Is it better to pay down debt or save money?

It may be better to pay down debt if you're carrying debts with high interest rates or are simply tired of not seeing your balances go down. On the other hand, it may be better to save money first if your debts have low interest rates or you don't owe that much overall.

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Q: How much money should I save before paying down debt?

At a minimum, it can be a good idea to save $500 to $1,000 before paying down debt. That amount of money may be enough to get you through any small financial emergencies that might come your way as you focus on debt repayment.

Q: What bills should I pay down first?

When paying debts or other bills, it's always important to pay any past due accounts first. Late payments can hurt your credit score, so it's helpful to get past due accounts current. From there, you can focus on paying down the highest-interest debts first if you'd like to save money on interest charges. Or you can pay down debts from lowest balance to highest, which could help you knock out some smaller debts fairly quickly.

Jun

2024

Should I Pay Down Debt or Save Money First?

Pay Down My Debt or Save Money: What to Consider

By Rebecca Lake | Debt Payoff, Financial Independence, money | Comments Off

Should I save or pay off debt? It’s a tough financial choice. Prioritizing debt repayment can help you pay off what you owe faster, freeing up more money in your budget for saving. It can also help you spend less on interest charges. But that approach can also backfire. If you delay saving and get hit with an unplanned expense, you can end up with even more high-interest debt.

Whether it makes sense to pay off debt or save depends largely on the specifics of your financial situation. The right decision might actually be to try to do both.

When You Should Consider Paying Down Debt First

In certain situations, it makes sense to prioritize paying off debt over putting money into savings. This could be the best path forward if:

• You have high-interest debts. High-interest debt, such as credit card debt, can quickly accumulate and become overwhelming. The longer it takes to pay off, the more interest you’ll accrue, making it harder to escape the debt cycle.

• Your debt is causing you significant stress or anxiety. If having debt hanging over you keeps you up at night and you want to clear your balances as quickly as possible, putting debt repayment ahead of saving might make sense, provided you have at least some money in the bank for emergencies.

• A large portion of your income is going toward monthly debt payments. Having a high debt-to-income ratio (DTI) not only limits your financial flexibility, but can also negatively impact your credit score. A lower score could make it hard to secure loans at low interest rates or even rent an apartment in the future.

Strategies to Pay Down Debt

Once you commit to paying down your debt, you’ll want to come up with a plan for how to do it. Here are some strategies to consider.

• Avalanche method: With this approach, you list your debts in order of interest rate. You then funnel any extra money toward the balance with the highest rate, while paying the minimums on the other debts. Once the highest-interest debt is paid off, you move to the next highest, and so on. This strategy minimizes the amount of interest you pay over time.

• Snowball method: With the snowball method, you list your debts in order of size, ignoring the interest rate. You then funnel extra money towards the smallest debt, while paying the minimum on the rest. When the smallest balance is paid off, you move on the next-smallest debt, and so on. This can provide psychological benefits by giving you quick wins and motivating you to continue.

• Debt consolidation loan: A debt consolidation loan is a type of unsecured personal loan with fixed interest rates and repayment terms. If you have multiple debts, consolidating them into a single loan with a lower interest rate can simplify payments and reduce the total interest paid.

• Balance transfer: For credit card debt, a balance transfer to a card with a low or 0% introductory rate can help you save money on interest and pay off your debt faster. Just be sure that you’ll be able to pay off the balance before the promotional rate ends. If not, you could end up paying more in interest than you are now. Also be aware of transfer fees.

• Automate your debt payments: Setting up automatic payments ensures you never miss a payment, which helps avoid late fees and keeps you on track with your debt repayment plan.

When You Should Consider Saving First

Aggressively paying off debt isn’t always the best first choice, however. You may want to prioritize saving money over paying down debt if:

• You have little to no emergency savings. Without a cushion of savings in the bank, an unplanned expense or loss of income could result in racking up even more debt, putting you further in the hole.

• You have low-interest debts. If you have debts with relatively low annual percentage rates (APRs) and don’t feel unduly burdened by them, it’s fine to focus on saving, while paying off your loans according to schedule.

• Your employer offers a 401(k) match. If your employer offers a retirement savings plan along with a company match, it’s a good idea to try to contribute at least enough to get the maximum employer match. This is essentially free money you could be missing out on.

Recommended: 10 Ways to Save Money Fast

Determining How Much to Save

How much you should be saving will depend on your age and situation, but here are some general guidelines to keep in mind.

• Emergency fund: Experts recommend building an emergency fund of three to six months’ worth of expenses and stashing it in a high-yield savings account. If you’re self-employed or work seasonally, you may want to aim closer to eight or even 12 months’ worth of expenses.

• Retirement savings: If your employer offers a 401(k) match, you’ll want to contribute at least enough to get the full match, then build from there. One rule of thumb is to work up to saving at least 15% of your pretax income each year, including employer contributions.

• Other savings goals: For other savings goals, such as a vacation, large purchase, or down payment for a house, you’ll want to set a timeline and break down the total amount into manageable monthly savings targets. For savings goals that are five-plus years away, like paying for a child’s education, consider contributing to investment accounts that can potentially yield higher returns over time.

Recommended: How to Set and Reach Your Savings Goals

Tips on Balancing Paying Debt and Saving

If you have high-interest debt under control and already have some cash in the bank to cover a minor emergency (like a car or home repair), consider saving and paying down debt at the same time. Here are some tips to help you manage both.

• Create a budget: A basic budget can help you track your income, expenses, and savings. The key is to allocate specific amounts for debt repayment and savings to ensure both are addressed every month.

