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3 Ways to Use Your Stimulus Check

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Since the onset of the COVID-19 pandemic, millions of Americans received stimulus checks from the federal government. As of March 2021, a year into the pandemic, the third round of stimulus checks have been approved with the American Rescue Plan Act.

This package includes one time payments of $1,400 for individuals making $75,000 or less and per person for couples earning $150,000 or less. Additionally, those with dependents would qualify for another $1,400 per child. The IRS sent out “Economic Impact Payments” as checks in the mail or electronically via direct deposit.

The stimulus checks are a measure to provide financial relief to millions of Americans. Many people used the proceeds of the checks to pay for food, utilities, credit card bills and other expenses while others saved the money for future emergencies.

The federal government also provided stimulus checks in 2008. The amount was much lower—individuals received $600 and couples filing jointly received up to $1,200.

These economic impact payments could be used by consumers in several ways, including paying off debt such as credit cards or private student loans, starting an emergency fund, or by investing the money for retirement.

Paying Off Debt

The additional $1,400 can come in handy for people who want to pay off their debt, especially higher interest debt such as credit cards. Consumers could use all or a portion of the stimulus payment to make extra payments on a credit card, loan, or other debt. Additional payments could go towards the principal portion of what is owed, or what the consumer originally borrowed, helping pay down the interest faster; if you want to do this, it’s smart to contact the lender to let them know and ensure those extra payments are applied to the principal balance.

People who still have other credit card debt could look into obtaining a personal loan. Generally, personal loans have lower interest rates than credit card debts. Securing a lower interest rate could potentially help expedite debt repayment, so long as the repayment term is not extended.

For some, student loan debt may be a focus. In March 2020, the CARES Act temporarily paused federal student loan payments, reduced interest rates to 0% on all federal student loans, and temporarily halted collections on federal student loans in default. These protections have now been extended through Aug. 31, 2022. This does not apply to private student loans. The stimulus payment could help a borrower pay down their federal student loans or make extra payments.

Some may consider refinancing their student loans, should they be able to qualify for a lower fixed or variable interest rate, or preferable lending terms. This can make sense for some borrowers, especially those who already hold private student loans, but won’t be right for everyone. Federal loans offer borrower protections that private loans do not, so borrowers with federal student loans may want to consider all of their options carefully. Refinancing federal student loans eliminates them from all federal benefits, including the temporary relief offered by the CARES Act.

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Starting an Emergency Fund

An emergency fund comes in handy to pay rent or a mortgage, auto loan, student loans, or credit cards if you lose your job or your hours are slashed. Finding another full-time or part-time job could take several weeks or months and the additional money could be useful.

Saving for an emergency fund can be difficult after paying your bills each month. The money from the stimulus check could provide a boost to help start a rainy day fund. Having the extra savings can help prevent someone from having to rely on their credit cards and rack up more debt in case there is an emergency, say something like a last minute car repair or a sudden illness.

Having the extra money can also be a relief in the event of a job-loss since it can take several weeks for unemployment funds to arrive.

General recommendations suggest that people save three to six months of expenses in their emergency fund. In some situations, it may make sense to save more than three to six months worth of expenses. For example, freelancers with a fluctuating income may want to have more saved up. If you are not sure how much money you need, look at your monthly bills and determine which ones you can’t ignore if you lost your job for an extended period.

Another way to gauge how much to save in an emergency fund is to factor in things like the deductibles for your car and health insurance in case there is an accident and you need to make repairs to the auto or you get injured.

Starting an emergency fund with the money from your stimulus check is one way to get started. From there, more money can be added to your savings account whenever you get the opportunity. There are many ways to stash more money into your rainy day fund. Clean out your closet and see if there are any items you can sell online such as electronics, clothing, a bike, or musical instrument.

Save the money earned from a part-time job, freelance work, or your annual tax refund. Or review your budget and see if there is anything you can cut such as a streaming service you rarely use.

