out which nights or days offer free admission; many museums offer this kind of perk. Local gallery openings are another option that’s free and fun and can elevate your knowledge of and interest in the arts.

13. Learning to Dance

You know what the song says about “the rhythm’s gonna get you.” Why not indulge or jump-start your love of dance? Whether it’s at home or in a dance club, hit the floor. Or many Y’s and other local centers offer inexpensive classes in ballroom, ballet, tango, and other styles of dance.

14. Fishing

Another peaceful way to connect with nature is to head out to the water and fish. Saving on groceries is a fun bonus of this hobby. Few things can beat a fresh-caught trout dinner.

15. Learning a Language

Get ready for that international vacation you’re saving for by learning a new language. Even if you don’t have a trip planned, building your foreign language skills can help boost your brain power by creating new neural pathways. And there are a host of apps (whether free or for a low fee) that can make this pursuit easy and fun.

16. Learning How to Sew

It takes time to master sewing, but doing so can be an almost meditative practice. Plus there are cool new trends to try, like sashiko, a beautiful form of Japanese mending. What’s more, building your skills with a needle and thread could save you pricey trips to the tailor.

17. Doing Calligraphy

Calligraphy is a pretty and very practical hobby to pursue. Wow your next dinner party guests with handmade name cards. Or offer to do the invitations for your best friend’s engagement party. All you need is pen, ink, and paper.

18. DIY Projects

Save money and upgrade your home at the same time by mastering DIY projects. Books and online tutorials can teach you how to build shelving, retile a backsplash, and more. Also, if you are a homeowner and you have set up money goals to include selling your home at a profit, this can be a terrific path forward.

19. Joining a Club

There’s no shortage of local clubs you can join thanks to online meetup sites. Whether you’re looking for a hiking buddy or a group to practice a language with, you can likely find a group to suit your needs. All kinds of options are available. You might also find a coffee-lovers’ group that gathers on weekends to test-drive new cafes; it could be a fun, frugal way to caffeinate and expand your social circle.

20. Starting a YouTube Channel

If video appeals to you, starting a YouTube channel can also be a great way to make friends and a little extra money online. Whether you want to create videos of your unboxing and reviewing products or sharing your knowledge of pro sports, go for it.

21. Starting a Blog

Or lean into the written word with a blog on any topic that appeals. It’s a great, no- or low-cost creative outlet that can connect you to others with similar interests. You might share poetry you write, chronicle your family history, or share your adventures training your new pup. The choice is yours.

22. Hiking

Need more ideas for things to do for fun with no money? Get some fresh air and exercise while enjoying breathtaking views by exploring different hiking trails. As an added bonus, hiking can also be a free hobby. Bonus: Hanging out in nature (what some call forest bathing) can be a great way to decompress and build mindfulness into your daily life.

23. Golfing

A fun way to stay active and social is to make a plan with friends to hit the golf course. You may worry that this will be a pricey endeavor, but public courses make it more affordable. What’s more, you may be able to use a local resident’s card (the kind you get at your town office or recreation department) to make it even cheaper. Shop garage sales for used clubs, too.

24. Upcycling Your Clothing

Use those newfound sewing skills to upcycle old clothes that need a little love and attention or transform them into something totally new. Upcycling is part of the reuse, recycle, repurpose movement. You might crop a pair of pants into shorts, or turn a dress into a blouse and/or a skirt. Some creative types save favorite worn-out clothes, and then use the fabrics to create a quilt or pillow cover.

25. Playing Board Games

Board games aren’t just for kids anymore — there are tons of unique options for adults, and they offer a great way to entertain yourself as well as guests. You may also find no-cover game nights at your local pub, which can be a fun and inexpensive way to socialize. Who knows? You might be a Trivial Pursuit champion.

26. Running

One of the cheapest hobbies out there is running, especially if you already own a pair of athletic shoes. It can be a great way to spend time outdoors and can help improve your health. There are plenty of digital ways to help tap your motivation, like the popular free “Couch to 5K” program for beginners.

