How Much Money Should I Have After Paying Bills?

When All Your Money Goes to Bills

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Do you pay all of your bills and then feel as if the amount of money you have left over for your financial goals is a big zero? Unfortunately, many Americans live paycheck to paycheck (78% of us according to a 2023 “Getting Paid In America” survey conducted by PayrollOrg) and economic trends such as inflation can strain even the most financially stable households.

It’s a frustrating feeling not to have cash to put towards longer-term goals like, say, buying a house or retirement. While every person’s financial circumstances differ, your budget should allow room for important goals, such as building an investment account or padding out an emergency fund.

The question is, how much extra money should you have after paying your bills? The answer will depend on your income, expenses, and financial goals. Here’s a closer look.

Key Points

•   Ideally, you want to have 20% of your take-home pay left over after paying all of your bills.

•   Track spending using an app or spreadsheet to determine why there isn’t more money left over after bills.

•   Consider cutting unnecessary bills (like cable, streaming networks, gym memberships) to save money.

•   Sell unused possessions to increase available funds.

•   Budgeting and managing money can reduce stress and help achieve financial goals.

What Is a Good Amount of Money to Have After Paying Bills?

Everyone’s financial circumstances are different, so it’s hard to pinpoint a good amount of leftover money after bills. For example, you might have a medical bill weighing down your otherwise healthy budget. Or you could have limited income as a student or retiree.

In most cases, it’s vital to prioritize spending on your needs and stay motivated when paying off debt. You’ll also want to start stashing away cash for other goals.

With this perspective in mind, the 50/30/20 rule represents a good way to allocate money. The numbers act as a guide: 50% of your take-home income pays for necessary expenses like food, housing, and debts. Unnecessary expenses, like entertainment or dining out, are considered wants, not needs, and they account for the next 30%. Finally, 20% of your income goes toward investments and savings (as well as debt payments beyond the minimum).

Based on this framework, it’s recommended to have at least 20% of your income left after paying all of your essential and nonessential expenses, which will allow you to save for both short- and long-term goals.

Tips for Managing Your Bills

Sometimes, though, putting aside 20% of your paycheck can be a real challenge. Here are some strategies that can help you pay your bills — and still have some money leftover to put towards your goals.

Getting to the Root Cause

If you often scramble to make it to payday, there’s likely a problem lurking in how your income and expenses are aligning. Fortunately, dozens of apps and banking tools are available to help you see where each dollar goes every month. Of course, you could also keep paper receipts and bill statements the old-fashioned way. Either way, keeping tabs on your cash flow can show you if you’re spending too much at restaurants or if you should up your income through a new job or a low-cost side hustle.

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Organizing Your Bills

Most of us have monthly obligations. One thing that can help you get on top of those living expenses is to take some time to organize your bills. For example, you might make a master list of all of your monthly bills, listing the amounts and when payment is due. It’s also a good idea to set up automatic bill payment — this ensures everything gets paid on time and helps you avoid late fees and interest. Just be sure you have enough funds in your checking account to cover these debits so you don’t wind up overdrafting your account (and triggering bank fees).

What Are the Bills That Are Necessary to Pay?

The following bills are essential for the average American household:

•   Rent or mortgage for housing

•   Food and toiletries

•   Utilities such as gas, water, and electricity, as well as WiFi

•   Transportation expenses, such as a car, vehicle upkeep, or bus pass

•   Minimum debt payments on student loans or credit cards

•   Premiums for health coverage, car insurance, and renters/homeowners insurance

Identifying these bills as top priority and knowing how much of your paycheck they account for can help you budget better. It can help you answer the question “How much extra money should I have after bills?” and hopefully tweak your spending to make sure you can save.

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Which Bills Are Expenses That Can Potentially Be Canceled?

Cutting back on luxuries and treats can be painful, but there’s no feeling quite as rewarding as ending the month with your bills paid and a substantial deposit to your retirement account with money to spare. If you need to make room in your budget, consider canceling the following expenses:

•   Cable television or streaming subscriptions you rarely watch

•   Smartphone upgrades and high data plans

•   Gym or workout memberships

•   Shopping memberships

•   Digital cloud services

•   Overly expensive gifts for holidays and birthdays

•   Dining out and takeout

•   Cigarettes, vapes, and alcohol

•   Items that you can buy used instead of new, such as clothing, books, and more

Budgeting All Expenses

One of the best ways to ensure that you can cover your bills and still have money leftover is to set up a simple budget. A budget will act as a spending and saving plan to help you stay on track.

To do this, you’ll need to comb through your bank and credit card statements from the last several months and list all of your monthly expenses, including both necessary and unnecessary spending. Next, you’ll want to tally up your average monthly income. Once you see how your cash inflows and outflows line up, you may find that you need to make some adjustments in your spending.

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Getting Another Job or Side Hustle

If you reduce your bills to a minimum but still experience financial challenges, picking up a side hustle can help you make ends meet. Whether you find a part-time job with an employer or work independently for a company like a ride-sharing or food delivery app, an extra 10 to 15 hours weekly can make a substantial difference in your budget. On the other hand, if your day job meets all your expenses, a second job can help you beef up your retirement account or pay for an expensive hobby.

