SoFi

If you feel like your money vanishes almost as soon as you get paid, you’re not the only one. Fortunately, there’s a way to remedy the problem — by learning to spend your money wisely.

Being wise with your money means being thoughtful and accountable and helping it go further to get what you want. It’s about having a plan so you can spend as well as save money for a vacation, an emergency fund, or even start that business you’ve been dreaming about.

Being wise with money is not about how much you make. It’s how you spend it and manage it so you can optimize your quality of life.

Why Spending Wisely Is Important

How to spend money wisely is not a skill taught in school, and many families don’t feel comfortable discussing money openly. Which means many of us are in the dark when it comes to putting money in a savings account and understanding how to budget and not overspend.

Plus, the world is full of enticing new things to buy, and our phones, computers and TVs are full of images of people dining out, shopping, and traveling. The idea of spending limits is often absent.

But if you’re serious about learning about how to reach your financial goals and not having too much debt, you can adopt habits that will help. It’s not about living a life of deprivation at all. But spending money a little differently is likely to be on the agenda.

When you start learning how to spend money correctly, you can get on top of your budget and your financial life. That’s a great feeling of accomplishment and independence. Plus, it sets you up for good money habits for years to come.

Here are 10 ideas for how to spend your money wisely.

10 Tips for Wise Spending

1. Not Trying to Impress Others

When you buy something, check in with yourself and make sure it’s something that is truly for you and not something you’re buying because you feel you’re “supposed to,” or “everyone else is getting one.” These purchases can wind up being very expensive and even disappointing.

Cars are a great example. There are many vehicles that may be adequate for your needs, but you might end up buying an expensive car that looks impressive and wind up living above your means. Being stuck with an unmanageable monthly payment is uncomfortable and adds a level of stress to your daily life. What’s more, if you default, it could hurt your credit score. So work towards buying just what you need, not status items.

2. Not Eating Out or Splurging Every Day

Small splurges every once in a while aren’t going to kill your budget, but a regular habit of them can put a dent in your financial fitness. Everyday spending habits can make or break your budget. Perhaps it’s not eating out that is costing you; maybe it’s ordering things online or picking up the tab too often when you and your best work buddy have a quick drink. All the small purchases you make add up over time and wind up undermining your plans to improve financial health.

To make sure you’re spending wisely, be sure to have a budget for your splurges. It’ll feel good knowing you have a plan to spend on fun things while also putting money away in your bank account. For instance, if you’ve been getting a pricey takeout coffee most mornings as a treat en route to a busy workday, try dialing it back to a Monday and Friday splurge. Eventually, you may decide to skip it completely and drink your java before you leave home.

Recommended: 6 Tips for Making a Financial Plan

3. Setting Reminders for Bills to Avoid Late Fees

One thing you don’t want to do is spend money on late fees, interest, and other costs.To make sure your bills are getting paid on time, automate your payments as much as possible and set reminders so you’re never late.

4. Using a Journal of Transactions to Avoid Frivolous Spending

A journal of transactions can help keep you accountable to yourself about where your money goes. Truly, there’s nothing more eye-opening than seeing how much you’re really spending in a month. Reviewing your transactions can help you learn how to spend wisely.

For example, you might not realize how often you use ride-share services. You may think you only call an Uber “in emergencies” but then realize those emergencies are happening a couple of times a week. A journal can help you truly get a grip on overspending and dial it down.

5. Having a Monthly Budget

A monthly budget is nothing more than a plan for how you want to spend your money for the month. When you have a plan and a goal, you can train your brain to forgo things that are not important and save for things that really matter to you.

Which kind of monthly budget to set up depends on your personal preferences and needs. Some people love apps which automate the process and can show you how your money and spending break down. Others prefer using a spreadsheet or journal. Some find systems like the envelope method or 50/30/20 rule helpful. Do a bit of online research; you may spend more wisely once you find a system that suits you.

6. Figuring Out What Habits Eat Up Your Budget

After you’ve tracked your expenses, it might be shocking to see where your money is going. You might have a few habits, such as shopping too often or splurging on gourmet dining, that take up more of your budget than you would like. Or you might have signed up for a number of streaming services when you only really watch a couple of them.

