Guide to Deposit Interest Rates

Guide to Deposit Interest Rates

A deposit account — such as a savings account or interest-bearing checking account — can be an attractive place to park your cash. It’s safe, allows relatively quick access, and even helps you earn a little bit of money, thanks to what’s known as the deposit interest rate.

The deposit interest rate is the amount of interest that a bank or other financial institution will pay you when you make a deposit. (You may also hear it referred to by such terms as simply the interest rate or the APY, for annual percentage yield.) Understanding deposit interest rates can help you choose among banking products and find the one that best suits your needs.

To help you with that knowledge, we’ll dive into the topic here and explore:

•   What is a deposit interest rate in banking?

•   How does a deposit interest rate work, and how is it calculated?

•   What kinds of deposit interest rate accounts are there?

What Is a Deposit Interest Rate?

When you put money into a deposit account, your bank or financial institution will pay you interest. Why? Banks use a portion of the money that’s deposited with them to make loans to other customers, perhaps as a mortgage, business loan, or personal loan.

The bank pays you interest for the privilege of lending out your money. They will then charge a higher interest rate on the loans they make, which is how the bank turns a profit.

Incidentally, just because a bank is loaning out your money doesn’t mean your cash won’t be there when you need it. Banks typically carry a cash reserve to cover withdrawals their customers need to make.

How Does a Deposit Interest Rate Work?

Deposit interest rates in banking are expressed as percentages. The amount of interest you earn will be based on how much cash you’ve deposited in your account, also known as your principal.

The interest rate you’re offered will vary by account. For example, a simple savings account may offer a relatively low interest rate, while a high-yield savings account or a money market account may offer a higher rate.

Your interest rate will also be determined in part by the federal funds rate. That rate is the amount the Federal Reserve suggests banks charge to lend each other money overnight.

Recommended: How Does a High Yield Savings Account Work?

How Is Deposit Interest Rate Calculated?

Wondering how interest rates are calculated? It usually is done in one of two ways: as simple interest or compounding interest.

Simple interest is a matter of multiplying the principal by the interest rate. As the name suggests, it is easier to calculate. However, most banks will use compounding to calculate interest rates. Compounding interest essentially allows you to earn a return on your returns, which can help your money grow exponentially. So your principal earns interest, and that amount of interest is added to the principal. Then the interest rate gets calculated again at a certain interval based on that pumped-up principal. This keeps happening, helping your savings grow. Interest can compound at various rates, such as continuously, monthly, or annually, depending on the product and financial institution.

Ways Deposit Interest Rates Are Applied by Institutions

Financial institutions can apply interest rates in a variety of ways. First, they can be fixed or variable. A fixed interest rate guarantees that you will receive an interest payment equal to a certain percentage of your principal. This percentage won’t change over the life of the account. So if your interest rate on your money is set at, say, 2%, that is what you will get, period.

A variable interest rate, on the other hand, may change according to shifts in a benchmark interest rate, such as the federal funds rate. As the benchmark rises, so too will the interest rate. What if the benchmark drops? That means you’re paid less interest.

Additionally, some deposit accounts will offer higher interest rates for larger balances. A certificate of deposit, or CD, may offer you better interest rates if you agree to park your cash in the account for a longer term.

Get up to $300 when you bank with SoFi.

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


Real-Life Example of Deposit Interest Rate

Let’s take a look at how to do the math on a couple of examples of deposit interest rates. If you’re a bank customer with $10,000 to deposit, here are two scenarios:

•   Bank 1 is a bricks-and-mortar bank offering 0.01% interest. (Remember, one percentage point is one-hundredth of a whole.) If you deposit your $10,000 for one year, you’ll earn: 10,000 x 0.0001 = 1. At the end of 365 days, you will have the principal plus the interest, or $10,001.

•   Bank 2 is an online bank offering 1.0% interest. If you deposit the same $10,000 for a year, you’ll earn: 10,000 x 0.01 = 100. You’ll have $10,100 at year’s end.

Types of Deposit Interest Rate Accounts

There are a variety of different deposit account types that you might encounter. Here are four of which you should be aware. We’ll explain how each one works.

1. Savings Accounts

Savings accounts are designed specifically as a place for you to put cash you might need in the short-term. For example, you might keep your emergency fund in a savings account, since you’d need quick access to cash if your car’s transmission failed or you had to cover an unexpected medical bill.

Not only does your savings account allow you to earn interest, it is also one of the safest places you can put your money. That’s because the Federal Deposit Insurance Corporation (FDIC) guarantees your money, up to $250,000, as it does with the deposit accounts below. That means in the rare case that your bank fails, you will still have access to your money.

You can deposit cash at an ATM, in person, or through mobile deposits. You can deposit checks or cash into the account, too. When you make a deposit, your funds may not be immediately available for use. Check with your bank to understand their rules around fund availability.

2. Interest-Bearing Checking Accounts

Many checking accounts have very low fees and don’t pay interest. As a result, it doesn’t make sense to keep a lot of money in this type of account. In fact, you may want to keep just enough to pay your bills.

