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Unlike the local bank where you may keep your checking account, central banks are responsible for implementing monetary policy. Some of the main activities of central banks include managing currency and controlling the money supply.

These are important responsibilities: Central banks aim to promote financial stability within a country or group of countries. They play an important role in the economy and within consumer banking. Without central banks, other banks couldn’t exist and operate.

While a lot of the work that central banks do happens behind the scenes, it can have far-reaching impacts on how you personally manage your money. Here, you’ll learn more, including:

•   What is a central bank?

•   What do central banks do?

•   What are the pro?

What Is a Central Bank?

Central banks are public institutions that use monetary policy to navigate and manage economic changes. While commercial banks are largely concerned with providing banking products and services to customers, central banks take a broader focus.

So, what do central banks do?

The specific powers a central bank has may vary from one country to another. Generally speaking, central banks are responsible for:

•   Effecting interest rate changes to manage monetary policy

•   Setting targets for inflation rates to achieve price stability within an economy

•   Adjusting the money supply, which can occur through the sale or purchase of securities on the open market

•   Regulating interbank activities

•   Loaning money to commercial banks in order to maintain solvency during a financial crisis

Most central banks operate independently of the government, which is intended to keep political influence out of decision-making processes. Understanding their function is important when establishing a working central bank definition.

What Is the Central Bank of the United States?

The Federal Reserve System or “Fed” is the central bank of the United States. The Fed operates to manage the economy and promote public interests. In terms of what the Federal Reserve does, its duties are concentrated in five distinct areas:

•   Monetary policy. The Fed uses monetary policy to promote employment, create pricing stability, and manage interest rates. For example, when the economy is in danger of overheating, the Fed may raise rates to cool off inflation.

•   Financial system stability. Risk management is another important task the Fed carries out. This is done through active monitoring of systemic risks that may endanger the U.S. economy, both domestically and abroad.

•   Supervision and regulation. The Federal Reserve is also concerned with ensuring the safety and stability of individual financial institutions. It takes an active role in monitoring and regulating banks to minimize negative impacts on the financial system.

•   Payment systems. Payment systems allow money to move through an economy. The Fed monitors payments systems to ensure that they’re safe and efficient so financial transactions can be facilitated.

•   Consumer protection and community development. The Federal Reserve is also concerned with ensuring that consumers are protected against unfair banking processes and that attention is given to issues that may hinder consumers ability to get the financial services they need.

The Federal Reserve has three main parts: the Board of Governors, the Reserve Banks, and the Federal Open Market Committee (FOMC). While the Fed is independent, it works in conjunction with other agencies to manage economic policy, including the Department of the Treasury and the Federal Deposit Insurance Corporation (FDIC). There are 12 Federal Reserve banks with 24 branches that operate throughout the U.S.

History of Central Banks

Historically, central banking dates back centuries. A few highlights:

•   In the 1600s, the Swedish Riksbank was founded. The bank, which was chartered in 1668, was designed to operate as a joint stock bank. Its functions included lending money to the government and acting as a clearinghouse for commercial transactions.

•   In 1694, the Bank of England was founded for a similar purpose. This joint stock bank purchased government debt. These early central banks were soon followed by other central banks in other European countries, including the Banque de France which was established by Napoleon in 1800.

•   The history of the Fed begins a little later, with its founding in 1913 through the passage of the Federal Reserve Act. The Act was passed in response to widespread instability within the banking system and the greater economy. Earlier attempts had been made to centralize banking following the end of the Revolutionary War but that goal was only fully realized with the creation of the Fed.

•   Since its initial inception, the Federal Reserve’s powers and duties have expanded and evolved. The latest change occurred in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act expanded the Fed’s supervisory responsibilities while also making its operations more transparent.

Today, central banks operate in countries around the world. For example, the European Central Bank manages monetary policy for countries that are part of the European Union and use the euro as their currency. The Reserve Bank of Australia is the central bank that controls monetary policy for the states and territories of Australia.

💡 Recommended: What Is a Bank Reserve?

Are Central Banks Effective?

Whether central banks are effective ultimately depends on the scope of powers they have, how they approach monetary policy, and the outcomes of that approach. If a central bank’s policies produce the intended result then, yes, they can be considered effective. On the other hand, if the end result is significantly different from what was intended, that could be an argument against the bank’s effectiveness. In other words, there is much variation in making this assessment.

In the U.S., for example, economists have argued for and against the effectiveness of the Federal Reserve’s decision to raise or cut interest rates at different points in time. The Fed’s rate hikes may attempt to curb inflation and keep the economy from burning out and plunging into what is known as a recession. Rate cuts, on the other hand, are designed to encourage spending and stimulate the economy.

Consider a specific example: In March 2022, the Fed began a series of rate hikes in an attempt to put the brakes on rising inflation. At that point in time, inflation hovered around 8%. By April 2023, the inflation rate had fallen to 5%. Based on the numbers, it would seem that the Fed’s policy is working. In general, the greater transparency there is around central banking, the more effective it may be.

Are There Downsides to Central Banks?

Central banks are not perfect, and there are some potential disadvantages associated with a central banking system. Here, what are central banks’ downsides:

•   For example, how a central bank uses interest rates to control monetary policy can have a direct impact on consumers and businesses. When the central bank raises rates, borrowing becomes more expensive. On one hand, that’s a good thing if the end goal is to rein in consumer spending. However, if you’re trying to get a mortgage or you need a business loan to cover expenses, you’re going to pay more in interest for convenience of borrowing.