27. Learning Photography

After getting good at smartphone photography, consider taking an online class or local community college class on the art of photography. Bargain-priced cameras can often be found online (check eBay) and at local second-hand shops.

28. Flying a Kite

Parents may be looking for a fun activity for the whole family that doesn’t cost much. Why not master the art of flying a kite? And it’s not just for those with kids. Anyone can have a great afternoon watching a kite take flight and stay aloft in a good breeze.

29. Teaching a Pet Tricks

Pet parents can find ways to be entertained and bond with their critter by teaching it new tricks. Of course, dogs can be trained to do a variety of “shake” and “roll over” maneuvers, but pet birds and other animals can also learn new skills.

30. Geocaching

Geocaching is a fun way to explore the outdoors. It’s a pursuit in which, using an app or GPS, you find hidden “geocaches,” or containers that hold notes and small gifts. These are typically in parks and nature preserves. You can hide your own caches, too. An inexpensive hobby that is akin to a spirited scavenger hunt, geocaching is engrossing for both individuals and families and networks you with a community of fellow adventurers.

The Financial Benefits of a Cheaper Hobby

The financial benefits of having a cheap hobby are two-fold. Not only is having a low-cost hobby an inexpensive way to have fun, but hobbies can keep us busy and distracted which can help us avoid spending temptations.

Recommended: Different Ways to Earn More Interest on Your Money

Managing Finances With SoFi

There are plenty of affordable hobbies, so take your time and try a few to discover which will keep you feeling fulfilled. Want to save up to invest in a pricier hobby? SoFi can help. When you open an online bank account — namely, our Checking and Savings account — with direct deposit, you’ll enjoy all kinds of best-in-class benefits: a competitive APY, automatic savings features, cash back with debit card purchases, and no account fees. All of these can help you grow your money faster.

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

FAQ

What hobby should I pick up?

There’s no right hobby to adopt. Every individual needs to pursue a hobby that excites them. That said, many people enjoy creative endeavors (think photography or painting), athletic pursuits (running, hiking), or pastimes that channel their interests and connect with a larger audience, such as podcasting or blogging.

How can I budget for a hobby?

Budgeting for a hobby can require doing a bit of research first. Only once someone knows what their hobby will cost can they then create a budget for it. When you know the costs, work to keep them as low as possible (say, by buying second-hand equipment, if needed) and then divide the cost by the number of months you are willing to save. Put aside that amount in a high-yield savings account to earn some interest until you have enough saved up.

Can cheap hobbies make me money?

Certain hobbies can make someone money if they turn them into a side hustle. Starting a podcast or YouTube channel, writing, and photography are all great examples of hobbies that can become lucrative.

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Photo credit: iStock/South_agency

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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A deposit account — such as a savings account or interest-bearing checking account — can be an attractive place to park your cash. It’s safe, allows relatively quick access, and even helps you earn a little bit of money, thanks to what’s known as the deposit interest rate.

The deposit interest rate is the amount of interest that a bank or other financial institution will pay you when you make a deposit. (You may also hear it referred to by such terms as simply the interest rate or the APY, for annual percentage yield.) Understanding deposit interest rates can help you choose among banking products and find the one that best suits your needs.

To help you with that knowledge, we’ll dive into the topic here and explore:

•   What is a deposit interest rate in banking?

•   How does a deposit interest rate work, and how is it calculated?

•   What kinds of deposit interest rate accounts are there?

What Is a Deposit Interest Rate?

When you put money into a deposit account, your bank or financial institution will pay you interest. Why? Banks use a portion of the money that’s deposited with them to make loans to other customers, perhaps as a mortgage, business loan, or personal loan.

The bank pays you interest for the privilege of lending out your money. They will then charge a higher interest rate on the loans they make, which is how the bank turns a profit.

Incidentally, just because a bank is loaning out your money doesn’t mean your cash won’t be there when you need it. Banks typically carry a cash reserve to cover withdrawals their customers need to make.

How Does a Deposit Interest Rate Work?

Deposit interest rates in banking are expressed as percentages. The amount of interest you earn will be based on how much cash you’ve deposited in your account, also known as your principal.