• Automate saving: Once you have target monthly savings amounts, it’s a good idea to set up automatic transfers to your savings accounts. This ensures consistent saving without the temptation to spend the money.

• Increase income: You might want to explore ways to boost your income, such as taking on a side gig, freelancing, or asking for a raise. You can then use the additional income to pay down debt faster and/or boost your savings.

• Cut unnecessary expenses: Review your expenses and identify areas where you can cut back. Redirect these funds toward debt repayment and saving.

• Use windfalls wisely: If you receive a bonus, tax refund, or any unexpected sum of money, consider using it to pay down debt or boost your savings rather than going on a shopping spree.

The Takeaway

Saving and paying down debt is a balancing act. Which is more important? There’s no one-size-fits all answer. Generally speaking, you’ll want to fund your emergency savings account and take advantage of an employer match on retirement savings before you aggressively focus on debt payoff. After that, you can focus on saving and knocking down debt at the same time.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is it better to pay off debt or have money saved?

You may want to prioritize saving over debt payoff if you don’t have an emergency fund, aren’t taking advantage of an employer’s 401(k) match, and/or have low-interest debts. If, on the other hand, you have a solid emergency savings fund, high-interest debts (like credit card debt), and no employer retirement match, you may be better off focusing your efforts on paying down debt over saving.

How much money should I save before paying down debt?

Before aggressively paying down debt, it’s a good idea to save three to six months’ worth of living expenses in an emergency fund in a high-yield savings account. If you don’t have any savings to draw on to cover an unexpected expense or event, you may have to rely on high-interest credit cards to get by, which would compound your debt.

What bills should I pay down first?

You generally want to prioritize paying down high-interest debt first, such as credit card balances and payday loans, as they accrue interest rapidly. Next, focus on any other unsecured debts, like personal loans, followed by secured debts (like car loans and mortgages), which tend to have lower interest rates.

Photo credit: iStock/malerapaso

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. 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. ©2024 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.

SOBK-Q224-1920547-V1

Jun

2024

Guide on What to Do When You Get a Pay Raise: 12 Tips

By Paulina Likos | Financial Independence, Life & Career, money | Comments Off

If you received a raise at work, first things first: Congratulations! Your first impulse may be to celebrate with a big purchase or party. But rather than blowing your salary bump right away, it’s wise to be strategic. Take a little time and consider how you might use that extra cash. It could help you reach some short- and long-term financial goals.

There can be a lot to consider, but keeping a few things in mind may help you figure out the best course of action.

How to Financially Handle a Pay Raise

To help you decide what to do with a pay raise, you’ll want to think broadly, and about the future. Here are a dozen tips that may help you be better informed as you make your decision about what to do when you get a raise.

1. Using It to Get Rid of Debt

Your raise may be able to help you get rid of some debt that is dragging down your finances. It’s worth noting that some debt can be good, like a mortgage on your home, which tends to have a relatively low interest rate. Every time you make a payment, you are building equity and wealth.

But if you have debt that carries a high interest rate and doesn’t have a long-term benefit, you may want to pay it off as soon as you are able. Credit card debt is the classic example of this. Interest rates on new cards can be as high as 20% or more, which means this kind of debt can grow quickly. With a raise, you can pay that debt down sooner rather than later. This can help free up your finances to focus on other money goals.

💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

2. Using It to Build Your Emergency Fund

Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss. A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need.

3. Re-Evaluating and Updating Your Budgeting

When you get a raise, you may be wondering how to manage this extra cash. There are probably a lot of wish-list items tempting you to increase your spending. Instead of shopping, it may be a good time to reevaluate your budget to see how you can best put your money to work.

Typically, budgets recommend that you first allocate funds toward your mandatory monthly expenses like mortgage, rent and other bills. Next, don’t forget to pay down debt, followed by adding some money to your emergency stash if needed. Have you also thought about retirement funds?

Make sure to figure out how much to save every month and put some of your money to work in a 401(k) or another retirement fund. With the money that’s left, you can spend as you see fit, invest it in the stock market, make charitable donations, or decide other ways to use it.

If you need more guidance on budgeting, look online at different techniques, such as the 50/30/20 budgeting rule, or test-drive some apps that help you see where your money is going and determine how to best manage it.

4. Avoiding Lifestyle Creep

If you are contemplating what to do with a raise, one thing to sidestep is lifestyle creep. That happens when a person makes more money but also spends more of it, typically on luxuries. So if you get a raise and then rent a more expensive apartment or sign up for a luxury-car lease, that’s lifestyle creep. You have bought into some of life’s finer things, but you may wind up just breaking even. In fact, even with more money, you may feel as if you are living beyond your means.

It can be smart to try and avoid this behavior because you don’t want to spend every penny you make. That’s not a healthy financial habit; it doesn’t help you build wealth over time. Yes, you can allow yourself to enjoy some discretionary spending (more on that in a minute). But if you let lifestyle creep happen, it may be hard to make ends meet and find opportunities to save for longer-term goals.

5. Re-Evaluating Your Retirement

When you get a raise, you have a prime opportunity to increase your retirement savings. It may not sound like fun compared to taking a vacation, but allocating money this way can be a good financial strategy to reach your goals.

If you have, say, a 401(k) plan with your employer, you can increase your monthly contribution and possibly snag the employer match, too, which is akin to free money. While it may not feel like a fun use of your raise now, your future self will thank you when you see how well your retirement savings are growing.