•   The money supply is another issue. If a central bank has the authority to print money at will and artificially inflate the money supply, that can lead to devaluation of the currency. When a central bank also has the ability to purchase assets that can lead to an increase in a country’s national debt.

•   Finally, there’s the question of regulation and accountability. If central banks are established and operated independent of government agencies, it can be difficult to draw a line on what the bank can or cannot do. That can open the door for central banks to take risks they might otherwise avoid when there’s no government oversight to keep them in check.

The Takeaway

Central banks help to keep economies balanced and stable, while providing a safe banking environment for consumers. The next time you’re swiping your debit card or logging in to online banking to pay bills, remember that central banking makes those activities possible.

3 Money Tips

1. Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.
2. When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
3. If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

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 is the difference between a bank and a central bank?

A bank is a financial institution that accepts deposits and makes loans. Banks make it possible for their customers to move money from point A to B, and they can also pay interest on deposits. Central banks, however, play a larger role, overseeing monetary policy to ensure the smooth operation of a country’s economy.

What is the difference between a federal and a central bank?

A federal bank is a bank that operates under the regulation of a federal government. They receive their charter from the federal government, rather than a state government. Central banks typically operate independently of any government agency or institution.

What is a central bank and its function?

A central bank is a public institution that directs monetary policy within a country, state, or territory, or within a group of countries, states, and territories. The main function of a central bank is to promote financial and economic stability. Central banks do that by controlling the money supply and adjusting interest rates.

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Photo credit: iStock/ismagilov

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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Instead of carrying around wads of cash or stuffing your life savings under your floorboards, a savings account gives you a safe place to store your money. Opening a savings account is a great way to start building healthy savings habits to help you save toward your goals, build an emergency fund, or plan for retirement. Plus, many savings accounts are interest-bearing, so you can help your money grow.

Whether this is your first savings account or you’re switching from another financial institution, you’ll learn how to open a savings account and what you need to know before you open one.

4 Steps to Opening a Savings Account

Here are the steps you need to take when you open a savings account.

1. Compare Banks and Accounts

Fees, interest rates, minimum balance requirements, and other benefits like mobile banking can vary by the bank you choose. So, exploring your options before deciding where to open a savings account can help you determine the most suitable savings solution for your needs.

You’ll also want to explore the different saving account options available. For example, looking at high-interest savings accounts might be an attractive option for people wanting to grow their money.

2. Gather Personal Information and Documentation

Next, you’ll want to gather all of the necessary information. Doing this beforehand will streamline the application process. Here’s what you’ll need to open up a savings account:

•   Government-Issued ID, likely with a photograph, such as a passport or driver’s license

•   Date of birth

•   Social Security number

•   Proof of address, such as a utility bill or bank statement

•   Phone number and email address

If you’re opening a joint account, ensure the co-account owner provides the same information and documentation. Remember, requirements vary by bank, so check with your financial institutions to verify the necessary information.

3. Check Eligibility

Credit unions and banks may have eligibility requirements for specific accounts. For example, account holders must be over 18 to open a savings account. Also, some savings accounts may have a minimum balance requirement to open the account. Understanding the requirement beforehand will ensure you’re prepared when completing your application.

4. Complete the Application

Here’s the next step in how to open a savings account: You can complete the application now that you have your personal information. Some brick–and-mortar banks and credit unions may require you to visit a bank branch to open an account, while others let you complete the application online.

If your bank requires a minimum balance deposit, ensure you have the cash in hand or the account to which you want to transfer the money.

Choosing the Right Savings Account for You

Here is a snapshot of how the different savings accounts stack up.

•   Traditional savings account. This type of account is a simple savings option. Usually, basic savings accounts don’t have the highest interest rates, and the bank or credit union may charge a monthly fee.

•   High-yield savings accounts. This type of account usually offers a higher interest rate than traditional savings accounts. While you can find these accounts as brick-and-mortar banks, they are most common with online banks. If you choose to open a savings account with an online bank, you may have to pay fewer fees.

•   Kids’ and student savings account. Just like the name suggests, these accounts are tailored to kids and students so they can start building healthy savings habits. Some of these accounts are interest-bearing. However, there are usually age cut-offs, and there may be parental involvement.

•   Specialized savings accounts. This type of savings account helps you save for a specific goal, like a down payment on a home. However, it’s important to note that this type of account may come with restrictions. For example, if the account is designed to save for the cost of the winter holidays, you might only be able to pull money out once a year, like right before the holidays.

•   Money market account. This type of account lets you earn interest and withdraw up to the bank or credit union’s limits. Usually, the interest rates on money market accounts are higher than those on a traditional savings account.

💡 Learn more about money market accounts.

Understanding Savings Accounts

A savings account is a deposit account that lets you park your cash to save toward short-term goals and savings objectives. For example, you may use your savings account to save money for your dream vacation or to start building an emergency fund. Unlike a checking account, savings accounts are not meant to be used for everyday transactions.

In fact, in the past, Federal Reserve Board Regulation D limited the number of withdrawal transactions you could complete in a month. While restrictions were lifted in April 2020, banks still have the right to limit the number of withdrawals you can take in a month. Examples of withdrawal transactions include overdraft transfers to checking accounts, wire transfers, debit card withdrawals, check withdrawals, and phone or computer transfers.