Tracking Your Spending

Coffees and checkout impulse purchases at the grocery store can stealthily ding your budget. Luckily, there are more apps and tools than ever for tracking every expense. You can ditch pens, paper, and envelopes for a spending tracker on your phone or an Excel budget spreadsheet. Your bank might provide a free financial management app to help as well. Use these tools to help maximize how much money you should have leftover after bills.

Being Frugal for a Temporary Time

If you have lingering debts or want to save up a specific amount of money, being thrifty for several months can propel you into financial wellness. For example, you could make grocery shopping lists based on the coupons you clip each week. Or, if online shopping is your Achilles’ heel, you may want to unsubscribe from sales email lists for a while.

Some people enjoy monthly spending challenges. One month, you might say you are not going to spend any money on movies or music and put the savings towards your emergency fund. The next month, you might order takeout only twice and deposit the money you saved versus your usual habits into your travel fund.

Downsizing Your Possessions

Just as some monthly payments are unnecessary, you may have toys, gadgets, unused appliances, and more lying around that you don’t use regularly. You can pad your wallet by selling your stuff through Facebook Marketplace, eBay, or ThredUp. If selling online doesn’t appeal to you, a garage sale could be an option. These moves can help you have more money after bills.

Why Money Management Is Important

Life gets expensive, and making the most of your hard-earned dollars is crucial. Here are some principles to consider:

•   Failing to manage your money could cost you hundreds or thousands of dollars annually. Solid financial management can transform your spending habits, quality of life, and retirement income.

•   Money management can help you become more financially disciplined, which can be a key characteristic of successful people. The fortitude you build from sticking to a budget can help increase your overall stability in life.

•   Budgeting can help you achieve your future goals. For example, managing your money is vital for saving for your child’s education, affording a down payment for a house, or creating an emergency fund.

•   Actively managing your money can help you make more intelligent financial decisions. For example, you might have two main goals — building an emergency fund and repaying debts. However, you might only have enough income for one of the two. You can analyze your finances to understand whether it’s wiser to save or pay off debt.

•   Having your finances under control can reduce stress. Constantly worrying about money can present mental and physical health challenges. Getting a grip on your money is an excellent way to improve your life circumstances and create a bright future for you and your family.

The Takeaway

So, how much money should you have after paying bills?

Your financial situation will help determine the right amount of leftover money after bills. If you’re struggling to find leftover money at the end of the month, organizing your bills, setting up a budget, cutting back on nonessential spending, and picking up some extra income can help ensure you have money left after covering all of your bills. You can then use these funds to grow your savings, achieve your goals, and build wealth over time.

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FAQ

How do I avoid living paycheck to paycheck?

You can avoid living paycheck to paycheck by tracking your spending, following a budget, and cutting back on unnecessary expenses such as entertainment and dining out.

How do I get a second job when I do not have the time?

You might find a second job that fits into your off-hours, like walking dogs when you have free time on the weekend. Also if you can find a gig that pays well enough, you may be able to reduce how much you’ll have to work. It’s a good idea to map out a schedule to help divide work from leisure and maintain a healthy work-life balance.

Is the 50/30/20 budget the only good rule of thumb?

The 50/30/20 budget rule can be a helpful guideline. It states that you should spend up to 50% of your after-tax income on needs; 30% on wants; and 20% on saving and debt payments beyond the minimum. However, it’s fine to play with the percentages. If you live in an area with a high cost of living, for example, you may be better off with a 70/20/10 budget. The idea is that you include saving as part of your monthly spending plan.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



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Exchange-Traded Notes: What Are ETNs? ETN Risks, Explained

What Is an Exchange-Traded Note (ETN)?

Exchange-traded notes, or ETNs, are debt securities that offer built-in diversity, and offer alternatives to other investment vehicles that may have certain problems for investors, like tracking errors and short-term capital gains taxes.

ETNs are similar to ETFs (exchange-traded funds), in that they may be a popular pathway to diversification because they expose investors to a wide range of financial assets, and come with lower expense ratios compared to mutual funds. As such, it can be beneficial for investors to understand ETNs and how they work.

What Is an Exchange-Traded Note (ETN)?

An ETN, or an exchange-traded note, is a debt security that acts much like a loan or a bond. Issuers like banks or other financial institutions sell the “note,” which tracks the performance of an underlying commodity or stock market index benchmark.

ETNs do not yield dividends or interest in the way that ETFs do. Before investors can earn a profit from an ETN, they must hold the security long enough for it to mature — typically ten to thirty years. Upon maturity, the ETN pays out one lump sum according to their underlying commodity’s return.

Exchange-Traded Notes Meaning

The term “exchange-traded note” may sound a bit off to some investors, but its meaning is fairly straightforward. For one, ETNs are “exchange-traded” because they’re literally traded on exchanges, like many other securities. And they’re called “notes” because they are debt securities, not pools of investments like a fund (as in ETF).

Examples of ETNs

To further illustrate how an ETN works and is constructed, suppose you purchase an ETN that tracks the price of gold. As an investor, you don’t own physical gold, but the note’s value tracks gold’s performance. When you sell the ETN, during or at the end of the holding period, your return will be the difference between gold’s sale price at that time and its original purchase price, deducting any associated fees.

Similarly, you could, hypothetically, create an ETN that tracks the price of a commodity like oil. Again, investors don’t actually own barrels of crude, but the ETN would track oil prices until it matures, and then pay out applicable returns.