Interest-bearing checking accounts are an exception. They allow you to collect interest on your account, which could be a nice perk. After all, you may well have your paycheck deposited there by setting up direct deposit, which can make your funds available quickly. Whatever remains in your account after paying your bills could be earning you some interest.

However, these accounts may be more complicated and expensive, with higher fees and minimum balance requirements. It’s important to make sure that the expense of holding the account doesn’t outweigh the interest paid.

3. Certificates of Deposit

A certificate of deposit, or CD, is a product offered by financial institutions that offers a higher interest rate if you agree to keep your funds in place for a period of time. Typically, the length of time is from six months to a few years, but it could be anywhere from one month to 20 years. The longer the period, the higher the interest rate you will probably be offered.

Here’s the rub: If you find that you need the money in the CD before the account matures (meaning the agreed-to time period passes), you’ll likely have to pay early withdrawal penalties. That said, it is possible to get CD’s with no-penalties, but you may have to compromise, such as by accepting lower interest rates.

4. Money Market Accounts

Money market accounts, on the other hand, pay interest and allow for withdrawals. They often pay higher interest rates than traditional savings accounts. However, in return, these accounts may require you to make higher initial deposits and they may have minimum balances, which could be $10,000 or more.

Like checking accounts, money market accounts can offer checks and debit cards, though they may limit the number of transactions you may make per month.

The Takeaway

There are a number of different deposit accounts that offer a deposit interest rate, ranging from checking and savings accounts to CDs and money market accounts. The interest rates will likely vary. For example, with CDs, the rates may depend on factors such as account minimums or term of deposit. Understanding these kinds of “fine print” differences will help you find the right match for your needs, whether your goal is the highest possible interest or having enhanced access to your funds.

If you’re in the market for accounts with a super-competitive interest rate, come check out what SoFi offers. Our online bank accounts, when opened with direct deposit, offer a competitive APY, no-fees, automated savings, and more great perks.

Better banking is here with up to 4.60% APY on SoFi Checking and Savings.

FAQ

Do you get interest when you deposit money?

When you deposit money in an interest-bearing deposit account, you will start to earn interest. In other words, your money makes money.

Which deposits pay more interest?

The amount of interest you earn will depend on your interest rate and the amount of money in the account. The more money you deposit and the higher the interest rate, the more interest you will earn. Also, online banks typically pay interest rates than bricks-and-mortar banks.

Do all banks have deposit interest rates?

Banks that offer interest-bearing deposit accounts will always offer a deposit interest rate.


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/AsiaVision
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What Is a Good Interest Rate for a Savings Account?

What Is a Good Interest Rate for a Savings Account?

When searching for a good interest rate for a savings account today, you’re lucky if you find a rate close to or over 1%. To snag the best possible rate, you will probably be banking at an online bank. These financial institutions, which don’t have bricks-and-mortar branches, tend to pay more than traditional banks. They save money by being virtual and pass the savings on to their clients.

Interest rates do fluctuate, but here we’ll take a look at the latest numbers in terms of savings account interest rates and how your money can grow faster. We’ll cover:

•   How interest rate works

•   What the national average for savings account interest rates is

•   How to earn higher interest

•   How to open a savings account that will earn high interest

How Interest Rate Works

Interest is a small fee paid for the privilege of borrowing money. Interest can be charged against credit cards, loans, and other types of financial products. In the case of savings accounts, you earn interest for lending your money to the bank or financial institution. Typically, savings accounts contain money that you aren’t planning to use right away to pay bills. Why people open a savings account is a very variable matter: It might be to have money set aside for a rainy day, to grow towards a down payment on a house, or to finance an upcoming vacation.

The interest rate determines how much you’ll earn for keeping money in a savings account, which the bank can then use. For instance, say you have a savings account that earns simple interest, paid annually. In this case, if you have $1,000 and earn 1% interest, you would have $1,010 at the end of the first year. You would then have $1,020 after the second year, $1,030 after the third year, and so on.

But there are different ways interest is compounded. Savings accounts usually pay compound interest. With compound interest, you earn interest on the entire balance, including previous interest payments. Using our previous example, your compound interest would accrue like this:

$1,000 * 1.01 = $1,010
$1,010 * 1.01 = $1,020.10
$1,020 * 1.01 = $1,030.30

As you can see, with compound interest, you earn interest on top of the interest that was already paid. However, in the real world, the way savings accounts earn interest is slightly more complicated. The timing at which the interest can vary. Some banks may compound interest daily and pay out monthly. As a result, each interest payment will be a fraction of the annual percentage yield (APY). However, the money continues to compound daily, allowing it to grow more quickly the longer you keep it in your account.

Since interest rates are low overall right now, it may feel as if your savings won’t be growing much. But consider this: An interest rate of 1%, compounded daily for 10 years, will add more than 10% to your initial investment’s value.

Recommended: What is Liquid Net Worth

What Is the National Average for Savings Account Interest Rates?