How Savings Accounts Work

Savings accounts work like this:

•   You open a savings account.

•   You deposit money into the savings account.

•   You earn interest on the balance in the savings account.

•   Then you can continue to accumulate interest as you contribute to your balance.

If you’re using the savings account to save for a specific goal, you’ll likely withdraw funds once you have reached that objective. So, if you’re saving money for a new car, you will take the money out when it’s time to pay for your new ride.

The interest rate and annual percentage yield (APY) attached to a savings account depends on the bank and type of account. The higher the APY, the more interest you’ll earn and your account will grow faster.

For example, let’s say your savings account has a $2,000 balance, you contribute $100 monthly, and have 4.00% APY. At the end of the first year your account balance will be $3,303.73. That’s a little over $100 worth of interest.

Pros and Cons of Opening Up a Savings Account

While savings accounts are a great place to park your money to save for the future, they also have some downsides. Here are the pros and cons of opening a savings account.

Pros of Opening Up a Savings Account	Cons of Opening Up a Savings Account
Interest-bearing	Potential monthly services fees
Access to banking online and in-person	Withdrawal limits
Direct deposit available	Withdrawal limit fees
Insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) (up to $250,000 per depositor)

Can You Be Denied a Savings Account?

Banks or credit unions may deny you a savings account if you have a track record of misusing bank accounts. Some examples of misuse include:

•   Leaving an account with an unpaid overdraft fee

•   Applying for many accounts in a short amount of time

•   Bouncing checks

•   Misusing debit cards or ATMs.

You may also get denied if you were a victim of fraud.

Once you apply for a bank account, banks use the ChexSystems report, which is a consumer reporting agency for financial institutions, to spot any red flags that demonstrate you wouldn’t be a suitable account holder. If the bank uncovers harmful activities and denies opening an account, it must provide a reason for the denial.

Here’s what to do if you’re denied:

•   Ask the bank to reconsider. It never hurts to ask the bank or credit union to reconsider their decision.

•   Request the ChexSystems report. If the bank or credit union holds firm on their decision, request a copy of the ChexSystems report. All consumers are entitled to a complimentary copy of the report every 12 months. You can visit ChexSystems’ website or call 800-428-9623 to request a report.

•   Review the report for discrepancies or errors. Closely review the ChexSystems report. Look for errors or discrepancies, such as an incorrect Social Security number. If you spot an error, you can contact the reporting agency. Make sure to provide all supporting documentation to validate your claim.

•   Clean up your report. If you didn’t spot any errors, you’d want to start fixing any negative actions in the report. For example, if you have an unpaid overdraft fee, contact the bank and pay it off. Once you resolve any issues, they are removed from the report. On the other hand, if you have unresolved issues lurking, they will remain on your report.

•   Explore second-chance accounts. Some banks offer second-chance bank accounts, which don’t review the ChexSystems report. However, since these accounts cater to those with less than ideal banking backgrounds, they may charge higher fees or have more restrictions. So, look into the account requirements before moving forward with one.

Opening a SoFi Savings Account

So, if you’re wondering should I open a savings account, the answer is likely “yes.” Opening a savings account is a great way to build strong saving habits and earn interest. Then, when you need the money later, you can access your cash effortlessly. Furthermore, opening a savings account is simple; you only need to compare accounts and banks, gather the correct information, and fill out the application.

If you’re looking for a new savings account, see what SoFi offers. When you open an online bank account with SoFi, you get benefits that help simplify money management. Plus, you can grow your money with a competitive APY and no account fees.

SoFi Checking and Savings: Helping you bank better and smarter.

FAQ

What do you need to open a savings account?

You must usually provide personal information like your Social Security number, date of birth, and home address. You will also need supporting documentation like a government-issued ID and a utility bill to prove your address. Additionally, depending on the bank account, you may need to deposit the minimum balance requirement to open the account.

How much money do you need to open a savings account?

Usually you’ll need between $25 and $100 to open a savings account at a bank or credit union. However, once the account is open, the institution may require you to maintain a minimum account balance. So, make sure to check the requirements.

Can you just open a savings account without a checking account?

Yes, you can open a savings account without a checking account at most institutions. However, having both can help you better manage your money since each account has different functionality.

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Photo credit: iStock/AntonioGuillem

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.

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 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.

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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We won’t sugarcoat it: Music festivals can cost a lot. Weekend passes are often several hundred dollars and don’t include travel expenses and other extras. That doesn’t mean you should skip music festivals altogether. The events are a great way to sample many different artists, meet people, and enjoy time outdoors.

Keep reading to learn more about music festival costs and money-saving moves. You’ll find out:

•   What are the average costs of a music festival?

•   What are the main expenses to consider when going to a music festival?

•   How can attending a music festival be more affordable?

What Is the Average Cost of a Popular Music Festival?

The average cost of music festival tickets — typically for a weekend-long event — ranges from $200 to $600. If travel is required, expenses can shoot up quite quickly: Spending $2000+ in a weekend is not unusual. Transportation and lodging are often premium-priced during a festival, since businesses know they can get top dollar.

Music festival costs also depend on where the festival is located and the type of experience the attendee is looking to have. Camping out will save you money, as will skipping the VIP experience for basic tickets bought at early-bird pricing.