By identifying what is burning through your money, you can then take steps to spend more wisely. Changing up a few of these habits can help you stretch your budget, save more, and spend your money wisely.

7. Putting Money on Your Credit Card When You Can Afford to Pay It Off

As of June 2024, the average credit card interest rate is more than 24%, making this one of the most expensive ways to finance a purchase. In a nutshell, you wind up paying a 24%-plus surcharge if you buy things with plastic and don’t pay it off right away.

Using a credit card wisely is key. Charge up no more than 30% of your credit limit (though less is better) to keep your credit utilization ratio low. And pay the bill off ASAP to avoid owing interest.

8. Thinking About Long-Term Effects of Purchases

The average American spends approximately $150 on impulse purchases each month, data shows. That’s $1,800 a year for unplanned purchases. If spending wisely is your goal, you should ask yourself: Wouldn’t that money be put to better use elsewhere, such as a vacation or in savings?

One way to curb impulse spending is to acknowledge the emotional component. Some of us shop when we are feeling bored, angry, or sad. Purchasing some cool new gizmo or a great jacket can be a distraction and a mood booster. One strategy to help short-circuit this emotional spending can be to imagine the item in your house and how it will look used a few years from now. If you can visualize its future (being out of style, faded, worn, or broken), you might not want to purchase it in the first place. That may help you realize that the item isn’t as vital as it feels when you are shopping.

You might also want to consider the long-term financial impact the purchase will have. If you make a lot of impulse buys, these costs can either snowball due to interest or shadow your finances for years to come.

9. Tracking Your Finances Daily

Following your money closely can help you spend wisely. Fortunately, there are easy ways you can keep track of your spending in today’s technology-rich world, including money-management apps. These can connect your bank accounts, credit cards, investment accounts, and more to give you a snapshot of your financial health.

If, say, you see that your credit card balance is climbing, you might decide to cook pasta versus ordering takeout that night. Or perhaps you notice that with a recent rent increase, you are struggling a bit to cover all your expenses. That trend might convince you to economize some of your spending or start a side hustle to bring in more cash.

10. Knowing How Much You Can Actually Spend

A key part of your budget should be knowing how much you can actually spend in a month, as well as how much you should save per month. It sounds obvious, but many people don’t do the math. Figuring out and then hitting those numbers is important when you are focusing on spending wisely.

While the average household spends more than $6,000 each month, your number will likely be different as it is unique to your circumstances. It’s wise to look at your take-home pay and see how much the “musts” (food, shelter, health expenses, and anything else needed to survive) cost every month. Next, assess what debts need to be paid. Do you have student loans you are paying off? Credit card debt you are whittling down? Subtract that from your earnings, too.

Then, you don’t want to spend every penny of what’s left. It’s important to also dedicate some funds to saving, whether that means for a down payment for a home, for retirement, or for an emergency (or for all of those). Budgeting $25, $100, or more a month to savings can help you reach your money goals. You might have that amount automatically transferred on payday from your checking account to savings accounts so you can help keep your cash safe vs. spent.

Managing Your Finances With SoFi

Spending wisely is a key step towards financial health. Often, we fall into shopping and splurging habits without realizing where our cash is going. By tracking your spending and starting some smart new habits, such as finding the right bank account and regularly making deposits into it, you can save more and rein in spending without feeling deprived.

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

FAQ

What is the smartest way to spend money?

The smartest way to spend money is to spend according to your means and your values. Figure out how much you want to save, whether for a vacation, a new car, retirement, or something else, and how much you owe for expenses, and create a budget. Then, your spending needs to fit within that budget, including planned-for splurges. Be sure to track what you spend to stay accountable.

How can I manage my money wisely?

If you’re looking to manage your money wisely, use the tools available to you. There are apps that help you track your money and budget, or you could use a journal or spreadsheets. Put some time into finding a system that suits your goals and lifestyle.

How do I start saving?

One way to start saving is to open a savings account and automate your deposits. Have a certain amount transferred regularly from checking into savings, for example.

Photo credit: iStock/millann

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. Member FDIC. 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.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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-Q224-1939823-V1

If you’re doing business internationally, you may have come across a requirement for a commercial letter of credit. This financial document serves as a guarantee of payment for goods or services, thereby playing an important role in facilitating international trade and industry growth.

