SoFi

If someone has a lot of money, you might say they’re rich or even wealthy. But there’s actually a difference between wealthy and rich in terms of how much money you’re talking about and how someone uses their financial resources.

A rich person can have a lot of money or earn a high income, but their money may only go so far if their lifestyle is extravagant or they take on significant debt. They may live in the moment or spend freely, compared to a wealthy person who’s more focused on securing their long-term financial picture.

Is it better to be rich vs. wealthy? Here’s a closer look. Understanding the difference between them can help you to shape your personal financial plan.

What Does ‘Rich’ Mean?

If you ask friends, family members, or coworkers whether they’d like to be rich, quite a few of them might say yes. After all, if everyone was satisfied with their financial situation, then get rich quick schemes wouldn’t exist. But what is the difference between rich and wealthy, and does it matter?

If you look up “rich” in a dictionary, the most common definition centers on what a person has. Someone who’s rich has a lot of possessions and material wealth. So a rich celebrity or social media influencer, for example, might own multiple homes, cars, or jewelry that’s worth millions. They may spend their time jet-setting around the world or partying with other rich people.

That’s what it means to be rich in a financial sense, but someone could also be rich in other ways. For example, someone who has an extensive personal network may be said to be rich in friends. And someone who’s extremely well-learned or well-traveled may be described as being rich in knowledge and experience.

There can be significant differences in how one person views being rich compared to another. For example, a Gen Zer thinks that, on average, $394,000 in income is sufficient to achieve rich status. Baby Boomers, on the other hand, believe that you need over $1 million in income to be considered rich, according to a survey from luxury real estate website RubyHome.

What Does ‘Wealthy’ Mean?

When discussing what it means to be wealthy vs. rich, it’s easy to assume they’re similar. Both rich people and wealthy people may maintain a lifestyle that’s posh and out of reach for the average person. The distinction between wealthy and rich, however, is that wealth is more sustainable and lasting than simple riches.

There are different ways to measure wealth. The Census Bureau, for instance, uses net worth to estimate the wealth of American households. Net worth is the difference between your assets (what you own) and your liabilities (what you owe). Someone who is wealthy may prioritize accumulating assets that produce income or appreciate in value over time, while limiting their exposure to debt.

Wealthy people may enjoy much higher incomes than everyday people, and, importantly, they may spend less than they earn. Some wealthy people are born into money; others build their fortunes through a combination of career, entrepreneurship, and careful investment.

When talking about wealth, some make the distinction between new money vs. old money. New money is earned while old money is passed down from generation to generation. In the U.S., many of the wealthiest individuals are well-known business owners or investors, like Jeff Bezos, Bill Gates, and Mark Zuckerberg to name a few. Some of these billionaires were born into wealthy families while others were not.

Key Differences Between Rich and Wealthy

When comparing rich vs. wealthy people, the way they approach money matters. Rich people may see money as a means to buy things and maintain a certain lifestyle. Wealthy people, on the other hand, may view money as a means of creating more money, either through investments or business ventures.

Here’s a closer look at the difference between wealthy and rich.

Amount of Money

There’s no set dollar amount at which someone goes from being rich to wealthy. Instead, it’s largely about perception. For example, you might feel rich if you normally keep $500 in your bank account and you decide to use a tax refund to bump that up to $5,000. Meanwhile, someone who wins $100 million in the lottery after working a minimum-wage job for years might think of themselves as rich rather than wealthy.

Generally, the higher your net worth, the closer you get to the wealthy vs. rich divide. Someone who has $10 million in assets and no debt, for example, may be in a better position to invest and fund philanthropic efforts than someone who’s making $200,000 a year but has a negative net worth because of debt. The person with the $10 million in assets is wealthy, while the other person’s earning power could put them in the “rich” bucket, though their debt actually erases that upon a closer look.

Investments

People who are rich may put spending and funding their lifestyle ahead of investing. So even though they might pull in a six- or even seven-figure income each year, a lot of that money goes right back out of their bank accounts. They might have some retirement savings if they’re participating in, say, their 401(k) at work, but investing may get pushed to the backburner.

Wealth investing can look very different. Wealthy people tend to invest their money so they can grow it and turn it into more money. They may have money in real estate, the stock market, and other investments that provide them with passive income or aids in building additional wealth for themselves and future generations.

How They Live Their Lives

Money can be a tool for improving your quality of life, but what that life looks like can be very different if you’re rich vs. wealthy. A rich person might think nothing of dropping $10,000 on a shopping trip or last-minute travel. They live in the moment and don’t consider how spending that money today might affect them tomorrow.

A wealthy person may still enjoy the finer things, but their approach might be more balanced. For example, billionaire Warren Buffett is one of the wealthiest people in the U.S., but he notably lived in a relatively modest home that he purchased in 1958 for over seven decades. Other wealthy millionaires and billionaires may similarly adopt a frugal mindset or focus on giving away large amounts of their wealth to good causes.

