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The marginal propensity to save (MPS) is an economic concept that says when a person’s income rises, the MPS will determine the amount of money that is saved vs. spent on goods and services. This is an element in Keynesian Economic Theory, and it can have an important impact. The MPS can enable economists to figure out how to spend either government dollars or private funding.

But does MPS impact the average individual’s savings account? It can be a useful notion, and in this article you will learn:

•   What is marginal propensity to save (MPS)?

•   Why does MPS matter?

•   What does MPS mean to the average person?

The Keynesian Economic Theory, Explained

Economist John Maynard Keynes published The General Theory of Employment, Interest, and Money, or simply as The General Theory, in 1936. This text changed economic thought from that point on and is known as one of the classic economic publications. In the book, Keynes tried to explain economic fluctuations, especially the ones seen in the Great Depression of the 1930s.

Essentially, The General Theory was built on the idea that as a result of inadequate demand for goods and services, recessions and depressions could occur. Keynes’ theory was not just for economists—it was intended for policymakers worldwide. Keynes advocated for an increase in government spending, which would boost the production of goods and services to minimize unemployment rates and enhance economic activity. In general, this theory went against the traditional economic policy of laissez-faire, which requires minimal government involvement.

There are three main elements of this theory. These elements include:

• Aggregate demand: This is the demand influenced by the public and private sectors. The level of demand in the private sector may impact macroeconomic conditions. For instance, a lull in spending may bring an economy into a recession. At this point, the government can intervene with monetary stimulus.

• Prices: Wages, for example, are often slow to respond to supply and demand changes. This may result in an excess or shortage of labor supply.

• Changes in demand: Any change in aggregate demand results in the most considerable impact on economic production and employment. The theory states that consumer and government spending, investments, and exports increase output. Therefore, even a change to one of these factors and the output will change.

The Keynesian Multiplier was created as a result of the change in aggregate demand. The Keynesian Multiplier states, “The economy’s output is a multiple of the increase or decrease in spending. If the fiscal multiplier is greater than 1, then a $1 increase in spending will increase the total output by a value greater than $1.”

Calculating Marginal Propensity to Save

The Keynesian Multiplier value relies on the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Here’s how you can calculate the marginal propensity to save.

Marginal Propensity to Save Formula

When people receive additional income, the MPS is the change in the savings amount. If their income increases, the MPS measures the amount of income they choose to save instead of spending it on goods and services.

That said, this is how to calculate MPS: MPS = change in savings / change in income.

For example, let’s say someone received a $1,000 raise. Of that $1000 increase in income, they decide to spend $300 on new clothes, $200 on a fancy dinner out, and save the remaining $500, so the MPS is 0.5.

(1000 – 300 – 200) / 500 = 0.5

Marginal Propensity to Consume

Conversely, the MPC is the change in the spending, or consuming, amount. If someone’s income increases, the MPC measures the amount of income they choose to spend on goods and services instead of savings.

With this in mind, MPC is calculated as MPC = change in consumption / change in income.

By using the example above, the MPC would be 500 / 1000 = 0.5.

According to Keynesian economic theory, when production increases, the level of income rises too, triggering an increase in spending.

Marginal Propensity to Save Example

As mentioned above, the marginal propensity to save can be illustrated by someone getting a raise. If you receive a $5,000 raise and decide to spend $2,500 on a vacation and save the other half.

The MPS would be change in savings / change in income, or $2,500 / $5,000, or 0.5.

Top 3 Factors That Influence Saving

Knowing how to find MPS and MPC may seem pretty straightforward. However, both calculations only account for the excess of disposable income; the calculations don’t account for other factors that may influence a consumer’s consumption functions. If one of these non-income factors shifts, the entire consumption function may shift.

Here are some of the non-income factors that may influence a consumer’s consumption function.

1. Wealth

Wealth and income are two different variables in economics. For example, suppose Javier has a job earning $60,000 per year. If his aunt Ines passes away and leaves him $200,000 as an inheritance, his income is still $60,000 per year, but his wealth has increased.

Similarly, if Javier owns a piece of art that increases in value or his investment portfolio grows, his wealth has also gone up. Just because his wealth increases doesn’t mean his income does as well.

Therefore, an increase in wealth may increase consumption despite income levels staying the same. However, both the consumption and savings function may shift upwards as well because of the newfound wealth. The same is true in the opposite situation. If wealth decreases, the consumption and savings functions may decrease as well.

2. Expectations

In some cases, consumers may adjust their spending habits based on the expectation of future income coming their way. Expectations change the shift in consumption and savings functions because there is no change in actual income, just how it’s being spent.