The interest rate you’re offered will vary by account. For example, a simple savings account may offer a relatively low interest rate, while a high-yield savings account or a money market account may offer a higher rate.

Your interest rate will also be determined in part by the federal funds rate. That rate is the amount the Federal Reserve suggests banks charge to lend each other money overnight.

Recommended: How Does a High Yield Savings Account Work?

How Is Deposit Interest Rate Calculated?

Wondering how interest rates are calculated? It usually is done in one of two ways: as simple interest or compounding interest.

Simple interest is a matter of multiplying the principal by the interest rate. As the name suggests, it is easier to calculate. However, most banks will use compounding to calculate interest rates. Compounding interest essentially allows you to earn a return on your returns, which can help your money grow exponentially. So your principal earns interest, and that amount of interest is added to the principal. Then the interest rate gets calculated again at a certain interval based on that pumped-up principal. This keeps happening, helping your savings grow. Interest can compound at various rates, such as continuously, monthly, or annually, depending on the product and financial institution.

Ways Deposit Interest Rates Are Applied by Institutions

Financial institutions can apply interest rates in a variety of ways. First, they can be fixed or variable. A fixed interest rate guarantees that you will receive an interest payment equal to a certain percentage of your principal. This percentage won’t change over the life of the account. So if your interest rate on your money is set at, say, 2%, that is what you will get, period.

A variable interest rate, on the other hand, may change according to shifts in a benchmark interest rate, such as the federal funds rate. As the benchmark rises, so too will the interest rate. What if the benchmark drops? That means you’re paid less interest.

Additionally, some deposit accounts will offer higher interest rates for larger balances. A certificate of deposit, or CD, may offer you better interest rates if you agree to park your cash in the account for a longer term.

Real-Life Example of Deposit Interest Rate

Let’s take a look at how to do the math on a couple of examples of deposit interest rates. If you’re a bank customer with $10,000 to deposit, here are two scenarios:

•   Bank 1 is a bricks-and-mortar bank offering 0.01% interest. (Remember, one percentage point is one-hundredth of a whole.) If you deposit your $10,000 for one year, you’ll earn: 10,000 x 0.0001 = 1. At the end of 365 days, you will have the principal plus the interest, or $10,001.

•   Bank 2 is an online bank offering 1.0% interest. If you deposit the same $10,000 for a year, you’ll earn: 10,000 x 0.01 = 100. You’ll have $10,100 at year’s end.

Types of Deposit Interest Rate Accounts

There are a variety of different deposit account types that you might encounter. Here are four of which you should be aware. We’ll explain how each one works.

1. Savings Accounts

Savings accounts are designed specifically as a place for you to put cash you might need in the short-term. For example, you might keep your emergency fund in a savings account, since you’d need quick access to cash if your car’s transmission failed or you had to cover an unexpected medical bill.

Not only does your savings account allow you to earn interest, it is also one of the safest places you can put your money. That’s because the Federal Deposit Insurance Corporation (FDIC) guarantees your money, up to $250,000, as it does with the deposit accounts below. That means in the rare case that your bank fails, you will still have access to your money.

You can deposit cash at an ATM, in person, or through mobile deposits. You can deposit checks or cash into the account, too. When you make a deposit, your funds may not be immediately available for use. Check with your bank to understand their rules around fund availability.

2. Interest-Bearing Checking Accounts

Many checking accounts have very low fees and don’t pay interest. As a result, it doesn’t make sense to keep a lot of money in this type of account. In fact, you may want to keep just enough to pay your bills.

Interest-bearing checking accounts are an exception. They allow you to collect interest on your account, which could be a nice perk. After all, you may well have your paycheck deposited there by setting up direct deposit, which can make your funds available quickly. Whatever remains in your account after paying your bills could be earning you some interest.

However, these accounts may be more complicated and expensive, with higher fees and minimum balance requirements. It’s important to make sure that the expense of holding the account doesn’t outweigh the interest paid.

3. Certificates of Deposit

A certificate of deposit, or CD, is a product offered by financial institutions that offers a higher interest rate if you agree to keep your funds in place for a period of time. Typically, the length of time is from six months to a few years, but it could be anywhere from one month to 20 years. The longer the period, the higher the interest rate you will probably be offered.