Hobbies

Certain hobbies and pastimes are the domain of the rich or wealthy, simply because of how much they cost. Yachting, big game hunting, and polo are just a few examples of activities that are more commonly the domain of wealthier people who can afford the associated costs.

Rich people may also indulge in those kinds of pastimes but on a smaller scale than those who are wealthy. Instead of buying their own private yacht or plane, for example, they might lease one when they want to plan a getaway. Or instead of going to their private island for the summer, they may splurge on a couple of weeks’ vacation in St. Tropez.

Expenses

Rich and wealthy people can have very different expenses, depending on their lifestyle. A rich person may have a mortgage payment, car payments, private school tuition payments for their kids, and all the regular day-to-day living expenses such as utilities and food. And they may also have credit card bills or student loans to pay each month.

Wealthy people may not have debt-related expenses, such as a mortgage or car payment, since they might own those assets outright. If they use credit cards, those bills might get paid in full each month rather than accruing interest.

Ultra wealthy people may have unique expenses that the rich don’t, such as maintenance for one or more vacation homes, insurance for a private jet or yacht, and staff payroll if they employ housekeepers, landscapers, and other individuals to work in their home. They may also pay out expenses to financial advisors or investment advisors for wealth management services.

Streams of Income

A rich person may rely on their paychecks from working a regular job as their main source of income. They might also earn money from side hustles or businesses they own, but generally, they’re typically working for a living in some way. If they don’t keep up their pace at work, they could lose that status of being rich.

Millionaires and billionaires may be more diverse in terms of where their income derives from. An oft-cited IRS study suggests that wealthier people have seven different streams of income on average. They may have a job, but a large part of their income may come from different types of investments or business ventures. Wealthy people can also generate income from pensions or annuities. It this way, they are less beholden to what you might call the daily grind.

Budgeting and Financial Planning

Rich people might make a six-figure or even seven figure income or more, but they may not save or invest much of that income. (Think about those actors and singers you may have read about who have frittered away their fortunes on luxury real estate, travel, fashion, food, and wine.) They might have a budget, but they don’t always stick to it. Perhaps they’re spending more than they make as they attempt to cover their lifestyle. Rich people may not be very forward-thinking in terms of planning for retirement or other long-term goals.

Wealthy people may not have to live by a strict budget either if their assets substantially outpace their spending. But they may take financial planning more seriously and be proactive about things like investing and retirement planning. They may also focus on estate planning and the best ways to pass on as much of their wealth as possible while minimizing taxes for their heirs.

Is It Plausible to Become Wealthy?

Can a regular person become wealthy? The answer is that it depends on where you’re starting from, where you want to go, and your strategy for getting there. Building wealth in your 30s, for example, could be easier if you have a solid income, no debt, and you’re committed to living well below your means. The odds of starting a billion-dollar company and becoming wealthy overnight are, on the other hand, much slimmer.

Having a clear plan and getting an early start are two of the keys to building wealth. The longer you have to save and invest money, the more room that money has to grow through the power of compounding interest. It’s also important to choose investments wisely to maximize their growth potential. Understanding your individual time horizon for investing and your risk tolerance can help you to decide which investment types to include in your portfolio.

Talking to a financial advisor can help you get some clarity on what you might need to do to begin building sustainable wealth. An advisor can review your situation, offer advice, or suggest tactics for creating a realistic budget, paying down debt, saving, and investing for the long-term.

Banking With SoFi

Whether you consider yourself rich, wealthy, or neither of the above, where you keep your money matters. Choosing a bank that charges fewer fees while offering a higher rate on your account can help you make the most of the money you have.

When you open a bank account online with SoFi, you get our Checking and Savings in one convenient package. There are no fees so you get to keep more of your money, and you’ll also earn a competitive APY on balances if you sign up with direct deposit. You can open your account online and conveniently manage it through the SoFi mobile app.

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

FAQ

Is a millionaire wealthy?

Whether a millionaire is wealthy depends on how much money they have and how they use it. Someone who has a million-dollar net worth but spends much of what they earn buying things might be rich but not wealthy, compared to someone who has a $100 million net worth and no debt.

Is six-figures rich?

Someone with a six-figure income might consider themselves to be rich if they’re able to enjoy an upgraded lifestyle. For example, traveling frequently or buying luxury items are often associated with people who are rich. However, if that person lives in an expensive city, has a couple of kids in college, and is supporting a special-needs relative, they might not feel rich at all, despite their income. In other words, it depends on personal circumstances.

Is it better to be rich or wealthy?

Being rich vs. wealthy isn’t necessarily a matter of one being better than another. It all comes down to what you do with your money. If you think of yourself as rich, can live the lifestyle you want, and are avoiding debt while investing wisely, then that may be more than enough. And remember that being wealthier might ensure that you’re financially secure, but it doesn’t guarantee greater happiness.

---

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.

SOBK0822034

Read more

An irrevocable letter of credit (or ILOC) is a written agreement between a bank and the party to which the letter is issued. Irrevocable letters of credit are used to guarantee a buyer’s obligations to a seller.