For example, suppose Naomi assumes her income is going to increase soon. She may consume more now because of her expectation that her income is about to grow. This may highlight an upward shift in the consumption function without an increase in income.

On the other hand, if Naomi were pessimistic about her future income, such as the fear of losing her job, she may decrease her consumption without dropping her income. This scenario may also shift the consumption factor.

Debt

Consumers may also adjust their consumption and savings if they’re in debt. It’s observed that in economies where consumer debt rises, savings go up while consumption goes down. There is a level of debt when consumers typically feel uncomfortable spending more. Even if their income remains the same, if too much debt plagues their pocketbooks, they will start to save more and spend less so they can pay off their debt.

Conversely, if there are low levels of debt, consumers tend to spend more and save less.

Recommended: What is the Average Savings by Age?

Why Marginal Propensity to Save Matters

Using the data from MPS and MPC helps businesses, governments, and foreign policymakers determine how funds are allocated. For example, economists can assess this data to determine increases in government spending or investment spending, influencing savings numbers.

As for consumers, using the marginal propensity to save formula can help them make adjustments to their own spending habits. If their MPC is higher than their MPS, adjustments to consumption may need to be made.

How to Start Saving Money

While the way consumers spend helps the government and economists determine the best way to increase government spending, the way you choose to spend your money can help you set up a solid financial future. Carefully considering all of your spending options may get you on a path toward financial security. Being motivated to save money can have long-term benefits.

So if a windfall comes your way, you may want to consider carefully choosing how to spend those funds. While it’s tempting to use the money on a shopping spree, putting it in some type of savings account may be a better financial decision. After all, saving your extra disposable income can help build an emergency fund, avoid taking on debt, and accumulate a nest egg for your retirement.

Here are a few steps for getting started, even when it feels hard to save money:

Identifying Your Savings Goals

Do you have short-term goals like accumulating an emergency fund to pay for unexpected expenses? Or perhaps you want to save for a family vacation? Maybe you have a medium-term goal, such as paying for a wedding reception or a new kitchen renovation. Or would you like to save for retirement as a long-term goal? No matter your goals, you’ll want to have a clear idea of how much cash you need and by when.

First, decide on a goal date — when you want to have the money saved by. Then, divide the goal amount by the time frame, in months, to determine how much cash you need to stash away each month. Finally, decide where to keep the funds.

•   If your goal is short-term, you may want to consider putting your cash in a high-interest savings account or money market account. Either type of account is relatively low risk and is likely to be FDIC or NCUA insured, depending on the financial institution.

•   If the goals are more long-term, retirement accounts or brokerage accounts are worth considering since they may help your money grow.

Creating a Budget

It’s hard to track your money if you don’t know where it’s going. Creating and sticking to a budget is a great way to monitor your spending habits so you can stay on track.

•   To start, take note of your income and expenses for a month or two.

•   Next, create a monthly budget that reflects the average spending amounts for fixed expenses such as your mortgage and variable expenses such as eating out or clothes shopping. Also note money that goes towards savings.

•   If you determine you’re spending more than you earn, you may want to look for ways to cut back on your expenses, such as canceling subscriptions you don’t use. Or you could bring in more earnings by starting a side hustle or selling items that are still useful but that you don’t need.

Using a tool like SoFi or another digital tool makes it easy to track and categorize your expenses. It also helps you find ways to save and lets you monitor your progress toward your goals.

Recommended: Why Saving Money is Important

Opening a Savings Account

When you receive an increase in your income, setting up automatic contributions to your savings or retirement accounts allows you to set aside extra money by automating your savings instead of having to manually transfer money each month. Look for an account with higher than average interest rate, typically found at online vs. traditional banks.

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

FAQ

Can MPS be greater than 1?

The marginal propensity to save (MPS) cannot be greater than one since it is a change in savings, and that difference cannot be greater than one, nor less than zero.

How do you calculate the marginal propensity to save?

To calculate the MPS, or the marginal propensity to save, use the formula of change in savings divided by change in income.

What is the difference between average and marginal propensity to save?

The average propensity to save is defined as the ratio of total savings to total income. However, when talking about the marginal propensity to save, or the MPS, that is the ratio of change in savings to a change in income. The latter reflects a shift.

Photo credit: iStock/MarsBars

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.

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SOBK0723018

Having money in the bank can be a very good thing, and there are multiple ways to actually get cash safely into your account. You could go old school and deposit bills in person or take advantage of all the mobile transactions available.

Here’s help knowing all the different ways you can deposit money into your bank account, along with how-tos. Equipped with this knowledge, you can be even more ready to get your hard-earned dollars socked away.