Those in a comfortable financial position, could transfer some money automatically from your weekly or bi-weekly paycheck into a new savings account. The amount could be small, but even $25 a week adds up over a year.

Investing the Stimulus Check

The extra money from the stimulus check could also be an investment. Depending on individual financial circumstances, the stimulus check could be used to make a contribution to a retirement account like an IRA. Others may be focusing on other goals like a downpayment for a house, a vacation, a wedding, or a home remodel.

Once you open an account and start putting money towards it weekly or even monthly, you may see the balance grow, especially as the investments appreciate in value and interest compounds

The Takeaway

The stimulus checks are intended to provide temporary relief to those struggling due to the unprecedented challenges caused by the coronavirus pandemic. How you use the money will depend on your individual circumstances. Some options include paying down debt, establishing an emergency fund, or investing.

A SoFi checking and savings account could be one place to stash your stimulus check. Getting started is as easy as depositing the stimulus check. From there, SoFi Checking and Savings makes it easy to earn interest and receive cash back on purchases. A SoFi Checking and Savings account allows you to spend, save, and earn money from one place. There are no account fees and your cash balance earns interest. The interest rate and fee structure is subject to change at any time, but SoFi aims to offer competitive interest rates and not charge any account fees.

With SoFi, account holders can create financial vaults within a SoFi Checking and Savings account for different reasons such as an emergency fund or investing account.

Building an emergency fund is a huge accomplishment. Get started with SoFi Checking and Savings.



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.

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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If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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8 Steps to Build Credit Fast

Your credit score can affect many areas of your life.

A poor credit score can make it harder to buy a car, get a job, purchase a home, rent an apartment, have the utilities turned on, and even get a cell phone.

It can also cost you money, since credit card companies and lenders typically consider your credit score when determining your interest rate.

Fortunately, if your credit is less-than stellar–or you haven’t yet had a chance to establish much, or any, credit history–there are some simple steps you can take to build or boost your score quickly.

While you can’t typically establish exceptional credit overnight, you may be able to improve your credit score in a matter of months by putting a few good credit habits into practice, building a positive payment history, and avoiding credit-damaging mistakes.

Simple Steps to Build Your Credit Faster

Here are some strategies that can help you establish or improve your credit profile ASAP.

1. Understanding What Goes Into Your Score

One of the most commonly used credit scoring models is the FICO® Score .

FICO has five factors it considers when calculating its credit scores.

•  Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•  Credit utilization: 30% of this score is based on how much of your available credit you are currently using.
•  Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•  New credit: 10% of this credit score has to do with opening new credit. (However, opening several new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble).
•  Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

2. Checking Your Credit Report and Disputing any Errors

Credit scores are calculated on the information in your credit reports.

That’s why it’s a good idea to get copies of your credit reports from the three major credit bureaus–Equifax , TransUnion and Experian –and to make sure all the information is accurate.

According to the Consumer Financial Protection Bureau (CFPB), one in five people have an error on at least one of their credit reports.

Everyone is entitled to see their credit reports for free once a year at the government-mandated AnnualCreditReport.com site.

When you get your reports, it’s a good idea to comb through them carefully and to look for any inaccuracies, such as payments marked late when you paid on time, wrong account numbers, incorrect loan balances, or accounts that aren’t yours.

If you find an error in one or all your credit reports, you can reach out to the credit bureaus directly to dispute the information.

If you see accounts in your name that you never opened, and believe you may be a victim of identity theft, you can report it to the Federal Trade Commission at IdentityTheft.gov or 877-438-4338.

A mistake on one of your credit reports could be pulling down your score. Fixing it can help you quickly repair your credit.

3. Paying Bills on Time Every Time

Payment history is the single most important factor that affects your credit scores.

Not only that, a past due payment can stay on your report for seven years.

Setting up autopay, either through each provider or company, or through your financial institution, can be a great way to ensure you never miss a bill.

If you do miss a payment by a few days, all is not necessarily lost, however.