6. Invest in Yourself

Consider how your raise might help your long-term wellbeing, your mood, and your quality of life. Would it be wise for you to get in better shape? Have you been having trouble sleeping for a while? Do you feel hungry to learn a new skill? A bit of extra money might help you resolve those situations. Sometimes, not having enough money is a common and valid reason for not doing more of this kind of self-care.

Maybe, with your raise, you can now afford to take a few fitness classes and learn some moves you can do on your own. Perhaps you can work with a therapist on what’s keeping you up at night. Or maybe it would bring you joy to take some guitar lessons or pursue a continuing-ed class in a topic that has always fascinated you. Putting a portion of your raise to work this way can be rewarding on so many levels.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

7. Considering Inflation

Inflation has been very much in the spotlight lately. In recent years, inflation has reached highs not seen in decades. When inflation is high, your purchasing power declines. Simply put, your dollar doesn’t go as far.

If you get a raise during a period of high inflation, do the math. If you receive a 5% raise and inflation is 3.6%, then you are staying (just barely) ahead in terms of your finances. That raise is helping to protect your money against inflation but unfortunately it won’t stretch much further. This perspective is good to keep in mind so you don’t overspend and wind up with debt.

8. Preparing for Taxes

Getting a bump in your salary may impact your tax liabilities; it may nudge you into a higher tax bracket. If this is the case, your tax rate will rise, and you may need to pay out a higher percentage in taxes. Typically, this will only take your effective tax rate up a couple of percentage points, but it can make a difference to your bottom line.

To offset that, you may want to adjust your withholdings with your employer. If more money is withheld during the year, you could owe less or get a refund at tax time. This could help you avoid an unpleasant surprise (namely, a tax bill) come April.

9. Saving up More for a Large Expense

Are you saving for a vacation, a wedding, a home renovation, or a new car? If you have a big-ticket item on the horizon, you may want to put part of your raise towards that goal. It can be a good move for your finances in the long-run. The extra money can help you afford what you are saving toward. You can sidestep debt as you make your dream a reality. By doing so, you’re likely improving your credit and building wealth — it’s a win-win situation.

10. Investing Your Money

Investing your hard-earned money is historically one of the best ways to build wealth. For some, that can be a good reason to allocate some of your raise to increasing their investments.

A good place to start is by creating an investment portfolio with stocks, bonds, exchange-traded funds (ETFs) and other assets. This can be a vital part of making your financial plan.

11. Funding and Starting a Side Hustle

If you dream of building your own business from a hobby someday, you could use money from your raise to start a side hustle. If, say, you love making pastry, you might invest in cookware that will take your game up a notch. Or if creating apps is your passion, perhaps there’s a weekend class that could boost your skills. Keep tabs on how much money you allocate toward this side hustle and make sure these funds put you on a path to building a business.

12. Enjoying Your Financial and Career Successes

Many of these tips for using your raise wisely revolve around paying down debt, achieving long-term financial goals, and building wealth. But of course, do use a portion of your raise to reward yourself. You’ve received a financial award because of your hard work and dedication. You deserve to treat yourself! Whether that means having a fantastic dinner out with a couple of close friends or buying a coat you’ve been eyeing for a while now, you should find a way to mark this happy moment.

Managing Your Finances with SoFi

Getting a raise is an exciting life event. It shows that your hard work has paid off and your career is making progress. But it also means that you need to make some decisions about what to do with your money – it can be both exciting, and nerve-wracking.

Making some smart decisions about saving, investing, or even investing in yourself may be a good path. But again, it’ll come down to you, your goals, and your preferences. It may be helpful to speak with a financial professional, too.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How do I avoid spending too much after I get a raise?

Create and stick to a budget. Even though you are making more money, you still have to be conscious over where your cash goes and avoid lifestyle creep, which involves spending more as you earn more. This can make it harder to achieve your financial goals.

Is it okay to treat myself when I get a raise?

It’s definitely reasonable to treat yourself when you get a raise; you earned it! But it’s not a habit that you want to get out of hand. You want to make sure you’re spending within your means and not accumulating debt.

Can a pay raise be a negative?

A raise can potentially be a negative if you spiral into unreasonable spending. You could wind up with debt to deal with. Also, take note if your raise pushes you into a higher tax bracket, which still means you’re making more money, but you’d be paying a higher tax rate on a portion of your earnings.

Photo credit: iStock/fizkes

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. 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. ©2024 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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1929672-V1

Jun

2024

Guide to Market-Linked Certificates of Deposit (CDs)

By Paulina Likos | Growing Wealth, Investing, money | Comments Off

A market-linked certificate of deposit (CD) tracks a basket of underlying securities, or an index like the S&P 500. They differ from traditional CDs, which generally pay a fixed rate of interest. These accounts are sometimes called equity-linked CDs or stock CDs.

A market-linked CD (MLCD) is similar to a traditional certificate of deposit, in that it’s a time-deposit account with a fixed term during which the investor’s funds are unavailable. The principal (though not the gains) is federally insured up to $250,000. But market-linked CDs come with some risks — including the possibility of zero gains at maturity.

What Is a Market-Linked CD?

As noted, a market-linked CD tracks an underlying index or collection of securities, rather than paying a fixed rate of interest. Investing in CDs offers some familiar advantages, chiefly that the CD investor can deposit their funds for the specified term (typically a few months to a few years), and count on a steady rate of return until the CD reaches maturity.

The CD’s total return is unlikely to be high, especially when comparing deposit accounts, because it’s based on current interest rates, but there is little to no market risk. Traditional CDs are federally insured, whether by a bank or a credit union, for up to $250,000. For this reason, traditional CDs are considered a fairly low-return, low-risk investment.