The most recent national savings account is 0.06% on average, according to the FDIC . That rate comes in at double the rate for interest checking, which has an average rate of 0.03%. Money market accounts fare slightly better with a rate of 0.08%. If you’re wondering, “Is that a good interest rate for a savings account,” you need to remember the context. Interest rates have been and could be much higher, but right now, this is where the range of rates is. Your best bet is probably to find a savings account that pays as high of a rate as possible while delivering the features that are most important to you.

Keep in mind that the national average savings account rate is just that — a national average that includes all banks insured by the FDIC. Perhaps more importantly, the average is weighted by each bank’s share of domestic deposits. This matters because some of the country’s largest banks have savings account rates that are even lower than the current national average.

It’s also important to note that savings account interest rates usually rise and fall with rates set by the Federal Reserve. When the Fed slashes interest rates, APYs on savings accounts fall. When the Fed raises interest rates, savings accounts have higher yields.

Regardless of the Fed’s interest rates, traditional savings accounts usually don’t pay much interest. However, there are ways to find a better return on investment, which we’ll cover in the next section.

Get up to $300 when you bank with SoFi.

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


Is There a Way to Earn a Higher Savings Account Interest Rate?

There are two basic ways to earn a higher savings rate: with a high-yield savings account or by linking your checking and savings accounts. We’ll cover each of those in more detail.

High-yield Savings Accounts

High-yield savings accounts offer interest rates many times higher than the national average. These accounts are usually only available at online banks, meaning they have no brick-and-mortar locations. In addition, they tend to offer a fairly basic set of services; you may not be able to deposit cash in high-yield savings accounts. In many cases, you can only deposit money by electronic bank transfer. But the benefit of these types of high-interest accounts for savings is obvious: You can earn close to or even over 1% APY on your money, which given the current averages, is a good rate for a savings account.

Another limitation to these accounts may be a federal regulation that limits you to six monthly withdrawals. However, this guideline can apply to all savings accounts, and it has been suspended in recent years by some banks. Inquire at your bank to know their policy. Checking accounts have no such limitation.

Money held in a high-yield savings account is usually FDIC-insured, meaning your money is protected in the rare event of a bank failure up to $250,000 per depositor and per account category. This makes them a good place to set aside extra cash for an emergency fund or to meet short-term savings goals.

Linked Accounts

If you have a checking account at a traditional brick-and-mortar bank, you might be able to increase your interest rate by opening a savings account at the same institution. Some banks will offer a higher interest rate if you have both a checking and a savings account with them and link the two.

Although savings rates on linked accounts are higher, everything is relative. Opening a linked account might allow you to increase your APY from 0.01% to 0.02%. Banks might also increase the rate a bit more with higher account balances.

Recommended: Average Savings by Age

Alternatives to Savings Accounts

Savings accounts are a popular way to set aside money for a savings goal, to earn some extra interest, or both. But there are a few different financial vehicles that can help you achieve your goals.

CDs

Certificates of deposit (CDs) are savings accounts that hold a certain amount of money for a set period of time, such as six months or five years. In general, the longer the period, the higher the interest rate. Most major banks offer these accounts. When you redeem a CD (also known as when a CD matures), you receive the money you deposited plus interest. Or you can reinvest it in a new CD. Like savings accounts, CDs are FDIC-insured for up to $250,000. It’s worth noting that most CDs will penalize you if you withdraw the funds before the agreed-upon time period ends. You might lose some or all of the interest earned to that date, and possibly even a bit of the principal.

Government Savings Bonds

Government savings bonds are similar to CDs, but you open them with the government instead of a bank. For example, Series I savings bonds, issued by TreasuryDirect , offer attractive interest rates, currently 9.62% at press time. Series I bonds can be held and continue earning interest for up to 30 years but you can redeem a bond sooner. However, you must hold them for at least five years. If you cash them sooner, you forfeit interest from the previous three months.

Money Market Accounts

Money market accounts are similar to savings accounts, and many banks offer them. They, too, earn interest while possibly being limited to six withdrawals per month. However, withdrawals by ATM do not count against that limit. These accounts may have a higher initial deposit or balance requirements than savings accounts (in some cases, up to six figures). However, they do come with higher returns, though currently the range is to a large extent under 1% APY. Note that money market accounts are different from money market funds, which are accounts you can open with investment firms.

How to Open a High Interest Savings Account

If you have internet access, opening a high-interest savings account online should be a simple process. Because these accounts are generally offered online, opening an account is as easy as visiting the institution’s website.

From there, you can open a savings account online; the entire process should only take perhaps 10 minutes. To complete the application, be prepared with the appropriate documents, such as your Social Security number and driver’s license. You will also want to have your bank account number and routing number in order to link your checking account. This will allow you to transfer money between your checking account and your savings account.

The Takeaway

Interest rates work by paying you for keeping your money in an account with a financial institution. While traditional banks pay interest on their savings accounts, they can be quite low compared to savings vehicles like high-yield savings accounts offered by online banks, CDs and money market accounts. By taking a little time to shop around and find the right fit, you should be able to find the right savings vehicle to help you stash cash for emergencies or a future goal…and earn money while doing so.

One great option to consider comes from SoFi: Our Checking and Savings linked accounts offer a competitive APY when you sign up with direct deposit. And we charge no monthly, minimum balance, or overdraft fees. These accounts are a great way to help your money grow faster.