Here’s the rub: If you find that you need the money in the CD before the account matures (meaning the agreed-to time period passes), you’ll likely have to pay early withdrawal penalties. That said, it is possible to get CD’s with no-penalties, but you may have to compromise, such as by accepting lower interest rates.

4. Money Market Accounts

Money market accounts, on the other hand, pay interest and allow for withdrawals. They often pay higher interest rates than traditional savings accounts. However, in return, these accounts may require you to make higher initial deposits and they may have minimum balances, which could be $10,000 or more.

Like checking accounts, money market accounts can offer checks and debit cards, though they may limit the number of transactions you may make per month.

The Takeaway

There are a number of different deposit accounts that offer a deposit interest rate, ranging from checking and savings accounts to CDs and money market accounts. The interest rates will likely vary. For example, with CDs, the rates may depend on factors such as account minimums or term of deposit. Understanding these kinds of “fine print” differences will help you find the right match for your needs, whether your goal is the highest possible interest or having enhanced access to your funds.

If you’re in the market for accounts with a super-competitive interest rate, come check out what SoFi offers. Our online bank accounts, when opened with direct deposit, offer a competitive APY, no-fees, automated savings, and more great perks.

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

FAQ

Do you get interest when you deposit money?

When you deposit money in an interest-bearing deposit account, you will start to earn interest. In other words, your money makes money.

Which deposits pay more interest?

The amount of interest you earn will depend on your interest rate and the amount of money in the account. The more money you deposit and the higher the interest rate, the more interest you will earn. Also, online banks typically pay interest rates than bricks-and-mortar banks.

Do all banks have deposit interest rates?

Banks that offer interest-bearing deposit accounts will always offer a deposit interest rate.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

Photo credit: iStock/AsiaVision
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Online savings accounts function similarly to traditional savings accounts, except you will manage your account entirely online. If you like keeping things digital, you’ll probably appreciate how convenient these savings accounts are. Plus, they may offer you a healthier interest rate than accounts held with a bricks-and-mortar bank.

So, what is an online savings account, and could one be right for you? Keep reading for more insight into how online savings accounts work and their advantages and disadvantages. We’ll answer:

•   What is an online savings account?

•   How does an online savings account work?

•   How can you deposit money into and withdraw from an online savings account?

•   What are the pros and cons of an online savings account?

•   How do online savings accounts and traditional savings accounts compare?

What Is an Online Savings Account?

Here’s one definition of an online savings account: It’s a savings account that functions similarly to one offered by a bricks-and-mortar bank, except you manage your banking needs online. With an online savings account, you won’t have the option of walking into a bank when you need support, but you will be able to quickly click your way ahead and complete most transactions.

As a refresher course, savings accounts are a type of bank account designed to help you save. They keep your savings separate from the money you spend on essentials like rent and groceries, which is usually held in a checking vs. savings account.

Since the principle is that your money will sit and grow in these accounts, rather than flow in and out constantly, banks pay you interest on these funds. They get to use your money, and they give you interest in return for that privilege. As your cash grows in the account, you can achieve different goals, such as building up an emergency fund, saving for a vacation, or getting a down payment together for a house. It’s your choice!

How Does an Online Savings Account Work?

You start an online savings account with an opening deposit, and then you’re ready to start saving. With an online savings account, you can manage your savings from anywhere in the world at any time of day. While there are plenty of banks and credit unions that have online account management services, purely online savings accounts often come with unique perks. For example, online banks usually don’t have a minimum balance requirement like traditional banks do. They often pay a higher interest rate, too.

You can transfer funds in and out as needed, as with any savings account. Typically, savings accounts allow six or fewer transfers per month. Initiate more than that, and you might have to pay a fee. However, many banks have stopped following this guideline in recent years. Check with your bank to know the details.