Irrevocable letters of credit can be used in different types of financial arrangements to ensure that a seller will be paid, even if the buyer fails to uphold their end of the bargain. These letters of credit are often central to international transactions, though there are other situations where using one might be appropriate.

What Is an Irrevocable Letter of Credit?

If you are wondering, “What is an irrevocable letter of credit?” a definition may help. An irrevocable letter of credit represents an agreement between a bank and a buyer involved in a financial transaction. The bank guarantees payment will be made to the seller according to the terms of the agreement. Since the letter is irrevocable, that means it cannot be changed without the consent and agreement of all parties involved.

Irrevocable letters of credit can also be referred to as standby letters of credit. Once an irrevocable letter of credit is issued, all parties are contractually bound by it.

This means that even if the buyer in a transaction doesn’t pay, the bank is obligated to make payment to the seller to satisfy the agreement.

Having an irrevocable letter of credit in place is a form of credit risk management. The seller is guaranteed payment from the bank, which can help to reduce concerns about the buyer failing to pay. And it ensures that the seller will follow through on their obligations by providing whatever is being purchased through the agreement. In simpler terms, a standby letter of credit or irrevocable letter of credit is a sign of good faith on the part of everyone involved in a transaction.

How Does an Irrevocable Letter of Credit Work?

Here’s how an irrevocable letter of credit works. It establishes a contractual agreement between a buyer, a seller, and their respective banks. It effectively creates a safeguard for both the buyer and the seller, in that:

•   Buyers are not required to forward payment until the seller provides the goods or services that have been purchased.

•   Sellers can collect payment for goods and services, as long as the conditions outlined in the letter of credit are met.

The bank issuing the letter of credit acts as a go-between for both sides, guaranteeing payment to the seller even if the buyer doesn’t pay. Assuming the buyer does fulfill their obligations, they would then make payment back to the bank. In a sense, this allows the buyer to borrow from the bank without formally establishing credit in the form of a loan or credit line. (Check with your financial institution to learn what fees may be involved. After all, transaction fees are how banks earn money.)

Before an irrevocable letter of credit is issued, the bank will first verify the buyer’s creditworthiness. Assuming the bank is reassured that the buyer will, in fact, repay what’s owed to complete the purchase, it will then establish the irrevocable letter of credit to facilitate the transaction between the buyer and seller. Irrevocable letters of credit are communicated and sent through the SWIFT banking system.

Recommended: How Exactly Do Banks Make Money?

Irrevocable Letter of Credit Specifications

The exact details included in an irrevocable letter of credit can depend on the situation in which it’s being used. The conditions that are set for the completion of the transaction will also matter. But generally, you can expect an irrevocable letter of credit to include:

•   Buyer’s name and banking information (that is, their bank account and other details)

•   Seller’s name and banking information

•   Name of the intermediary bank issuing the letter of credit

•   Amount of credit that’s being issued

•   Date that the letter of credit is issued and the date it will expire

An irrevocable letter of credit will also detail the conditions that must be met by both the buyer and seller in order for the contract to be valid (and thereby prove the transaction’s creditworthiness). For example, the seller may need to provide written verification that the goods or services referenced in the agreement have been provided before payment can be issued. The letter of credit must be signed by an authorized bank representative. It may need to be printed on bank letterhead to be valid.

Do I Need an Irrevocable Letter of Credit?

You may need an irrevocable letter of credit if you’re doing business with someone in a foreign country. You may also require one if you are conducting a transaction with a new company or individual (one with which you don’t yet have an established relationship). Irrevocable letters of credit can help to mitigate some of the risk that goes along with international transactions. These letters ensure that if you’re the seller, you get paid for any products or services you’re providing. They also protect you if you’re the buyer, promising that products or services are delivered to you.

An irrevocable letter of credit could also come in handy if you’re still working on building credit for your business and you’re the buyer in a transaction. The bank will pay the money to the seller; you’ll then repay the bank. Payment may be required in a lump sum from your business bank account or another source. Or the bank may also offer the option of repaying it in installments over time. Repaying your obligation could help to raise your business’s creditworthiness in the bank’s eyes. This may make it easier to take out other loans or lines of credit later.

Recommended: How Does a Business Bank Account Work Differently than a Personal Checking Account?

Alternatives to Irrevocable Letters of Credit

An irrevocable letter of credit is not the only way to do business when engaging in international transactions. You may also consider trade credit insurance or another type of letter of credit instead.

Trade Credit Insurance

Trade credit insurance, also referred to as accounts receivable insurance or AR insurance, is used to insure businesses against financial losses resulting from unpaid debts. (Debts could lead you to secure a personal business loan.) You can use trade credit insurance to cover all transactions or limit them to ones where you believe there may be a heightened risk of loss, such as transactions involving foreign businesses.

A trade credit insurance policy protects your business in the event that the other party to a financial agreement defaults. It can insulate your accounts receivable against losses if an unpaid account turns into a bad debt. Purchasing trade credit insurance may be an easier way to manage risk for your business overall, as it’s less involved than an irrevocable letter of credit.

