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Student loans — federal or private — begin accruing interest when they’re disbursed, with the exception of Federal Direct Subsidized Loans.

Understanding when student loans start accruing interest is essential for managing college costs and planning your financial future. Interest can begin accumulating at different times depending on the type of loan — federal or private, subsidized or unsubsidized — which can significantly impact the total amount you repay over time.

Knowing the rules around interest accrual can help you make smart decisions about borrowing, repayment, and even early payments while still in school. Keep reading when and how student loan interest starts to add up so you can stay informed and avoid unwanted surprises.

Interest Accrual Basics and Exceptions

As a general rule, interest begins accruing on a student loan as soon as it’s disbursed. While the repayment of the loan is usually subject to a grace period (detailed later in this article), the interest continues to accrue even while the payments are paused.

The one exception is when certain loans are in deferment. Interest usually does not accrue on the following types of loans while they are in deferment:

•   Direct Subsidized Loans

•   Perkins Loans

•   The subsidized portion of Direct Consolidation Loans

•   The subsidized portion of Federal Family Education Loan Consolidation Loans

What Triggers Interest Accrual on Federal Loans?

Student loan interest on most federal student loans begins to accrue as soon as the loan is disbursed, which is typically when the funds are sent to your school. This means that even while you are still in school, interest is accumulating on your loans, though you may not have to make payments until after you graduate or drop below half-time enrollment.

For federal subsidized loans, interest is triggered when a borrower enters repayment, typically after the end of the grace period following graduation, leaving school, or dropping below half-time enrollment.

Interest-Free Periods and Deferments

Certain federal student loans, such as Direct Subsidized Loans mentioned above, offer interest-free periods during specific times in a borrower’s academic and post-academic journey. While enrolled in school at least half-time, during the six-month grace period after leaving school, and during qualifying deferments, the federal government pays the interest on subsidized loans.

Student loan deferment allows borrowers to temporarily postpone loan payments due to qualifying circumstances such as returning to school, unemployment, economic hardship, or active military duty. For subsidized federal loans, deferment can also pause interest accrual, which provides financial relief without increasing the loan balance.

The Basics of Student Loan Interest

A student who takes out a student loan (or a parent who takes out a parent-student loan in their own name) signs a promissory note outlining all the terms of the loan, including the loan amount, interest rate, disbursement date, and payment schedule.

Federal student loans issued after July 1, 2006, have a fixed rate. The repayment default is the standard 10-year plan, but there are options, such as income-based repayment or a Direct Consolidation Loan, that can draw out repayment to double that or more.

Private student loans are not eligible for federal income-driven repayment plans. Interest rates on private student loans may be fixed or variable, and are based on your — or your cosigner’s — financial history. The repayment term can be anywhere from five to 20 years.

Recommended: How Do Student Loans Work?

Interest and Grace Periods by Loan

Capitalized interest on student loans can significantly increase how much a borrower owes. This is when a lender adds unpaid interest to your principal loan balance and then charges interest on your larger balance.

The Department of Education implemented new regulations in July 2023 eliminating all instances of interest capitalization that are not specified in the Higher Education Act of 1965 (HEA). That means federal student loan interest capitalization on subsidized loans no longer occurs when a borrower first enters repayment status following the grace period.

A federal student loan borrower who exits a period of deferment on an unsubsidized loan or who overcomes a partial financial hardship on an income-based repayment plan may face capitalized interest charges. Federal student loan interest capitalization can also occur upon loan consolidation. These are the few instances where federal law requires interest capitalization.

Fixed interest rates on newly disbursed federal student loans are determined by formulas specified in the HEA. These are the rates and loan fees (deducted from each disbursement) for the 2025–26 school year:

•   6.39% for Direct Subsidized or Unsubsidized Loans for undergraduates

•   7.94% for Direct Unsubsidized Loans for graduate and professional students

•  8.94% for Direct PLUS Loans for graduate students, professional students, and parents

Recommended: Types of Federal Student Loans

Unsubsidized Student Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students with no regard to financial need.

Loan fee: 1.057%

Grace period: While you’re in school at least half-time and for six months after graduation.