Market-linked CDs share some of these features — e.g. the investor deposits funds for a set period of time, and the funds are unavailable until the CD matures. But the returns of an MLCD are, as the name suggests, linked to the stock market, which adds in a layer of potential reward, but also potential risk.

Unlike traditional CDs, which are considered cash equivalents, market-linked CDs are more like securities. The reason for creating market-linked CDs goes back to the days when banks couldn’t sell securities, and these products offered investors a workaround.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

How Do Market-Linked CDs Work?

Unlike traditional CDs, market-linked CDs do not offer fixed interest payments. Rather the return is based on the underlying investments or market index the CD tracks. Some of these market benchmarks include equity, commodity indexes, or a basket of commodities or currencies. But investors don’t see precisely the same gains and losses as the market.

Typically, the upside of MLCDs is capped in one of two ways. For example, the return on a market-linked CD will be determined by its participation rate, i.e. the percentage of the upside you will see. For example, an 80% participation rate means you only receive 80% of the gains from the underlying market. An interest cap refers to an MLCD where there is simply an upper limit for any gains.

Fortunately, the principal amount deposited in the CD is protected. At maturity, investors will get their full deposit back. But if the market underperforms, the CD may not have any gains. In other words, at maturity there is no guarantee your return will be more than your deposit amount.

Recommended: How Do CD Loans Work?

How to Calculate the Return of a Market-Linked CD

To calculate the return of a market-linked CD, financial institutions average out the close price of the underlying index over a certain period of time. For this method, you can take the average of the index’s different values in two different periods.

Another method you can use is the point-to-point method, which involves identifying two values. The first is the value of the index when the market-linked CD was issued, and the other is the value of the index before the CD’s maturity date, which is referred to as the ending point. The difference between these two values will yield the expected return on your market-linked CD.

The final return also assumes that the funds are left in the CD until maturity. Withdrawing funds earlier than the maturity date — whether that’s two months or 20 years — will likely trigger early withdrawal penalties.

Pros of Market-Linked CDs

Market-linked CDs have several favorable characteristics that may be appealing for investors who are looking for alternatives to conventional CDs, or directly investing in the stock market without having too much risk exposure.

• Protection: Market-linked CDs protect your principal and when held to maturity, the principal is backed by the bank that issues it. In the scenario where the underlying market declines during the period where you hold the CD, investors are protected from losses.

• Insurance: Market-linked CDs are also FDIC- or NCUA-insured for up to $250,000 on the principal investment, not investment earnings.

• Potential for greater returns: Market-linked CDs have the ability to provide investors with higher returns than traditional CDs. Because the underlying is based on a collection of stocks, commodities, or indexes, there is a chance market-linked CDs can outperform traditional CDs.

• Return on original deposit: At time of maturity, you will get the full amount of your original deposit regardless of the performance of the underlying market index or securities. If you choose to sell your market-linked CD prior to maturity on the secondary market, there is no guarantee that you will get the full amount of your principal back.

Cons of Market-Linked CDs

Investors must also consider the risks associated with holding market-linked CDs.

• Liquidity risk: Investors must be aware that when opening a market-linked CD, they are locking up their money for a period of time, and they must be willing to hold on to the CD through its maturity to achieve the full benefits, even though they are not obligated to do so. If you need access to the capital in the CD and want to withdraw money, you may incur withdrawal fees.

• Market risk: Market-linked CDs that are linked to the equity markets are subject to volatility, which can impact the market-linked CD returns. Other factors can influence market-linked CDs such as changes in interest rates.

• Taxes: MLCD earnings are taxed as interest income, not as capital gains, and thus investors will pay a higher rate for their earnings. Also, interest must be reported annually, even though it’s not paid until maturity.

• Little or no profit: The worst scenario is holding a market-linked CD to maturity — but not making a profit. Even though your original principal will be protected, there is no guarantee that you will make more than your deposit amount.

You may have the possibility of greater gains if you invest your money in an exchange-traded fund (ETF) or index fund directly, which provides similar diversification benefits. However, you are still exposed to market risk, and your original principal is at risk.

How to Open a Market-Linked CD

Opening a market-linked CD is fairly straightforward. Here are some broad steps.

• At the financial institution of your choosing, you can open a market-linked certificate of deposit by choosing the interest rate and maturity date.

• Next, deposit the amount of money you are able to lock up for a period of time.

• Some market-linked CDs have a minimum investment requirement and a maximum deposit limit per account which must be considered.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Alternatives to a Market-Linked CD

Alternatives to market-linked CDs could include investing in a bond fund. Similar to a CD, bond funds have different maturity dates, either short term or long term, and can offer competitive yields. Depending on the creditworthiness of the bonds, the yield can vary. Bonds with a high credit rating which are lower risk may have a lower yield than bonds with a lower credit rating, but the latter may come with higher risk. The choice of bond fund depends on the investor’s risk tolerance.

Investors may also consider a high-yield savings account, which is lower risk but yields less than a market-linked CD. These types of accounts are more for emergency funds but if you are looking for the lower risk options to store your cash, high yield savings accounts can be another alternative to a market-linked CD.

When to Consider Investing in Market-Linked CDs

Investors may be interested in a market-linked CD if they are looking for an alternative for a traditional CD and for the potential for higher returns. Market-linked CDs may also offer some diversification, and protection of principal investment.

If you are looking for exposure to the broader stock market with managed risk, a marked-linked CD may be a suitable option because it’s viewed as an alternative to directly investing in the stock market. That said, market-linked CDs are insured products and are not considered securities.

