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Sticking to a budget can be challenging, but one of the best ways to succeed is to find a system that works for you. Following the right method that meets your needs and preferences can go a long way to getting your spending and saving on track.

One Japanese budgeting method that’s gaining a lot of attention these days is the kakeibo (pronounced kah-keh-boh) method. Essentially, this budgeting method involves keeping a journal of all incoming and outgoing money to encourage a more mindful approach to spending.

Let’s take a closer look at how this unique Japanese money management method works, including:

•   What does kakeibo mean?

•   How does the kakeibo method work?

•   What are the kakeibo categories?

•   How can you properly use kakeibo to budget better?

What Is the Kakeibo Method?

So, what is the kakeibo method? Kakeibo translates to “household financial ledger” and is a very simple budgeting method. All you have to do to embrace the kakeibo method is keep a journal and log all of your incoming earnings and all of your outgoing expenses. By keeping this journal, you, the spender, will become more mindful of each purchase you make. This can help you focus more on your goals than on impulse purchases.

At its most basic, the kakeibo method could be thought of as “slow budgeting,” meaning it slows down the pace of managing your finances. In a world of apps and websites, it may suit those who want to unplug a bit and let the details of a budgeting program really sink in by working with pencil and paper, although there are digital tools that can make kakeibo work for those who love one-click convenience.

How Does Kakeibo Work?

The kakeibo method works by creating a kind of detailed line item budget at the beginning of each month based on your projected income and spending, while keeping savings goals in mind. As you spend money throughout the month, you will keep a diary or journal of sorts where you track every single penny you spend.

At the end of the month, you can review your journal to see the progress you’ve made on your savings goals and if you stuck to your original targets. This reflection period can also help you adjust your monthly budget or behaviors as needed in the upcoming month.

History of Kakeibo

Kakeibo was invented in 1904 by Hani Motoko, who is often referred to as Japan’s first female journalist. She designed this system as a way to make a budget for beginners. Specifically, she was creating a budget system for homemakers to keep track of their household spending. The concept she designed is simple and gives people control over their budgets while helping them become more aware of their spending habits.

Properly Using Kakeibo

There are four important questions you can ask yourself in order to use this Japanese budgeting method properly.

How Much Money Do You Have to Spend?

First, it’s important to write down how much income you expect to come in. If you are a W2 employee, you can simply look at past paychecks to figure out how much you bring home after taxes in a month. If you are self-employed or work variable hours, you can look at multiple months of past income to get a general idea of how much you earn.

How Much Would You Like to Save?

An important part of any budget that’s easy to forget is adding savings goals as a fixed expense. You can ask yourself how much you want to save each month and add it into your budget so you don’t accidentally spend that money.

If you’re wondering how much money to save each month, financial experts typically recommend 20% should go towards funding your savings goals. This is part of the popular 50/30/20 budget rule, which you’ll learn more about below.

How Much Money Are You Spending?

While it can be hard to nail down exactly what you spend in a month, you can start with the “needs” in life. What are the basic expenses of living? These include the basic things you need to survive, such as:

•   Housing

•   Food

•   Basic clothing

•   Utilities

•   Healthcare

•   Transportation for work and school

•   Debt payments

As you watch your budget, kakeibo encourages you to see how your discretionary spending is evolving. For instance, you may realize that during the start of the pandemic, you signed up for a variety of streaming services which you forgot about. You might opt to unsubscribe for one or more of them.

However, it also (as you will see from how expenses are categorized, below) encourages you to think about how to use your dollars to make your life more enjoyable.

How Can You Improve Next Month?

Any budget is a work in progress. A key element of the kakeibo method is journaling spending to encourage mindfulness. At the end of the month, you can look back at your spending to see where you can improve.

In this way, you become more intentional with your money. By getting granular with your understanding of your spending, you will better realize the impact of unplanned, impulsive or compulsive spending. And you will hopefully be better able to rein it in.

Kakeibo’s Category System

The kakeibo method involves tracking spending in four different budget categories. Here’s how they stack up:

1. General

This category consists of essentials that you can’t cut from your budget like food, utilities, healthcare, rent, and transportation. Now, while it’s true these expenses can’t be cut entirely because they are necessities, they could be decreased if needed. You could look for ways to decrease your heating bill in winter, or even move to a smaller home or one in a less expensive neighborhood.