These letters can help businesses work successfully with new clients and can build trust. Learn more about how they work and their pros and cons here.

What Is a Commercial Letter of Credit?

A commercial letter of credit, also known as a documentary credit, is an aspect of business banking. It’s a document issued by a bank to guarantee payment for goods or services for a seller (also called the supplier or exporter). It is issued on behalf of the company acquiring the supplies (the importer). It ensures that suppliers are paid for the services and/or goods they provide and that buyers receive the goods or services promised. This can be an important tool when doing business internationally or working with a new supplier. Simply put, it supports the deal and inspires trust.

Most of us know that good credit is important, and with a bank’s assistance, a commercial letter of credit can vouch for a new and/or foreign business partner. Let’s say an American company has never done business with Thailand before but wants to. Or it’s found some goods it would like to buy from a company in France, but that business only started a few months ago. There can be an element of risk to this kind of deal. The commercial letter of credit can reduce that worry since a bank steps in as a third party.

Commercial letters of credit are considered to be a very secure form of payment and are able to power many international trade transactions. The parties involved typically have every reason to believe the deal is solid, thanks to the bank’s participation.

How Does a Commercial Letter of Credit Work?

A commercial letter of credit is more than a piece of paper promising payment. It acts a bit like an escrow agent between buyer and seller.

To explain it in more detail, a business (the buyer) can obtain a commercial letter of credit by applying for one at a bank or commercial lending institution. The seller may require this when the relationship is new (or perhaps the buyer is new and their credit history is not yet solid) or when exporting to another country.

After approval, the bank issues a letter of credit for the supplier (also called the beneficiary). This letter signals to the seller that the funds are guaranteed and will be paid by the bank, making it safe for the seller to produce goods or provide services for the buyer.

Once the seller shows evidence of having provided services or shipped the goods to the buyer (such as a bill of lading), the seller can draw on the letter of credit using their own bank. After payment has been made to the seller, the buyer must reimburse the bank before receiving the documents necessary to take delivery of the goods from the supplier.

By using a bank in this way, both the buyer and seller can feel confident in the business transaction.

Recommended: Is a Bad Credit Score a Big Deal?

Protections Offered by a Commercial Letter of Credit

A commercial letter of credit offers protections for both the buyer and seller. This is one of the reasons why it’s such an important tool.

•   For the seller (or supplier), the letter guarantees payment for goods or services.

•   For the buyer, the letter requires sellers to provide these goods or services before payment is issued.

These are particularly important in international trade where market conditions vary around the world and trust comes at a premium. For instance, a location might have intense climate conditions that threaten production or perhaps there’s political instability at a given moment. With a commercial letter of credit, participants in a deal can feel more secure about the deal going smoothly and successfully.

What Parties Are Involved in a Commercial Letter of Credit?

There are always four parties involved with executing a commercial letter of credit. These are:

•   Buyer: The party who applies for a letter of credit from their bank.

•   Supplier: The seller of goods or services the buyer desires.

•   Issuing bank: The bank of the buyer who has approved a letter of credit.

•   Supplier’s bank: The financial institution from which the supplier can draw on the letter of credit. The supplier will then receive payment via the issuing bank.

Recommended: Can Personal Loans Hurt Your Credit?

Commercial Letter of Credit Process Example

Here’s an imaginary example of how a commercial letter of credit might be used during an international business deal: The Winter Company makes blankets in the U.S. and needs to order raw material from China. They want to order from a new supplier, Fine Fibers, and that new supplier wants to be sure this is a legitimate, reliable deal before beginning work. Therefore, Fine Fibers asks for a commercial letter of credit in order to start manufacturing the material for the blankets.

The Winter Company (the buyer/importer) applies for a commercial letter of credit from their bank and is approved. The letter is sent to the seller/supplier/exporter, Fine Fibers. It then begins manufacturing the material needed by the blanket-making company.

After finishing the order, Fine Fibers ships the order and provides the bank with the bill of lading. The fiber company can collect payment from the bank using their own bank.

The Winter Company, the buyer, can pay their bank back, and the bank will release information to receive the shipment. The buyer now has possession of the goods shipped. The deal is done without any hitches.