The Takeaway

Market-linked CDs are, as the name implies, a sort of hybrid savings/investment option. They offer some of the features of traditional CDs: You invest your money for a fixed period of time; if you withdraw funds before the maturity date you face an early withdrawal penalty; and your funds are federally insured for up to $250,000. Because MLCDs are market-linked, though, a CD’s performance is tied to underlying securities or a market index.

Thus, investors don’t receive a fixed interest rate, and returns can fluctuate. Typically these CDs are also capped in terms of the gains they can provide. And while an investor’s initial principal deposit is protected from a market drop, you can still lose money if you withdraw funds early or try to sell this type of CD on the secondary market. Finally, like any other investment in the markets, there’s no guarantee that a market-linked CD will see a profit by the time it matures.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is a market-linked CD?

Market-linked CDs are certificates of deposits that can be linked to stocks, commodities, an index — or a mix of these — depending on the type of return the investor is seeking, and their risk tolerance.

Is a market-linked CD a security?

No. A market-linked CD is federally insured in the event of bank failure or fraud, so your principal is protected up to $250,000. Insured products are not considered securities.

What is a stock market CD?

A stock market CD is another name for a market-linked CD, and is linked to a broad stock market index like the S&P 500. This means the CD’s performance will adjust as the index changes.

Photo credit: iStock/MicroStockHub

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SOIN-Q224-1929388-V1

Jun

2024

What Are the Consequences of Not Saving Money?

By Ashley Kilroy | Budgeting & Goals, Financial Independence, money | Comments Off

Many Americans struggle to save money, but it’s generally worth the effort to do so since there can be serious downsides to not stashing away cash. Those consequences can range from going into debt, facing financial hardship after losing your job, and not being able to achieve your aspirations, like homeownership.

There are a variety of strategies that may be helpful in saving more money, and it may be useful to put together a simple budget and set some savings goals. If all else fails, you may even want to consult with a financial professional, because neglecting to save can lead to some undesired outcomes, as noted.

The Importance of Saving Money

To help you get motivated to put money in the bank, here are a dozen dangers or potential consequences related to not saving money. They may help you understand why it’s best to put away cash and motivate you to tuck some into a savings account.

1. Going Into Debt

Without a savings cushion, any expense — from an unexpected car repair to paying for your child’s college education — can put you in debt. In addition, while credit cards and loans are convenient ways to afford more than your bank account, you pay more in the long run because of interest and loan fees.

Since debt often costs more than the actual expense, you can essentially save a considerable amount of money by plumping up your piggy bank. You can try easy ways to save, such as creating a simple budget or automating savings, to put aside a few dollars a month before you can spend it. These moves can ensure that you’ll be using savings instead of debt to pay for your upcoming expenses.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

2. Having a Social Life Can Be Nonexistent

Spending time with your friends and family are likely on the list of things you enjoy most in life. But a full social calendar may put you in a sticky financial situation if you haven’t saved anything. From movie dates to happy hours to ball games, these expenses can add up.

No matter your income level, how much money you save each paycheck can make the difference between having a nonexistent social life and a happening one.

3. Life Being More Stressful

Most Americans say money is a major stressor in their lives. When you think about it, failing to save can make you feel stuck or overwhelmed. Your personal, financial, and professional life can suffer because a lack of savings has cut off your options.

Achieving your goals, financial and otherwise, may be a struggle without savings to propel you forward. The importance of saving money goes beyond paying an unexpected bill; it can affect your daily quality of life.

4. Not Having the Money for an Emergency

You’ll find many articles, resources, and financial professionals advising you to set aside an emergency fund. Life is expensive and doesn’t always go as planned. So, saving in advance helps you manage life’s unexpected costs.

For example, building an emergency fund might be a better choice than splurging if you get a raise. You’ll thank yourself later when, say, your furnace goes out or you wind up with a major medical bill. Typically, money experts recommend having at least three to six months’ worth of basic expenses salted away in an emergency or rainy day fund.

5. Not Being Able to Celebrate Events

Life can be full of amazing milestones like getting married, starting a family, or graduating from college. Unfortunately, celebrating these life events with your family often takes substantial cash. Not being able to recognize these events the way you’d like to is another one of the many dangers of not saving money. The lack of a financial cushion could also lead you to skip, say, a friend’s destination wedding.

Although you could put your celebration on your credit card, you run the risk of going into debt. This will likely cost more over the long run since you have to pay for interest. In other words, you might still be paying it off for years to come.

6. Not Having a Viable Option if You Are Fired

No one plans on getting fired; however, it’s always possible to lose your job unexpectedly. Financial emergencies like this are an important reason to save. Saving can give you security during this kind of a crisis. If you don’t have some cash available, you might have to look into financially downsizing.

This underscores the importance of saving money from your salary when you are employed. You might consider having a small amount automatically transferred from your checking account into savings on payday.

As mentioned above, you should save at least three months of your expenses in an emergency fund. This way, you can have a solid safety net if you get laid off or are temporarily disabled and can’t work for an extended period.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

7. Not Having an Inheritance for Your Children

If you’re a parent or plan to be one, you likely want to give your kids a leg up in life. An inheritance can help your children or heirs to build their nest eggs and meet life’s expenses without stress.

Having both savings and an estate plan can be a lasting, life-changing gift to those who matter to you most. These assets can serve to eliminate the possibility of financial legal challenges for your family. That said, being unable to leave a legacy is a consequence of not saving money.

8. Not Being Able to Buy a Home

Many people hope to buy a home one day, but you’ll probably need some cash saved up to initiate the purchase.