Subsidized Student Loans

Federal Direct Subsidized Loans
are available to undergraduates who demonstrate financial need.

Loan fee: 1.057%

Grace period: While you’re in school at least half-time and for six months after you leave school. The government pays the interest during those grace periods and during any deferment.

Direct PLUS Loans

Taken Out by a Parent

A Parent PLUS Loan acquired to help a dependent undergraduate is unsubsidized.

Loan fee: 4.228%

Some private lenders refinance Parent PLUS loans at what could be a lower rate.

Grace period: First payment is due within 60 days of final disbursement, but a parent can apply to defer payments while their child is in school at least half-time and for six months after.

Taken Out by a Graduate Student or Professional Student

Grad PLUS Loans are available to students through schools participating in the Direct Loan Program.

Loan fee: 4.228%

Grace period: Automatic deferment while in school and for six months after graduating or dropping below half-time enrollment.

Private Student Loans

Some banks, credit unions, state agencies, and online lenders offer private student loans.

Rate and fee: Rates can be fixed or variable, and rates and fees vary by lender

Grace period: Student loan interest accrual begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school.

Recommended: Private Graduate Student Loans

How Is Interest on Student Loans Calculated?

Student loans typically generate interest every day. Your annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and you are then charged interest each day on the total amount you owe.

That interest is added to your total balance, and you’re then charged interest on the new balance — paying interest on interest until the loans are paid off.

If you don’t know what your monthly payments will be, a student loan payment calculator can help. This one estimates how much you’ll be paying each month so you can better prepare for your upcoming bills.

The amount you pay each month will be the same, but the money first goes toward paying off interest and any fees you’ve been charged (like late fees); the remainder goes to pay down the principal of the loan.

As you pay down your loan, because the principal is decreasing, the amount of interest you’re accruing decreases. And so, over the life of your loan, less of your monthly payment will go toward interest and more will go toward the principal. This is known as student loan amortization.

Fixed vs. Variable Interest Rates

Federal student loans have fixed interest rates, but private student loans can have fixed or variable rates. A fixed interest rate remains the same throughout the life of the loan, providing predictability and stability in your monthly payments. This can be advantageous if you prefer a consistent budget and want to avoid the risk of interest rate fluctuations.

On the other hand, a variable interest rate can change over time, typically in response to market conditions. While this can result in lower payments if rates decrease, it also carries the risk of higher payments if rates rise. Understanding the pros and cons of each can help you make an informed decision that aligns with your financial goals and risk tolerance.

Capitalization of Interest

Capitalization of interest on private student loans occurs when unpaid interest is added to the loan’s principal balance, typically after periods of deferment, forbearance, or when a borrower begins repayment. This means future interest is calculated on a higher principal amount, which can significantly increase the total cost of the loan over time.

Unlike federal loans, where capitalization rules are clearly defined and sometimes limited, private lenders set their own policies — often capitalizing interest more frequently or under broader circumstances.

How You Could Save on Interest

Because interest can add up so quickly, it’s important to pay attention to the interest rates you’re paying on your student loans.

Student loan refinancing — taking out a brand-new loan that pays off your current loans — can lower the amount of interest your loans accrue if you qualify for a lower interest rate or a shorter term.

Even a small difference in interest rates could help you save a substantial amount of money paid in total interest over the life of the loan, depending on the term you select. To see how refinancing might save you money, take a look at this student loan refinance calculator.

It’s important to know, though, that refinancing federal student loans will make them ineligible for federal benefits like income-driven repayment plans and Public Service Loan Forgiveness.

Making Payments During School or Grace Period

Making student loan payments while still in school or during the grace period can significantly reduce the total cost of borrowing. Even small payments toward the interest on unsubsidized or undergraduate private loans can prevent that interest from capitalizing when repayment begins.

This helps keep the loan amount from growing and reduces the interest you’ll pay over the life of the loan. Starting payments early also builds good financial habits, minimizes future debt stress, and may shorten the overall repayment timeline.

The Takeaway

When does student loan interest start accruing? The minute the loan is disbursed, except on Federal Direct Subsidized Loans. It’s important for borrowers to understand and pay attention to when the interest starts accruing, as that interest can be capitalized and increase the total cost of the loan.