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Pros of ETNs

ETNs are a relatively newer type of financial security compared to some others available on the market. Their design comes with perks that some investors may find appealing.

Access to New Markets

Some individual investors may struggle to access niche markets like currencies, international markets, and commodity futures, since they require high minimum investments and significant commission prices. ETNs don’t have these limitations, making them more available to a larger pool of investors.

Accurate Performance Tracking

Unlike ETFs, ETNs don’t require rebalancing. That’s because ETNs do not own an underlying asset, rather they duplicate the index or asset class value it tracks. This means investors won’t miss any profits due to tracking errors, which means a difference between the market’s return and the ETF’s actual return.

Tax Treatment Advantages

Investors of ETNs don’t receive interest, monthly dividends, or annual capital gains distributions — which in turn means they don’t pay taxes on them. In fact, they only face long-term capital gains taxes when they sell or wait for an ETN to mature.

Liqudity

Investors have two options when selling ETNs: They can buy or sell them during regular day trading hours or redeem them from the issuing bank once a week.

Cons of ETN

Every investor must be wary of their investments’ drawbacks. Here are some potential cons of trading ETNs.

Limited Investment Options

Currently, there are fewer ETN options available to investors than other investment products. Additionally, though issuers try to keep valuations at a constant rate, pricing can vary widely depending on when you buy.

Liquidity Shortage

ETFs and stocks can be exchanged throughout the trading day according to price fluctuations. With ETNs, however, investors can only redeem large blocks of the security for their current underlying value once a week. This has the potential to leave them vulnerable to holding-period risks while waiting.

Credit, Default, and Redemption Risk

There are a range of risks associated with ETNs.

1.    Risk of default. An ETN is tied to a financial institution such as a bank. It’s possible for that bank to issue an ETN but fail to pay back the principal after the holding period. If so, they’ll go into default, leaving you with a loss. There’s no absolute protection for owners in this case since ETNs are unsecured. External and social factors can lead to a default, too, not just economic influences.

2.    Redemption risk. Investors can also take a loss if the institution calls its issued ETNs before maturity. This is called call or redemption risk. In this case, the early redemption may result in a lower sale price than the purchase price, leading to a loss.

3.    Credit risk. The institution that issues the ETN impacts the credit rating of the security, which has to do with credit risk. If a bank experiences a drop in its credit rating, so will the ETN. That leads to a loss of value, regardless of the market index it tracks.

ETN vs. ETF: What’s the Difference?

Comparing ETNs and ETFs may help investors to see the pros and cons of either asset more clearly. Both ETNs and ETFs are exchange-traded products (ETPs) that track the metrics of an underlying commodity they represent. Other than that, though, they operate differently from each other.

Asset Ownership

ETFs are similar to a mutual fund, in that investors have some ownership over multiple assets that the ETF bundles together. You invest in a fund that holds assets. They issue periodic dividends in returns as well.

In comparison, ETNs are debt instruments and represent one index or commodity. They are an unsecured debt note that tracks the performance of an asset but doesn’t actually hold the asset itself. As a result, they only issue one payout when you sell or redeem them.

Taxation

These differences impact taxation. An ETF’s distributions are taxable on a yearly basis. Every time a long-term holder of a conventional ETF receives a dividend, they face a short-term capital gains tax.

Comparatively, ETN’s one lump-sum incurs a single tax, making it beneficial for investors who want to minimize their annual taxes.

Recommended: ETF Trading & Investing Guide

The Takeaway

ETNs are unsecured debt notes that track an index or commodity, and are sold by banks and other financial institutions. Like any investment, ETNs have both benefits and drawbacks — and while they may sound like ETFs, there are differences between these two products, notably that with ETNs you do not own any underlying assets.

ETNs may have a place in an investment portfolio, but it’s important that investors fully understand what they are, how they work, and how they can be incorporated into an investment strategy. It may be helpful to speak with a financial professional for guidance.

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

Who developed ETNs?

Barclays, a large international bank, first developed exchange-traded notes (ETNs) in 2006 as a way to give retail investors an easier path to investing in asset classes like commodities and currencies.

How is an ETN related to ETPs?

ETPs, or exchange-traded products, is a term that refers to a range of financial securities that trade on exchanges. ETNs, or exchange-traded notes, fall under the ETP umbrella, since they are investments that trade on exchanges.

Where are ETNs listed?

ETNs are listed on different exchanges, and can often be found by searching for their respective ticker or symbol.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/Drazen_

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Dual Income No Kids (DINKs): Definition and Explanation

The acronym “DINK” stands for “dual income, no kids,” and references a household in which two adults are working for an income (dual incomes) but do not have children (no kids), and as a result, fewer expenses. DINKs have become more common over the years as many young adults have opted not to have children, often due to the financial resources required to raise them.

What Does DINK Mean?

As noted, DINK is short for “dual income, no kids,” or “double income, no kids.” It refers to households where there are two active incomes and no children. The two incomes can either come from both partners or one partner having two incomes.

Some couples opt to wait longer before having kids, so they fall into the “DINKY” category, which stands for “dual income, no kids yet,” allowing them to save money.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

The Significance of Dual Income, No Kids

Without the added expense of children, DINK couples might have more disposable income available for spending and investing. Marketing campaigns for luxury vacations, homes, and other high-end items often target DINK couples.