6 Ways to Deposit Cash in a Local Bank Account

Wondering how to put cash into your local bank account? We can help. There are numerous ways you can do this, including:

•   Direct deposit

•   Account transfer

•   External transfer

•   Wire transfer

•   Peer-to-peer transfer

•   Depositing Cash at Your Bank Branch

Here, we’ll take a closer look at each, and, a bit later, how to use ATMs to deposit cash.

1. Using Direct Deposit

Direct deposit is by far the simplest and easiest way to get cash into your bank account. All you have to do is visit your bank branch, fill out a deposit slip, hand the slip and your money to the teller, and be on your way.

If the bank is closed or you want to avoid standing in a long line indoors, you can deposit cash at an ATM. You likely won’t need to fill out a deposit slip at the ATM because the computer can read the check or count the cash and then electronically credit the account associated with the ATM card.

Be sure, however, that you know your financial institution’s policies when you make a deposit at an ATM. Unlike an in-person deposit where your money is typically available immediately, your funds may not be available right away with an ATM deposit (especially if it’s not your bank’s ATM). Also, some ATM’s don’t accept cash deposits. So inquire before you make your deposit.

2. Deposit Cash Using an Account Transfer

Perhaps you have more than one account at your bank (there are often incentives to do so, which many people take advantage of). It can be quite convenient to move money via a bank transfer between accounts.

You might complete a one-time transfer at the bank or online to transfer money from savings to checking to cover a large, unexpected expense. Or perhaps you want to set up recurring automatic transfers on payday to whisk 10% of your salary into savings. Or, say you’ve accumulated a chunk of change in one account and want to open a certificate of deposit (CD) to lock in your interest rate. An account transfer could make that happen, too.

3. External Transfer

Maybe you don’t want to keep all your eggs in one basket, so you have more than one financial institution where you keep your money. No worries if you want to move money between accounts as part of managing your banking. Some financial institutions allow you to link accounts held elsewhere.

The how-to’s: Complete what’s necessary to link the accounts (this can involve just inputting an account’s routing and account number), and you can easily transfer money between them.

4. Wire Transfer

How else to put cash into a bank account? Wire transfers may sound old-fashioned, but they are still an effective way to send money to someone else’s bank account. Say someone needs to send you money, but you don’t bank with the same financial institution. They can do a wire transfer from their bank to yours using providers like Western Union.

Wire transfers are fast, and the money arrives pretty much immediately. The downside is that you have to share your bank account information, which can give you cause for concern if you don’t know the person you’re dealing with.

Also, wire transfers charge the sender a fee, which may vary on factors such as whether you’re sending/receiving domestically or internationally. The person sending you the funds could want to deduct the fee from the money they are sending your way. And banks may charge fees related to wire transfers as well, so again, do a little research first to avoid any surprises.

5. Peer-to-Peer Transfer

Decades ago there were no money-transfer apps or platforms like PayPal, Zelle, or Venmo. Today, there are many ways to move money around with these tools, whether that means a friend paying you back for their share of the dinner tab or someone who employs you as a gig worker sending you your fee. The way these platforms work is that you can receive money either directly into your account or into the money-transfer app and then transfer it to your bank account.

Worth noting: Sometimes you may pay a fee for an instantaneous transfer versus one that takes a day or two. There can be other costs and transaction limits involved as well, so familiarize yourself with the specifics of the platform you are thinking of using.

6. Depositing Cash at Your Bank Branch

One last way to put cash in your bank account. If you bank at a traditional financial institution with brick-and-mortar branches, you could take your money in person and fork it over. Typically, this involves handing the cash to a teller with a deposit slip.

While many people who are paid in cash (yes, they still exist) may use this method, it is of course important to be cautious when en route to the bank with a pocket full of bills. If you lose the money or are robbed, that money would be gone.

4 Ways to Deposit Cash in an Online Bank Account

If your accounts are at an online bank, you may wonder how best to deposit your cash. After all, there isn’t a brick-and-mortar branch to stroll into, and no one wants to mail cash. But don’t worry; you likely have plenty of options.

One is to find an in-network ATM. Find out what network of ATMs your online bank is part of, and you can then deposit cash in one of those ATMs. Be sure to keep your receipt until the money surfaces in your account so you’re sure everything went through properly.

That’s not always convenient, though, so let’s consider some other options:

•   Mobile deposit

•   ACH transfer

•   Prepaid cards

•   Money orders

•   Transferring from another bank

1. Using a Mobile Deposit

You can deposit your checks remotely. It’s super simple and you don’t have to leave home, which is one of the benefits of mobile deposits. All you need to do is take a picture of the front and the back of the check and deposit it via your bank’s mobile app.