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

FAQ

When do unsubsidized student loans start accruing interest?

Unsubsidized student loans start accruing interest as soon as the loan is disbursed. This means interest begins to accumulate from the moment the funds are sent to your school, even while you are still in college. You can choose to pay the interest while in school or defer it.

Do subsidized loans ever accrue interest?

Subsidized loans do not accrue interest while you are in school at least half-time, during the grace period after graduation, or during deferment periods. However, interest begins to accrue once you enter repayment, typically six months after graduation.

How does interest capitalization affect loan balance?

Interest capitalization adds unpaid interest to the principal balance of your loan, increasing the total amount you owe. This can lead to higher monthly payments and more interest accruing over time, making the loan more expensive in the long run.

Can you avoid student loan interest completely?

Avoiding student loan interest completely is challenging but possible. Opt for grants, scholarships, or work-study programs. If you take out loans, pay the interest while in school or during grace periods to prevent capitalization. Choose loans with lower interest rates and pay them off quickly.

Does refinancing stop interest accrual?

Refinancing doesn’t stop interest accrual; it replaces your existing loans with a new one, often with a different interest rate. The new loan will continue to accrue interest, but the rate and terms may be more favorable, potentially reducing the overall interest paid.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOISL-Q325-021

A key part of wrangling your personal finances can be building personal wealth and preparing for the future. There are various ways you can accumulate funds, such as putting your cash in a savings account or investing in the market. If you’re not sure which option is right for you (or are wondering if you should have both), then consider this deep dive into saving vs. investing accounts.

What’s the Difference Between Saving and Investing?

Savings accounts and investments can both help you get your finances on track for your future, but they can be used to meet very different goals. A big difference between savings vs. investing is risk.

When to Save

Think of savings as a nice safe place to park your cash and earn some interest.

You probably want lower risk on money you’ll need sooner, say for a fabulous vacation in two years. A savings account will fit the bill nicely for that goal because you want to be able to get to the money quickly, and savings accounts are highly liquid (they can be tapped on short notice).

When to Invest

With investing, you take on risk when you buy securities, but there’s also the potential for a return on investment.

For goals that are 10, 20, or even 40 years away, it might make sense to invest to meet those goals. Investments can make money in various ways, but when you invest, you are essentially buying assets on the open market; however, some investment vehicles are riskier than others.

Ways to Get Started Saving and Investing

So, what are some smart ways to start your savings and investment plan?

•   First, if you’re not already saving, start today. Time works against savers and investors, so write out some of your goals and attach reasonable time frames to them. Saving for a really great vacation may take a year or two. Saving for the down payment of a house may take years, depending on your circumstances.

•   One of the first goals to consider is an emergency fund. This money would ideally bail you out of an emergency, like having to pay a hefty medical bill or buying a last-minute plane ticket to see a sick loved one. Or paying your bills if you lost your job. You should save the equivalent of three to six months’ worth of expenses and debt payments available. You can use an online emergency fund calculator to help you do the math.

•   When it comes to saving vs investing, investing shines in reaching long-term goals. Many Americans invest to provide for themselves in retirement, for example. They use a company-sponsored 401(k) or self-directed IRA to build a portfolio over several decades.

•   Many retirement plans invest in mutual funds. Mutual funds are bundles of individual stocks or other securities, professionally managed. Because they have multiple stocks within, the account achieves diversification, which can help reduce some (but not all) investment risk.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

Do Investments Count as Savings?

While there are similarities between saving and investing, there are also very important distinctions.

•   When you save, you are putting your money in a secure place. A bank account that offers Federal Deposit Insurance Corporation, or FDIC, or NCUA (National Credit Union Administration) insurance is a great example of this. You will be insured for up to $250,000 per account holder, per account ownership category, per insured institution in the very rare instance of a bank failure. And in many cases, you will be earning some interest.

•   With investments, you have the opportunity to grow your money significantly over time. For almost 100 years, the average return on the stock market has averaged 10%. However, it could be higher or it could be lower. And your funds are not insured, so you might wind up withdrawing funds at a moment where the economy is in a downturn and you experience a loss.