However, just because a household has two incomes doesn’t automatically mean they have more money – there’s always room for improving your financial life, after all.

There are some reasons why they may still struggle financially, including:

•   Their two incomes are not very high

•   They live in an expensive area

•   They have spending habits that eat up a large portion of their income

Why Are More Couples Choosing the DINK Life?

One of the main reasons couples choose to wait or forgo having children is the financial cost, which can range well into the hundreds of thousands of dollars over the years.

Further, when the Great Recession hit in 2008, many Millennials were just graduating from college or starting their careers. That recession made it challenging to get jobs and begin investing for the future. On top of recovering from the recession, nearly half of Millenials and a third of Gen Xers have a significant amount of student loan debt.

These factors have made it difficult for young people to achieve financial milestones and start families earlier in life. However, there are some couples who choose to wait a few years before having kids after they get married for non-financial reasons. They prefer to use their time as a young couple to travel, make life plans, and enjoy an untethered lifestyle.

Types of DINKs

DINKs come in a variety of types, including new couples and empty-nesters.

New Couples

New couples can be newlyweds, or simply those living together in a single household who are not married. They may be young or older, too, and are still feeling out their relationship and planning out their next steps. Children may or may not be a part of those next steps, but for the time being, new couples are standing pat with double-incomes.

Empty Nesters

While empty nesters may be parents, they may be at the point in their lives where their children have grown up and moved out, no longer presenting a financial burden. With that, they have some significant space in their budgets unshackled, with which they can make different spending, saving, and investing decisions.

Same-sex Couples

While many same-sex couples do have children, many do not, and they might also fight into the DINK category.

Structuring a DINK Household

There are many costs associated with having children, including clothing, food, healthcare, and education. Partners who don’t have children might instead choose to splurge or save up for early retirement.

DINK couples with disposable income have many options for how to spend or invest their money. Some couples may choose to buy nice cars, while others may enjoy going out to eat. They also potentially have more free time to travel and spend money. In general, clothing, food, or travel that may have been too expensive for couples with children can be accessible for DINK couples.

A couple with no children likely won’t need as many bedrooms or as much space in terms of housing. They can either choose to save money by renting or buying a smaller place to live. They can also choose to use the extra space for other purposes, such as a home gym, art studio, or rent out a room for extra income.

Kids also take up a lot of time and have fairly rigid schedules. Some DINK couples may choose to take more time off for travel and leisure, while others might choose to work longer hours or find ways to earn supplemental income.

In addition to purchasing and leisure options, dual income couples may have the opportunity to invest their extra money. They might purchase stocks, bonds, real estate, or explore other opportunities.

They could also try and get by on a lower income, too – for some DINKs, one earning a salary of $40,000 is enough to make ends meet in certain circumstances, especially if the other partner earns more.

7 Financial Tips for DINKs

Learning about each other’s financial habits and goals is important so that couples can get on the same page, whether they’re planning to have children or not. It also helps to have productive conversations about finances.

Establishing open and honest communications before having kids may make things easier in the long run. There are some crucial areas for couples to work on if they want to live a successful DINK lifestyle or get their finances set up before having children:

1. Paying Off Debts

Before setting off on a lavish vacation, it’s wise for DINK couples to have a plan to pay off high-interest debts such as credit cards and student loans.

Without kids, home loans, and other monthly bills, couples may have more available funds to tackle their debt and. Once they’ve paid down the debt, they can use the extra money they’ve saved from monthly interest payments to invest or spend elsewhere.

2. Creating Sustainable Spending Habits

Whether a DINK couple is waiting to have kids or doesn’t ever plan on having them, practicing responsible spending habits is crucial for financial success. If a couple is always in debt, having kids probably won’t change that.

Similarly, not having kids could make it tempting to go out to eat or travel a lot. Having conversations about the type of lifestyle each person wants both now and over the long-term helps make day-to-day spending choices easier. Earning $100,000 is a good salary, but if you have bad spending habits, it may still not be enough.

3. Traveling Smart

Travel is a huge draw for many DINK couples, but it can quickly get expensive. If couples want to travel a lot, they might consider staying in less expensive places and skipping the luxury trips.

If luxury is important to a couple, they might think about only going on one big trip per year and taking advantage of points, credit cards, and other offers to maximize their ability to see the world.

4. Planning Ahead and Investing Early

The more couples can figure out what they want in life and get their finances organized, the easier it is to plan their finances. If they plan to have kids in the future, they might consider saving now for college and other child-related expenses that may come later.

Factoring in future raises, inheritances, and other additional income or expenses is also helpful. Even if couples don’t start with high incomes, the earlier they can start saving, the more their portfolio has time to grow.

5. Consolidating Stuff

Just as couples without kids may not need to live in a large home, they may not need as many things. DINK couples might choose only to have one car or bicycle. There might be other items that each person has been buying for themselves that could be shared.

6. Acquiring New Skills

Couples without kids may choose to invest some of their time and money into additional training and education. If they plan to have kids in the future, this might help them move up the career ladder or earn a larger salary when the kids do come.