Better banking is here with up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is the average interest rate for a savings account?

According to the FDIC, the current national average interest rate for savings accounts is 0.06%.

What is considered a high-interest savings account?

High-interest savings accounts are usually offered exclusively online and offer interest rates many times the national average. These accounts may have a limited scope of services, such as not offering ATM cards or cash deposits.

Is 1% a good interest rate?

In general, 1% is likely to be much higher than the interest rates offered by traditional banks at any given time. However, interest rates are based on the rates set by the Fed. In 2019, for instance, some online banks offered interest rates above 2%. However, many online banks currently have rates under 1%.

How much interest does $10,000 earn a year?

How much interest $10,000 earns in a year will vary on several factors, such as the interest rate and how often interest is compounded. If we assume a 1% interest rate, $10,000 compounded annually earns $100 in interest. Compounded daily, the same interest rate earns $100.50 in a year.


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

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

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

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

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

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


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


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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Photo credit: iStock/MicroStockHub
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What Is Competitive Pay and How to Negotiate For It

What Competitive Pay Is and How to Negotiate for It

“Competitive pay” is a term commonly used among employers looking to attract qualified candidates to their business. Offering competitive pay means providing a compensation level that is equal to or above the market rate for a given position, geography, or industry.

Competitive pay typically includes base salary as well as additional employment benefits such as a signing bonus, health insurance, retirement benefits, or stock options offered to an employee.

Why Is Competitive Pay Important?

In highly-competitive job fields, or when there is a shortage of talent, offering competitive pay can be a powerful lever for employers to attract and retain highly qualified employees. At the same time, employees that are in high demand might choose to seek out competitive pay in order to earn more than their counterparts at other companies.

Competitive pay is ultimately a measure of an employee or job candidate’s value to the business, and is something that can be offered by an employer or negotiated by an employee or candidate.

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What Determines Competitive Pay?

Competitive pay rates can be determined by a variety of factors:

Location

Where you are physically located can greatly impact the competitiveness of the pay you are offered. For example, an employee in a high-cost metropolitan area like New York or San Francisco may be able to earn more than a counterpart in a more affordable geographical area. Certain states also have higher minimum wage standards, which can increase the average compensation for any job offered within that state.

Recommended: Cost of Living by State

Level of Education and Experience

Many jobs will offer competitive pay commensurate with a candidate’s education and experience. That means that a candidate with a college degree and 10 years of industry experience may be offered higher compensation than someone with no degree and fewer years of experience. Candidates with specialized degrees or certifications can sometimes use that to negotiate more-competitive pay.

Recommended: 15 Entry-Level Jobs for Antisocial People

Job Title and Industry

Most job titles and industries will have a baseline market pay rate that employers use to guide their job offerings and employee salaries. If you want to compare a job offer with the market, you can find market pay rates for most jobs on the Bureau of Labor of Statistics website or through websites like Indeed and Glassdoor.

Market Demand

One of the biggest drivers of competitive pay is the overall supply and demand for a job in the market. If a job is highly in demand, either due to a shortage of workers or a sudden increase in the number of available jobs, compensation for that role may become more competitive. Candidates can potentially use that to their advantage when applying to jobs and negotiating salaries with employers.

Competitor Salaries

Similarly, when multiple companies in the same or adjacent industries are competing for employees, they may offer more competitive compensation packages to try and win over prospective job candidates.

Minimum vs Competitive Wages: How They’re Different

While competitive wages are offered at the discretion of employers, minimum wage is the minimum hourly pay rate under federal law. States can also establish and enforce minimum wage requirements for certain jobs or industries.

Like competitive pay, minimum wage typically takes into consideration living costs, geography, and job titles or industries. However, it tends not to change as often or dramatically as competitive wages. In fact, the federal minimum wage has not changed since 2009.

Also, minimum wage only takes into consideration base salary, whereas competitive pay includes other benefits and forms of compensation, such as signing bonuses.

Recommended: What Trade Job Makes the Most Money

Examples of Competitive Paying Jobs

Competitive pay rates are constantly shifting, especially as the market for talent becomes increasingly competitive. However, here are the some of the most competitive paying jobs in 2021, according to the Bureau of Labor Statistics:

Cardiologists

•   Average annual salary: $353,970

Computer and Information Systems Managers

•   Average annual salary: $162,930

Financial Managers

•   Average annual salary: $153,460

Physicists

•   Average annual salary: $151,580

Lawyers

•   Average annual salary: $148,030

Recommended: The Highest Paying Jobs by State

How to Negotiate for More Competitive Pay

Whether you’re applying for a new job or reconsidering your current employment situation, negotiating competitive pay is an important part of getting paid what you believe you are worth. There isn’t an exact formula for negotiating higher pay, and it’s important to take a methodical approach that considers both your needs and the perspective of your employer. Here are five strategies that can help you in the course of negotiating competitive pay:

1. Establish your priorities

Going into a pay negotiation, you should think about what you would need financially to consider joining or staying with a company. You’ll want to budget out your needs (including any debt you may be paying off) and try as best as you can to identify a compensation package that meets your financial requirements.