2. ACH Transfer

You can also get money deposited directly into your account by what are known as ACH (or Automated Clearing House) transfers. These can be set up to go into your account on a recurring basis, too. For example, you can have your HR department deposit your paychecks into your account, and you can do the same with government benefits if you enroll in the program to get your money this way. Once you know how to set up direct deposit, it might just be a game-changer for you.

3. Depositing Cash Using a Prepaid Card

There’s another option if your online bank account isn’t part of an ATM network: a prepaid debit card that’s linked to your account. With a prepaid card, you can load money on it in a variety of ways. For example, you can go to participating retailers to deposit cash. Then you could transfer the money from the prepaid debit card to your linked online bank account.

But of course, there can be a downside. You may be charged fees to get the card, deposit cash, or withdraw funds. Do the math. If you don’t need to do it frequently, it might be worth it. But if you have to do this often, the additional costs might be a deal-breaker. Shop around for a card that suits your needs.

4. Using a Money Order to Deposit Cash

If all else fails, you could go retro and buy a money order. You get one from the post office or businesses like CVS and Western Union, among others. You’ll likely pay less than $5, though the fee depends on the amount of the money order. You can mail the money order to your online bank. Just double-check that the bank accepts money orders for deposits.

5. Transferring From Another Bank Account

Another option is to transfer funds from another bank account. Whether you keep multiple bank accounts at one financial institution or divide them between different banks, you can send money from one account to an online account simply. You can likely use the transfer feature in your bank’s app, add the necessary bank account and routing number, and get the money heading where you want it.

Can You Deposit Cash in an ATM?

Yes, you can. Many ATMs accept cash, though a few do not. Check with your bank or look carefully at the ATM you are planning to use to see whether a cash deposit is an option.

Using a Deposit Slip for an ATM

Like many other bits of paperwork, deposit slips are used less often than in the past when banking. Most ATMs do not require deposit slips. The computer that’s part of the ATM can verify and count the bills without the need for you to provide extra paperwork stating the amount.

Of course, you’ll want to double-check that where you are making your deposit has a machine that doesn’t require a deposit slip before you put your cash in. There may still be some devices out there that still require a deposit slip and envelope.

Funds May Not Be Available Immediately

If you deposit cash into your bank’s ATM, the money is typically available almost immediately. This is a change from the past, when a teller had to receive and then verify the deposit before funds were made available. This typically took one of two days.

Also keep in mind that many banks don’t allow you to deposit cash into an out-of-network ATM. If they do, there might be a fee involved as well as a delay in funds availability. It’s wise to check such details before you attempt to put some bills into this kind of machine.

When Does a Deposit Typically Appear in Your Account?

Every financial institution has its own rules about how long cash takes to clear or how long a direct deposit takes. Know, however, that federal law establishes the maximum length of time a bank or credit union can make you wait.

Cash, as you might guess, tends to clear most quickly. If deposited in person to your checking or savings account, it may become available the same day or the next day. If you deposit it to an ATM in your bank’s network, it could take until the second business day to clear; if you use an out-of-network ATM that accepts cash from those who aren’t account holders, that can take five business days.

The typical time period for checks and money orders to clear is between two and five days. According to the Consumer Financial Protection Bureau (CFPB), generally, these are the guidelines:

•   If you deposit a check or checks for $200 or less in person to a bank employee, you can access the full amount the next business day.

•   If you deposit checks totaling more than $200, you can access $225 the next business day, and the rest of the money the second business day.

Here are a few nice exceptions involving in-person deposits at your bank. You should be able to access the full amount on the next business day if you deposit:

•   A certified check

•   A check from another account at your bank or credit union

•   A check from the government.

The amount of time a bank or credit union holds funds you deposit by check is sometimes referred to as a “deposit hold” or “check hold.” Some banks or credit unions may make funds available more quickly than the law requires, and some may expedite funds for a fee.

If you need the money from a particular check, you can ask the teller or a customer service representative when the funds will become available. A receipt showing your deposit does not mean that the money is available for you to use.

Knowing these timeframes can be very helpful as you stay on top of your money and work to make sure you know your approximate balance and don’t bounce any checks.

Recommended: When All Your Money Goes to Bills

The Takeaway

There are many options in terms of depositing cash into your bank account these days, whether you use a traditional or online bank. You’ll find options from going to a brick-and-mortar branch to using an ATM to mobile and ACH deposits and more. The timeframes for all of these deposits will vary, so check your bank’s policies.

You’ll want to be sure you don’t draw on your funds before they are fully available. It’s an important move to keep your account in good standing and avoid the fees many banks charge for overdrafts.