It’s also worth mentioning that with an online account, you won’t be able to deposit or withdraw cash into your account by strolling into a branch. There aren’t physical banking locations to visit. You’ll need to transfer funds in and out electronically, or you may be able to use ATMs. There’s a silver lining, though. In exchange for not having to pay for the overhead that comes with running an in-person bank, online banks often offer lower fees and higher interest rates.

Depositing Funds Into an Online Savings Account

As mentioned above, it’s not possible to deposit cash into an online savings account by visiting a branch. Instead, you can deposit money in the following ways:

•   Transfer money from a linked account into your online savings account. (If you’re really committed to saving, you may want to automate recurring transfers).

•   Use a check; this deposit can be done by mobile deposit or by mail.

•   Complete a wire transfer into your online savings account.

•   Set up direct deposit of funds (say, your paycheck or other benefits) to go into the account.

Withdrawing Money From an Online Savings Account

Now, let’s look at the other side of your financial life: withdrawing and spending money from a savings account. When you have an online savings account, here are your options:

•   Transfer funds into another account (say, one held at a traditional bank), and then take out cash in person.

•   Use an ATM. Some online banks allow you to link your savings to a debit card, which makes this possible.

•   Initiate a wire transfer.

•   Put in a check request.

•   Digitally send money to other people (say, by a P2P transfer) so you don’t need to take out cash.

Cash Deposits

Unfortunately, online don’t banks normally enable you to deposit cash, as there is no physical banking location available. See above for some of the other ways you can move your funds around so your cash gets where you want it to go.

Benefits of Using an Online Savings Account

Now, let’s look at some of the key benefits you may enjoy with an online savings account. These are among the reasons why you may opt for and enjoy this way of stashing your cash.

•   Higher interest rates and lower fees. Online savings accounts often have lower fees and higher interest rates, which means you’ll earn more on your savings. These higher interest rates are possible because the financial institution doesn’t have to pay for expensive bricks-and-mortar banking locations.

•   Manage accounts anywhere, anytime. It’s possible to do all of your basic savings account management whenever and wherever you like. The only requirement: a good, secure wifi connection.

•   Helpful mobile banking apps. Plenty of traditional banks have mobile apps, but online banks tend to have high-tech apps with better features.

•   More accessible customer service. You are likely to be able to get all of the banking support you need from the comfort of your own home. Online banks were built to be responsive in this way.

Disadvantages of Using an Online Savings Account

On the flip side, there are some disadvantages when you bank online. Here are some of the cons of using an online savings account.

•   No face-to-face interaction. With online savings accounts, you can’t go into a physical banking location, ask questions, or sit down with a bank representative. For those who like face-to-face interaction, this can be a disadvantage.

•   Can lose account access. When a savings account is entirely online, you may lose account access if the bank’s system goes down.

•   ATM access is constricted. Some online banks don’t have their own ATMs. They may try to provide greater access with some independent ATM networks or by reimbursing customers for ATM fees incurred when using out-of-network ATMs.

•   Limited services. Online banks tend to offer more limited product selections than larger traditional banks. If you’re looking to manage your savings account, loans, and other financial products in one place, you may find that an online savings account doesn’t meet your needs.

Pros of Online Savings Accounts	Cons of Online Savings Accounts
•   Higher interest rates and lower fees •   Ability to manage accounts anywhere, anytime •   Helpful mobile banking apps •   More accessible customer service	•   No face-to-face interaction •   Can lose account access •   ATM access is constricted •   More limited services

Opening an Online Savings Account

If you decide you want to open an online savings account, here are the steps you will likely take.

1.    Fill out the application. This process will happen entirely online. Generally, you will be expected to provide such information as your name, proof of address, Social Security number, and government-issued photo ID (say, a driver’s license or a passport).

2.    Choose account type. There may be an option to choose between different savings account types, such as an individual account or a joint account that you can share with a family member.

3.    Designate beneficiaries. Next, you will need to choose a beneficiary to whom the savings account would go if you were to pass away.

4.    Deposit funds. Some online banks won’t require a minimum initial deposit or will only request $1. Whatever the amount may be, you will need to make that minimum deposit. (There’s no typical online savings account minimum balance to maintain, by the way. Check with banks to understand their particular guidelines.)