Recommended: How Much Should I Spend on Rent?

2. Wants

Wants are purchases someone enjoys like travel, clothing, and dining out, but that aren’t essentials. Sometimes, it’s easy to blur the lines between needs vs. wants and believe that discretionary expenses are musts. A few examples:

•   Thinking you need your fancy takeout latte every morning when you really could have made a cup of joe at home for a fraction of the price.

•   Saying you “had” to take an Uber when, if you’d woken up a bit earlier, you could have used public transportation.

•   Insisting that you “must” buy new clothes every fall, even though you might have a closet full of wearable garments.

Do a little soul-searching as you categorize your spending, and properly identify your purchases.

3. Culture

This unique budgeting method carves out space for cultural activities. These could include:

•   Museum admission or membership

•   Tickets to a concert, play, or dance performance

•   Books

•   Admission to a local garden or zoo

Thanks to this category, the kakeibo budgeting method can get you thinking about spending towards quality of life and valuable experiences, rather than just material goods.

4. Unexpected Extras

This category includes purchases that aren’t recurring and may come as a surprise. Some examples are:

•   Birthday or holiday gifts

•   Car repairs

•   Unexpected medical bills

These kakeibo categories can help you get a clearer understanding of where your money is going. This can, in turn, make it easier to adjust spending habits and meet savings goals. While it can feel a bit tedious to write down every single purchase, doing so will help make spending become much more mindful.

How Kakeibo Is Different From Other Budgeting Methods

Each budgeting method puts its own spin on money management. The kakeibo method is different from other types of budgets because it focuses more on creating better spending habits than strictly sticking to a budget.

By making you aware of your spending in detail, you become better attuned to your money and more aware of how impulse spending can derail your budget.

Benefits of Kakeibo

Having a budget that illuminates your financial situation and helps you avoid overspending can be a key step in financial self-care. Kakeibo has helped many people with this. Some of the specific benefits associated with this method include:

•   Makes spending more mindful

•   Simplifies budgeting into four distinct categories

•   Encourages realistic savings goals

•   Emphasizes making slow but steady progress

•   Celebrates small achievements.

Disadvantages of Kakeibo

There are also some disadvantages associated with kakeibo that some budgeters may find discouraging.

•   Can be time-intensive

•   Detailed record-keeping is required, which can be tedious to some people

•   May not provide enough structure to motivate some

Who Is Kakeibo Suited for?

The kakeibo method is best suited for someone who wants a simple budgeting method, who needs to make their spending habits more mindful, and who wants to work towards savings goals.

It may also be best for people who don’t get impatient with record-keeping, as it does involve very detailed tracking of expenses.

Alternatives to Kakeibo

If you feel the kakeibo method isn’t the right budgeting system for you, try one of these budgeting systems instead:

•   Envelope budgeting method. This technique relies on budgeting out purchases for the month in cash envelopes labeled with each intended spending category. So you’d distribute your income into envelopes marked with things like food, clothing, etc. When you’ve spent the money allocated in a given envelope, that’s it; no more is available.

•   The 50/30/20 rule. With this type of budget (briefly mentioned above), 50% of expenses go toward necessities, 30% goes toward lifestyle spending, and 20% goes toward saving for financial goals. There’s also a similar budgeting principle called the 70/20/10 rule for those who have higher living expenses.

•   Zero-based budget. This budgeting method requires budgeting out every single dollar of income that comes in a month. This doesn’t mean someone has to spend all of that money; it’s possible to allocate money towards a savings goal.

Banking With SoFi

The kakeibo method is a simple budgeting technique that can help consumers break bad spending habits and become more mindful with their money. It may not work for everyone, but it’s worth a try if someone is ready to devote time and energy towards spending less and saving more.

If you’re looking to save more, see how a SoFi Checking and Savings account could help. When you open our bank account with direct deposit, you’ll earn a competitive APY and pay no fees, which can help your money grow faster. Plus, you’ll spend and save in one convenient place and have access to tools that can help organize your money, set savings goals, and save your change with Vaults and Roundups.

FAQ

How do you do kakeibo?