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

FAQ

Can you deposit cash into someone else’s bank account?

Typically, you can deposit cash into someone else’s bank account if your know the name on their account and their account number and if you go into a branch with the cash.

When does the money I deposit reflect?

A deposit can reflect in your account almost immediately (especially if it’s cash) or take a day or two to show up in your account. Also, the timing of funds availability for withdrawal or transfer can vary depending on the size and form of the deposit (such as whether you deposited a money order in person at a branch or deposited cash into an out-of-network ATM).

How do you deposit large amounts of cash?

You can use any of the standard methods: Cash (though do be cautious), transfer, check, and other techniques. But also know that a financial institution must report any cash transaction involving a deposit or withdrawal of over $10,000 to the Internal Revenue Service (IRS).

Is there a fee to deposit cash at a bank?

Most banks do not charge a fee to deposit cash at a bank. However, some banks may assess a fee if you deposit the funds into an out-of-network ATM.

Can you deposit cash without going to the bank?

Depending on your bank, you may be able to deposit your cash into an out-of-network ATM. You might have to pay a fee to do so.

Photo credit: iStock/JoeLena

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOBK0223038

Banking today has a lot of one-click convenience, and you may hear the terms EFT and ACH used interchangeably. There is, however, a key difference between these two acronyms: ACH is one kind of EFT.

To understand this better, first know your definitions. Automated Clearing House (ACH) is a national network linking U.S. financial institutions. This electronic system allows them to debit money from one account and then credit it to another. ACH payments are one variety of EFT, or electronic funds transfer. The term EFT includes additional methods of moving money electronically, such as wire transfers.

So all ACH transactions are considered EFT, but not all EFTs are ACH.

Keep reading to learn more including:

•   Which payments are considered ACH?

•   What are some other EFT payment methods?

•   How do EFT vs. ACH vs. wire transfers compare?

ACH Transfers

ACH stands for Automated Clearing House, a network governed by Nacha (National Automated Clearing House Association). The first ACH association appeared in 1972 in California; by 1974, multiple regional networks joined together to form Nacha, which has since overseen the ACH network nationally.

But what is ACH? Put simply, ACH is a type of electronic fund transfer (EFT) that allows individuals, corporations, and even the government to electronically move money from one bank account to another. It can be thought of as a hub that keeps funds flowing.

ACH payments work domestically; that is, among banks and credit unions within the United States. You may be able to send money via international ACH transfers, but other countries will have their own networks and governing bodies. Some countries do not have an equivalent network at all.

Funds first go to the Automated Clearing House, which then reviews the payments and releases them in batches throughout the day. For this reason, ACH transfers are not immediate. How long ACH transfers take can vary: Traditional ACH transfers can take one to two business days, but in recent years, Nacha has enabled same-day transfers for eligible transactions.

How Do ACH Transfers Work?

ACH transfers work thanks to a data file that includes information about a prospective payment. The file goes to the payor’s bank to the clearing house and then on to the payee’s bank, with details on the transaction. The funds get moved into the intended location, and the process is completed, transferring money from one account to another.

How Is ACH Used?

Consumers and businesses can use ACH for a variety of purposes. For example, employers often use the ACH network for direct deposit. This enables them to deposit paychecks directly into employees’ bank accounts. When an entity, like an employer or the government, initiates the ACH process to send funds, this is classified as an ACH credit.

Individuals can provide bank account information to businesses, such as mortgage lenders and utility companies, to enable ACH debit transactions as part of their electronic banking. This means those companies are able to directly debit funds from the individual account using ACH as a form of electronic bill payment. Businesses and individuals may utilize ACH debit for autopay (recurring payments) or for one-time payments.

Even peer-to-peer (P2P) payment methods like PayPal and Venmo can utilize the Automated Clearing House network for electronic transfers. (When such services offer instant payments, they may charge a fee and use your credit card instead, so proceed carefully in these situations.)

Typically, the employer or merchant enabling ACH payments is the one to pay ACH fees.

Recommended: ACH Payments vs. a Check

What Is EFT?

Electronic fund transfers (EFTs) refer to a much broader range of electronic payments. ACH is a type of EFT, but EFT can also include payments like wire transfers, debit card payments, credit card payments, local bank transfers, instant P2P payments, and even ATM transfers. Electronic fund transfers can be domestic or international in scope.

The Consumer Finance Protection Bureau refers to electronic fund transfers as “any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape.”

Note: Another common term in finance is ETF (exchange-traded fund). The acronyms are similar, so it’s important to recognize that an ETF is an investment security, not a payment method.

How Do EFT Payments Work?