In many cases, you may need a 20% down payment to qualify for most conventional mortgages. Buying a home also usually involves other expenses, such as closing costs, repairs, moving costs, and more. Not having savings can make it almost impossible to afford the home of your dreams.

9. Not Being Able to Go on Vacation

Without savings, it’s challenging or even sometimes impossible to take time off for some rest. When you don’t set money aside, you can get sucked into the never-ending cycle of living paycheck-to-paycheck. Since you need to work to support yourself, vacations may become less frequent or disappear altogether.

While you may think you can put a vacation on credit, that can perpetuate the “can’t save” situation, because you’ll have debt to wrangle. You could wind up coming home from your getaway to face more bills.

10. Not Having Much Financial Freedom

One of the most potent limiting factors in life can be a lack of savings. With a robust bank account to fall back on, you increase your options and flexibility. Moving to a city or state with more opportunity, taking a professional course or college classes, and starting a business can all be possibilities if you’ve saved money.

Of course money can’t solve every problem life throws at you. However, it is a powerful tool that allows you to access opportunities. Remembering this can help you get serious about saving money.

11. Not Being Able to Invest

If you aren’t able to save money, you likely won’t be able to invest those savings, either. Which means potentially missing out on market gains over time (the market tends to go up over time, though it is volatile over the short-term).

There are different levels of risk, of course, when you decide to invest your money rather than keeping it in a savings account, but the main point is that if you can’t manage to save, you may also have a hard time managing to invest. That could mean that your money’s growth potential is stunted, and may delay you in reaching your financial goals.

12. Not Being Able to Help Others

When someone is in financial need, lending money can help them get back on their feet. Whether it’s through providing a micro-loan, donating to a charity, or contributing to a scholarship, you can make a difference in the lives of others no matter how much you give.

But, if you don’t have savings, you may not be able to afford a helping hand.

Why Saving Money Is Very Important

Since money touches almost every area of your life, saving it for what matters most can be essential. Reining in your spending habits can be hard, no doubt, but the payoff quite literally is being able to afford your needs and your goals.

Online Banking With SoFi

Reaching your financial goals will likely depend, in large part, on your ability to save your money. While this can be difficult in the moment (saying no to splurges, for instance), it can set you up for years of financial wellness.

Whether you want to be able to celebrate big moments with friends, start your own business, own a home, or take a major vacation, saving money can help put you on the right path.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Can I get by without saving money?

While it’s possible to get by without savings, there may come a day when you run into an unexpected expense that causes financial hardship. If you live paycheck to paycheck without an emergency fund, an unforeseen cost could set you back and make it challenging to recover.

Is debt inevitable if you do not save?

Without savings to fall back on, it’s quite possible to go into debt when unforeseen expenses arise. Contributing to a savings account, even a small amount monthly, can make unexpected costs more manageable so you can sidestep debt.

When is the best time to start saving?

It’s best to start saving now to give yourself time to build a cushion. Remember, everyone has to start somewhere. Even if you can only save $20 per month, your future self will likely thank you.

Photo credit: iStock/nicoletaionescu

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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SOBK-Q224-1848020-V1

Jun

2024

25 Items That Are Worth Saving For

By Alene Laney | Budgeting & Goals, Financial Independence, money | Comments Off

Each of us has our own agenda in terms of what makes stashing our cash away worthwhile. For some of us, it’s the anticipation of doing something fun or buying something beautiful. For others, it’s all about using our money to secure some quality of life and peace of mind.

Regardless of what gets you saving, whether you’re stashing funds to buy a new computer, a used convertible, a house, or even retirement funds to ensure your future, you’ll be honing your saving skills and likely boosting your financial wellness as well.

Why Saving Is Important

The importance of saving cannot be overstated; it’s a very big part of successful money management. Consistently putting away cash can make a major difference over time, especially in your quality of life. By planning and prioritizing what expenses to fund, you’ll have the means to achieve your goals. It’s incredibly rewarding when you make a plan for your money and then realize it.

To jumpstart your savings, try one or more of these creative strategies.

• Budget first. The mere mention of the word budget can stress some people out, but a budget is simply a plan for how you will spend your money. Having a strategy in place can really help keep your spending and savings on track. There are a number of methods you can use to budget, including the good old cash envelopes system and the 50/30/20 rule, as well as a number of mobile apps. Research your options online, and find the one that works best for you.

• Automate savings. One of the easiest ways to ensure you’re saving toward your goal may be to automate your savings. This can take much of the stress out of saving. For instance, you could set up an automatic bank transfer from your checking to your savings account every payday.

• Save consistently. Once you open a bank account, over time, you have a great chance of meeting your goal. Maybe it’s only $5 or $25 a pop, but contributing to your savings account regularly is vital. Be consistent and trust the process.

• Save bonuses, tax returns, and other unexpected windfall amounts. These extras can give your savings account a tremendous boost.

• Match your own purchases. For every amount that you spend on a treat, transfer that same amount into savings.

• Save every $5 bill. By setting aside every $5 bill you encounter (as change from a purchase, from an ATM, etc.), you can save quite a bit in a year’s time.

• Use the 30-day rule to control impulse purchases. Write down that shiny new thing you want, whether it’s a pricey new mobile phone or a designer bag, and wait 30 days to see if you still want it. You may find that your urge to spend on it has passed. If so, you can put the money you save this way into savings to fund something that’s on your wishlist.