7. Getting Wise About Taxes

DINK couples can make smart financial choices to minimize their taxes. Contributing to an HSA or putting pre-tax income into a 401K can help reduce the tax burden. Owning a home may also provide tax breaks to some homeowners.

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The Pros and Cons of a DINK Lifestyle

There is nothing dinky about the DINK lifestyle. Not having kids, or waiting to have kids presents a huge financial opportunity for many couples. However, if they aren’t smart about their savings and spending, couples may risk running into financial trouble.

Pros of Becoming a DINK Couple

•   More free time and money to travel for work or pleasure.

•   Ease of mobility — moving or traveling to a new house, city, or country is more manageable without kids.

•   Disposable income to spend on cars, clothing, food, or other items.

•   Ability to save money by living in a smaller house and not paying for children.

•   Opportunity to save and invest extra income.

Cons to Remaining a DINK Couple

•   Potential for overspending and splurging on travel and luxuries rather than saving and investing.

•   DINK couples may be in a higher income bracket and have to pay more taxes.

•   There may be less family support for caregiving as they age.

Planning for a Life Without Children

Life without kids might be an excellent decision for many couples. The extra free time and money can be used in many meaningful ways.

However, couples need to be on the same page about whether they want kids, and there are some things to keep in mind about a childless future.

Couples will need to figure out:

•   How they’ll spend their retirement years

•   Who will visit or take care of them when they’re older

•   And who they will leave their money and assets to after they die

Saving up extra money for caregivers, retirement, and unforeseen circumstances can be an intelligent strategy for DINK couples. DINK couples must also make sure that they create an estate plan, so that their assets get distributed according to their wishes after they pass away.

Key Financial Baselines To Keep in Mind

When doing financial planning for the future, a few things are certain. Couples will have to pay taxes, and they’ll need food, shelter, and basic necessities. Beyond that, there are some baselines couples can look to as they plan for retirement, investing, home buying, and any kids they might plan to have.

The 4% Rule

Using the 4% rule, most couples will likely need to sock away more than $1 million for retirement, in order not to outlive their savings.

Home Costs

As of the fall of 2023, the average house costs nearly $500,000 in the U.S. — something to keep in mind.

Although these numbers may sound like a lot of money, couples with two incomes and no children can start saving some of their extra cash early and take advantage of compound interest over time. If they are savvy about their savings and spending, couples can potentially retire early and enjoy more free time for travel and personal pursuits.

Planning for the Ultimate DINK Lifestyle

To recap, “DINK” stands for dual income, no kids, and refers to households with two earners and no children. These households do not have the financial responsibilities associated with children, and thus, tend to have greater purchasing power than other families or households that do have kids.

Going kid-free has many upsides, but it’s important to be money smart, plan, and work together to create a prosperous and secure future. Couples who are planning to never have children or to wait to have them, often have more disposable income to put toward their financial goals, including investing.

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FAQ

What does the term DINKs refer to?

“DINKs” refers to households with two earners and no children. It’s an acronym that stands for “double income, no kids,” or “dual income, no kids.”

What are the benefits of dual income without kids?

The primary benefit of DINK households is that they do not have the financial responsibilities associated with raising children, and as a result, have more purchasing power or discretionary income. They may be able to save and invest more, accordingly.

What percentage of married couples don’t want kids?

While it’s hard to say exactly, a rough estimate would be that around 20%, or one out of five adults say they do not plan to, or want to have children.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



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Does ROTC Pay for College?

ROTC, short for Reserve Officers’ Training Corps, offers college scholarships to students who commit to serving in the U.S. Armed Forces after graduation. ROTC college scholarships can cover significant college costs, including tuition and other fees. While in college, you get to experience campus life just like any other student; however, once you graduate, you step into a role in the U.S. Armed Forces.

Keep reading to learn about ROTC eligibility requirements, service commitments, and how to apply.

What Are ROTC College Scholarships?

Back in 1916, Congress passed the National Defense Act to strengthen the military reserve and National Guard. This led to the creation of ROTC scholarships, encouraging more students to join and introducing many young people to military opportunities.

Today, the ROTC program stands as a unique educational path, blending military science courses with your regular college classes and preparing students to become officers of the U.S. military post-graduation: Army, Navy, or Air Force. Scholarships through ROTC can cover college costs like room and board, fees, and tuition, but they aren’t guaranteed upon joining. Like other scholarships, they’re competitive and require students to earn them.

If you get an ROTC college scholarship, you’re committing to serve in the military after college — for at least three to 10 years, depending on the program. Some candidates might even have the chance to serve part-time in the U.S. Army Reserve or Army National Guard while kick-starting their civilian careers.

Recommended: What Types of Scholarships Are There?

How Much Does ROTC Pay for College?

ROTC offers scholarships lasting two to four years, depending on your remaining time until graduation. Eligible students can receive up to full coverage for tuition, room and board, and fees.

Types of ROTC Scholarships

Here’s a breakdown of the scholarship options and the qualifications you need to meet.

Army ROTC Scholarships

The Army ROTC Scholarship program offers financial support for students who want to become US Army, Army Reserve, or Army National Guard officers after earning their bachelor’s degree. Scholarships are available for two, three, or four years, depending on how much time you have left in school.

These scholarships cover full tuition and provide additional financial support. You’ll receive up to $420 monthly during the school year to help with living expenses and $1,200 annually for books.