There is generally a small window of time to make up a missed credit card payment before any damage to your credit happens.

That’s because late payments are typically not reported to credit bureaus until the payment is at least 30 days late.

The key is to get it in as soon as you can.

4. Becoming an Authorized User on a Credit Card

If you have no credit or a low credit score, you may be able to build it up by becoming an authorized user of a credit card that the cardholder uses responsibly.

An authorized user has permission to use an account, but does not have any liability for debts.

If a friend or family member adds you as an authorized user to their account, the card issuer will then typically report you as an authorized user to the credit reporting companies.

In this way, you gain a credit history from the credit usage of your friend or family member.

5. Opening a Secured Credit Card

Some credit card companies offer “secured” credit cards, which allow you to build credit history with little risk to the credit card company.

Here’s how it works: You pay a cash deposit up front that is equal to the limit of the card. For example, if you put down a $500 deposit, you would have a $500 limit on the card.

You can then use it like a regular credit card.

Using the secured card responsibly–being mindful of the amount you’ve charged in relation to the card’s limit–and paying your bills in full and on time will all be reported to the credit bureaus.

6. Using your credit card regularly

One way to build credit is to display a history of responsible borrowing.

For that reason, you may want to place monthly bills and other expenses on your credit card–being sure to pay the bill in full each month by the due date.

7. Keeping Credit Card Balances Low

This can help move the needle on credit utilization, or the amount of debt you have compared to the total amount of credit that is available to you, and is expressed as a percentage.

After payment history, this is typically the second most important factor that influences your score.

The rule of thumb is to use no more than 30% of your total credit at any time. This includes access to all credit lines, as well as the percentage on individual cards.

One way to do this is make multiple payments on your credit card throughout the month.

If you’re able to keep your utilization low, instead of letting it build toward a payment due date, it could quickly benefit your score.

8. Keeping Credit Cards Open

It might seem to make good financial sense to close credit cards you never or seldom use.

But from a credit score perspective, it may not be a wise move.

That’s because closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lower your credit score.

A better bet might be to keep the card open and to use it occasionally so the issuer won’t close it.

The Takeaway

A credit score in the good to excellent range could provide you access to the most competitive interest rates for loans and credit cards, and also make it easier to rent an apartment, get a cell phone, and land a new job.

Some ways to improve your score quickly include having active open accounts that you are consistently paying on time, keeping your loan balances low, and disputing any errors on your credit reports.

Building good credit is also a matter of establishing good financial habits, such as tracking your spending (so you don’t come up short at the end of the month), and make sure all of your bills are posted by their due dates.

One move that can help you stay on top of your finances is signing up for SoFi Checking and Savings®.

SoFi Checking and Savings is a checking and savings account that allows you to earn competitive interest, spend, and save–all in one account. And you’ll pay zero account fees to do it.

SoFi Checking and Savings also allows you to track your weekly spending right from the dashboard in the SoFi Checking and Savings app.

You can also use the app to set up all of your bill payments to help ensure that payments are never missed or late.

Check out everything a SoFi Checking and Savings checking and savings account has to offer today!



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.

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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Pros and Cons of Homeschooling

Homeschooling has long been an option for parents looking to educate their children outside the traditional bounds of public and private schools. The movement gained momentum in the 1970s, when educational theorist John Holt argued that formal schools placed too much emphasis on rote learning.

Since then the number of homeschooled children has grown to 2.5 million, about 3% to 4% of the population of school-aged children. And it looks as if those numbers will continue to grow by an estimated 2% to 8% each year.

COVID-19 has turned traditional schooling on its head and increased interest in homeschooling. Many formal institutions have decided to switch to online learning to avoid the risk of spreading the virus through in-person instruction. As a result, more parents are wondering whether homeschooling is a good option for them.

While homeschooling methods can offer benefits, there are some downsides to consider as well. Here’s a look at the pros and cons of homeschooling that might help parents decide whether it’s the right path for them.