Because of this element of uncertainty, it’s wise to understand the distinction between saving and investing.

What Are the Different Bank Accounts I Should Own?

While some first-time savers think it’s either/or, savings account vs. investing, both have their role. Savings accounts can help you get to a spot in life where you can begin investing consistently.

There are two rules of thumb when it comes to savings and checking accounts.

•   On the one hand, you should own as few as you need. That reduces the strain of keeping up with multiple accounts and all those login passwords (and possibly fees).

•   On the other hand, don’t neglect the benefits of having an additional savings account that you set aside for a certain purpose, like a house down payment.

You might even want to have additional different kinds of savings accounts. One could be for your emergency fund, kept at the same bank as your checking account. Another might be a high-interest one for that big vacation you’re planning. And the third might come with a cash bonus when you open it and be used to salt away money for that down payment on a home.

Having Multiple Bank Accounts

It can be a good idea to have at least one savings and one checking account. If you’re married, consider owning a joint checking account for paying family bills like the rent, mortgage, groceries, and other monthly expenses. You may also want separate accounts for you and your spouse to allow for some privacy. Decide what is the right path for your family.

There are many good reasons to open a checking account. It can be the hub for your personal finances. Money rushes in from your paycheck, and then it is sent off to pay some bills. Savings accounts are more like long-term car storage, letting you stow away money for longer periods.

Both can be interest-bearing accounts, but don’t simply look for the highest rates. Shop around for low or no fees, too. You may find the right combination of these factors at online banks, which don’t have the overhead of brick-and-mortar branches and can pass the savings along to you.

Any income for regular expenses can be placed in a checking account. If you have a business or do freelance work, maybe create a completely different checking account for it.

A savings account can be a secure, liquid spot to stash an emergency fund. You might look for a high-yield savings account to earn a higher rate of interest. These are typically found at online banks and may charge lower or no fees.

A money-market account could also be good for an emergency fund since it’s an interest-bearing account. Unlike savings accounts, however, money-market accounts often have minimum deposit requirements. Keep an eye out for the lowest limits that suit your situation. The nice thing about money-market accounts is that they also offer such features as a debit card and checks. And typically, money market accounts are insured by the FDIC for up to $250,000.

What Is an Investment Portfolio?

The difference between saving and investing can be summed up with two words: safety and risk. A collection of bank accounts suggests liquidity. It’s where you keep cash so you can get hold of it in a hurry. A collection of investment assets doesn’t have as much liquidity, because you may not want to pull your money out at a particular moment, which could be due to the funds thriving or falling, depending on your scenario. It’s riskier, but also has the potential for long-term gains.

An investment portfolio can hold all manner of investments, including bonds, stocks, mutual funds, real estate, and even hard assets like gold bars. A mix can be a good way to diversify investments and help mitigate some market risk.

When you start building your savings and investment, it’s a good idea to learn all you can and start slow. Figure how much risk you can live with. That will dictate the kind of portfolio you own.

What Is a Savings Portfolio?

A savings portfolio can mean a couple of different things:

•   A savings portfolio can refer to the different ways you hold money for the future, possibly a combination of savings accounts and/or investments.

•   There are also savings portfolios which are investment vehicles for saving for college.

How Should I Start a Savings and Investment Plan?

A good way to start your savings and investment strategy could be to look into an investment account. These accounts offer services such as financial advice, retirement planning, and some combination of savings and investment vehicles, usually for one set fee, which may be discounted or waived in some situations.

In addition, you’ll likely want to make sure you have money in savings. A bank account can be a secure place for your funds, thanks to their being insured. Plus, they are liquid, meaning easily accessed, and may well earn you some interest as well.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is it better to have a savings account or invest?

Whether a savings or investing account is better depends on your specific needs and situation. You may want both. Investing can hold the promise of high returns, but it involves risk. A savings account can grow your money steadily and securely.

How much can investing $1,000 a month give me?

The amount you make from investing $1,000 a month will vary tremendously depending on your rate of return and fees involved. It’s wise to consider the risk involved in investing, historic returns, and how much of any growth will go to paying fees.