The kakeibo budgeting method is fairly simple. All someone has to do is write down all of the money they have coming in each month (income) and, as they spend it, record where it goes. This method involves tracking spending in four different spending categories: general, wants, culture, and unexpected extras.

Is there an app for kakeibo?

While it’s possible to manage a kakeibo budget with good old-fashioned paper and pen, some people might want to record their spending digitally. There are a variety of apps on the market designed to help people manage their kakeibo budget.

How do you make a kakeibo journal?

All anyone needs to create a kakeibo journal is to grab an empty notebook they have on hand or buy an inexpensive one. There’s no need to get fancy here; a blank or lined notebook does the trick.

Photo credit: iStock/mphillips007

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.

SOBK0622034

Income is money earned, plain and simple, right? While that statement is true, it doesn’t tell the full story. If you look a little more closely, you’ll learn that there are two kinds of income. Active income is money you make by actively participating in work, whether you are salaried or hourly, employed or own your own business, earn commissions or tips, and so on.

Passive income, on the other hand, is typically money that you earn without active participation. Examples might be money generated by a rental property you own or a YouTube account you started but haven’t updated.

It’s important to know the difference between the two for multiple reasons, including the fact that the IRS treats active and passive income differently. Both are taxable, but in distinct ways, so it’s important to correctly classify each.

To understand active income vs. passive income, read on. You’ll learn:

•   What is active income?

•   What is passive income?

•   Examples of passive vs. active income.

•   Why it’s important to know the difference between active and passive income.

What Is Active Income?

Active income requires you to take action to make money. Working a 9-to-5 job, earning tips as a cosmetologist, and driving for a rideshare app are examples of this principle in action. All require active participation to earn money and are thus considered active income.

Most people (i.e., those who don’t inherit money or come into a large sum of money without effort) will need to earn active income to pay bills and build their savings. Active income is often dependable in quantity and schedule (e.g., a regular paycheck for a salaried position).

With enough active income, you may be able to invest in something that generates passive income down the road (you’ll learn more about that kind of money in a moment).

Recommended: What Is Residual Income?

Examples of Active Income

Earning active income is something that so many of us do — from doctors to mail carriers, from plumbers to programmers. Even people who own their own business, work side gigs, or rely mostly on tips earn active income.

Here are the main sources of active income:

•   Salaries

•   Hourly wages

•   Income from invoices as an independent contractor

•   Sales commissions

•   Tips

•   Bonuses

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

What Is Passive Income?

Passive income can be more difficult to define because the IRS has a long list of qualifiers that can be a bit challenging for the average person to understand. At a high level, the IRS guidelines for passive activities are as follows identifies two kinds of passive activities:

•   Trade or business activities in which you don’t materially participate during the year

•   Rental activities, even if you do materially participate in them, unless you’re a real estate professional.

The key phrase to consider in the IRS’s definition of passive income is “materially participate.” The IRS has a list of seven tests (“material participation tests”) to apply to your income to determine if you actively participated in generating it.

These tests measure things like hours of activity (500+ hours in a year automatically makes it active income) and level of involvement.

You only have to satisfy one of the seven tests for your income to be considered active — which has tax implications. That’s why it’s wise to work with an accountant to properly define your income.

Examples of Passive Income

Because the IRS has strict rules regarding the classification of passive income, things get complicated. An activity could be classified as active for one person but passive for another. It comes down to how you participate.

With that caveat in mind, there are some top ways to make passive income:

•   Renting a space: Whether you are renting out an entire property, renting a room in your home, or even renting a garage or parking spot, the income can be classified as passive.

•   Affiliate marketing and ads: If you have a high-traffic website that does not require regular content creation to drive traffic, you can earn passive income through affiliate marketing (adding specific links to products or services) and through display ads.

•   Licensing intellectual property: If you’ve written a book, designed an online course, taken high-quality photos, or even engineered an app, you might be able to earn royalties whenever someone purchases your creation.

•   Cash back from a credit or debit card: If you are using a cash back credit card for everyday purchases, that “free money” can serve as passive income. But remember, with cash back, you’ve got to spend money to make money. Nice to know: The IRS views cash back on rewards cards as a coupon or rebate, which means you don’t need to worry about tax implications.