Letters of Credit

A letter of credit guarantees payment from the buyer’s bank to the seller’s bank in a financial transaction. Like an irrevocable letter of credit, it establishes certain conditions that must be met in order for the transaction to be completed. But unlike an irrevocable letter of credit, a standard letter of credit can be revoked or modified.

You might opt for this kind of letter of credit if you’re doing business with someone you don’t know and you want reassurance that the transaction will be completed smoothly. A regular letter of credit may also be preferable if you’d like the option to modify or cancel the agreement.

The Takeaway

An irrevocable letter of credit is something you may need to use from time to time if you run a business and regularly deal with international transactions. It adds a layer of protection to buying and selling, as a bank is saying it will cover the transaction. An ILOC, as it’s sometimes known, can provide reassurance when working with a new business or establishing your company overseas. The letter cannot be changed, so you’re getting solid peace of mind.

If your money management tasks are limited to your personal finances, on the other hand, opening a new bank account online is a simpler solution for paying bills and making purchases.

With SoFi banking, you can earn a competitive rate on savings. SoFi doesn’t charge any fees and you can conveniently manage your accounts online or from your mobile device. Plus, you can get paid up to two days early when you enroll in direct deposit and earn a competitive APY.

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

FAQ

What is the difference between a letter of credit and an irrevocable letter of credit?

A letter of credit and irrevocable letter of credit are largely the same, in terms of what they’re designed to and in what situations they can be used. The main difference is that unless a letter of credit specifies that it is irrevocable, it can be changed or modified by the parties involved.

What is the cost of an irrevocable letter of credit?

Transaction fees help banks make money so it should be no surprise that you’ll likely pay a fee for an irrevocable letter of credit. The fee is typically set as a percentage of the transaction amount, though the rate you’re charged can vary from bank to bank.

Does an irrevocable letter of credit expire?

An irrevocable letter of credit can have an expiration date. If the letter is set to expire, the date should be spelled out clearly in the agreement.

---

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

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

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

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

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

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

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

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

Photo credit: iStock/Photoevent
SOBK0422008

Read more

Maybe you’ve heard people mention new money vs. old money in conversation, perhaps in a whisper. Old money and new money both refer to wealthy groups of people. The key difference between old money and new money is how a person obtained their wealth.

In short, old money represents generational wealth — money that has been passed on from generation to generation in the form of cash, investments, and property. New money refers to self-made millionaires and billionaires, those who earned their money (or lucked into it, like in the lottery).

Pop culture and literary references to new vs. old money abound. For instance, James Cameron’s Titanic (1997) includes a depiction of the “Unsinkable Molly Brown” as new money, shunned by some snooty old money types. F. Scott Fitzgerald’s The Great Gatsby puts new money (Jay Gatsby in West Egg) and old money (Tom and Daisy Buchanan in East Egg) at odds throughout the course of the novel.

What Is Old Money?

Old money refers to people who have inherited significant generational wealth; their families have been wealthy for several generations.

In the past, old money would have referred to an elite class: the aristocracy or landed gentry. In the U.S., families like the Vanderbilts and Rockefellers represented early examples of old money. Today, old money families include the Waltons (Walmart), the Disneys (The Walt Disney Company), and the Kochs (Koch Industries). Should families like the Kardashians continue to generate and pass down wealth, they could one day be considered old money as well.

Recommended: How to Build Wealth at Any Age

What Is New Money?

New money then refers to people who have recently come into wealth, typically by their own labor or ingenuity.
Common examples of new money include tech moguls and self-made billionaires like Jeff Bezos, Mark Zuckerberg, and Bill Gates. Someone who wins millions of dollars in the lottery or becomes famous from a reality TV series (like the cast of Jersey Shore) would also qualify as new money.

You may sometimes hear the French term “nouveau riche,” which means “newly rich.” This tends to describe people who recently became wealthy and spend their money in a flashy, ostentatious manner.

Recommended: Building Wealth in Your 30s

Differences Between Old and New Money

So what is the difference between old money and new money? There are quite a few distinctions, but remember that these are all generalizations. Each person who obtains wealth is unique.

Source of Wealth

The most obvious difference between new money and old money is the source of wealth. Old money has been passed down from generation to generation. Each member of old money typically feels a fierce responsibility to protect — and increase — that wealth.

Members of new money have earned that money in their lifetime, whether for building a tech empire, becoming a famous actor, making it to the big leagues as a sports player, or even making money on social media as an influencer. Some new money members might come into money through a financial windfall like winning the lottery or a major lawsuit.

Long-Standing Traditions

Inheriting generational wealth comes with a responsibility: Old money recipients usually must protect the family’s wealth to pass on to future generations. For that reason, those who come from old money may stick to their traditional investments and ways of life. Many inherit their parents’ business and then pass it on to their own children.

Those who are self-made or come into money quickly do not have long-standing traditions to fall back on. They are often the first in their community to make multimillion dollar spending decisions. This can mean a steep learning curve and the need for guidance, which could make them vulnerable to poor advice and unscrupulous hangers-on.

Spending and Investing

How old and new money generally approach wealth management is one of their starkest contrasts.