Competitive pay can also mean different things to different employees. For some, it may mean a higher base salary, while others may want other perks like assistance in paying off college tuition or student loan debt, greater workplace benefits, or better health coverage. Identifying exactly what you need is important for deciding when it makes sense to push back or walk away from a negotiation.

2. Build Your Case

Even in competitive markets, an employer may not be willing to meet your salary or benefits requirements. However, going into that conversation with evidence and clear reasoning for why you are asking for more competitive pay can help support your case. You’ll want to clearly show why you believe your compensation isn’t as competitive as you’d like it to be, due to the fact that you’ve been working harder, delivering greater value to the business, or have incurred higher living costs.

3. Know Your Pay Rate in the Market

Before negotiating, it’s also important to research how the competitive rate for your specific job title or industry has changed. Or, if you’ve suddenly taken on additional responsibilities outside of your core job function, you may want to look at what similar employees in those roles are getting paid and factor that into your pay rate. All of that data will help you to know what you’re worth as an employee and be able to communicate it to your employer.

Recommended: Examples of Low Stress Jobs for Introverts Without a Degree

The Takeaway

“Competitive pay” is a term commonly used among employers to refer to a compensation level that is equal to or above the market rate for a given position, geography, or industry. Other factors that help determine competitive pay include a candidate’s education and experience, and market demand.

If you’re not sure whether your baseline salary requirement covers your cost of living, SoFi’s money tracker app, can help. Track your money and spending all in one place so that you have the tools and information you need to negotiate the pay you deserve.

Take control of your finances with SoFi.

FAQ

Is competitive pay a red flag?

“Competitive pay” has become an industry buzzword used by many employers on their job postings and websites. While seeing “competitive pay” on a job posting isn’t a red flag, it’s still important to conduct your own research to ensure pay rates are competitive with similar industries, geographies, and employers.

Does competitive pay come with good benefits?

Competitive pay does not necessarily come with good benefits like 401(k) matching, health insurance or paid time off. However, those benefits are becoming increasingly important for job seekers. When analyzing competitive pay, it’s important to look at an employer’s full compensation package (benefits and salary) to ensure it meets your needs.


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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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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Things to Budget For After Buying a Home

Things to Budget for After Buying a Home

After you purchase a new home, there are many things to budget for, such as moving costs, new furniture, and of course, ongoing expenses such as your mortgage. Although it may seem like many of the significant expenditures are out of the way once you close on a property, there are a lot of additional costs that can add up.

To avoid financial surprises, it’s wise to jot down and budget for all of the extra expenses you will encounter when you move into your new place. To help you organize your finances, here are the things to budget for after buying a house.

Recommended: Should I Sell My House Now or Wait

Moving-Out Expenses to Budget for

Before you take up residence in your new home, you must move all of your things. Even if you pack and move all your belongings yourself, you’ll still have to spend on things like boxes, packing materials, and a truck. And if you use movers, it will cost you even more.

Recommended: The Ultimate Moving Checklist

Moving Your Belongings

There are three main options for moving your belongings:

•   Renting a truck and doing it yourself. It’s more cost efficient than using professional movers, but DIY moving yourself still adds up. You’ll have to pay for the truck rental fee, gas, and damage protection. If you’re moving across the country, you may also have to factor in the costs of shipping some of your items. Even though you can enlist your friends and family to help you do the heavy lifting, the cost of moving yourself can still be significant. And it’s a lot of work.

•   Hiring movers. If you decide to use professional movers, it’s wise to shop around to find the best price. Here’s why: For moves under 100 miles away, the national average cost is $1,400, and it ranges from $800 to $2,500. If you’re moving long distance, the average cost can be as high as $2,200 to $5,700. To cut costs, you can do your own packing, which may save you money.

•   Moving your things in a storage container. Another option is to use a hauling container — you load your things in it, and the container company moves it to your new location. This usually costs between $500 and $5,000, depending on the distance and how much stuff you’re moving. Long-distance moves will usually cost more than local ones.

Moving Supplies

If you decide to go the DIY moving route, you will need to buy boxes, bubble wrap, labels, and tape. And you likely have more items to wrap and box up than you think, which requires even more supplies.

Cleaning Supplies

You’ll probably want to clean your current property before you move out, and you’ll definitely want to clean the new place when you move in. That means buying mops, sponges, cleaning solutions, and paper towels. You may also want to get the carpets cleaned or hire a professional house cleaner if the place needs a deep cleaning.

10 Common Expenses After Buying a Home

Once the move is done, there are other expenses you’ll need to account for as you settle into your new abode. Here are a few things to budget for after buying a home.

Furniture and Appliances

You’ll likely bring some furniture and decor from your old place, but you’ll probably want to purchase some new things as well. For example, if the appliances are outdated, you might want to upgrade to new ones. And you may have more rooms to furnish, which requires additional furniture.

Consider opening a savings account for the new items you want to purchase. It can also help pay for any unexpected costs, such as having to replace a hot water heater that breaks.