Recommended: Luxury for Less: How to Travel Posh

Main Expenses to Consider When Going to a Music Festival

Because everyone’s music festival experience looks different, costs can vary. That said, these are the common music festival expenses worth planning for.

Tickets

Tickets for a multi-day event can cost hundreds of dollars. For instance, in 2023, general admission to Bonnaroo in Tennessee was $380 and up for four days. And passes for Coachella, in California, began at $540 for three days.

Costs will vary depending on when you buy tickets (they get more expensive closer to the actual performance date), and whether you decide to shell out for the VIP options.

Travel

Don’t forget to budget for travel for out-of-town events. Driving may cost less than flying, and some festivals offer camping passes that can save you money on hotels.

These tips on saving up for a vacation can help you project your travel costs.

Recommended: Let SoFi help you map out your next trip.

Transportation

Even if you live nearby, you may need to pay for a rideshare or shuttle pass to get to the event. At the very least, remember to account for gas and parking.

Lodging

Music festivals attract large crowds and visitors from around the world. That means local hotel and home rental costs can become inflated. Book early to avoid overpaying once pickings are slim.

Meals

Because music festivals have their attendees held somewhat captive for the day or days of the event, the food and drinks for sale there can be quite expensive. Think about what you pay at a concert or in an airport to get a sense of what you might need to pay.

Clothing

Part of the fun for many festival-goers is planning what you’ll wear. Sure, some people are happy in their usual jeans and a T-shirt, but if you want to buy some new clothes or accessories before a music festival — be honest! — add those costs to your budget.

Recommended: What to Do If You Lose Your Wallet While Traveling

Tips for Saving Money on a Music Festival

The price tag for a music festival experience can be steep, but it can also be an amazing and memorable experience. Here are some ways to bring the costs down so you can be part of the fun.

Another way saving money can help you that’s worth mentioning: Do a great job cost-cutting, and maybe you can attend an additional festival.

Project Your Expenses

From tickets to transportation to food, plan out what the day or weekend will entail cost-wise and make a budget. This can be done in a journal, on a piece of paper, or in an app. You can also learn how to make a budget in Excel. If you can plan for this outing months in advance, you can slowly save up for it so your overall budget doesn’t take a major hit.

Once you know the total amount needed, you can divide that by the number of months until it’s time to pay for your expenses. The figure you see is how much you should save monthly to afford the festival.

Take a Pass on VIP Tickets

Music festivals often have different tiers of tickets and offer some sort of VIP experience for a much higher price than the cost of general admission. Skip these overpriced tickets, and spend the money on food or transportation instead.

Buy Tickets Early

Some music festivals offer cheaper tickets for people who book early, so don’t sleep on those good deals. If possible, save up before tickets go on sale to take advantage of early booking deals.

Book Travel Far in Advance

It can be possible to save on travel and lodging by booking those things sooner rather than later as well. (This is a wise move when trying to save money for a trip of any kind.) Once tickets are booked, try to find some travel deals. When flights and hotels get down to the last few available options, prices tend to soar.

BYO Food and Water

If allowed, pack food and lots of water to avoid overspending on food and drinks at the event. Bonus: You’ll spend less time in line and more time enjoying the music. Some music festivals won’t allow attendees to bring in their own food, but most allow water from outside sources. Not overspending on water is a great way to save money and stay hydrated while out in the sun all day.

Volunteer

Some music festivals offer volunteers the chance to trade work for access to the festival. It’s always worth seeing whether such opportunities are available — they may very well be worth the trade-off.

Walk Whenever You Can

If staying nearby, try walking to the event. Parking is often expensive at music festivals, and ride-share prices surge as well due to high demand.

Camp Out

Because it can be hard for the many attendees of music festivals to find affordable lodging nearby, some music festivals are held at campgrounds. Camping is a great way to save a lot of money versus hotel costs, and it can add to the fun of the weekend.

The Takeaway

Music festival costs can vary greatly, but the major ones are undeniably expensive. Planning ahead for these events is one of the best ways to manage costs. By booking early, camping instead of staying at a hotel, and considering volunteer opportunities on-site, you may be able to listen to your fill of music and still have money in the bank.

Need to save up for a music festival or other short-term goal? SoFi has you covered. Open a bank account online with direct deposit, and your SoFi Checking and Savings won’t charge you any account fees, will offer you automatic savings features, and pay you a competitive APY.

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

Why are music festivals so expensive?

Attending music festivals can be expensive. The tickets for weekend-long events are pricey (the organizers have to cover the bands’ fees, the space, set-up, advertising, and more). Plus, if you travel to get there, you have transportation and lodging costs to contend with as well, plus food costs are part of the experience, too.

How much does it cost to hold the festival?

One reason that tickets for music festivals are so expensive is that it can cost a lot of money to host these events. It can cost millions upon millions of dollars to host a music festival — especially when top-tier musical talent is performing; their fees can be steep, in keeping with their stature.

Should I use my emergency fund for a festival?

Emergency funds are a type of savings fund specifically earmarked for unexpected expenses that interrupt daily life, such as a car repair, medical bill, or loss of one’s income. Since a music festival is a planned expense, you should not tap your emergency fund for this. Instead, it’s better to gradually save up for the cost of the festival in advance.

Should you layaway your festival tickets?