You’re not required to commit to serving as an Army Officer until your junior year. When you sign a contract, you can serve part-time in the Reserves for eight years or full-time in active duty for three or four years, depending on whether you had an ROTC scholarship.

Army ROTC also offers a nursing program for candidates considering a nursing degree.

Navy and Marine Corps Scholarships

The Navy ROTC college scholarship program is designed to help you become a strong leader and successful Navy or Marine Corps officer. With this program, you’ll have the chance to participate in three summer training cruises with Navy surface ships, aviation squadrons, and submarines. You can use your scholarship money to cover tuition and fees or room and board, and you’ll receive a monthly stipend starting at $250, which increases each year.

The program also lets you explore a variety of career paths, including nursing, aviation, surface warfare, submarine warfare, and special warfare, all while enjoying a traditional college experience.

For those on a Navy ROTC scholarship, the service obligations are pretty straightforward. Navy midshipmen must serve at least five years of active duty, with additional requirements for certain roles. The Marine Corps and Navy Nurse Corps must serve at least four years on active duty.

Air Force ROTC Scholarships

The Air Force ROTC program can cover full college tuition and authorized fees at any qualifying institution, setting you up to become a U.S. Air Force or Space Force leader. Depending on your scholarship, you may also receive a monthly stipend for living expenses and a $900 annual book stipend. The monthly stipend increases yearly: $300 for first-year students, $350 for sophomores, $450 for juniors, and $500 for seniors.

If you’re a high school scholarship recipient, your travel expenses from home to college are covered, with reimbursement typically arriving about 30 days after school starts. However, the scholarship doesn’t cover room and board.

After completing the Air Force ROTC program and earning your degree, you’ll be commissioned as a second lieutenant in the Air Force or Space Force. Service commitments vary by career — most officers serve four years, pilots serve 10, and Combat System Officers and Air Battle Managers serve six years.

JROTC Scholarships

If you’re interested in starting a military career early, consider joining the Junior Reserve Officers’ Training Corps (JROTC) while still in high school. Eligible cadets can begin earning school-specific scholarships as early as 9th grade.

Some schools offer up to $6,000 per year for JROTC participants, with additional funds of up to $3,375 annually for cadets in leadership roles. It’s a great way to kick-start your path toward a military education and leadership experience.

Many cadets may use the JROTC program as a springboard to qualifying for the ROTC scholarship. However, it’s not a requirement.

Eligibility Requirements and Service Commitment

To qualify for an ROTC college scholarship, you need to:

•   Be a U.S. citizen

•   Be at least 17 years old

•   Have a high school diploma or equivalent

Each ROTC program has specific qualifications, requirements, and service commitments. Here’s an overview of what each scholarship program requires.

ROTC Program

Army ROTC

Navy and Marine Corps ROTC

Air Force ROTC

Eligibility Requirements Pass the Army Combat Fitness Test (ACFT)

Complete one Army ROTC elective and lab each semester

Pass Navy ROTC Applicant Fitness Assessment (AFA) Pass the Physical Fitness Assessment

Complete Physical Fitness Test within your first semester of college

Service Commitment Complete 3-8 years depending on program Complete 4-5 years depending on program Complete 4-10 years depending on the program
Academic requirements GPA of at least 2.50

Must take the SAT or ACT

GPA of at least 2.75 and a GPA of at least 2.0 in Algebra II

SAT scores of 550 for Critical Reading, 540 for Math (1100 combined), and the minimum ACT scores of 21 Math, 22 English (44 combined)

GPA of at least 3.0

SAT score of 1240 or ACT score of 26 or higher

How to Apply for ROTC

Once you confirm your eligibility, you can begin the application process with a few straightforward steps:

•   Create an account to get started with your application.

•   Complete the online application.

•   Submit required materials and documentation such as your work history, extracurricular activities or achievements, planned college major, and a few scholarship application essays.

If you receive a scholarship, you might have to undergo a medical exam and meet ROTC physical standards.

For all the details and to ensure you’ve got everything you need, it’s best to visit the official websites of the Army ROTC , Air Force ROTC , and Navy ROTC programs . That’s also where you’ll find the online application process.

Pros of ROTC

Here are some of the benefits of qualifying for an ROTC scholarship and completing the program.

•   Leadership Development: As an ROTC cadet, you’ll learn essential leadership skills, such as setting examples, counseling, strategizing, and motivating others. These leadership skills are valuable in many career paths, including corporate management roles.

•   Military Training: ROTC gives you hands-on training in leadership, military skills, and exciting activities. You’ll learn in classrooms and out in the field while managing your college life.

•   Financial Aid: Whether you’re getting ready for college or already there, ROTC scholarships provide financial help. This support lets you pursue your education and career goals without taking on a lot of student debt.

Cons of ROTC

Here are some drawbacks worth considering before you apply for an ROTC program.

•   Scholarship Commitment: When you accept an ROTC scholarship, you’re committing to serve in the Armed Forces for several years after graduation. If you can’t fulfill this commitment, you might have to repay the scholarship funds you received, which could put a strain on your finances.

•   Service Obligation: ROTC prepares you to become an officer in the Armed Forces, so you’ll have a service commitment of four to 10 years, depending on your scholarship. This could affect your plans after college and limit your flexibility in choosing career paths.