What is the 50/30/20 rule?

The 50/30/20 budget rule is a popular way of allocating your take-home pay. It says that 50% of your fund should go to necessities, 30% to discretionary (or “fun”) spending, and 20% to savings or additional debt payments.

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

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

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

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

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q325-092

You may have heard the term “slush fund” used to refer to a business setting aside money for miscellaneous and sometimes shadowy expenses.

However, a personal slush fund can be something quite purposeful and useful. It can serve as a pool of money that you can use for discretionary expenses. It can be an asset to your budget and might keep you from being tempted to dip into your emergency fund when you really shouldn’t.

Including Slush Money in the Budget

A slush fund typically describes money set aside for miscellaneous purposes, often fun, discretionary expenses.

The word “slush” was created in the 17th century to describe half-melted snow. By the following century, “slush” was also used to describe the fat from meat that was boiled on a ship for sailors to eat. When any leftover fat was sold at ports, the proceeds became the crew’s “slush fund.” When a military publication suggested that the money be used to buy books of the men’s choice, the phrase began to take on one of today’s meanings: as extra cash to spend on wants, rather than needs.

In modern business accounting, a slush fund is an account on a general ledger that doesn’t have a designated purpose and so is treated as a reserve of funds.

In its most negative meaning in the business world, a slush fund is kept off a company’s books for nefarious purposes. In the political arena, the term can be used to describe money, perhaps raised secretly, to be used for illegal activities.

When talking about personal finances, however, a slush fund is usually considered fun money: an account with some easily accessible cash you can use versus using your credit card or dipping into other funds. It can be part of your checking account or a separate account.

Budgeting With Slush Money

So do you need a slush fund? It may make sense to have one. First, it can help people to not overspend on wants. If someone uses (or has at least heard of) the 50/30/20 rule of budgeting, the slush money can be what goes into the 30% category.

Here’s how this budget technique works (you can use a 50/30/20 calculator to help you implement it):

•   50% to needs: This comprises rent or mortgage payments, car payments, groceries, insurance, student loan payments, minimum credit card payments, and so forth.

•   30% to wants: From eating out to buying a piece of jewelry or tickets to a game or concert, this is the discretionary spending category.

•   20% to savings: From emergency savings account to retirement account contributions, this money is for future spending, including but also going beyond rainy-day needs.

Here’s another reason why some people may want a slush fund: They are part of a couple and have a joint account for bill-paying and other practical purposes. Each partner may also want to have a slush account of their own, though. Those individual accounts can be used for your own personal spending (yoga classes, iced lattes, clothing, etc.) without your partner being privy to your purchases.

Tip: If you do have multiple bank accounts, it can be wise to consider online banks, where you’re likely to earn a favorable interest rate and pay low or no fees.

Pros and Cons of Slush Funds

Slush funds have their pros and cons. First, consider the upsides:

•   Easily accessible

•   Allows for discretionary spending

•   Helps you avoid using high-interest credit cards

•   May help reduce money stress.

As for downsides, consider:

•   Could encourage you to overspend

•   Could incur banking fees on an additional account

•   Funds might be better used to pay down debt or to save

•   Money might grow more or faster if saved or invested.

Here is this information in chart form:

Slush Funds vs. Emergency Funds

You may wonder how a slush fund and emergency funds differ, as both are pools of money kept in reserve.

Consider this typical distinction:

•   A slush fund is usually a smaller amount of excess cash, perhaps similar to a cash cushion, that’s kept for discretionary spending, such as concert tickets, a last-minute weekend getaway, or other purchases.

•   An emergency fund is typically an account with three to six months’ worth of basic living expenses. It’s meant to be tapped when a true emergency crops up, such as paying bills during a period of job loss or covering an unexpected medical, dental, or car repair bill. You can use an online emergency fund calculator to help guide how much you stash away.

Prioritizing What Matters

The way people organize how their money is spent is at the heart of budgeting (whether using the 50/30/20 or other budgeting method).

When their savings and spending are understood and tracked, people can adjust their budgets for even more effective prioritization.