25 Smart Items to Save Up for

Spending money according to your own personal preferences — whether it’s a vacation, a new car, or a comfortable home for your family — should be the driving force behind your saving goals. This is how to make saving fun: Make a list of cool things to save up for. Create a vision board if you prefer; the idea is to entice yourself to perhaps pass up some unnecessary spending (takeout meals, a multitude of streaming services, and so on) and achieve those things you really crave. Not sure what to start saving for? Here are 25 ideas to get you going.

1. Vacations

You may have heard that vacations are good for both your physical and mental health. Even the act of looking forward to a vacation can improve your happiness. Whether the vacation you crave is a week at a nearby beach, a long weekend with your college besties, or a jaunt through Europe, the prospect of travel can be great motivation to save money.

2. Brand New Electronics

Buying new electronics isn’t just a leisure pursuit. New electronics can help with your productivity and ability to earn an income (or a higher one). It may be worth it to you to save for and invest in tools, such as a new laptop or video equipment, that can make your life better.

3. Starting a Business

If starting a business and becoming your own boss is a dream of yours, savings can go a long way toward making it happen. In fact, 82% of small businesses fail because of cash flow problems. Start accumulating capital so you can hopefully avoid becoming part of that statistic.

4. Home Maintenance

Keeping your home in tiptop shape can not only make living in it more enjoyable and enhance its looks and curb appeal, it can be helpful when you decide to sell it. Maintenance can include such things as getting your furnace and air conditioner checked regularly and getting your carpets cleaned, to lawn care, landscaping, and painting.

5. Weddings

This is a popular motivation to save. Most people dreaming of their big day know that it doesn’t come cheap. The average cost of a wedding in 2024 was about $33,000, according to one survey. Saving for this expense means you can celebrate the special day with loved ones, just the way you want to, while minimizing money stress.

6. Pet care

Owning a pet is enjoyable and rewarding, but it can also be expensive: The annual costs of owning a dog can run anywhere from $1,000 to more than $5,000. Pet care costs include, food, treats, veterinary bills, toys, grooming, and supplies such as beds, collars and leashes. Saving up for these expenses can help you enjoy your furry family member without being stressed out about paying for the things they need.

7. Brand New Car

Most people need wheels to get around, but cars aren’t just about function. Maybe you are dreaming of a low-slung sports car or an SUV that’s ready to offroad. When you get the keys to a new car, you’ll likely know that your time and energy spent saving was worth it.

8. Down Payment on a Home

Saving for a home is a top priority for many and for good reason. Home prices will typically rise 18% to 20% in the next five years, based on historical averages, meaning the value of your home will rise and likely continue to do so. Aside from the potential financial benefits, owning your dream home is a major boost to your and your family’s quality of life.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

9. Clothing and Shoes

There’s something about fresh clothes and shoes that can give you a psychological boost. For a household, costs averaged $1,434 for apparel for the year. Saving a little toward making yourself look good is one of the fun things you can save up for. It could be a whole wardrobe upgrade or a special splurge piece, but clothes can be excellent saving motivation.

10. Hobbies

If there’s something you enjoy doing in your free time, be sure to save enough money to fully invest yourself in the activity. Do you want a new acoustic guitar or perhaps a pottery wheel? Save for it. You may even be able to monetize your hobby or start a business from it.

11. A Quality Mattress and Mattress Accessories

According to the Centers for Disease Control and Prevention (CDC), one out of three Americans don’t get enough sleep. Being deprived of sleep can have a major impact on how you feel and function. Which is all the more reason to save for the comfiest mattress you can find.

12. Exercise Equipment

The right exercise equipment can help you make your health a priority and work out regularly. It’s not cheap, though. Equipment can cost less than $20 for a kettlebell or thousands for a top-of-the-line rowing machine, exercise bike, or Pilates equipment.

13. Professional Lessons (Sports, Dancing, Cooking, etc.)

Whether you want to dance more smoothly or perfect your golf swing, saving toward developing those skills can bring a lot of joy and satisfaction.

14. College

So many people feel the thrill of pride and achievement when earning a college degree, and it can help fuel a career. But college is expensive. As of 2024, the average cost of college in the U.S. is more than $38,000 per student per year, according to the Education Data Initiative. Saving toward these expenses, whether for yourself or your dependents, can help them get the education they need and dampen the blow of the cost of education.

15. Quality Home Appliances

Maybe you’d like to remove that old eyesore of a dishwasher and replace it with a top-notch new one, or swap out your old washer/dryer for an eco-friendly new model. Or, say, a professional-grade stove is calling to you to live out your gourmet dreams. Once you get the appliance you were dreaming about, you’ll likely feel that saving for it was worthwhile.

16. Home Security

While it may not exactly be a cool thing to save up money for, a home security system can give you peace of mind. As a bonus, you may have fun doorbell footage to look at once you buy your system.

17. Jewelry

If you love shiny baubles, they can certainly be worth saving for. Maybe there’s a dream piece you’ve been pining for. With the cost of some custom jewelry ranging from about $500 to $10,000 or more, you’ll definitely want to have a plan to save for it.

18. Home Furniture

If you value updated and stylish furniture, you’ll want to put it on your list. New furniture can uplift the comfort, function, and look of your home. Not to mention, when (or if) you sell your home, it can possibly help your place fetch a higher sales price.

19. Events & Special Occasions (Concerts, Dinners, Sports Games, etc.)

Many of us look forward to making lifelong memories at special events, from a Taylor Swift concert to the Super Bowl to a local gala. These occasions can both entertain and help you feel connected to the people who accompany you. Indulging in tickets every now and then is an incredibly fun and cool thing to save up for.