EFT payments may use the ACH network, or they may not. An example of a transaction that doesn’t use ACH is tapping or swiping your debit card to make a payment. It’s an instantaneous transfer of funds, without banking information being exchanged. The money is moved from your account to the store’s without any verification other than your PIN.

Types of EFT Payments

EFT payment is a broad category, including common transfers like ACH and wire transfers. Here is just a short list of payment methods that can be classified as EFT:

•   ACH transfers

•   Wire transfers

•   Peer-to-peer payments (often done through ACH)

•   Debit card transactions (in person or online)

•   Credit card transactions (in person or online)

•   ATM transfers

•   E-checks

•   Telephone orders

Do EFT Payments Have Fees?

Typically, a merchant will pay a small percentage of a transaction’s amount for the privilege of using an EFT method. In some situations, you, the consumer, may be assessed a fee for using these methods. For instance, some merchants may add a surcharge for credit card vs. cash or debit card payments. Or if you pay by phone, there may be a surcharge. You should be alerted to these add-on costs, however, in advance, so you can decide if you want to proceed or not.

What Is the Difference Between ACH and EFT?

We’ve established that the key difference between ACH and EFT is that an ACH is a type of EFT. This table further breaks down the distinction:

ACH vs EFT vs Wire Transfers

When banking, you’re likely to hear about different ways to move money, including ACH, EFT, and wire transfers. Here’s a closer look: ACH is a type of EFT, but another common type of EFT is a wire transfer, which can be used to send money to someone’s bank account.

Wires can be both domestic and international and often have a fee for both the sender and the receiver, depending on the banks or transfer service agencies (like Western Union) involved. Wire transfers allow you to make an electronic payment “by wire,” such as through SWIFT, the Clearing House Interbank Payments System, or the Federal Reserve Wire Network. Wire transfers can take up to two days to fully process; international ones might take longer.

Should You Use Electronic Transfers?

Electronic transfers are common in modern banking. It is likely that you already utilize some form of electronic transfer, whether you receive a direct deposit from your employer like 96% of American workers, have your utility bills on autopay, pay for groceries with a debit card, or use peer-to-peer transfer apps to split the dinner bill or pay a friend for concert tickets. When you buy a house, the mortgage company may even ask you to wire funds in time for the closing.

The Takeaway

Automated clearing house (ACH) transfers are a type of electronic funds transfer (EFT), which allows for the direct debiting and crediting of funds from one bank account to another. Common examples of ACH include direct deposit from an employer into your bank account or an automatic bill payment debited from your account.

ACH is only one type of EFT, however; other types include wire transfers and debit and credit card payments, among others. These kinds of payments are commonly used today to keep funds flowing quickly and securely and play an important role in your banking life.

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

FAQ

Is EFT the same as direct deposit?

EFT stands for electronic funds transfer. Direct deposit is one example of EFT.

Is ACH a wire transfer?

While ACH and wire transfers are similar transactions, they operate on different timelines and according to different rules. Wire transfers (especially domestic ones) can occur almost immediately, while ACH transactions can take a couple or a few business days.

What is the difference between ACH and autopay?

ACH is a method for electronically transferring funds between accounts. Autopay involves your setting up recurring payments of bills with a vendor. It typically uses the ACH network to complete those transactions.

Is ACH the same as direct deposit?

Direct deposit is one kind of ACH payment, but other kinds of ACH transactions are possible as well.

What is the best EFT payment method?

The best EFT method will depend upon various factors, such as timing and the technology you can most easily access or are most comfortable using.

Photo credit: iStock/Cecilie_Arcurs

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

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

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

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

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

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

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

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

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

SOBK0223040

It’s a common dream to become financially independent. Though the words “financial independence” can mean different things depending on a person’s situation and outlook, it usually refers to living comfortably off one’s savings and investments. That often means you have no or low debt.

In some scenarios, the definition of financially independent may also mean you have the ability to retire early, though not necessarily leaving a career you love. It’s more about working because you want to, not because you have to do so to pay bills.

If this sounds appealing, you’ll probably be happy to know that achieving financial freedom could be easier than you think. The process often boils down to a relatively simple concept: Spending less and saving more.

Below, you’ll learn more about what it means to become financially independent and explore some smart strategies for achieving it

What Does It Mean to Be Financially Independent?

While there is no set definition for financial independence, the term often means getting to a point where you don’t have to work to pay your living expenses. Usually, financial independence is achieved by relying on savings, investments, and other forms of passive income to pay the bills.