Though they do live lavishly, members of old money can be more frugal (or calculated) with purchases than you might expect. For members of old money, spending is often more about investing than shopping for pleasure.

People who are a part of new money may feel more entitled to and excited by their funds. They may spend it more lavishly (and publicly). Some might feel that they worked hard to earn their money — and they’d like to enjoy it.
They might want to show off their newly achieved status with designer watches or mega mansions.

That’s not to say that members of new money don’t invest. Famous celebrities, athletes, and businesspeople often invest in real estate or buy companies to increase their wealth. Generally speaking, new money might make riskier investment decisions for faster yields. They’re not thinking about generational wealth to protect with tried and true investment methods.

Taken to its extreme, this can have disastrous results. It’s not uncommon to hear stories of people who make a lot of money for the first time and spend it all, leading to bankruptcy and even mental health issues.

Recommended: What Is Asset Management?

Leisure

The stereotypes might be a little tired, but in general, people associate old money with traditional activities like golf, skiing, horseback riding, and polo. On the flip side, members of new money might buy courtside seats to a basketball game, a garage full of shiny new luxury cars, or even a rocketship for a joyride into outer space.

Recommended: Knowing the Difference Between ‘Rich’ and ‘Wealthy’

Social Perception

Interestingly, some of the richest people in the world come from new money. They’re today’s self-made tech giants. Yet some members of old money may consider themselves to be a higher class than the likes of Gates and Bezos.

We’re speaking in generalizations here, but old money often perceive themselves — and are perceived by outsiders — to be more educated and refined.

On the other hand, the public may view members of new money as harder workers and more innovative — clear examples of the American dream.

Old and New Money Lessons

What lessons can we learn from old and new money? Even if you are not wealthy, you can learn some valuable life and financial lessons from considering the difference.

•   It’s hard to protect generational wealth. Old money is very privileged; there’s no denying it. But most families lose their wealth in just a few generations. Old money families do work hard to maintain and grow their wealth for their future generations. They are able to avoid seeing their fortune dwindle.

•   It’s important to analyze your spending. Many people who come into wealth quickly don’t take adequate steps to protect their funds and invest it wisely. Horror stories of lottery winners losing everything should be enough to remind us that — if we come into a large amount of money suddenly — we should take the time with a finance professional to build out our money management goals. Doing so may ensure your wealth grows, rather than runs out.

•   Stereotypes aren’t everything. Reflecting on the differences between old and new money, it’s important to note that these are merely stereotypes, and not everyone fits the bill. Just as one hopes that others don’t judge us before they know us, the discussion of old vs. new money is a reminder not to form assumptions about someone until you get to know them.

Recommended: How to Achieve Financial Discipline

The Takeaway

Old money refers to families who have maintained wealth across several generations. New money, on the other hand, refers to someone who earned their wealth in their lifetime. Key traits typically differentiate old vs. new money, but at the end of the day, both refer to members of a wealthy class that most people will not ever be a part of.

No matter how much wealth you have — and whether you inherited or earned it — it’s a good idea to protect it in an FDIC-insured bank account that actively earns interest. Check out SoFi’s online bank account, which earns a competitive APY and has no monthly fees, which can help your money grow faster.

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

FAQ

Is it preferable to be from new or old money?

It depends on whom you ask. Old money members often regard themselves as a higher class, but they also have less agency to spend their money on “fun” things, as they have to guard their wealth for future generations. While members of new money might feel freer to spend on things they want, they can be more likely to run out of money if they don’t follow good financial planning.

Does new vs. old money matter?

If you are a member of the wealthy class, the distinction might matter to you. Those with old money might feel it’s superior to new, but those with newly minted wealth may well be proud of their success in building their fortune. However, most people are not considered to be new or old money, and so this shouldn’t affect their daily lives.

How has old vs. new money changed since the terms were first coined?

Old money once referred to the landed gentry in Europe, but in today’s world, it might refer to a few families who struck it big a century or more ago in the U.S. New money is more common nowadays, with the advent of television, sports, and social media as the source of riches.

---

Photo credit: iStock/South_agency

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

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

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.

SOBK0722011

Read more

Am I financially stable? That’s an important question to ask if you’re wondering how your money management skills measure up.

Financial stability can mean different things to different people, and there’s no single way to measure whether someone is financially secure. There are, however, certain money behaviors that can indicate when you’re on the right track.

Knowing how to recognize the signs of being financially stable can help you to fine-tune your money plan.

What Is Financial Stability?

If you search online for a definition of financial stability, the results are usually geared toward organizations or governments, not individual people. For example, the Federal Reserve defines financial stability as “building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment.”

That’s an institutional way to define financial stability, but it’s possible to adapt that to fit personal finance. For instance, creating a budget and adding money to an emergency fund can help you manage money wisely during the good times. It can also allow you to be prepared for the unexpected, such as a job layoff or an emergency expense.