How to set money goals? A review of your budget might indicate, for instance, that paying down high-interest credit card debt (and then paying it off) can free up money for more enjoyable pursuits.

Some people may focus on paying off student loan debt more quickly, again to free up cash in the monthly budget, while still others may prioritize building up their emergency savings account.

Each situation is unique. This trifecta might be a good place to start: a budget that meets your needs, helps you reach financial goals, and includes some room for discretionary spending.

Reaching Savings Goals

If you want to create a slush fund just for fun, good for you. Enjoying hard-earned money may be a nice counterbalance to responsible bill-paying. To help you manage your money better and reach your goals, here is a six-step process to consider:

1.    Identify goals: In this case, the goal is to set aside slush money, but priorities come into play. If, for example, an emergency fund is at the ready and retirement contributions are regularly being made, it may be time to focus on the slush fund. If one or both still need some attention, the slush fund may be third on the list for savings. Again, each situation is unique.

2.    Select a monthly deposit amount for the account: Perhaps there’s a specific goal (like creating a travel fund) or an amount can comfortably be budgeted. For a specific goal, such as a trip, it can help to figure out the time frame available to save and then divide the cost of a trip by the number of months available to save for it. That’s the monthly deposit amount required to reach the goal. For the second, saving as much as is reasonable to enjoy in the future can be key.

3.    Write down goals: Writing down what you want to achieve can boost the chances of reaching those goals. These jottings can be an ongoing reminder of what you want to achieve, keeping it front of mind. And because slush money is used for pleasurable purposes, it can be fun to write about plans.

4.    Monitor progress: By tracking daily spending habits and long-term savings habits, the process can be further refined. Some people like to use an Excel spreadsheet or Google Docs. Others use an app to track spending and set monthly budget targets. At the risk of sounding like a broken record (do people use that phrase anymore?), do what works best.

5.    Celebrate successes: For longer-term goals, savings fatigue can set it. To combat that, celebrate even the smallest of successes. Able to save $50 more this week than expected? Buy yourself a little treat (a quick massage or perhaps a bubble tea) to reward yourself for a job well done.

6.    Automate the process: Make the savings process easier by automating your finances. A certain dollar amount out of each paycheck can automatically be deposited into the savings account, or an automatic transfer can be set up from a checking account.

Recommended: How to Save Money From Your Salary

4 Tips to Help You Manage Your Slush Fund(s)

Here are a few ideas for accruing a slush fund:

1.    Be consistent. If you make a plan to save $10 or $25 or more per paycheck for a slush fund, keep up with it.

2.    Stash extra cash. If a financial windfall comes your way — a bonus, a tax refund — you may want to see how much can be earmarked as slush money.

3.    Bring in more money. Consider the benefits of a side hustle. Think of what hobbies can be turned into income earners and consider putting those extra dollars into the fund.

4.    Earn interest. Think about the best place to keep your slush account. You might choose to keep it in your usual checking account, a separate checking account, or a savings account. Shop around for the best interest rate so your money can earn money. Online banks vs. traditional banks tend to offer higher rates.

The Takeaway

A slush fund is money typically set aside for discretionary spending, meaning paying for things that are not necessities but are the fun wants in life, such as new clothes, a gym membership, or a long weekend away. This money can be kept where it’s liquid, earning some interest, and fee-free for maximum benefit.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is a slush fund used for?

Typically, a slush fund is used for discretionary spending on fun purchases. It is used for the wants, not the needs, in life.

How much should you have in a slush fund?

There is not a set amount you should have in a slush fund, unlike the case with an emergency fund. Rather, you should have enough to cover unplanned purchases or expenses, such as joining a yoga studio, buying a new suitcase, or going away for the weekend, instead of charging those costs.

What are the differences between a slush fund and a petty cash fund?

In the business world, a petty cash fund is kept for incidentals, such as catering a breakfast for a client, running out to get an office supply you ran out of, and the like. A slush fund is for other miscellaneous expenses that can crop up. Perhaps you’re an entrepreneur and have to hop on a plane to pitch a new client: The price of the ticket might come out of your slush fund.

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

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

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

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

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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