Though financial independence doesn’t have to mean leaving behind a job or career path, it can. In fact, for many people, knowing the answer to “When can I retire?” helps them judge whether they are on track to financial independence or not. The term “financial independence” is often used as a synonym for early retirement. What’s more, the two phrases are commonly strung together in the popular acronym FIRE, which stands for “financially independent, retire early.”

Benefits of Financial Independence

There are myriad benefits to becoming financially independent.

•   One of the biggest perks is the ability to have choices. You can choose to keep working if you enjoy it, or you can kick back and relax. You can save money to pass on to future generations, or you can splurge on a trip around the world.

•   Achieving financial freedom can also enable you to enjoy work more. If you’re no longer doing it for the money, you can structure your job responsibilities so you’re only doing the things you want to do.

•   Financial independence can also benefit your physical health. Having the ability to work less allows you to exercise more and get more sleep. You may have more time and energy to eat better too.

•   Financial independence may also have emotional benefits. It can allow you to spend more time with a partner, kids, family, and friends. Having stronger relationships can lead to increased happiness in life.

How to Become Financially Independent in 6 Steps

Becoming financially independent typically requires having a clear plan in place and being willing to roll up your sleeves and get to work. Here are some key steps that can help you get there.

1. Setting Realistic Goals

Being financially independent can look different for everyone, so a good place to start can be to define what being financially independent means to you. What do you visualize? Maybe you want to be debt-free by 40, or you’d like to retire at 50. Or perhaps you’d love to relocate to some place warm and sunny in 10 years.

As you develop your goals, you may want to give them a reality test by consulting with a financial advisor or chatting with a trusted financial mentor. You may find that you need to retool your vision based on your financial situation and how much time you have to achieve your dream.

Once you’ve honed in on some specific, achievable long-term goals, you can begin to figure out what you’ll need to do to make them a reality — whether that’s cutting your spending, boosting your income, and/or saving and investing more than you currently are each month. Even if you are just starting out or not earning that much, it can be wise to forge ahead. There are even ways to save on a low income.

2. Understanding That Income Isn’t Everything

Another step in how to be independent financially: Learning that your salary may not be the only thing that matters. Many people have a tendency to fixate on how much money they are making. And while income is an important part of your financial big picture, other factors also count. Yes, it’s easier to amass assets if you have more monthly income, but one key to increasing your net worth is to spend less than you make.

For example, if you are making a comfortable salary but haven’t gotten into the habit of saving and investing, then you may not be leveraging your income to its full potential. Becoming financially independent often requires an understanding that the amount of money you make is just one piece of the puzzle.

The path to financial independence may become a little less daunting once you realize that a high income alone is not necessarily going to lead to sustainable wealth. There are several other factors that play a role in how much you are able to grow your finances, such as how much interest your investments are making and the rate at which you are able to save.

More than a high salary, financial independence typically requires foresight, long-term thinking, and a holistic understanding of how your income overlaps with your expenses, lifestyle, and future goals.

3. Building a Budget

No matter what your income level, one of the keys to becoming financially free is to spend less — and potentially a lot less — than you are earning. Doing that typically involves finding a budget method that works for you.

Budgeting is the process of measuring income, subtracting expenses, and deciding how to divert the difference toward reaching your goals. It’s often considered the essential first task in achieving financial independence.

You can set up a monthly budget by first assessing what you are currently earning (after taxes) each month. Next, you can tally up your actual spending by looking at the last three to 12 months of bank and credit card statements and recording your expenses on a spreadsheet.

Seeing it all laid out in black and white can help you identify unnecessary expenses you might be able to cut out. You can then put the difference toward your long-term goals instead. One rule of thumb is to try to put 20 percent of your monthly take-home income into savings or investments. Working couples might try to bank a substantial part of one salary if possible.

4. Establishing A Safety Net

Achieving financial independence also means thinking about financial security. Having a dedicated emergency fund that can help you weather a health emergency or another large, unforeseen expense means. Having money set aside can mean you may not have to run up credit card debt or dip into your investment or other savings account in order to cover these costs.

If you haven’t already started an emergency savings account, consider whether or not you would be able to afford a sudden car repair or if you could handle paying out of pocket for an unexpected dental procedure.

Experts often recommend having at least three to six months’ worth of living expenses set aside in an account. Ideally, that account earns interest but can be easily and quickly accessed when you need it.

The more effective you are at dealing with financial emergencies, generally the faster your savings and investments can grow.

5. Putting a Debt Pay-Off Plan Into Action

Taking care of your debt is another important step to achieving financial independence. Today, debt can take many forms — whether it’s student loan debt, a home mortgage, a car loan, or credit card debt.

If you currently have debt, consider incorporating a debt reduction plan into the budget you create and calculate how you would need to tweak your current spending habits in order to prioritize becoming debt-free.