Mortgage Payments

As a homeowner, every month you will making a mortgage payment that typically includes:

•   The principal portion of the payment. This is the percentage of your mortgage that reduces your payment over the life of the loan. The more you pay toward principal, the less you will have to pay in interest.

•   The interest. This is the amount you pay to borrow funds from the bank or lender to purchase your home.

If you are using an escrow account to pay your mortgage, other things may be included in your payment, such as your property taxes, insurance, and private mortgage insurance. This guide to reading your mortgage statement can help you understand all the costs involved in your mortgage payment.

Property Taxes

Property taxes are the taxes you pay on your home. In many cases, these taxes are the second most significant expense after your mortgage. Property taxes are based on the value of your home, which is typically governed by your state. The county you live in collects and calculates the sum due. Usually, property tax calculations are done every year, so the amount you owe may fluctuate annually.

Homeowners Insurance

Homeowners insurance helps protect your home from damage or destruction caused by events like a fire, wind storm, or vandalism. It can also protect you from lawsuits or property damages you are liable for. If someone slips and falls on your sidewalk, for instance, homeowners insurance will pay for the injured person’s medical bills and the legal costs if they decide to sue you.

The cost you pay for this coverage will vary by the type and amount of coverage you select.

Private Mortgage Insurance (PMI)

For borrowers who can’t afford a down payment that’s 20% of the mortgage value, lenders usually require private mortgage insurance (PMI). This type of coverage is designed to protect the lender if you default on your mortgage payments.

PMI can cost as much as a few hundred dollars per month, depending on the sum you borrow.

HOA Dues

This is a Homeowner’s Association fee, which goes toward the upkeep of property in a planned community, co-op, or condo. The amount can range from a couple of hundred dollars a year to more than $2,000, depending on the amenities you’re paying for (like a pool and landscaping). You typically pay HOA fees monthly, quarterly, or annually.

Utilities

Your utility payments include water, gas, electric, trash, and sewer fees. Some bills like water and electricity are based on the amount you use every month, so monitoring your electric and water usage, like taking short showers and turning lights off, can help lower your cost. Other payments, such as your trash or recycling, might be a fixed amount.

Lawn Care

Maintaining the curb appeal of your home requires landscape services and lawn care. If you choose to mow your own lawn, you may need to factor in the purchase of a mower, which can cost about $1,068 on average. If you hire a lawn service to cut your grass, you may pay $25 to $50 a week.

Pest Control

Pests such as ants, ticks, rodents, or mice, can wreak havoc on your home and your family’s health. For these reasons, many homeowners hire a pest control company to prevent the infestation of pests around their homes. The company’s initial visit may cost between $150 to $300, then $45 to $75 for every follow-up.

Home Improvement Costs

As a homeowner, there are likely things you want to change about your house. From painting the walls to a complete kitchen renovation, transforming your property can add to the cost of owning a home. According to the HomeAdvisor 2021 State of Home Spending Report, interior painting was the number one project homeowners completed, costing an average of $2,007.

Additionally, as the features of your home age, you will need to replace and repair them accordingly.

Common Mistakes After Buying a Home

One of the most common mistakes people make when buying a home is spending more than they can afford. For instance, you may forget to factor in utilities, lawn care, HOA fees, costs of upkeep, and other hidden expenses that come with owning a home. It’s crucial to do your research to determine extra costs and add them up before you move forward with purchasing a property.

Another mistake new homeowners make is taking on too many DIY projects. TV shows can make home renovations look easy. However, many of these projects require professionals who know what they are doing. Attempting a home improvement project could cost you more to fix than hiring a pro in the first place. In fact, about 80% of homeowners that attempt their own renovation projects make mistakes — some of them serious.

Unless you can afford an expert, you may want to rethink purchasing a home that requires a lot of renovation.

The 50/30/20 Rule

For help planning your budget as a homeowner, you can use the 50/30/20 rule, which breaks your budget into three categories:

•   50% goes to to needs

•   30% goes to wants

•   20% goes to to savings

That means you’ll be budgeting 50% of your income to go toward necessities such as housing costs, grocery bills, and car payments. Then 30% will go toward things you want, such as entertainment (movies, concerts), vacations, new clothes, and dining out. The remaining 20% goes towards saving for the future or financial goals such as home improvement projects.

Using a 50/30/20 budget rule is simple and easy. It allows you to see where your money is going and helps you save.

Recommended: What Credit Score is Needed to Buy a Car

Lifestyle Tradeoffs in Order to Budget

With so many things to budget for after buying a home, you may need to cut back on spending. Start by looking at your discretionary spending and think about where you can trim back. For example, instead of eating out regularly, you can cook more meals at home. Or perhaps you can put your gym membership on hold and do at-home workouts for a while to stay in shape physically and financially.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

After you buy a house, there are many expenses you may not have accounted for, such as the cost of hiring movers; buying furniture; and getting your new place painted, cleaned, and ready to move into. Making a budget is vital to keep you on track financially, so you can enjoy your new home.

SoFi’s money tracker app can help you organize your money all in one place. You can link your bank accounts, monitor spending and savings, and plan for future goals, like home renovations.