The Pros of Homeschooling

Creating a Unique Curriculum

Parents who wish to homeschool their kids have a lot of flexibility when it comes to the direction of their child’s learning. Depending on their child’s needs and interests, parents might choose to spend more time teaching their kids musical instruments, developing foreign language skills, or going on educational field trips.

Homeschooling can be a personalized curriculum that works best for a particular child, rather than trying to make that child fit into the confines of a pre-existing curriculum.

That said, rules for what a homeschool curriculum must cover vary by state, and states may require annual assessments to make sure children are on track.

Tailoring the Child’s Education to Their Needs

The traditional school day and curriculum functions on a relatively strict schedule. Each subject tends to be given the same amount of time. And teachers must move at a certain pace in order to make sure they cover everything the curriculum requires.

This one-size-fits-all approach doesn’t necessarily work for all learners. For example, while a child may be a whiz at math, they may need extra time learning to read.

Parents of homeschoolers can adjust schedules to make sure that kids are spending enough time on the subjects in which they need the most help, while avoiding lingering too long on subjects that come easily.

Some kids may have challenges learning in a traditional classroom setting with 20 other kids and multiple distractions. Maybe a child works best with long blocks of uninterrupted study, or maybe they work best in shorter blocks of time with short bursts of physical activity outside in between tasks.

Parents may learn that some subjects are best taught at certain times of day. For instance, maybe a child is most focused in the morning, making it a good time to cover more challenging subjects, saving easier tasks for the afternoon.

Cost Saving

Homeschooling may be a good option for parents who are dissatisfied with their local public schools but don’t want to pay for private school. On a moderate budget, homeschooling could cost $300 to $500 per child each year. That figure assumes that parents are taking some money saving measures, such as saving money on school supplies, buying used textbooks, renting or borrowing curricula, and leaning on the public library as a resource. But it also assumes they’ll be spending on a few extras like tutors as needed and extracurriculars like art classes.

On the other hand, the average private school tuition is more than $11,000 per year. Parents who can devote their time to teaching their kids at home have the opportunity to save a lot of money, especially if they are teaching multiple children at the same time.

The Cons of Homeschooling

Increased Workload

While there are plenty of benefits, it’s also important to weigh some factors that could be considered disadvantages of homeschooling. Chief among these is the sheer amount of time and effort it takes to homeschool a child.

In many ways, homeschooling is a full-time job, requiring careful planning each day to make sure kids are covering the necessary ground.

Depending on where parents live, adding the extracurriculars that can make sure a child has a well-rounded education can be difficult. Living in a rural area may make it difficult to find extracurricular classes outside the home or make frequent visits to a museum or experience other cultural activities in person.

Social Constraints

Traditional schools have a built-in social structure. Kids are gathered into one class and learn to interact with each other and work together. Some parents may fear their children won’t learn proper socialization if they are homeschooled.

While homeschoolers don’t necessarily have the same opportunities to socialize, there are still plenty of ways for parents to make sure their children are making friends and interacting with peers.

For example, parents may consider homeschooling co-ops, groups of families of homeschoolers that come together to go on field trips, work on life skills or do extracurriculars that traditional schools might offer, and homeschoolers might otherwise miss.

Opportunity Costs

Not only will parents be paying out-of-pocket for costs associated with homeschooling, there are also opportunity costs—the loss of a potential gain when choosing one alternative over another—to consider.

A parent who stays home to teach a child is usually not spending that time at work earning a salary. For many parents, this is a worthy sacrifice to ensure their child gets the education they need. But parents should consider opportunity cost when deciding whether homeschooling is an affordable option.

Researching Homeschooling Options

There are a wide variety of homeschooling options and resources available to parents, from fully developed private, online homeschool curricula to web-based public schools that allow students to follow a public school curriculum at home.

Some school districts may even allow kids to go to school part-time while completing some of their schoolwork at home, a compromise that some parents might feel is the best of both worlds.

When selecting a curriculum, look for the best options that meet you and your children’s needs, making sure that it aligns with the legal guidelines for your state and will meet your state’s evaluation standards.