5.    Create login information. All online savings accounts will need a username and password. It’s important to make the password a secure one that includes one or more capital letters, numerals, and symbols. Also, it bears repeating: Don’t reuse passwords. Unique passwords will help keep you secure from hackers. This is a big issue if you are wondering whether or not online savings accounts are safe.

Online Savings vs Traditional Savings: Which Is Best for You?

There are both advantages and disadvantages to consider when choosing between an online savings account and a traditional savings account. Being aware of the unique advantages and disadvantages of each can make it easier to find the right fit.

Online Savings	Traditional Savings
•   Better rates and fees •   Stronger digital tools and features •   Limited product offerings •   Minimal ATM access •   Hard to withdraw cash •   No face-to-face customer support	•   In-person banking locations •   More ATM access •   Broader range of products •   Fewer online resources •   Lower interest rates and higher fees

The Takeaway

If you’re considering an online savings account vs. a traditional one, it’s wise to carefully consider the pros and cons of each. Online savings accounts can be more convenient, have more digital features, and offer lower fees and better interest rates. Traditional banks, however, can make it easier to withdraw and deposit funds, and they can be the right choice for people who like face-to-face interaction when it comes to their finances. Figuring out the right fit depends on your money style and goals; consider which factors matter the most, and you’ll be ready to make your choice.

If online savings is right for you, check out what SoFi has to offer. We help you bank better when you sign up for our mobile banking app with direct deposit. You won’t pay any of the usual account fees, you’ll earn an impressive APY, and you’ll have access to a network of 55,000+ fee-free ATMs.

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

FAQ

How do I use an online savings account?

Exactly how does an online savings account work? With access to a computer or a smartphone, consumers can access their online savings accounts from anywhere at any time by simply logging in.

What is the typical minimum balance for an online savings account?

That depends. Some online savings accounts have minimum balance requirements while others don’t. Check at the banks you are considering.

Is my money insured in an online savings account?

Your money should be safe in an online savings account, as long as the online savings account is insured by the FDIC. If so, your account is automatically insured for up to $250,000.

What is the typical interest rate for an online savings account?

Interest rates vary over time and from bank to bank. Generally, online savings accounts have higher interest rates than traditional savings accounts, such as a rate of up to 1.25% APY at press time.

How can online banks offer such good interest rates?

Because online banks don’t have the expensive overhead that comes with managing in-person banking locations, they can afford to pass their savings to their customers in the form of higher interest rates.

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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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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The Federal Reserve is frequently featured in headlines. You may have read about the bank’s chairman announcing that it would be adjusting interest rates up (and up again) recently. Or perhaps you’ve seen stories about how the bank tries to stimulate the economy and how well it maintains its independence.

But how much do you really know about the Federal Reserve system? Who owns the Federal Reserve bank, and how do central banks create money? These questions might seem abstract, but understanding how the system functions is key to getting a clear picture of how the U.S. economy works.

In short, the Federal Reserve — known as “the Fed” — is the country’s central bank. Its goals are much loftier than that of traditional banks: to make sure the U.S. economy works smoothly and serves the public interest.

Specifically, the bank tries to keep the financial system and individual institutions stable, protect consumers, and make sure the transactions system is secure and efficient.

Perhaps most importantly, the bank also manages short-term interest rates, which in turn affects the availability of credit and eventually things like consumer spending, investment, employment, and inflation.

The bank’s goals with these actions is to promote maximum employment, keep prices stable (traditionally, the bank aims for an inflation rate of 2%), and keep long-term interest rates moderate.

Here’s a closer look at the Fed, including:

•   Who owns the Federal Reserve Bank?

•   How do Federal Reserve banks get their money?

•   How is the Federal Reserve funded?

•   How does the Federal Reserve influence interest rates?

Who Owns the Federal Reserve Bank?

Even though parts of the Federal Reserve are structured like a private bank, the Fed is not owned by anyone. Congress created the Federal Reserve in 1913, and it remains an independent government agency. However, the board that oversees it — which is appointed by the president and confirmed by the Senate — still reports to Congress today.