20. Home, Car and Health Insurance

Putting money toward insurance premiums may not always be fun, but it may give you peace of mind. It helps you know that you’re covered in case of accidents, unexpected health problems, and natural disasters. Saving up to afford a policy is wise if you are, say, planning to buy a house or car or are prepping for a big live event, like marriage or becoming a parent.

21. Retirement

Saving for retirement is a critical part of your financial health. A Federal Reserve survey found that only 34% of adults felt their retirement savings were on track. If you want to give yourself a healthy cushion for some of the most vulnerable years of your life, you may want to add to your retirement savings. While it doesn’t give you a tangible payoff now, you may rest easier knowing you’re prepared for tomorrow.

22. Anniversaries

Have someone (or something) special you want to celebrate? Put aside some money to do it up right, especially if it’s a nice round number that’s coming up. It’s up to you whether the funds go towards a gift, a trip, or a special night out with friends and family.

23. Repairs and Remodels

Home improvements can make your home more comfortable and functional but they are likely a major expense. With the average remodel topping $41,600 in 2024, it will take quite a chunk of change to make it happen. Saving for this type of cost can help you turn your place into the showplace you know it can be.

24. Birthdays

Celebrating birthdays is a fantastic way to nurture the relationships in your life. Maybe it’s with a candlelit dinner or tickets to a show, but it can be a great excuse to save and then spend some cash.

25. Holidays

Creating holiday memories is important for many of us. Saving up for the holidays and seeing your vision for your family come to life can be incredibly rewarding. Americans spend around $866 each holiday season, according to data from the National Retail Federation; 71% of that goes toward gifts. Stashing some cash in advance can help alleviate stress during the most wonderful time of the year.

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Focusing on a wish-list item can give you the motivation and discipline to start saving. Of course, the savings goal will vary with each person. One person may want a trip to Bali, another may need a new car, and a third may be focused on getting a down payment together for a home.

Whatever the goal, opening a bank account and consistently depositing your cash into it to save for an important purchase can be a great way to help build your financial skills, improve your financial foundation, and elevate your quality of life.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How can I develop the mindset to save long-term?

To develop a mindset to save for the long term, be sure to start with a goal. Brainstorm some important, meaningful things to save up for. Then, automate regular transfers to your savings account. If you don’t see that money in your checking account, you likely won’t spend it.

Is saving money long-term hard?

Saving can be hard, and even a small amount stashed regularly can make a big difference in your financial wellness. The Federal Reserve Bank of St Louis reports that the personal savings rate in April 2024 was 3.6%. It may not be a huge amount, but it can be a good start.

How do I make saving money easier?

Saving money is easier when you have a plan in place. Automating money transfers to your savings account when your paycheck hits is one easy way to start saving towards a goal. You can also experiment with different budgeting methods to help “find” more money to put into your savings.

Photo credit: iStock/Borislav

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

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 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.

4.00% APY
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

SOBK-Q224-1927549-V1

Pay Down My Debt or Save Money: What to Consider

When You Should Consider Paying Down Debt First

Earn up to 4.00% APY with a high-yield savings account from SoFi.

Strategies to Pay Down Debt

When You Should Consider Saving First

Determining How Much to Save

Tips on Balancing Paying Debt and Saving

The Takeaway

FAQ

Is it better to pay off debt or have money saved?

How much money should I save before paying down debt?

What bills should I pay down first?

Guide on What to Do When You Get a Pay Raise: 12 Tips

How to Financially Handle a Pay Raise

1. Using It to Get Rid of Debt

2. Using It to Build Your Emergency Fund

3. Re-Evaluating and Updating Your Budgeting

4. Avoiding Lifestyle Creep

5. Re-Evaluating Your Retirement

Earn up to 4.00% APY with a high-yield savings account from SoFi.

6. Invest in Yourself

7. Considering Inflation

8. Preparing for Taxes

9. Saving up More for a Large Expense

10. Investing Your Money

11. Funding and Starting a Side Hustle

12. Enjoying Your Financial and Career Successes

Managing Your Finances with SoFi

FAQ

How do I avoid spending too much after I get a raise?

Is it okay to treat myself when I get a raise?

Can a pay raise be a negative?

Guide to Market-Linked Certificates of Deposit (CDs)

What Is a Market-Linked CD?

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

How Do Market-Linked CDs Work?

How to Calculate the Return of a Market-Linked CD

Pros of Market-Linked CDs

Cons of Market-Linked CDs

How to Open a Market-Linked CD

Alternatives to a Market-Linked CD

When to Consider Investing in Market-Linked CDs

The Takeaway

FAQ

What is a market-linked CD?

Is a market-linked CD a security?

What is a stock market CD?

What Are the Consequences of Not Saving Money?

The Importance of Saving Money

1. Going Into Debt

2. Having a Social Life Can Be Nonexistent

3. Life Being More Stressful

4. Not Having the Money for an Emergency

5. Not Being Able to Celebrate Events

Earn up to 4.00% APY with a high-yield savings account from SoFi.

6. Not Having a Viable Option if You Are Fired

7. Not Having an Inheritance for Your Children

8. Not Being Able to Buy a Home

9. Not Being Able to Go on Vacation

10. Not Having Much Financial Freedom

11. Not Being Able to Invest

12. Not Being Able to Help Others

Why Saving Money Is Very Important

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FAQ

Can I get by without saving money?

Is debt inevitable if you do not save?

When is the best time to start saving?

25 Items That Are Worth Saving For

Why Saving Is Important

25 Smart Items to Save Up for

1. Vacations

2. Brand New Electronics

3. Starting a Business

4. Home Maintenance

5. Weddings

6. Pet care

7. Brand New Car

8. Down Payment on a Home

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