Preparing for the School Year

Whether you choose to homeschool or stick with a traditional school setting, students will still need school supplies. Homeschoolers’ lists may look different than those from your neighborhood school, but looking for back-to-school sales will typically save parents money on these supplies.

Using a bank account like SoFi Checking and Savings® can be a great way to spend on back-to-school supplies—while saving and earning.

For parents who want to save ahead of time for school supplies, setting up a checking and savings account can be a good way to make sure the funds are there when they’re needed.

Ready to stock up on school supplies? Explore the benefits of SoFi Checking and Savings®.



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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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What Is LIBOR?

This month’s to-do list may include submitting a student loan application for a child starting college next year, shopping for a used car now that the old one is making that sputtering sound again, paying a mortgage bill, and paying a credit card statement balance. (Plus a little extra because there weren’t enough funds last month to pay off the statement balance.)

These are fairly run-of-the-mill chores for any adult’s to-do list. But there’s something out there that affects each of those four tasks. It’s called the LIBOR.

Every item on that list—a student loan, car loan, mortgage payment, and credit card bill—comes with an interest rate. The London Interbank Offered Rate, or LIBOR, affects interest rates across the globe.

Chances are, the LIBOR rate has affected almost every American today, either directly or indirectly. So, what is this LIBOR rate that is affecting everyone’s finances?

LIBOR is the interest rate that serves as a reference point for major international banks. Just as average joes might take out loans that carry interest rates, banks loan each other money at an interest rate. This rate is the LIBOR.

The LIBOR rate is recalculated every day and published by the Intercontinental Exchange, aka ICE, an American financial market company.

The LIBOR rate should not be confused with the US prime rate. The LIBOR rate is floating, meaning it changes every day. The US prime rate is another benchmark interest rate, but it stays fixed for an extended period of time.

The LIBOR is an international rate, so it’s based on five currencies: the American dollar, British pound, European Union euro, Swiss franc, and Japanese yen.

It also serves seven maturities, or lengths of time: overnight (also referred to as “spot next”), one week, one month, two months, three months, six months, and one year.

The combination of five currencies and seven maturities results in 35 separate LIBOR rates each day. Borrowers might hear about the one-week Japanese yen rate or six-month British pound rate, for example.

The most common LIBOR rate is the three-month U.S. dollar rate. When people talk about the current LIBOR rate, they’re most likely referring to the three-month U.S. dollar LIBOR.

Every day, ICE polls a group of prominent international banks. The banks tell ICE the rate at which they would charge fellow banks for short-term loans, which are loans that will be paid back within one year.

ICE takes the banks’ highest and lowest interest rates out of the equation then finds the mean of the numbers that are left. This method is known as the “trimmed mean approach,” or “trimmed average approach,” because ICE trims off the highest and lowest rates.

The resulting trimmed mean is the LIBOR rate. After calculating the LIBOR, ICE publishes the rate every London business day at 11:55 a.m. London time, or 6:55 a.m. in New York.

How LIBOR Is Calculated

So far, we know that a group of international banks submits interest rates to ICE, and ICE calculates the trimmed mean to find the LIBOR rate. But there’s more to it than that. Which banks are involved, and how do the banks decide what rates to submit?

ICE selects a panel of 11 to 16 banks from the countries of each of its five currencies: The United Kingdom, United States, European Union, Switzerland, and Japan. This group of banks is redetermined every year, so banks may come and go from the panel.

The chosen banks must have a significant impact on the London market to be selected. (The L in LIBOR does stand for London, after all.) Some of the current US banks are HSBC, Bank of America, and UBS, just to name a few.

The banks have a pretty complex way of determining their rates called the “Waterfall Methodology.” There are three levels to the waterfall. In a perfect world, every bank from the panel would be able to provide sufficient information in Level 1, and that would be that. But if a bank can’t provide adequate rates for Level 1, it moves on to Level 2; if it doesn’t have submissions for Level 2, it moves on to Level 3.