Its leaders are required to testify in Congress and submit a lengthy report on its plans twice a year. The Federal Reserve actually consists of 12 Reserve Banks spread across different regions of the U.S. Although each one has a board of directors and is incorporated, it’s not actually a private entity and the banks aren’t in business to make a profit.

Recommended: Checking vs Savings Accounts: All About the Differences

How Does the Federal Reserve Make Money?

The Federal Reserve does not “make” money exactly, in that it doesn’t print money — that’s the Treasury Department’s job. But it does serve as a bank for other banks and government agencies, allowing them to open accounts to hold their reserves, take out loans, issue government securities, and take other actions.

When it comes to other banks, the Fed is there to lend to them in case they have problems getting funding, either because of unexpected fluctuations in their loans and deposits or due to extreme events, such as the 9/11 terrorist attacks, the 2008 financial crisis, or the COVID-19 crisis.

The Fed lends at a higher rate than the market in order to ensure that it’s used as a last resort. The Federal Reserve does not lend money or provide bank accounts for individuals, as retail banks do. (Beware of scams that claim you can open an account with the Federal Reserve using your Social Security number.)

While the Federal Reserve does not actually print money, it does put in orders with the U.S. Treasury for “Federal Reserve notes” based on the demand it expects both domestically and internationally.

Federal Reserve notes are actually just another name for U.S. paper currency and no different from the dollars in normal circulation. For fiscal year 2022, the Federal Reserve’s board will be ordering between 6.9 billion and 9.7 billion notes, which will be valued at $310 billion and $356 billion. Most of these notes go to replacing bills that are no longer in usable condition.

Here’s more detail on how the Fed works and keeps our economy humming along.

Fractional Reserve Banking and the Money Multiplier

Fractional reserve banking describes the system in which only a fraction of the money on deposit is actually held as cash and available for withdrawals by customers. Here are a few aspects of this system to note:

•   The Federal Reserve wants to ensure that banks keep enough money on hand so that when customers come in seeking cash, they aren’t turned away. To accomplish this, the Fed sets a reserve requirement (often 10% of all deposits) that banks must keep available. In response to the COVID-19 pandemic and the shockwaves it sent through the economy, this was lowered to 0% in an effort to stimulate the economy.

•   The Fed buys treasuries to help create monetary reserves. It sends the funds to banks so they can make loans with it, up to that reserve requirement limit mentioned above.

•   Another aspect of fractional reserve banking is what is known as the money multiplier. Financial analysts use a money multiplier equation to calculate the impact of the funds kept on reserve on the economy in general. It estimates how much money is created in the economy by the reserve system.

   Here’s how the calculation looks: The amount on deposit is multiplied by one divided by the reserve requirement. So if a bank had $100 million on deposit, you would multiply that by one divided by 10% to get $1 billion. That $1 billion represents money potentially created by lending out the 90% not kept on reserve at the bank.

Recommended: What is Fractional Reserve Banking and How Does it Work?

The Credit Market Funnel

Another way of looking at the Federal Reserve’s role in our nation’s economy is the credit market funnel, meaning that the Fed funnels funds to businesses to grow the economy. Say the U.S. Treasury printed $20 billion in new bills, and the Fed credited $80 billion in liquid accounts. You might think the American economy got an infusion of $100 billion. But it’s actually much more than that. Credit markets act as a funnel in terms of distributing funds. As new loans are issued, more money is created. That $100 billion could trigger a tenfold monetary increase to $1 trillion.

Determining the Money Supply

Here’s another facet of what the Federal Reserve does: It considers whether our country’s money supply should be boosted. This can impact the state of the American economy. A larger money supply can lower interest rates and get more cash to consumers, which typically stimulates spending. If the Fed does feel that the money supply needs to be increased, it will typically augment bank reserves. It might purchase Treasury bonds and distribute those to banks’ reserve funds. The banks can then use some of those funds for loans and other activities.

Money Creation Mechanism

As you’ve learned, the Federal Reserve plays a vital role in determining how and when to influence the money supply in the U.S. economy. It often boils down to the Fed buying securities and putting them in the reserves of commercial banks. Those banks can then augment the amount of money in circulation by lending funds to both businesses and consumers.