Whenever possible, it’s best not to make a purchase using a layaway arrangement, especially for an unnecessary expense like a music festival. While layaways don’t come with interest like credit cards, they do typically charge fees for spreading out the cost of the purchase. It’s best to create a budget for attending a music festival and to save up for festival tickets in advance.

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Photo credit: iStock/urbazon

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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The short answer to the question, “Can I use a credit card in another country?” is yes, you can. The longer answer? Take precautions to ensure you don’t get hit with high foreign transaction fees. You also want to avoid having your card declined because the issuer didn’t know you were traveling and thinks it’s a fraudulent charge.

We’ll review those scenarios and more as we share smart strategies to use your credit card internationally without any hitches or way high fees. Let’s look into:

•  Whether you can use your credit card abroad

•  How to safely use a credit card overseas

•  The cost of using a credit card when traveling

•  The pros and cons on using plastic when in another country

•  Alternatives to using a credit card when abroad.

Here’s what you need to know.

Can You Use Your Credit Card Abroad?

Whether you’re planning a quick weekend trip to Cabo or going to college abroad, using your credit card can be a super convenient way to pay for day-to-day expenses. It’s also more secure than carrying cash. After all, if you lose paper money, it’s gone… but if you lose your credit card, you can just call the issuer and let them know.

That said, you probably don’t want to rely solely on a single credit card as your only source of funds. Credit cards can be lost or stolen. Additionally, not all vendors will necessarily accept credit cards, and some may not accept the specific type you have. Generally speaking, Visa and MasterCard are more widely accepted than Discover or American Express. Worth noting, though: Both of these latter credit card companies are working hard to increase their overseas presence.

You’ll also want to be aware that many credit cards come with foreign transaction fees that can stack up quickly, even if they appear small. For instance, a 3% foreign transaction fee means that if you put $500 on your credit card during your trip, you’ll spend an additional $15 just for the privilege of using the card. Using a credit card responsibly means being aware of these charges and deciding when and if they are worth it.

Finally, keep in mind that you’ll want to call your card issuer ahead of time to put a travel advisory on the card. That way, they won’t automatically flag a transaction thousands of miles away from home as fraudulent — which could lead to an inconvenient and frustrating declined transaction.

Is It Safe to Use Your Credit Card Abroad?

As long as you’re making purchases from reputable vendors, it is safe to use your credit card abroad. Determining who’s a reputable vendor and who isn’t can be challenging when traveling, and credit card scams can be rampant wherever you go. And it’s always possible, whether you’re traveling or at home, to have your credit card information stolen and used fraudulently. (For example, some criminals steal private information by installing credit-card skimmers on self-service gas pumps.)

How to protect yourself? The best way to ensure your credit card is still secure is to regularly check your transactions and ensure they’re all legitimate. If you see one you don’t recognize, immediately contact your credit card issuer so they can remove the charge and issue you a new card.

Of course, while traveling internationally, it may be difficult to have that new card delivered to you in time to be useful. This is why it’s so important to have some backup funding with you, including some local currency and an additional credit card.

What Are the Costs of Using a Credit Card Overseas?

Using a credit card overseas can get expensive awfully quickly. You may run into hidden costs depending on how you use the credit card. Here are a few to look out for:

•  Regular foreign transaction fees These charges are levied by credit card companies simply for your conducting a transaction with a foreign vendor.

•  Cash withdrawal fees In some cases, you may be able to use your credit card to access cash money from an ATM. Doing so may incur additional ATM fees on top of the foreign transaction fee. You may even be hit by a third fee from the ATM provider.

•  Dynamic currency conversion This is a service that some card issuers offer, which allows you to see what the cost will be in your home currency. Although this can make you feel more secure when it comes to knowing how much something really costs, you may pay for the privilege of seeing that information ahead of time. If you can, choose to have the price listed in the local currency. If you really need to know what that translates to in US dollars (or whatever your home currency is), look it up on your phone. There are plenty of sites and apps that will do the math for you.

•  Interest As with any credit card purchase, if you let a revolving balance rack up on your card, you could be subject to expensive interest charges. The best practice is to pay off your card in full, each and every month.

The good news: It’s totally possible to avoid foreign transaction fees by opting for a card that simply doesn’t charge them. You can also skip dynamic currency conversion and decide not to use the card to withdraw cash from an ATM. These moves will help whittle down your fees.

Recommended: What Is Revolving Debt?

Using Credit Cards to Withdraw Cash Overseas

As mentioned above, using credit cards to withdraw cash overseas is possible, but it might not be the smartest option. Along with any foreign transaction fees, you could also be charged cash withdrawal fees, ATM fees, and more.

That said, it is a good idea to have some local currency with you for your journey. So if you aren’t going to use your credit card to withdraw it, what are your options? While ordering foreign currency will almost certainly come at some cost, there are ways to lower the associated fees and save as much as possible.

For example, you may be able to order foreign currency from your regular domestic bank, which could come with fewer charges than withdrawing from an overseas ATM using a credit card. You may also see currency exchange services available at the airport, but these can be pricey in their own right.

Another good option: Withdraw money from a foreign ATM — but using the right kind of card. Some banks offer debit or prepaid cards with no foreign transaction fees, and may even throw in ATM fee reimbursement so you truly don’t have to worry about any additional fees. Of course, you’ll have to put in the effort ahead of time to ensure your bank offers a product like this or even to open a new bank account for this purpose.