•   Level 1: Transaction-based. A bank determines rates by looking at eligible transactions that have taken place close to 11 a.m. London time.

•   Level 2: Transaction-derived. If a bank doesn’t have rates based on actual transactions, they provide information that’s been derived from reliable data, such as previous eligible transactions.

•   Level 3: Expert judgment. A bank only gets to Level 3 if it can’t come up with transaction-based or transaction-derived rates. In this case, its bankers submit the rates they believe the bank could afford to charge other banks by 11 a.m. London time.

Seems complicated, doesn’t it? And bankers from every bank on the panel go through the Waterfall Methodology every business day.

After the ICE Benchmark Administration (IBA) receives all the banks’ rates, they cut the lowest and highest numbers and use the remaining data to find the “trimmed mean,” and—tada!—that’s the LIBOR for the day.

Why LIBOR Matters

Wondering why people should care about LIBOR? If they don’t work at a bank, who cares? Well, LIBOR actually affects almost every person who borrows money. Many lines of credit, including credit cards, mortgages, auto loans, student loans, and more, are tied to LIBOR.

All federal student loans come with fixed interest rates. Once the government sets interest rates, that rate remains fixed regardless of what happens with LIBOR because it’s based on the 10-year Treasury note instead.

When it comes to things like private student loans and mortgages, however, Americans can choose between fixed-rate loans and variable-rate loans. With variable-rate loans, the borrower’s rate may increase or decrease along with the LIBOR rate.

That may seem like a scary way to determine rates. What if the LIBOR rate increases to, say, 10%? Many lenders place a rate cap on loans so variable-rate loans can’t become expensive to the point that many borrowers may feel they have no choice but to default on their loans.

So while the LIBOR does affect many variable-rate loans, borrowers shouldn’t worry about rates spiraling out of control.

When the LIBOR rate is low, it could be a good time for consumers to take some steps toward achieving financial goals.

They might consider consolidating or refinancing their loans, or even taking out a personal loan. If their income is steady and credit score is good, a low LIBOR rate could help them land a competitive interest rate.

Someone with no debt or a fixed-rate loan might think, “Phew! It looks like the LIBOR doesn’t affect me.” Actually, LIBOR affects everyone. When the LIBOR rate continues to increase, borrowing can become so expensive that many Americans can’t afford to borrow money anymore.

When people stop taking out loans or using their credit cards, the economy slows down and the unemployment rate could rise as a result. After a while, this could lead to a recession.

Remember the financial crisis of 2008? LIBOR played a big part in that tumultuous time for America.

Subprime mortgages started defaulting, and the Federal Reserve had to bail out insurance companies and banks that didn’t have enough cash. Banks were afraid to lend to each other, so the LIBOR rate surged and investors panicked, leading the Dow to drop by 14%.

And think about what is currently going on in the economy right now. Because of the coronavirus pandemic unemployment rates have skyrocketed and interest rates have dropped dramatically.

But, interest rates will no longer be tied to LIBOR in the near future. 2021 has been set as a deadline for financial firms to move away from using LIBOR. Financial firms are looking to tie to other rates, such as the Secured Overnight Financing Rate (SOFR), instead.

The History of LIBOR

How LIBOR Began

Why does LIBOR exist in the first place? Well, in the 1960s and 1970s, demand for interest rate-based goods such as derivatives started to increase.

The British Bankers’ Association (BBA) represented London’s financial services industry at the time, and the association decided there should be a consistent way to determine rates as demand grew. This led to the creation of the BBA LIBOR in 1986.

The BBA doesn’t control LIBOR anymore. In fact, the BBA doesn’t even exist. The association merged with UK Finance a few years ago. After some struggles and scandals took place on the BBA’s watch, ICE took over LIBOR in 2014. The BBA LIBOR is now the ICE LIBOR.