💡 For additional ideas, check out our Passive Income Ideas for 2023 Guide.

Some personal finance blogs might tell you that interest, dividends, and earnings from investments are passive income. After all, you just put your money in an account, and the money (usually) grows on its own; you don’t have to expend any effort. However, the IRS classifies this as “portfolio income,” and it has its own separate tax implications.

Active vs Passive Income: What’s the Difference?

So what is the difference between passive and active income? Generally speaking, you have to actively and continually work to keep active income flowing into your bank account. Passive income often requires labor and financial investment upfront, but once everything is in place, passive income should flow to you without the need for much, if any, effort.

A strong example of active vs. passive income is flipping a house vs. renting out a house. Consider the difference:

•   If you regularly buy houses, renovate, and sell at a profit, you are making active income. If you stop buying and selling houses, the income stops.

•   If you buy a property and rent it out to tenants, you have a passive income stream flowing in each month — with occasional expenses like property taxes and maintenance.

Broadly speaking, passive income might refer to interest and dividends, royalties, money made from digital content creation, rental properties, and more. But as far as the IRS is concerned, passive income has a much narrower definition. It’s a good idea to work with a certified accountant to understand how your income should be classified and taxed.

Next, take a closer look at the differences between the two types of income.

Potential Yearly Income Made

Active income is generally more dependable, especially if it’s from a salaried or hourly job with a set number of weekly hours. Thus, it’s easier to predict your yearly income.

Certain types of passive income, like rental income, might be more predictable than others, but you still might encounter unexpected expenses like maintenance and repairs or sudden vacancies. Other types of passive income, like money from display ads or affiliate marketing, depend on the number of people who visit your website and actively click links.

How These Are Taxed

Taxes on active income are generally straightforward. If you’ve paid taxes before on hourly or salaried wages, you’ve already paid taxes on active income. It’s a good idea to brush up on federal tax brackets before tax season.

Taxes on passive income are more complicated and can vary by situation. Income from real estate you lease out, for example, has its own rental property IRS regulations . If you earn passive income, working with a certified account can be a smart move to ensure you get your taxes right each April.

How These Incomes Affect Lifestyle

Active income requires that you regularly work to generate money. For the average American, that looks like a 40-hour work week, though some people may work part-time while others may typically put in more time on average.

Because passive income requires minimal (or no) participation, you might be able to lead a more flexible life. This assumes you have enough passive income flowing in each month to pay your bills and maintain a monthly budget. If that’s the case, you might be able to travel more freely, focus on volunteer work, or spend time doing your favorite hobbies. Or passive income might supplement your full-time active work, allowing you to save more for retirement or meet other financial goals.

The Takeaway

Most Americans who work earn active income; that is, making money requires their active participation on an ongoing basis. Passive income, on the other hand, requires little to no involvement, meaning you might make money without lifting a finger, though often an initial investment of time and cash is required. The IRS has important qualifications for active, passive, and portfolio income (from investments); understanding the differences and how they are taxed is important when you file.

Looking to grow your active or passive income? Open a SoFi bank account with direct deposit to take advantage of a competitive APY on every cent you put in the account. Our Checkings and Savings account also lets you conveniently spend and save in one place, and it has automatic savings features and no monthly fees. Plus, eligible accounts can access their paycheck up to two days early.

FAQ

What are the pros and cons of active and passive income?

A major benefit of active income is that it is usually dependable; however, you have to regularly and consistently work to earn that money. A benefit of passive income is that, after potentially investing time and money upfront, it requires little to no ongoing work. The cash may simply come your way. Worth noting: The tax implications of passive income can be complex and require professional guidance.

Do all people need to have passive income?

You do not need passive income to pay your bills; for many people, active income from their job will suffice. If you would like to infuse more flexibility into your life and earn additional income, it could be a smart move to generate passive income streams.

Can you live solely off of passive income?

It is possible to live solely off of passive income if you establish enough steady passive income streams to cover your expenses. Many passive income streams require work upfront and/or an initial investment, but once they’re going, they might be easy to maintain.

Is active income better than passive income?