Is It Better to Pay and Withdraw Money in Local Currency?

As mentioned above, one of the costliest parts of overseas travel is dynamic currency conversion — the service that lets you choose to pay in your own currency at a point-of-sale transaction. Dynamic currency conversion comes at an additional cost, and that’s not counting any other foreign transaction fees you might be hit with.

All of which is to say: If you can, paying in local currency is almost always the better option. (And, of course, with cash, you won’t face any additional charges other than what you already paid to acquire the currency.)

Pros and Cons of Using a Credit Card Overseas

As with any financial decision, using a credit card overseas has both pros and cons to consider. Here are a few to mull over.

Pros of using a credit card overseas:

•  More secure than cash, which can be easily lost

•  Easy to use and less bulky than carrying around bills and coins

•  Some cards offer special travel perks, such as the ability to earn miles as a reward, which can make travel easier and cheaper

Now, let’s look at the other side: the cons of using a credit card when you travel outside the U.S.

•  Can come with costly foreign transaction fees, some of which may be hidden

•  Not all overseas vendors accept credit cards (or all types of credit cards)

•  Could be declined if you don’t put a travel advisory on your card

For those who like an at-a-glance approach to seeing the benefits and downsides, take a look at this chart summarizing both sides of charging purchases with a credit card when on foreign soil:

Pros	Cons
More secure than cash	May trigger costly foreign transaction
Easy to use and less bulky to carry	Not all overseas vendors accept credit cards
May offer special travel perks, like earning travel miles	Could be declined if you don’t add a travel advisory to your account

Alternatives to Using Credit Cards

If you decide you don’t want to use credit cards overseas, you can always rely on cash. Ideally, though, you’ll also want to carry a debit card connected to your checking account that allows you to access more cash in case you overrun your original budget or need money in an emergency.

You may also be able to pay for certain goods and services using an online P2P payment system like PayPal or Venmo, or purchase gift cards for specific vendors ahead of time.

Although they’re slightly outdated, traveler’s checks are still available, though relatively rare compared to their heyday. They offer another relatively secure way to pay for goods and services overseas.

Tips for When You Travel With a Credit Card

For the best success when traveling with a credit card, follow these tips:

•  Choose a card that’s widely accepted worldwide.

•  Shop around for a card that doesn’t assess foreign transaction fees.

•  Call your card issuer ahead of time to tell them you’ll be traveling. This will help you avoid having a transaction declined while you’re abroad.

•  It’s a good idea to travel with some backup funds, whether that means cash, a foreign-transaction-fee-free debit card, or another credit card.

The Takeaway

Whether you’re studying abroad or just enjoying a foreign getaway, it’s possible to use a credit card in another country. Yet, if you’re not careful, you may run into costly foreign transaction fees that can stack up fast. It’s a good idea to do your homework ahead of time to avoid any billing-statement sticker shock or regret. With a little planning, you can enjoy your travels without the cloud of growing credit-card debt hanging over your head.

Looking for a bank that doesn’t charge foreign transaction fees? SoFi has you covered, wherever you are. Sign up with direct deposit, and you’ll get both Checking and Savings accounts with one easy application. Better yet, you can earn a competitive APY.

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 pay internationally with a credit card?

The same way you do at home: You might swipe, dip, or tap the card at the point of sale. Use a card that doesn’t charge foreign transaction fees to minimize charges as you travel.

Is it better to use a debit or credit card abroad?

Whichever option offers lower — ideally, zero — foreign transaction fees is the best bet. Keep in mind that withdrawing money from an ATM using a credit card can be a very expensive option for acquiring foreign currency.

Can I withdraw money from my credit card abroad?

You can, but that doesn’t necessarily mean you should. Many credit cards charge foreign transaction fees as well as cash withdrawal fees that can really add up. Look for a bank account that offers a no-foreign-transaction-fee debit card, or order foreign currency ahead of time from your local bank.

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Photo credit: iStock/martin-dm

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.

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.

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.

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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Most people have money goals. One person might want to pay off their student loans; another might be saving up for the down payment on a house; and yet another might want a seven-figure retirement fund.

Whatever your particular aspiration may be, there are smart strategies that can help you achieve your goals. These tactics can help improve your financial fitness, balance your budget, reduce debt, and save more money.

Read on to learn some of the best personal financial strategies that can scoot you closer to reaching your money goals.

Smart Financial Strategies to Aim For

Here are some solid ways to begin to enhance your financial fitness.

Build and Maintain an Emergency Fund

When faced with an unexpected big expense or being laid off, it can be helpful to have saved up an emergency fund, which is a cash reserve that is only tapped, well, in case of an emergency. When should you use your emergency fund? A layoff, an unexpected medical or car repair bill, or a relative in need may all be good reasons to dip in.

Starting an emergency fund might cover your basic living expenses for anywhere from three to six months or more. So, if a person normally spends $3,000 per month, then they could strive to set aside $9,000 to $36,000 in their emergency fund. Naturally, this amount will vary based on individuals’ unique financial situations and income vs. expenses.

Now, if that dollar amount sounds a little daunting, it’s always possible to start small — setting aside 50 or 100 dollars a month. With some accounts, users can even automatically transfer a set amount to a savings account on a specific date each month (e.g., payday). Over the course of a year, that bit-by-bit approach to saving money can add up to a much larger sum.