With SoFi, you’ll always know where your budget, and your finances, stand.

FAQ

How much money should you have leftover after buying a house?

After buying a home, the amount you have left will vary depending on your financial situation. However, it’s a good idea to have at least 3 to 6 months of living expenses in reserve. That way, in case of an emergency, you can stay afloat financially.

Is it worth putting more than 20% down?

Putting more than 20% down on your home can help lower your monthly mortgage payment and interest because you’ll be borrowing less money. It also gives you more equity in your home from the beginning. But make sure you can afford to pay more than 20% in order not to stretch beyond your budget.

What’s the 50-30-20 budget rule?

The 50/30/20 rule means that you budget 50% of your expenses for needs (housing, groceries, loan payments), 30% for wants (entertainment, eating out, shopping), and 20% toward savings goals (retirement, renovations, new furniture).


Photo credit: iStock/ArtMarie

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.

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

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Guide to Budgeting and Saving for a Gap Year

Guide to Budgeting and Saving for a Gap Year

Gap years appear to be soaring in popularity lately. One survey found that the number of students taking a gap year between high school and college rose from 3% in 2018 to 20% in the 2020-2021 school year. Granted, the COVID-19 crisis surely played a role in that, but the idea of taking a break before, during, or after college is one that many students can relate to.

Obtaining an education involves a lot of hard work. From long days in the classroom to late-night study sessions, the rigors of academia can take their toll. And it can carry a hefty price tag. It’s understandable that someone might want to take a gap year before they start college or after they finish college to regroup before they begin working.

There are a lot of benefits associated with taking a gap year, but getting ready for a year off requires quite a lot of financial planning to make this choice sustainable. Keep reading to learn:

•   What is a gap year and what are its benefits?

•   What are the typical expenses during a gap year?

•   How can you save for a gap year?

What Is a Gap Year?

Before diving into how much to save for a gap year, it’s helpful to understand exactly what a gap year is. There’s no one clear cut definition of a gap year, and everyone can choose how to spend theirs differently. That said, essentially a gap year involves taking a year off from school or work to travel, do an internship, take on a temporary job, volunteer, develop a skill, or do a combination of those activities. Some students design their own program; others sign up with an organization that, say, leads them on travel or volunteer projects.

More often than not, people take a gap year between when they graduate high school and start college, but it is possible to take a gap year during college or after graduation but before starting a job or going to graduate school.

A gap year can give someone the time they need to discover what they want their next move to be, to rest, to learn about an area of interest, or to simply get out of their comfort zone.

What Are the Benefits of Taking a Gap Year?

Some parents may look down on the idea of a gap year, fearing that their child won’t get “back on track” with their studies or post-grad life. But there are many benefits associated with taking a gap year.

•   Time to rest and recharge. After many years of academic pressure, some students need a year off to recover from burnout before they start their next big endeavor.

•   Room for discovery. Students who aren’t sure what path they want to take next may find that taking a gap year gives them the opportunity to discover or deepen their interests and formulate next steps.

•   Can explore passions. If a person knows they’re interested in a certain industry or job role, they can spend some time interning, pursuing a fellowship, or researching that career path before they pursue a degree toward that job.

•   Develops independence. A gap year can provide the opportunities young adults need to become more self-sufficient. That could mean traveling solo or taking on a job in a new town, not to mention getting better with money management.

Is a Gap Year Beneficial Financially?

If you’re contemplating taking a gap year, it’s natural to wonder how much to save to make it a reality. You may also be curious if this year could be a boost or a bust for your finances. In truth, a gap year can be beneficial financially and in other cases it can be financially damaging — it just depends on how the person chooses to spend that year. For instance, if you are working at a local business while living at home, you might really plump up your bank account. If, on the other hand, you go on a gap-year guided tour of another continent, that could cost $10,000, $20,000, or more.

There is some concern that gap years can hurt someone’s overall lifetime earnings. By pushing off entering the working world with a college degree in hand by a year, they can lose a year’s earnings as well as a year’s progress towards a higher paying job.

That being said, someone may spend their gap year interning, working as a fellow, or finding other ways to earn income or boost their resume. They may find their efforts propel them forward financially or at least help them break even. On the other hand, if a person spends the year traveling and relaxing, their finances might take a major hit if they don’t plan and budget appropriately.

Typical Expenses to Prepare for During a Gap Year

Parents may not be able to (or eager to) fund a child’s gap year, so a student can benefit from preparing to pay some or all of their expenses. Saving in advance or working part-time during the gap year can help make it a reality. (Planning for a gap year can actually be a great way to get your finances in order and learn how to budget.)

Here are some of the expenses to consider:

•   Rent and utilities or other housing (say, youth hostels if you are traveling)

•   Transportation

•   Travel costs

•   Food

•   Entertainment (movies, concerts)

•   Clothing

•   Personal-care products

•   Health insurance

•   Medical costs

•   Car insurance

•   Cell phone/data plan; internet access

•   Student loan payments, if applicable

•   Credit card debt payments

•   Gym membership/fitness costs

Financial Tips to Save for a Gap Year

Now let’s take a look at how to save for a gap year. The very act of planning a gap year can be a great exercise in money management for college students; it will definitely give you a new perspective on saving and spending.