Both active and passive income have pros and cons. Active income requires ongoing work but can mean a steady paycheck. Passive income may need an initial investment of time and money but can then keep cash flowing your way. Generally speaking, any type of income is good because it enables you to pay your bills, pay down debt, build your savings, and even invest.

Photo credit: iStock/Adrian Vidal

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.

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.

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.

SOBK0822001

Spending money is typically fun, while saving money is hard — all that temptation to buy cool new things or try the latest restaurant. Which is why we can all use a little extra motivation to stash away some cash, and a savings club can play a role in that process.

What is a savings club? Basically, savings clubs are a type of bank account in which the account holder contributes to the account over time to meet a specific goal. It can be a valuable option vs. breaking out your plastic and running up credit card debt.

Keep reading to learn more about savings clubs, including:

•   What is a savings club?

•   How does a savings club work?

•   What are the pros and cons of savings clubs?

•   How can you open a savings club?

What Is a Savings Club?

So, what is a savings club? A basic savings club definition is that it’s a bank account that the account holder uses to hold funds to meet a specific savings goal. For example, some people set up what are known as “Christmas clubs” in which they make regular contributions throughout the year to save for holiday gifts, travel, decor, and parties. By saving gradually in advance, they may be able to avoid the wallop of that major end-of-year credit-card bill.

Usually, savings clubs accounts that can be opened at a bank or credit union. They can be a good idea in terms of where to put short-term savings, as they typically earn interest. Often these savings clubs have other incentives attached to them to encourage account holders to follow through on their savings goals. There can also be penalties associated with savings clubs — such as forfeiting earned interest for withdrawing funds from the account early — to help motivate people to keep saving.

Recommended: How Much Money Should I Save a Month?

How Do Savings Clubs Work?

Usually, savings clubs create a schedule the depositor can follow to make regular deposits of a certain amount. So, say you open a savings club account to gather cash for a vacation next summer. If you want to save $1,200 over one year, the club would guide you through depositing $100 a month to meet that goal. Typically, the end date associated with a savings club aligns with your goal, whether that’s heading to Hawaii, getting married, or celebrating the holidays.

Deposits for savings clubs can be drawn from the account holder’s paycheck, which can make it easier to steadily progress towards meeting a savings goal. Automatic savings transfers can be a real helping hand because you don’t see the money in your checking, as if it’s available to be spent.

Some savings clubs allow multiple people to contribute to it — similar to another type of savings account, the joint account — so they can work together towards a savings goal. While usually only couples share a bank account, friends, or family members can choose to contribute to a savings club together to save up for a group vacation, present, or family reunion. Or some financial institutions will allow parents to help a child open a holiday savings account. In all cases, this can be a good strategy, since savings club accounts may offer higher interest than a typical savings account, though there can be penalties for early withdrawal.

Benefits of a Savings Club

There are quite a few benefits attached to savings clubs, including:

•   Saving on a schedule towards a specific goal

•   Offering saving incentives

•   Creating discipline in a savings routine

•   Teaching children about financial literacy and the value of saving

•   Paying higher interest rates than typical savings accounts

Recommended: How Do You Calculate Interest on a Savings Account?

Drawbacks of a Savings Club

There are also some downsides associated with savings clubs worth being aware of:

•   Withdrawing funds early can lead to penalties

•   Not contributing on schedule can lead to penalties

•   Some savings clubs can be scams if not hosted by a financial institution such as a bank or credit union (beware “money board” and “circle game” schemes)

•   Investing money elsewhere may lead to more growth

Savings Club vs Savings Account: What’s the Difference?

There are many reasons why you would put money in a savings account, and savings clubs offer a specific financial product to serve a specific goal. Let’s look at some differences between these two account types.

Savings Clubs Can Offer Higher Interest Than a Traditional Savings Account

One of the reasons savings clubs can be so motivating is because they often offer a higher interest rate than traditional savings accounts do. Knowing your money can grow faster can be an exciting prospect.

Savings Clubs Have Penalties for Premature Withdrawal

There are no penalties when someone withdraws money from a standard savings account. Nor is there a set period of time they have to keep their money in the account.

With a savings club, however, there can be penalties (such as losing the interest accrued) for actions such as withdrawing funds before the predetermined end date or for not making a contribution according to the savings club schedule. These penalties can be an incentive to save, but they can also create a challenging savings environment.