The best way to define financial stability is in a way that has meaning for you. For instance, you might create a personal financial mission statement that outlines your ideal money vision for yourself. For some people, that vision might involve having six months’ worth of expenses in an emergency fund. For another, it might involve meeting savings goals for retirement.

Why Does Financial Stability Matter?

Being financially stable is important because it can influence your overall financial health. When you feel financially secure, it may be easier to pay bills without stress. Or you might have developed the discipline to save money and be excited about it, versus spending everything that you make.

In a nutshell, being financially stable can help you to:

•   Have the money that you need to cover day-to-day expenses while working toward financial goals

•   Avoid costly debt

•   Manage your money without it feeling like a chore or a cause for anxiety

If you’re interested in how to become financially free, then becoming stable with your money is likely an important first step.

Signs That You’re Financially Stable

We started off with this question: Am I financially stable? Now, we’ll answer it by sharing some of the most common indicators that you’re in good financial health.

Chances are, you might be doing some of the things on this list already. And if you’re not, then these moves could help you to overcome your personal financial challenges.

1. Following a Budget

A budget is the foundation for your financial plan. When you make a budget, you’re dictating where your money goes instead of simply spending without a plan. If you don’t have a budget yet, then making one should be a top priority.

There are a number of budgeting methods you can use, including:

•   Cash envelope budgeting

•   Zero-based budgeting

•   The 50/30/20 rule

Experimenting with different budget systems can help you find one that works for you.

2. Living Below Your Means

Here’s one of the secrets to how to have financial freedom: Live below your means. This simply means spending less than you earn. Making a budget is central to living below your means because without one, you may not have a clue how much you’re spending each month.

Tracking expenses can be a great way to determine if you’re living below your means. You can write each expense down in a notebook, use a spreadsheet, or link your bank account to a budgeting app. It’s a good idea to track expenses for at least one month to get a realistic idea of what you spend, which can help you to better define your budget.

3. Saving Money Is a Consistent Habit

You may have heard the expression “pay yourself first,” and it’s a wise move. This simply means that before you spend any money on payday, you first deposit some of your earnings into savings. Paying yourself first is a sign of financial stability as it suggests that you have money reserved for emergencies and are also saving for longer-term financial goals.

Setting up direct deposit into savings or scheduling automatic transfers from your checking account each payday are easy ways to automatic savings. When the money is directed to savings automatically, there’s no opportunity for you to spend it.

4. Paying Down Debt Is a Priority

Debt can be a roadblock to reaching your financial goals and too much debt could make you financially unstable. Making an effort to pay down debt (or avoid it altogether) is a sign that you’re committed to living within your means instead of spending money unnecessarily.

If you have debt, consider the best ways to pay it off. For example, the debt snowball method involves paying off debts from smallest balance to highest. The debt avalanche, on the other hand, advocates paying off debts from highest APR to lowest in order to maximize interest savings.

When choosing a debt repayment method, consider how much of your budget you can commit to it. If you’re only able to pay the minimums to your debts, you may need to review your expenses to see where you can cut back or look into debt consolidation.

5. Bills Get Paid On Time

Paying bills late can trigger nasty late fees. What’s more, late payments can lower your credit scores.

A good credit score is a sign of financial stability because it means that you’re responsible with how you use credit. On-time payments can work in your favor while late payments can hurt your score.

If you’ve fallen behind, getting caught up on late payments as soon as possible can help you turn things around. From there, you can commit to paying on time each month. Scheduling automatic payments or setting up payment reminders is an easy way to keep track of due dates.

6. Financial Goals Are Clearly Defined

Setting financial goals can help you to make the most of your money. Financial goals can be short-term, like saving $10,000 for an emergency fund. Or they might be long-term, like saving $1 million for retirement.

Someone who’s financially stable understands the value and importance of setting goals and how to set them effectively. For example, they may follow the SMART rule for goal setting and create money goals which means they are:

•   Specific

•   Measurable

•   Actionable or achievable

•   Realistic

•   Time-bound

If you’re not setting financial goals yet, consider what you want to do with your money or what kind of lifestyle you’d like to have. If you created a personal financial mission statement that can be a good guide to deciding what kind of goals to set.

7. Regular Investing Is Part of Your Financial Routine

Investing money and saving it are two different things. When you invest money, you’re putting it into the stock market. Investing can help you grow your money faster and build a higher net worth thanks to the power of compounding interest.

There are different ways to invest. If you have a 401(k) or similar retirement plan at work, for example, you may defer 10%, 15%, or more of your income into it each year. At a minimum, it’s a good idea to contribute at least enough to get the full company match (which is akin to free money) if one is offered.

You might also open an Individual Retirement Account and a taxable investment account. With an IRA, you can save for retirement on a tax-advantaged basis. A taxable investment account, on the other hand, is useful for trading stocks, mutual funds, exchange-traded funds (ETFs), and other securities without restrictions on how much you can invest.

Recommended: A Beginner’s Guide to Investing in Your 20s

8. You Have the Right Insurance

Insurance is designed to protect you financially. There are different types of insurance a financially stable person might have, including:

•   Homeowners or renters insurance

•   Car insurance

•   Health insurance

•   Disability insurance

•   Life insurance

Having the right coverage in place can help to minimize financial losses in a worst-case scenario. If your home or apartment is damaged because of a fire, for instance, then your insurance policy could help you to rebuild or replace your belongings.