Budgeting While Planning a Gap Year

Budgeting for a gap year takes quite a bit of forethought and planning regarding your personal finances. It’s a good idea to plan for a gap year a full 365 days in advance to make it easier to build up a savings fund. It can be helpful to put your cash into either a savings account, money market account, or CD to gain interest and help your funds grow.

You might want to determine how much you need to save over the next year, divide that amount by 12, and then add that amount into your budget so you can set the money aside each month. This can be a great time to familiarize yourself with different budgeting techniques (like the envelope system or the 50/30/20 budget rule) and see which one suits you best.

Getting a Job or Internship

Getting a part-time job or a paid internship while in school can make it easier to save for a gap year. Your school may have an online board where you can scan for opportunities. You might also consider a side-hustle, whether that means selling photographs you took while hiking or doing a weekend shift at a local coffee shop.

Cutting Unnecessary Expenses

Remember that reference above, saying it was a good idea to budget for a gap year? Now it’s time to up the ante. You can take a cold, hard look at your budget to see where you can cut your spending (hello, subscription services and those pricey daily smoothies). The money you save can be put towards your gap year fund.

Selling Items You No Longer Use

From clothes to workout equipment to electronics, most of us have things we simply no longer use. If you’re trying to fund a gap year, you can cut the clutter and make some extra cash by selling this stuff. You might offer items up online (eBay and the like) or organize a yard or stoop sale.

Reduce Credit Card Spending

Credit card debt has a way of snowballing and getting very expensive. With credit card interest rates around 17%, owing money on your plastic can be a dangerous thing. Aim to only use your credit card for purchases you can afford to pay off right away. That way, you can use any cash-back and travel-point bonuses to help fund your gap year without carrying a balance. It’s wise to focus on managing your money in a way that doesn’t require relying on a credit card.

Consolidate Credit Card Debt

The above strategy may not be possible if you’ve already racked up a good deal of credit card debt and are feeling as if you are in financial trouble. (Yes, this can happen quickly, even if you’re a student who’s only had a card for a short time.) You may find that consolidating multiple sources of credit card debt can help you get a lower interest rate (which saves money) and streamline your debt, making it easier to pay off.

For instance, you might find a balance-transfer card that offers breathing room thanks to an introductory, interest-free period. Or perhaps you would do better with a credit card consolidation loan that lets you pay off the debt and then pay back the funds at a lower interest rate. If you need guidance, consider talking with a debt counselor at the non-profit NFCC (National Foundation for Credit Counseling).

Cook at Home

Eating out will almost always cost more than eating at home. To save extra cash, get comfortable in the kitchen and build your meal-prep repertoire. In addition, you might start making your own lunch; those popular salad bars can be a budget-breaker if you go often.

Recycle, Reuse, Rewear

One way to save big is to be planet-friendly. Did you know the average American spends $100 per year on bottled water? Buy yourself an insulated reusable water bottle in a color or design you love, and use it.

Also consider that each of us typically spends almost $2,000 on clothes per year. Commit to wearing what you own or perhaps shopping second-hand (there are plenty of cool things to be found at thrift and vintage stores) to whittle that expense way down.

Think Carefully About Big Purchases

If you’re planning for a gap year, you may want to slow your roll when it comes to making big purchases. Upgrading to the latest mobile phone or buying a premium mattress as you enter adult life may seem enticing right now. However, if you delay gratification, you may be closer to making your gap year dreams a reality. Better money management can sometimes mean knowing how to say “no” to things you think you have to have.

The Takeaway

A gap year can be a great way to intern, explore, volunteer, destress, and more. But it typically isn’t free. If you want to enjoy this kind of experience, you likely need to save more and spend less. Yes, this can help your gap year become a reality, but it has another bonus: It teaches you money management skills that can last a lifetime.

On the topic of money management, the right bank can make wrangling your finances so much easier and more efficient. For example, when you open an online bank account with SoFi, it’s super convenient and your money can grow faster. Set up direct deposit with our Checking and Savings, and you’ll earn a competitive APY. Plus, you won’t pay any account fees. That can help boost your savings for your gap year and beyond.

Better banking is here with up to 4.60% APY on SoFi Checking and Savings.

FAQ

How much money is needed for a gap year?

How much money you need for a gap year depends on your goals. For instance, if you want to travel the world during that year, you will require a lot more money than if you plan to live at home and intern in an industry you’re interested in.

Can taking a gap year help you save money?

Usually a gap year doesn’t help students save money, other than the fact that no tuition will be due that year. The exception would be if you live with your parents during your gap year and work during that time.

How can a gap year hurt?

A gap year can hurt someone’s lifetime earning potential. By delaying entering the working world for a year, the individual misses out on a year’s salary and career growth that can lead to a higher salary down the road. However, a gap year could also be a positive: It could involve an internship or connections that eventually lead to a dream job.


Photo credit: iStock/ijeab

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

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

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

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

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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