LIBOR Scandals

Bankers in ICE’s group of banks have been found guilty of reporting falsely low LIBOR rates. In some cases, these lies benefited traders who held securities tied to the LIBOR rate.

In other instances, the banks raked in the dough by keeping LIBOR rates low. People tend to borrow more money from banks when rates are low, so by deceiving the public, banks conducted more business.

In 2012, a judge found Barclays Bank to be guilty of reporting false LIBOR rates from 2005 to 2009, and the CEO, Bob Diamond, stepped down. Diamond claimed other bankers did the exact same thing, and a London court found three more bankers guilty of reporting false LIBOR rates.

After the 2008 financial crisis and 2012 scandal, it became clear that there were some flaws in how LIBOR was determined.

The Financial Conduct Authority of the United Kingdom started overseeing LIBOR, and in 2014, the ICE Benchmark Administration (IBA) took over LIBOR and started changing how things were done.

How LIBOR Is Changing

LIBOR has gone through a lot of changes since 1986. In 1998, the bankers were told to change the question they asked themselves each morning before reporting their rates. Bankers used to base rates on the question, “At what rate do you think interbank term deposits will be offered by one prime bank to another prime bank for a reasonable market size today at 11 a.m.?”

Now they should ask themselves, “At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 a.m.?” The questions may seem similar, but the change in wording showed that the BBA was trying to keep them honest.

In 2017, the IBA held a three-month test period of LIBOR standards in an attempt to limit further scandal.

LIBOR has changed currencies over the years. There used to be more than the remaining five currencies and more than the seven maturities, but some were added and removed after the financial crisis of 2008.

But despite all the attempts at improvements over the years, CEO of the FCA Andrew Bailey has announced that he hopes to stop using LIBOR by the end of 2021.

Some say LIBOR is becoming less reliable as banks make fewer transactions that depend on its rate. The Federal Reserve is proposing American banks use alternative benchmark rates, one option being an index called the Secured Overnight Financing Rate (SOFR) .

Competitive Interest Rates With SoFi

It’s difficult to know what will happen with the LIBOR rate next week, next month, or even at the end of 2021. But one thing’s for sure: benchmark rates continue to affect the US economy and consumers’ loan interest rates.

When members apply for a loan through SoFi, borrowers can choose between variable rates (which would be more directly affected by fluctuations in benchmark rates) or fixed rates on a variety of loan products.

SoFi offers variable-rate or fixed-rate mortgage, variable rate or fixed rate private student loans, or fixed rate personal loans. They may also be able to refinance their student loans or mortgages for more competitive rates if they qualify.

SoFi members can receive other discounts when they borrow through SoFi. For example, when student loan borrowers set up automatic payments, they are eligible to receive a reduction on their interest rate.

Whatever happens with LIBOR, SoFi members can benefit from perks like unemployment protection, exclusive member events, and member discounts.

Searching for a loan with competitive rates? SoFi offers home loans, student loans, and personal loans, as well as refinancing.



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If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.


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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.

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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Should I Have an Emergency Fund?

A hospital bill in the thousands. A vet invoice for hundreds. A car repair for more than you make in a month. When faced with an emergency, it can compound the problem to try to figure out how to pay for the unexpected expenses, on top of an already stressful situation.

If you find yourself questioning, “Should I have an emergency fund?” the answer should be a resounding yes, absolutely! But where to begin? Forty percent of Americans say they are unable to afford even a $400 emergency expense.

Conventional wisdom claims you should have enough money saved in an emergency fund to cover at least three to six months of expenses, depending on your personal financial situation.

But with looming student debt, credit card payments, or other big financial burdens, it can be hard to imagine saving while keeping up with all of your bills and expenses. Emergency funds are great for major unexpected expenses, but preparing for the unexpected still takes time and planning.

Beefing up Your Budget

One of the first ways you can start saving up for an emergency fund is to evaluate your current spending habits and create a budget, if you don’t already have one. Take a look at where there is fat to trim, meaning extra expenses you can minimize or eliminate.