•   Extra Academic Requirements: In addition to regular classes, ROTC programs often include extra coursework, labs, and leadership training. These can be demanding and require good time management to balance your studies and personal life.

Alternative Options

If you don’t qualify for an ROTC scholarship, there are other options available.

GI Bill

The GI Bill provides educational perks for military members, veterans, and their families. Eligible individuals can receive financial support covering college tuition, fees, housing, books, supplies, and relocation costs for rural residents.

To find out the benefits you may qualify for, you can use the GI Bill Comparison Tool from the U.S. Department of Veterans Affairs. It helps you estimate what you qualify for based on your military background, the type of school you plan to attend, and whether you’ll be studying in-person or online. It’s a helpful resource for understanding the range of support available to you.

Student Loans

The U.S. Department of Education administers the Federal Direct Loan Program, offering various student loan options. For undergraduates, subsidized loans are based on financial need, with the Department covering interest during school and certain periods afterward. Unsubsidized loans are also available, where interest accrues from the beginning.

If federal loans don’t cover your needs, look into private student loans from banks, credit unions, or online lenders. These loans aren’t need-based and may require a credit check or cosigner. Compare rates and terms carefully before deciding.

Recommended: Guide to Military Student Loan Forgiveness

Out-of Pocket

If you’ve been saving for college, now’s the time to make those savings count. You might have a 529 savings plan in your name, which is a special account designed for college expenses and comes with tax benefits. When you contribute money to this plan, it gets invested, and you can withdraw it later without paying taxes as long as it’s used for education-related costs. It’s a smart way to make your college savings work for you.

The Takeaway

Qualifying for an ROTC Scholarship can help with college costs, tuition, and more. Just keep in mind that it also means you’re signing up for military service after college, which could be three to 10 years, depending on which program you choose. It’s a significant commitment, but it comes with valuable leadership training and sets you up for a career as a military officer.

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


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Can I join ROTC after starting college?

Yes, undergraduate students with at least three years remaining in their studies can typically join the ROTC program. This includes second-semester freshmen, sophomores, and other eligible students.

What GPA is required for an ROTC college scholarship?

High school students need at least a 2.5 GPA for Army ROTC, 2.75 for Navy ROTC, and 3.0 for Air Force ROTC scholarships.

How many years of service are required after ROTC?

The service requirements depend on the ROTC program you join, usually ranging from three to 10 years.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/SDI Productions

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


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Direct Deposits vs Paper Checks: What’s the Difference?

Direct Deposits vs Paper Checks: What’s the Difference?

Direct deposits and paper checks are both ways to move money from one bank account to another, typically for payroll purposes, but there’s a difference: A direct deposit automatically transfers wages from an employer to an employee’s bank account. While a paycheck is also a money transfer, it involves the employer cutting a check from their bank account. The payee or recipient can then deposit the funds into their bank account or cash the check at a local business.

Although both payment methods help employers pay their employees and conduct other fund transfers, each has its own advantages and disadvantages. It can be helpful to understand the pros and cons so you can decide the best way to receive your salary or move money around.

Read on to learn the details, including:

•   What is direct deposit?

•   What are the benefits and downsides of direct deposit?

•   What are the pros and cons of paper checks?

•   When should you use direct deposit vs. a paper check?

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What Is Direct Deposit?

Direct deposit is an electronic transfer of funds to a bank account. By using direct deposit, a payee can automatically send money to another party’s bank account without handling paper checks or cash. It’s quick and convenient for both an employer and employee, whisking funds from one account to another. This method can also help employers cut costs since they don’t have to print and mail checks every pay period.

For these reasons, direct deposit has become very popular. In fact, according to the 2022 “Getting Paid In America” survey, almost 94% of workers receive their paycheck via direct deposit.

That said, receiving a direct deposit from your employer isn’t the only way to use the technique for transferring funds. You can use it for other transactions including:

•   Getting a tax refund

•   Receiving child support

•   Getting Social Security benefits

•   Paying bills like garbage, electric, and water bills (this may be set up through your bank’s “bill pay” option).

Pros and Cons of Direct Deposit

Using direct deposit has its upsides and downsides. First, here are some of this the significant advantages of this financial process:

•   Convenient. Technological advancements have made direct deposits a fast and easy way to receive and send money. The payee and payer don’t need to travel to the bank to write or deposit checks since the funds transfer electronically from one account to the other.

•   Safe. When you exchange cash or a check, there is a possibility that funds can be lost or stolen. Since all direct deposits happen electronically, you don’t have to worry about a thief swiping your money.

•   Efficient. Many employers offer direct deposit because it helps expedite the payroll process. Funds are automatically transferred from their bank account to those of the recipients. There’s no need for an employee to pick up a check, deposit it, and wait for it to clear. The time it takes for direct deposit to go through can be hard to beat.

•   Avoid maintenance fees. Some banks will do away with maintenance fees if you set up direct deposit, which can be a nice financial perk.

•   Boost savings. Sometimes, you can identify a percentage of your paycheck and direct it to be deposited into your savings when you get paid. This way, you can automate your savings and pad that account without thinking about it.

While direct deposit is convenient, safe, and efficient, there are also some downsides you should consider.