Recommended: Money Management and Setting Your Financial Goals

How Is the Federal Reserve Funded?

So where does the Fed get its money? Unlike other government agencies, the Federal Reserve doesn’t get its money from Congress as part of the usual budget process.

Instead, Federal Reserve funding comes mainly through interest on government securities that it bought on the open market.

These primarily include U.S. Treasury securities, mortgage-backed securities, and government-sponsored enterprise (GSE) securities.

How much money does the federal reserve have? As of mid-August 2022, the Fed had nearly $8.9 trillion in assets on its balance sheet. Those have grown significantly compared to 15 years ago, when the Fed had just around $870 billion in assets.

The reason for this has to do with the Fed’s response to the Great Recession and the COVID-19 crisis, among other factors. But remember how the Federal Reserve isn’t in it for the profit?

Once it pays its own overhead, the rest of its earnings go right into the country’s coffers in the U.S. Treasury. In 2021, the Fed transferred $109 billion to the Treasury, up from $87 billion in 2020 and $55 billion in 2019.

How the Fed Affects Interest Rates

In its attempts to steer the ship of the U.S. economy on a solid course, one of the main things the Fed does is influence interest rates. The Fed can either raise or lower the federal funds rate , which is the rate at which financial institutions that hold deposits can borrow and lend funds they keep at Federal Reserve banks from each other.

The Federal Open Market Committee, which is made up of some members of the Fed’s Board of Governors and others, meets multiple times a year to determine what they want the federal fund rates to be.

These decisions then influence other longer-term interest rates, such as those on savings accounts, mortgages, and loans.

The Fed often cuts interest rates to energize the economy by making it less expensive for businesses and consumers to borrow money. It raises rates when inflation seems too high, as has been the case recently.

The rate had been cut to the 0-0.25% rate in March of 2020 due to the emergence of the COVID-19 pandemic and its expected economic impacts. However, by July of 2022, with inflation surging to 40-year highs, the rate was raised to the 2.25% to 2.50% range. While this may sound high to those who focus on the previous historic lows, it’s worthwhile to consider a bit of context. A 2.5% rate is far below 5.25%, where it was in June 2006, and way lower than its peak of 20% in 1978 and 1980, when the Fed was reacting to runaway inflation.

The Takeaway

Understanding the role of the Federal Reserve in our economy and how it is funded is an important bit of learning. It explains how the Fed balances our money reserves, controls inflation, and stimulates the economy’s growth. Especially in the current economic climate in which inflation has been high and the effects of the global pandemic are still being felt, knowing how the Federal Reserve works can enhance your financial literacy. This in turn can help you better manage your own money.

Another way to boost your money management can be to bank smarter with SoFi. When you open an online bank account with SoFi, you’ll enjoy perks that can help your money grow faster and streamline your life. For instance, your Checking and Savings account will let you spend and save, all from one convenient place. And when you open an account with direct deposit, you’ll earn a competitive APY and pay zero fees. What’s more, eligible accounts can access their paycheck up to two days early.

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

FAQ

How does the Federal Reserve obtain money?

If you’re wondering where does the Federal Reserve’s money come from, the answer isn’t from Congress, as many people might expect. Rather, the Fed makes money mainly through interest on government securities — such as U.S. Treasury securities, mortgage-backed securities, and government-sponsored enterprise (GSE) securities — that it bought on the open market.

Who gives money to the Federal Reserve?

The Federal Reserve isn’t given money; it finances its operations via the interest made on the securities it owns.

Is the Federal Reserve self-funded?

Yes, the Federal Reserve is self-funded. It doesn’t get money via Congress but through the interest earned on the government securities that it buys.

Does the Federal Reserve print money out of thin air?

While the Federal Reserve has the power to print money, there’s a delicate balance at work. If the Fed just ordered the Treasury Department’s Bureau of Engraving and Printing to print more money without a commensurate increase in economic activity, it could trigger inflationary growth, which isn’t desirable.

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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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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