Life insurance is also important to have, especially if you have a family. Life insurance can pay out a death benefit to your loved ones if something should happen to you. That means they’re not in danger of becoming financially unstable after you’re gone.

9. FOMO Doesn’t Drive Decision-Making

FOMO, or fear of missing out, can be a threat to financial stability. It’s the modern-day equivalent of keeping up with the Joneses: What it means is that you make financial decisions out of peer pressure or societal pressure. Trying to mimic the lifestyle of social media influencers, for example, can wreck your finances if you’re going into debt buying things that you can’t afford.

Someone who’s financially stable, on the other hand, is immune to FOMO. They don’t buy things on impulse (or at least not often). And they don’t make financial decisions without considering the short- and long-term impacts.

Recommended: Guide to Practicing Financial Self-Care

10. There’s No Worrying About Money

Worries about money can keep you up at night if you’re fretting over the bills or debt. Financially stable people don’t have stress over money because they know that they’re in control of their situation. They approach money with a calm, confident attitude.

So how do you reach that zen state with your finances? Again, it all comes down to making smart money decisions like sticking to a budget, saving, and avoiding debt. The more proactive you are about making your money work for you, the faster money worries may fade away.

If You’re Struggling to Become Financially Stable

If you recognize that your financial situation isn’t as stable as you’d like it to be, it’s important to consider how you can improve it. Working your way through this list of action items is a good starting point but what if you’re overwhelmed by debt or struggle to make a budget?

In that case, you may benefit from talking to a nonprofit credit counselor or a financial advisor. A credit counselor can help you come up with a plan for budgeting, paying down debt, and getting into a savings routine. And once you begin to gain some stability, you can think about things like investing or insurance.

In addition, you can consult these government sources for more insight:

•   Making a budget

•   Sticking to a budget

•   Dealing with debt

•   How to save and invest

•   How to save for retirement

The Takeaway

Achieving financial stability can take time, but it’s possible if you’re using the right approach to managing money. Taking small steps, such as setting one or two money goals or changing bank accounts, can add up to a big difference in your situation over time.

If you’re tired of throwing money away on banking fees, for instance, you might consider opening a bank account with SoFi. You can get checking and savings in one convenient place and easily manage your accounts online or through the SoFi mobile app. When you open an account with direct deposit, SoFi doesn’t charge any fees, and you can earn a competitive APY, which can help your money grow faster. A bonus for qualifying accounts: You can get paycheck access up to two days early.

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

FAQ

How much money is considered financially stable?

The amount of money needed to be considered financially stable is subjective and depends on a person’s individual situation. But generally, having a net worth of $1 million or more can indicate that someone is financially stable or secure and has a good grasp of money management.

What are the signs of a financially stable person?

The most common signs of a financially stable person include having little to no debt, being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year. What’s more, money generally isn’t a source of stress or worry.

At what point are you financially stable?

Someone could be considered financially stable when money is no longer a cause for anxiety or frustration. A financially stable person isn’t necessarily measured by how much money they have. Instead, their stability is based on their overall financial situation and their approach to managing money. They are likely to have savings for emergencies, as well as short- and long-term goals.

---

Photo credit: iStock/AsiaVision

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.

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.

SOBK0922010

Read more

Whether you’re purchasing a new pair of eyeglasses, stocking up on over-the-counter medications, or paying for your child’s daycare, there may be certain expenses your health insurance plan doesn’t cover.

In those cases, having a flexible spending account, or FSA, could help you save money. This special savings account lets you set aside pretax dollars to pay for eligible out-of-pocket healthcare expenses, which in turn can lower your taxable income.

Let’s take a look at how these accounts work.

What Is an FSA?

An FSA is an employer-sponsored savings account you can use to pay for certain health care and dependent costs. It’s commonly included as part of a benefits package, so if you purchased a plan on the Health Insurance Marketplace, or have Medicaid or Medicare, you may no longer qualify for a FSA.
There are three types of FSA accounts:

•   Health care FSAs, which can be used to pay for eligible medical and dental expenses.

•   Dependent care FSAs, which can be used to pay for eligible child and adult care expenses, such as preschool, summer camp, and home health care.

•   Limited expense health care FSA, which can be used to pay for dental and vision expenses. This type of account is available to those who have a high-deductible health plan with a health savings account.

How Do You Fund an FSA?

If you opt into an FSA, you’ll need to decide on how much to regularly contribute throughout the year. Those contribution amounts will be automatically deducted from your paychecks and placed into the account. Whatever money you put into an FSA isn’t taxed, which means you can keep more of what you earn.

Your employer may also throw some money into your FSA account, but they are under no legal obligation to do so.

You can use your FSA throughout the year to either reimburse yourself or to help pay for eligible expenses for you, your spouse, and your dependents (more on that in a minute). Typically, you’ll be required to submit a claim through your employer and include proof of the expense (usually a receipt), along with a statement that says that your regular health insurance does not cover that cost.