Savings Clubs Often Require a Minimum Deposit and Term Lengths

While basic savings accounts don’t usually have strict requirements attached to them, savings clubs often have minimum deposit requirements. These requirements may be as low as $1 or can be much higher. Savings clubs can also come with predetermined term lengths — usually six months to a year — and may require automatic weekly or bi-weekly deposits. Some people don’t like feeling “locked in” in this way.

Recommended: How Do Savings Accounts Work?

Starting a Savings Club

In most cases, you’ll start a savings club that’s hosted at a bank or credit union, review the terms, make an initial deposit, and continue funding the account.

Some people may choose to set up social savings clubs with friends and/or relatives by taking the following steps.

•   Define a savings goal for the club

•   Find people to join the savings club

•   Create savings club rules and structure

•   Commit to the planned schedule and follow through

Where the funds are actually kept can be decided by the group; an interest-bearing savings account will offer the nice perk of having your money earn money.

Banking With SoFi

Savings clubs can offer a motivating way to stockpile cash, thanks to their usually higher interest rates (compared to traditional savings accounts) and their structured schedule.

If you’re looking to earn money on your savings, another path is to open an online bank account with SoFi. When you start a Checking and Savings account with direct deposit, you’ll earn a competitive APY and pay zero account fees, which can help your money grow faster. Plus you’ll spend and save in one convenient place, have fee-free access to 55,000+ Allpoint ATMS, and get tools that help you organize your money, set money goals, and save your change with Vaults and Roundups.

FAQ

Why would someone join a savings club?

Savings clubs can help you efficiently save towards a specific short-term goal, like accumulating money for the holidays or for a vacation. Benefits of saving this way include a motivating format and often a higher interest rate vs. traditional savings accounts do. Also, the potential penalties associated with not sticking to the schedule can also motivate people to save.

Should I have a savings club or savings account?

Whether or not you should have a savings club vs. a standard savings account depends on your personal goals and preferences. If you benefit from having a savings schedule and are offered a good interest rate, it may be a great fit. If, on the other hand, you want the ability to withdraw funds from your account penalty-free, it may not be the right move.

Can I use a savings club for long-term savings?

Savings clubs are usually designed to meet short-term goals, not long-term savings goals. They typically last for six months to a year. Those looking for long-term growth may find that investing money elsewhere can lead to more growth than a savings club can offer.

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

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

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

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

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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.

SOBK0622028

There are many factors to think about when choosing a cryptocurrency exchange, but for many investors, things like liquidity, ease of use, and whether the exchange operates in your area should likely be top of mind. Those considerations could save you time and money right off the bat.

While not all crypto investors will have the same specific priorities when it comes to choosing a crypto exchange, a majority of people in the crypto space may consider the following variables — in the following order — to open an account, and start trading.

Understanding Crypto Exchanges

Cryptocurrency exchanges are platforms that provide investors and traders a place to buy or sell cryptocurrencies, and generally, exchange their fiat currency (such as U.S. dollars) for crypto. They typically work much like a brokerage account, where users open an account, fund it, and then buy and sell securities, like stocks, bonds or ETFs.

How They Work

Curious about the inner workings of crypto exchanges? Thankfully, as a user you don’t need to worry too much about it, as most of these exchanges do their best to make the trading process as seamless as possible to attract and retain users.

But again, these exchanges more or less work in a very similar way to a brokerage account — which allows you to buy and sell securities on the stock market. Effectively, they serve as market-makers and pair buyers with sellers. They will sell you certain cryptocurrencies (not all cryptos are available on all exchanges!) for your fiat (such as U.S. dollars), and then trade one crypto for another.

Crypto exchanges usually can be accessed through a smartphone app or a web browser, and allow users to connect a crypto wallet, or use the exchange’s custodial wallet, in order to execute trades.

14 Key Factors for Choosing a Crypto Exchange

As mentioned, there are a slew of factors that investors should consider before settling on the best crypto exchange for their trading or investing style. Here are 14 of those factors, in descending order, based on what might be the most important for the average crypto investor:

1. Jurisdiction

First and foremost, figure out if the exchange your eyeing serves customers in the state and country in which you live. There are a lot of rules and regulations at play here, so if the answer is no, then you won’t be able to use the exchange in question.