Start with a simple spreadsheet, which should help you break down your spending to see your total income, plus what you spend on necessities like rent, loan payments and groceries, discretionary spending like shopping or entertainment, and long-term goals, including emergency fund savings or retirement.

For a two-income household, you could aim to have three months of expenses in your basic emergency fund, with six months for a one-income household.

In a recent survey, 67% of millennials report having a savings goal and sticking with it every month, or most months. Your overall savings goal might actually include more than just saving for an emergency fund.

One common tactic for an easy budget to stick to is to put 20% of your take-home income toward financial goals, such as savings, and then make part of that just for your emergency fund.

You might want to look at your current bills and deadlines and see what you can adjust to make the most sense with your paydays. If you get paid every two weeks, but all of your bills are due at the end of the month, maybe you find you are dipping into those savings to pay everything on time.

You could try spreading out your bills throughout the month or grouped closer to your paychecks, so you can better budget your money throughout the year. Everybody’s financial situation is different, so figure out what works for you—and stick with it.

Having an emergency fund means you’ll be better prepared to cover any urgent, unplanned financial crises, like a high medical bill or costly car repair, without ruining your normal budgeted living expenses. With money set aside, you’ll be able to stress less and avoid more costly solutions like credit cards or personal loans to fund any emergencies.

However, one possible disadvantage to trying to build up your emergency fund is that you might feel like that money should be going toward paying off debt, like student loans or credit cards, before storing away funds in savings. But it’s important to know good debt from bad in this case.

A mortgage or student loan is generally considered good debt, while a high-interest credit card can be worse for your overall credit score and financial health. If you are weighing paying off debt versus building up your emergency fund, you might consider this order to figure out your top priorities:

•   Make sure you have enough money in the bank to pay any recurring bills.
•   Build a safety net equal to one month of your basic expenses
•   Match any contributions your employer makes for retirement contributions.
•   Pay off bad debt, like high-interest credit cards.
•   Build up your emergency fund.

Once you have three to six months’ worth of expenses saved up for your emergency fund, you can refocus your budget on other long-term goals.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


Putting Savings on Auto Drive

If you already use direct deposit, you’ve already got a possible solution to help you fund an emergency reserve. You can set up a recurring transfer with your bank, or split your direct deposit into a checking and a savings account, in order to make savings automatic.

If you don’t notice the money sitting in your account in the first place, it might be less tempting to spend it or move it back out of savings.

So how much can you afford to automatically transfer? The Consumer Federation of America says that an emergency savings fund should consist of at least $500 . They recommend using a savings account that you do not have easy access to, perhaps at a different bank than your current home bank.

You can kick-start your emergency fund by using a cash windfall like a tax refund, work bonus, or birthday check.

You could aim first to get to $500, then $1,000, then one month of essential living expenses, and work your way up from there.

You probably aren’t going to generate three or six months worth of extra money all at once.

Automating your savings might help, whether you choose to have a certain amount from your paycheck transferred into a separate savings account, or set up recurring transfers from checking to savings with your bank.

Then, when you do reach a comfortable number in your emergency fund, you can redirect those automated savings toward other financial goals like paying off debt or funding retirement.

Saving Smarter, Not Harder

So, if you’re determined to start saving more for an emergency fund, you might want to explore exactly what kind of savings account you want to keep your money in.

Certain accounts can earn you significantly more money based on the amount of interest. This could help your emergency fund grow even faster while rewarding you for saving money rather than spending it.

In fact, a SoFi Checking and Savings® account has no account fees. Plus, as a SoFi member, you’ll also receive other benefits to help you figure out your finances, like career coaching, mobile transfers, financial advisors, and community events.

We work hard to charge zero account fees. With that in mind, our fee structure is subject to change at any time.

Before you start saving up for an emergency fund, consider what kind of account you want to keep that money in. It can be helpful to have easy access to cash, in case you are ever faced with a financial emergency.

Get started building your emergency fund with a SoFi Checking and Savings account today.



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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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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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