Some employers offer an FSA debit card or checkbook, which you can use to pay for qualifying medical purchases without having to file a reimbursement claim through your employer.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

What Items Qualify for FSA Reimbursement?

The IRS decides which expenses qualify for FSA reimbursement, and the list is extensive. Here’s a look at some of what’s included — you can see the full list on the IRS’ website.

•   Health plan co-payments and deductibles (but not insurance premiums)

•   Prescription eyeglasses or contact lenses

•   Dental and vision expenses

•   Prescription medications

•   Over-the-counter medicines

•   First aid supplies

•   Menstrual care items

•   Birth control

•   Sunscreen

•   Home health care items, like thermometers, crutches, and medical alert devices

•   Medical diagnostic products, like cholesterol monitors, home EKG devices, and home blood pressure monitors

•   Home health care

•   Day care

•   Summer camp

Are There Any FSA Limits?

For 2023, health care FSA and limited health care FSA contributions are limited to $3,050 per year, per employer. Your spouse can also contribute $3,050 to their FSA account as well.

Meanwhile, dependent care FSA contributions are limited to $5,000 per household, or $2,500 if you’re married and filing separately.

Does an FSA Roll Over Each Year?

In general, you’ll need to use the money in an FSA within a plan year. Any unspent money will be lost. However, the IRS has changed the use-it-or-lose-it rule to allow a little more flexibility.

Now, your employer may be able to offer you a couple of options to use up any unspent money in an FSA:

•   A “grace period” of no more than 2½ extra months to spend whatever is left in your account

•   Rolling over up to $610 to use in the following plan year. (In 2024, that amount increases to $640.)

Note that your employer may be able to offer one of these options, but not both.

One way to avoid scrambling to spend down your FSA before the end of the year or the grace period is to plan ahead. Calculate all deductibles, copayments, coinsurance, prescription drugs, and other possible costs for the coming year, and only contribute what you think you’ll actually need.

Recommended: Flexible Spending Accounts: Rules, Regulations, and Uses

How Can You Use Up Your FSA?

You can consider some of these strategies to get the most out of your FSA:

•   Buy non-prescription items. Certain items are FSA-eligible without needing a prescription (but save your receipt for the paperwork!). These items may include first-aid kits, bandages, thermometers, blood pressure monitors, ice packs, and heating pads. Check out the FSA Store to find out which items may be covered.

•   Get your glasses (or contacts). You may be able to use your FSA to cover the cost of prescription eyeglasses, contact lenses, and sunglasses as well as reading glasses. Contact lens solution and eye drops may also be covered.

•   Keep family planning in mind. FSA-eligible items can include condoms, pregnancy tests, baby monitors, fertility kits. If you have a prescription for them, female contraceptives may also be covered.

•   Don’t forget your dentist. Unfortunately, toothpaste and cosmetic procedures are not covered by your FSA, but dental checkups and associated costs might be. These could include copays, deductibles, cleanings, fillings, X-rays, and even braces. Mouthguards and cleaning solutions for your retainers and dentures may be FSA-eligible as well.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Flexible Savings Account (FSA) vs. Health Savings Account (HSA)

You may have heard of a health savings account (HSA). It’s easy to confuse it with an FSA, as they share some similarities.

Both types of accounts:

•   Offer some tax advantages

•   Can be used to pay for co-payments, deductibles, and eligible medical expenses

•   Can be funded through employee-payroll deductions, employer contributions, or individual deductions

•   Have a maximum contribution amount. In 2023, people with individual coverage can contribute up to $3,850 per year, while those with family coverage can cset aside up to $7,750 per year.

That said, there are some key differences between HSAs and FSAs:

•   You must be enrolled in a high deductible health plan in order to qualify for an HSA.

•   HSAs do not have a use-it-or-lose-it rule. Once you put money in the account, it’s yours.

•   If you quit or are fired from your job, your HSA can go with you. This happens even if your employer contributed money to the account.

•   If you’re 55 or older, you can contribute an additional $1,000 to your HSA as a catch-up contribution — similar to the catch-up contributions allowed with an IRA.

•   If you withdraw money from your HSA for a non-qualified expense before the age of 65, you’ll pay taxes on it plus a 20% penalty.

•   If you withdraw money from your HSA for any type of expense after age 65, you don’t pay a penalty. However, the withdrawal will be taxed like regular income.

Recommended: Benefits of Health Savings Accounts

The Takeaway

Flexible spending accounts are offered by employers and can be a useful tool for paying for health care- or dependent-related expenses. Notably, you fund the account with pretax dollars taken from your paycheck, which can lower your taxable income and help you save money.

You typically need to spend your FSA money within a plan year, though your employer may give you the option to either roll over a portion of the balance into the next year or use it during a grace period. There are also guidelines around what you can spend the FSA funds on and how much you can contribute to your account.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi helps you stay on top of your finances.

---

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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.

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.

SORL1023031

Read more