Some exchanges have website addresses specific to each country, too. Instead of “exchange.com,” for example, U.S.-based users might have to visit “exchange.us.” An exchange’s jurisdiction reflects not only their target market, but also where they’re allowed to do business due to certain cryptocurrency rules and regulations.

2. Ease of Use

How familiar with trading are you? That’s an important consideration when choosing a crypto exchange.

Newer investors might feel intimidated by exchanges that display things like order books, or have a complex interface with lots of charts and other information.

If that’s the case, a newbie-friendly exchange might be the best option. Some cryptocurrency exchange sites have “basic” and “advanced” views, allowing users to choose their layout. Others are designed specifically for those getting into crypto investing as a beginner to avoid any potential confusion.

3. Liquidity

Traders need liquidity so they can make trades at any time. This means an exchange must have a high enough volume of orders flowing through its order books on any given day.

In order to get that volume, an exchange must have either a lot of users, or users who hold a large amount of assets on the exchange and trade them frequently. If there are only a small amount of orders available, then there may not be available trading partners.

Liquidity is also important during times of high volatility, which happen often in the crypto markets. Less liquidity can exacerbate volatility to the point where prices can experience dramatic rises and falls.

4. Asset Choices

Does the exchange in question trade the assets you want? With thousands of different types of cryptocurrency in existence, no exchange can make trading pairs available for all of them. For instance, most exchanges will likely have popular coins like Bitcoin, Ethereum, and Binance coin available for trading, but not all may have a less-popular crypto.

In general, the higher market cap coins have a higher likelihood of being traded on popular exchanges. Investors looking for more exotic, lesser-traded coins might have to search out smaller exchanges. That may require some research, so have a wishlist handy, and see what’s out there.

5. Security

Numerous exchanges have had security issues over the past couple of years, so it goes without saying that you’ll want to keep security top-of-mind when choosing an exchange.

Holding coins on an exchange means trusting someone else with that money. In most cases, if the exchange gets hacked or an employee steals coins, investors end up empty handed. And yes, that’s entirely possible!

Most exchanges will offer information about their security practices somewhere on their websites. While no exchange is 100% secure, and it’s hard to know which is the most secure cryptocurrency exchange, you might consider looking for which exchanges have been around for the longest time, have the most customers, and have had the least amount of problems.
Potential features worth considering might include:

Cold Storage

The term “cold storage” refers to crypto assets being kept in a crypto wallet that stays offline where hackers can’t access them.

💡 Recommended: Cold Wallet vs. Hot Wallet: Main Differences

Multi-Signature Wallet

Multi-signature wallets require multiple forms of verification, or signatures to be accessed. Users might have to use two different email addresses to open a multi-sig wallet, for example.

6. Reputation

When choosing what restaurant to go to on the weekend, many people check reviews to help them decide where to go. Those looking at cryptocurrency exchange sites can consider doing the same. To do a little background research on what past and existing users of a particular exchange have said about it, do a search for “xyz crypto exchange reviews.”

7. Trading Fees

Fees often represent a hidden cost when it comes to purchasing cryptocurrency. Exchanges make their money by extracting fees from most or all transactions.

Be sure to understand what you’re being charged on any crypto exchange.

Some exchanges have their own native “exchange tokens,” similar to how ETH is the native token for the Ethereum blockchain. The exchanges create these tokens and often use them to give holders discounted trading fees.

For example, if a Binance user holds Binance Coin (BNB) in their Binance wallet, for example, then they would likely pay lower fees. The fees for each trade they make will be taken in the form of BNC, rather than from the currency pair they are trading.

8. Customer Support

Newer users might have a number of questions regarding the basics of crypto and how the exchange works. And odds are, you’re going to run into problems at some point — that’s why it’s good that an exchange has quick support options.

Sometimes the need for customer support could be urgent, as your money could be at stake. Crypto markets move quickly, and waiting days for a response from customer support could have real financial consequences. That’s why investors should look into the reputation of an exchange’s customer support service. Ensure that they respond quickly, that customers seem generally satisfied, and that the exchange makes customer service a priority.