•   Risk of cyber crimes. Yes, there are hackers and other sorts of criminals out there. Direct deposits are vulnerable to cyber crimes since all transactions occur electronically. While banks and financial institutions take precautions to keep bank accounts safe online, direct deposits may still be somewhat susceptible to cyber theft.

•   Requires a bank account. Direct deposits usually require the payee and payer to have a bank account. That’s not possible for folks who lack traditional bank accounts. They may need to find an alternative solution to send or receive payments.

•   Fees. Depending on your bank, you may have to pay a set-up fee to initiate direct deposits. Check with your bank to verify any potential costs before you get started.

•   Errors are easily missed. Because payments are 100% electronic, you may not have the opportunity or inclination to review the pay stub as you would with, say, a paper check. Not looking over your paystub regularly can make it easier to miss errors such as an incorrect paycheck amount.

Now, here’s how the pros and cons of direct deposit stack up in chart form:

Pros

Cons

No risk of losing cash or a checkRisk of cyber crimes
ConvenientRequires a bank account
May avoid account feesMay have to pay a fee to set up direct deposit
Can set up auto-transfers to savingsErrors can be easily missed

Recommended: What Is an Electronic Check?

Pros and Cons of Paper Checks

Now, let’s consider the benefits and disadvantages of using time-honored paper checks. First, the upsides:

•   Protects privacy. When you decide to use paper checks, you can keep your banking information private from your employer. For some people, it may provide peace of mind to know that your employer doesn’t have access to your bank account.

•   Save money on banking fees. Some banks charge fees for setting up direct deposit. If you prefer not to pay these fees, you can likely cash your paper checks for free.

•   May include an informative paystub. For some people, looking at their paystub is more convenient with a paper check. They can assess the deductions and other aspects of their wages without going hunting for the information online.

Drawbacks to using paper checks include:

•   Risk of theft. When you carry a physical check, it’s easier to misplace it or have it stolen. If this happens, your employer will likely be able to replace it. However, you may have to wait for the new check to process and pay a fee.

•   Time-consuming. When you receive a paper check, you must deposit it at the bank via a bank branch or online. Either way, it can eat up time that you could spend doing other things.

•   Waiting period. Even if you deposit a paper check right away, it could take several days to clear and hit your bank account, especially if it’s the weekend or a holiday.

Here’s how these advantages and disadvantages compare in chart format:

Pros

Cons

Protects bank information from employerRisk of theft or losing the check
Saves money on banking feesTime-consuming to get and deposit check
Makes payroll details easily accessibleMust wait for funds to clear

Recommended: Business Check vs. Personal Check: What’s the Difference?

When to Use Paper Checks Over Direct Deposit

When deciding to use checks vs. direct deposit, here are a few situations where it makes sense to opt for paper checks:

•   You don’t want to share your banking information with your employer. Using checks may make sense for folks who are worried about sharing banking information or who prefer not to put money into a bank account.

•   You distrust banks or don’t want to pay their fees. One of the top reasons millions of Americans choose not to have bank accounts is that they don’t trust banks and don’t want to pay banking fees. If you fall into this category, you may feel more comfortable opting for paper checks you can cash.

•   Don’t qualify for a bank account. Maybe you don’t have enough money or don’t meet the requirements to open an account. Whatever the situation, if you don’t have a bank account, it’s going to be hard to accept a direct deposit. Paper checks might be the only solution to receiving your paycheck.

Recommended: How Do You Write a Check to Yourself?

When to Use Direct Deposit Over Paper Checks

Now consider the flip side: situations in which direct deposit may make more sense than paper checks.

•   You want a quick, easy way to get paid. If direct deposit is a payment option, it could help you receive your wages or salary more quickly than with a paper check. Since funds are transferred electronically, your paycheck will be in your bank account on payday, ready to be used.

•   You struggle to save money. If you have difficulty setting aside savings, a direct deposit may help. Some direct deposit programs let you distribute a portion of your paycheck into your savings, allowing you to boost your emergency fund or another account without lifting a finger.

•   Your bank waives maintenance fees. Some banks waive maintenance fees when you meet specific requirements like setting up direct deposit.

The Takeaway

Paper checks and direct deposits are two payment options that allow your employer to transfer money so you can get paid. When comparing paper checks vs. direct deposit, know that direct deposit is usually the most convenient way for employees to receive their pay. However, employees who don’t have bank accounts or don’t like sharing their banking information may prefer paper checks instead. It’s all about what best suits your banking needs.

If you’re ready to open an online bank account, take a look at what SoFi has to offer. Our Checking and Savings account lets you avoid account fees (like those for direct deposit) and earn a competitive APY Qualifying accounts can get their paycheck up to two days early with direct deposit, too.

Are you ready to bank better? See how SoFi Checking and Savings puts you in control of your money.

FAQ

Do more people use direct deposit or paper checks?

Direct deposit is usually the deposit method of choice. In fact, about 94% of employees prefer to receive wage or salary payments via direct deposit.

Can you change from paper checks to direct deposit?

In many cases, yes. Whether you want to set up direct deposit with the IRS, your employer, or your utility company, you can follow a process to switch from checks to direct deposit.

Can you change from direct deposit to paper checks?

Yes, you can usually ask your employer to switch back to checks. Verify with your employer what the process is so you know what to expect.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/RyanJLane

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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 members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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