Once a person has tackled high-interest debt, they may have more income available to squirrel away towards their emergency fund.

Some savers prefer to host their emergency fund in a high-yield savings account, which, thanks to its higher annual percentage yield (APY) than standard accounts, can help your money grow faster.

Paying Off Debt

Debt can be a budget killer. With high interest rates and fine-print fees, individuals can end up paying significantly more than an initial charge on outstanding recurring debts, whether student loans or credit cards.

When it comes to credit cards, for instance, the average interest rate is 20.09% for existing accounts and 22.29% for new accounts . If a person gets charged hundreds or even thousands of dollars in interest per month on existing debts, it could take longer to pay off the initial borrowed amount.

In terms of adopting smart strategies that can lead to greater financial independence, a good place to start is by paying off high-interest debts as quickly as possible.

Two popular debt-repayment approaches are called the snowball method and avalanche approach.

•   With the snowball method, you pay down your smallest debts first — no matter what the interest rate is. Once that smallest debt is paid off, you could then apply that payment amount towards the next debt, and so on.

For instance, if a person pays $150 a month to one debt, they could continue paying that sum to their next smallest debt after the first one has been paid down. At the same time, you’ll make minimum payments on all other debts to keep the payment history intact. Over time, the additional payments “snowball,” building up to less overall debt.

•   With the avalanche method, a person opts to pay off the debt with the highest interest rate first. Once the highest debt gets paid off, they’ll then roll the regular payments on that now-cleared debt into their next highest debt, all while paying the minimums on other debts at the same time.

While the avalanche method may make more sense mathematically, the snowball method can be more psychologically motivating. The snowball approach can keep some people engaged, since they’ll see quicker progress towards paying down one of their high-interest debts.

However, if a person can commit to the avalanche method, they may end up saving more in total interest paid than with the snowball financial strategy.

Using Credit Cards Wisely

Credit card debt can land cardholders in financial hot water. However, using credit cards judiciously can come with certain benefits (assuming the cardholder regularly pays down what they buy). Here’s a closer look:

•   Many credit cards give rewards in return for account holders spending money when shopping. For instance, a user may be able to get 1% to 5% back on grocery store or other purchases at specific retailers. With some cards, it’s possible to earn points that can be used toward discretionary expenses like travel, eating out, hotels, and more.

•   Generally, credit cards offer fraud protection, which means that if a card gets stolen (or their account gets hacked), fraudulent charges are not paid by the cardholder — unlike, say, with cash.

•   When it comes to healthy financial strategies, it’s also possible to use your credit cards to maintain one’s credit score. One factor that lenders might consider is a loan applicant’s credit history (including the number of active accounts open and their debt-to-income ratio).

Smart financial strategies for credit cards include paying off the entire bill on time and keeping old lines of credit open so the account holder’s credit history is longer. Also, it’s advisable to aim for a lower credit utilization ratio — which is how much debt a person has in relation to how much credit is available. A credit utilization rate below 30% is, generally, considered “good,” though lower will be better.

•   Another one of the smart financial strategies is to use credit cards for 0% interest balance transfers. If someone has a credit card with a high-interest rate, they could apply for a balance transfer credit card, pay a fee to transfer over their card’s balance, and then get more time to pay down the existing debt interest-free.

Some cards offer over a year of interest-free access. However, it can be smart to pay off the transferred debt before the end of the agreed-to 0% interest period. Otherwise, a higher interest rate will kick in on whatever has not been paid off. In some cases, the interest after the zero-interest period could be higher than what was paid on the original card.

Budgeting Incoming and Outgoing Money

Budgeting is a classic way to keep tabs on how much money is coming in and how much is being spent each month. If a person is not yet budgeting for their expenses, whether essential or discretionary, it can be one of the simplest ways to track money, and there are many different budgeting methods available.

When adopting financial strategies for budgeting, a good place to start with the 50/30/20 rule. With this budgeting rule, a person spends 50% on needs, 30% on wants and 20% on savings.

•   Needs include housing, utility bills, food (basic groceries, not pricey takeout or restaurant meals), car payments, and debts.

•   Wants span entertainment, travel new but unnecessary clothing and gadgets, and similar purchases.

•   Savings could include an emergency fund, retirement account, and investments.

Budgeting can be made easier with Google Sheets or Excel, or by using an app, or taking advantage of tools that your financial institution offers. Digital personal finance apps can be easy to use. Many financial institutions offer solid ones that give users insights on spending patterns and money habits.

Considering Reducing Monthly Expenses

After tracking their monthly expenses, some people like to see where they can trim and tighten their spending. Some pricey expenses that could be pared down include:

•   Housing costs: If rent is gobbling up a huge amount of income each month, moving to a less expensive place or area (i.e., lowering your cost of living) could help with cutting back on spending. If an individual ends up moving to a more economical city or town, it’s likely that local housing costs, groceries, and the general amount it takes to cover day-to-day living expenses will go down as well. Or you could take in a roommate.

•   Transportation: In terms of transportation, drivers could try to get out of an expensive lease and purchase or lease a less expensive vehicle. Or a person could utilize public transit or carpool with colleagues to save on gas. One good financial strategy is to shop around for lower car insurance rates.