It can be wise to start with the debt that has the highest interest first, since borrowing from those creditors is costing you the most money.

If you have multiple credit card balances, you may want to target them one at a time. You can do this by paying more than the minimum each month on one balance (paying just the minimum on the others) until that balance is wiped out, then move on to the next.

6. Being a Smart And Savvy Investor

Becoming a smart investor is another key step you can take on your journey to financial independence. The world of investment can be confusing and carries risk, but it also has the potential to be lucrative.

You may want to first focus on tax-advantaged accounts. If you have an employer-sponsored option, such as a 401(k) plan, it can be a good idea to contribute some of each paycheck, especially if your employer offers to match your contributions. Depending on your situation, you may be able to open a traditional IRA, Roth IRA, or SEP IRA as well. (There may be contribution limits to adhere to, however.)

If you have children, you may also want to consider the benefits of a 529 plan to help you invest for their college educations.

If you’re able to invest additional funds, you can choose a financial firm you want to work with and then open a standard brokerage account. From there, you can put your money in a mutual fund or an exchange-traded fund (ETF) (which bundle different types of investments together). Another option: If you’re prepared to do a fair amount of research, pick and choose your own stocks and bonds.

If you’re new to investing, you may want to consider opening an investment account through a robo-advisor, an investment management service that uses computer algorithms to build and look after your investment portfolio and typically charges relatively low fees.

Recommended: When All Your Money Goes to Bills

How Much Money Do You Need to Become Financially Independent?

How much you need to become financially independent will depend on a variety of variables, such as the cost of living you expect to have and the amount you plan to spend (will you be a no-car household? Two cars perhaps? How often would you like to travel?).

One way to look at this is to consider a formula used for retirement, which says you want to have 25 times the amount you plan to spend in a year, and that money needs to be invested in a 60/40 stocks and bonds portfolio to generate income.

Then, you would apply the 4% rule, which means that you would safely take 4% of your investments out each year (adjusting for inflation) in order to have those funds without outliving your money. Now, if you are a significantly younger person than the usual retirement age, you would have to adjust the numbers to cover more years.

Here, a couple of examples:

•   Let’s say you plan to spend $50,000 a year on your living expenses. If you multiply that by 25, you get $1.25 million. That would need to be the amount of your available assets to be financially independent.

•   Now, let’s say you plan to spend $125,000 a year on your living expenses. In this example, when you multiply $125K by 25, you would need $3,125,000 to be financially independent.

When looking at these numbers, don’t forget to consider other forms of income you might have coming in. Perhaps you earn passive income in some way or will eventually start to receive a pension. Maybe you will have money coming in from a side hustle you love or from Social Security. Consider all ways money could flow in your direction to understand your path to financial independence.

Habits That Can Get in the Way of Financial Freedom

As you pursue becoming financially independent, there can be habits than can hold you back. Here, a few to be aware of:

•   Lack of planning: If you don’t take the time to dig into your finances and find a budget that works, you aren’t in control of your money or your goals. Thinking you can wing it typically doesn’t help you hit your marks or become financial freedom. Living with high-interest debt rather than figuring out how to pay it off is another example of how lack of planning can hinder you.

•   Lack of financial literacy: This is another aspect of “winging it”: not educating yourself about how finances, net worth, and other facets of money management work can hinder you from reaching financial freedom. Seeing what resources your bank offers, listening to well-regarded podcasts, or reading well-researched books or websites can get you on the right track.

•   Procrastination: Not getting started can hold you back financially. The sooner you begin saving, the closer you get to financial independence.

•   Lifestyle creep and/or FOMO: If, as you earn more money, you spend more money, that’s lifestyle creep), and it can inhibit your ability to save. And iif you spend lavishly to keep up with friends, that’s FOMO, and it can prevent you from achieving financial independence.

If you avoid these habits and manage your money well and save steadily, you can be on the path to financial freedom.

Starting a Savings Account Today

One path to financial independence is to save regularly. Opening a savings account with a healthy return can be one step toward doing that.

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

FAQ

How do I start to become financially independent?

Becoming financially independent can involve budgeting well and avoiding overspending. It also typically involves managing your money to save steadily and invest your cash so it works for you.

How much money do you need to be financially independent?

One rule of thumb is to have 25 times the amount you plan to spend in a year in the bank in order to be financially independent. So if you plan on spending, say, $100K a year, you would need assets of $2.5 million.

How can I get financially free with no money?

With no money, it will be hard to be financially free unless you live off the grid. For most people, even those with low income, financial freedom is a matter of spending less than your make, paying off debt, saving aggressively, and investing.

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.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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