9. Insurance

Some exchanges insure some or all of user funds. This might be an attractive selling point to investors who don’t like the idea of entrusting their money to a company with whom they’re unfamiliar. An exchange that offers insurance could shield investors from losses should anything catastrophic happen (like a hack or employee theft).

Insurance policies vary, so finding out details for a particular exchange would require independent research.

Crypto exchanges that offer various types of insurance include:

• Coinbase

• Binance

• Bittrex

• Gemini

Be aware, though, that crypto exchanges are not traditional financial institutions, and are not protected under the same rules and regulations. Your funds are not protected by SIPC insurance, for example.

10. Tech Infrastructure

Matching engines (which sync up buyers and sellers) built by developers aim to give exchange users a seamless experience when placing orders. A high-quality matching engine gives an exchange the ability to match orders even during times of extreme volume and volatility.

A good matching engine represents just one part of the infrastructure needed to create new trading pairs and order types, making it easy for the exchange to better serve its customers.

11. Leverage and Products

Most popular crypto exchanges are spot exchanges, meaning that they trade the actual cryptocurrency against fiat currency or other cryptocurrencies (most cryptocurrencies traded against Bitcoin or U.S. dollar stablecoins).

But some exchanges are derivatives exchanges, meaning they trade derivatives of cryptocurrency and not the actual coins themselves. Some common forms of derivatives include options and futures, where investors agree to buy or sell a commodity at a future date for a set price. The underlying commodity — crypto, in this case — doesn’t actually trade hands.

💡 Recommended: What Are Bitcoin ETFs?

Derivatives exchanges sometimes allow traders to make use of leverage, which allows them to make bets with more money than they have in the exchange. For example, 10x leverage would allow a trader with $1,000 in their account to trade with $10,000. This can amplify both gains and losses, and for many traders, can be extremely risky.

12. Deposit and Withdrawal Limits

Even if you’re planning on HODLing for as long as possible, you may still want to make withdrawals at some point. So, it’s important to know that while most exchanges don’t have a minimum deposit requirement, exchanges may put limits on how much money a user can withdraw or deposit in a given timeframe.

For example, a trader might only be able to withdraw $25,000 worth of fiat or crypto per day. As such, those interested in moving large amounts of money might want to consider limits like these. Even the best cryptocurrency exchange app might have strict limits on the amount of funds that users can move within a specific time period.

13. Transparency

As it relates to crypto exchanges, “transparency” refers to whether the exchange itself is upfront with its fee structure, the time it takes to complete trades and transactions, what jurisdictions it operates in, and, perhaps most importantly, how secure the exchange itself actually is.

If an exchange is evasive about those things, it may signal a lack of transparency, and send up red flags. Given how many scams and hacks there have been in the crypto space, investors and traders should take transparency seriously.

14. User Experience (UX)

If you’re going to use a crypto exchange, the experience should be pleasant. So, UX should be yet another factor to consider when choosing an exchange. Ask yourself: Does the exchange’s interface have an intuitive, modern feel? Are you getting lost in the settings and menus? Is the whole thing filled with confusing jargon?

If you answered in the affirmative to any of those questions, you may want to see what other exchanges are out there, and which may provide a smoother ride for users.

The Takeaway

Crypto exchanges are complicated, and choosing the right one for you and your goals requires some due diligence. It helps to know what kind of crypto you plan to trade (not all types of crypto are available on every exchange), and to set up a crypto wallet.

When choosing a crypto exchange, you also want to consider the fee structure, overall security, whether or not the exchange operates in your given jurisdiction — and how easy the exchange is to use.

FAQ

Which crypto exchanges are considered the most secure?

Generally, the biggest and most popular crypto exchanges are considered the most secure, as they have the most users and likely the biggest teams supporting their networks. They also have the most to lose from a potential hack or security snafu.

What do consumers look for in a crypto exchange?

Depending on their preferences, consumers can and do look at a number of factors and variables. Among the most common are security, liquidity, ease of use, fees, and whether or not the exchange operates in their country or state.

What are the crypto exchanges with the most users?

Some of the largest crypto exchanges in the world by user count include Binance, Coinbase, Kraken, Crypto.com, Gate.io, and OKX.

Photo credit: iStock/Drazen_

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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.