•   Pricey cable plans: If a person spends a significant amount each month on non-essential items or services, they may want to try to reduce their discretionary costs, too. For instance, instead of paying an expensive cable bill every month, one could only pay for Hulu or Netflix as a way of lowering your streaming services costs. Many internet providers run promotions, so it may be worth thinking about switching to a less expensive provider.

•   Eating out vs. cooking at home: In lieu of eating out every day, budget-minded individuals could cook at home. Buying ingredients is, generally, much less expensive than dining in a restaurant or picking up take-out. And, if cooking is intimidating, perhaps invest in a slow-cooker to ease into cooking at home.

•   Shopping online: Online shopping can tempt many to spend unnecessarily. It’s just so darned easy to click-to-buy when a credit card is saved online. So, some savings seekers opt to delete their credit card details from their favorite online shops.

This adds one extra step (digging the card out of the wallet) before being able to purchase. Those added seconds can give shopping lovers a second chance to decide whether the item in their cart is really essential. You might also unsubscribe from shopping emails that can tempt you with sales and special offers.

Negotiating Better Deals

If you don’t have time to call up your providers and search for better deals, apps like Trim can analyze an individual’s spending patterns, negotiating internet, cable, phone and medical bills while canceling older subscriptions. Users pay a fee for this service, but it could end up saving dollars that would otherwise get spent unknowingly.

You might also call your credit card company and see if they can lower your rate, especially if you’ve found a better deal elsewhere. And if you have a major bill, don’t be shy about seeing if it can be reduced. You may even be able to negotiate medical bills.

Opening a Retirement Fund

When it comes time to retire, money will be needed to pay for everyday life. That’s why it’s a good financial strategy to start a retirement account as soon as a person starts working.

There are many different types of retirement accounts to choose from, including individual retirement accounts like a Roth IRA (which individuals can open on their own and contribute to with after-tax money), a 401(k) (which is a plan through an employer, and a traditional IRA (which people open on their own and gets taxed upon withdrawal).

If an employer offers retirement fund matching, take advantage of it! Matching entails putting a percentage of a paycheck automatically into one’s retirement. The employer then matches that deposit with the same amount. Employer matching can speed along an individual’s path towards saving for retirement; it’s pretty much free money.

In terms of how much to save for retirement, it can be smart to put aside at least 15% of pre-tax income every single year. Doing so can help you later on in life to avoid needing to delay retirement because not enough had been saved prior.

Searching for Low Interest Rates on Loans

Big expenses — going to college, purchasing a car, buying a home, repairing a house, or moving — can come with a big price tag. So, many individuals seek out loans to cover these big-ticket items. When taking out a loan, some smart financial strategies include shopping around and comparing interest rates — looking for the lowest interest rate possible.

As with any debt, it’s essential to pay back the loan on time every month to avoid late payment fees or dings to one’s credit history. For some, it may also be possible to refinance a loan and secure a lower interest rate.

Getting Started with Investing

For those stashing money in a traditional savings account, it’s likely that the money is earning very little interest. As a result, some individuals choose to invest their money with the hopes of earning a higher return over time.

Investing is one the financial strategies, however, that can come with higher risks. Few investments, including those in the volatile stock market, are guaranteed to make a return. For instance, investing in stocks can bear higher returns, but stocks can also plunge in value. Indeed, some investments are riskier than others.

Speaking with a financial advisor can help many to understand the pros and cons of investing and whether it’s the right choice for them.

Here’s an overview of common kinds of investments:

Investing in the Stock Market

While investing money in the stock market can result in a higher return, it’s not guaranteed. It can be safer to invest in already profitable companies that pay out dividends, which distribute some of a company’s earnings to investors. However, more seasoned investors may choose to take on more risks, investing in start-ups or lesser known companies.

Micro Investments

Should a person want to purchase stocks that are more expensive but can’t afford buying an entire share, it’s possible to complete a micro investment. Micro investments are fractions of stocks and a good way to get in on the market without taking too big of a risk.

Mutual Funds

Mutual funds are diverse investments; rather than investing in one stock, an investor is putting their money into a collection of them. The fund has a manager who decides what they’ll do with the money. Typically, investors are charged a fee to invest in these funds.

Investment Bonds

Investment bonds, which are loans made to a company or government, are significantly less risky than stocks. But, it’s worth remembering that lower risk also typically comes with a lower return. Many people get U.S. Treasury Savings Bonds when they’re children and cash them in at a later date.

High-interest Savings Accounts

Some high-interest savings accounts offer around 4.00% APY or higher on deposited funds — significantly higher than the 0.01% that many standard accounts offer. There’s no risk of lost saving, as long as account holders stay below the FDIC-insured limit of $250,000 per account holder, per account ownership category, per insured institution. Interest rates on savings accounts can, of course, vary over time and by bank.

Whichever method gets chosen, there are investment brokers and financial advisors who can offer guidance on how to utilize income and savings.

The Takeaway

Keeping tabs on income, expenses, savings, and investments is one smart financial strategy. With so much to track when it comes to personal finances, budgeting tools can help you develop smarter financial habits and trim back on unnecessary spending.

Opening an online bank account with SoFi lets you save and spend in one convenient place, while earning a competitive APY. Ready to track and then tweak your spending? A SoFi Checking and Savings Account has tools to help you do just that, as well as save towards different goals with our Vaults feature.

Learn more about SoFi Checking and Savings today.

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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.

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

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

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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