Difference Between a Commercial Letter of Credit & a Standby Letter of Credit?

There are many different types of letters of credit. One of the other commonly used letters of credit is a standby letter of credit. There are a few differences between a commercial letter of credit and a standby letter of credit, which are explored here.

Recommended: Are Credit Scores Supposed to Be Different?

Examples of Commercial Letters of Credit

For both domestic and international transactions, commercial letters of credit can fulfill payment according to the contract’s specifications and help identify the goods’ delivery so a final payment can be made.

For example, Wells Fargo offers these letters to business clients. The letters of credit have a renewable term and typically take two weeks to process once the Letter of Credit application has been completed. Many other banks (Citibank, for instance) also offer these letters of credit too, facilitating business deals.

Pros of a Commercial Letter of Credit

There are benefits for both the seller and the buyer for using a commercial letter of credit.

For the seller/exporter

•   Ensures supplier is paid when requirements are met, building trust

•   Payment can be remitted to a bank of their choice

•   Can access financing in many countries by having a letter of credit

•   Helps develop new trade relationships, especially internationally

For the buyer/importer

•   Reduces the amount of money tied up in a lengthy transaction

•   Allows the buyer to stipulate terms and conditions for fulfillment of the contract before payment is made by the issuing bank

•   Ensures goods or services are provided to the buyer, building trust

•   Helps develop new trade relationships, especially internationally

Recommended: How Often Does Your Credit Score Update?

Cons of a Commercial Letter of Credit

There are a few drawbacks to consider, however, when using commercial letters of credit. These include:

For the seller/exporter

•   Payment takes longer than with an all-cash transaction.

•   Compliance with conditions of the contract may delay payment.

For the buyer/importer

•   Application process can take two weeks or longer.

•   Can be pricey. The bank fee for a letter of credit is usually taken as a percentage of the amount of goods sold.

Recommended: Differences Between a Bank Guarantee and a Letter of Credit

The Takeaway

A commercial letter of credit can help you businesses conduct transactions by guaranteeing payment from the issuing bank once requirements are met. This way, you can work with new businesses to dependably complete deals domestically and internationally. Commercial letters of credit can be a valuable asset in building trade and trust.

If you’re looking for solutions for your day-to-day personal banking needs, take a look at what SoFi has to offer.

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

FAQ

Who is the beneficiary in a commercial letter of credit?

A commercial letter of credit facilitates trade by guaranteeing funds (payment) for a supplier. The beneficiary is the receiver of the funds, whether the seller or the bank named by the recipient.

What is a letter of credit in commercial banking?

A letter of credit in commercial banking is a document from a bank guaranteeing payment to a supplier once a deal’s conditions are met. Typically, it is used in international trade and/or between companies that have not done business previously.

Why do you need a letter of credit?

You may need a commercial letter of credit if your company is working with a new supplier that doesn’t offer trade credit, your supplier is outside the country or your normal trading area, or your company doesn’t have enough credit history for a supplier to trust your ability to pay.

Photo credit: iStock/fizkes

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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.

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

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

SOBK-Q224-1939845-V1

Bank transaction deposits are monetary deposits made into transaction accounts, also often known as checking accounts. Transaction deposits allow a person to have ready access to their money held at a depository financial institution, such as a bank or credit union, without delay or advance notice.

They differ from non-transaction deposits, which are deposits made into non-transaction accounts, such as certificates of deposit (CDs). Non-transaction accounts come with restrictions on when or how often you can access your money. Learn more about transaction deposits and their pros and cons here.

What Are Transaction Deposits?

A transaction deposit (sometimes also called a demand deposit) refers to a deposit made into a transaction account that is readily available for use — meaning you can use the money any time for other transactions.

The most common example of a transaction account is a checking account. This type of account allows account holders to make unlimited deposits, withdrawals, payments, and transfers. In other words, you can use the account as often as you want to get cash, make purchases, pay bills, and/or deposit cash at an ATM.

Savings accounts that allow account holders unlimited access are also considered transaction accounts. Typically, however, savings accounts may come with withdrawal and transfer limits (such as a certain number per month). As a result, they are generally considered non-transaction accounts.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

Understanding Transaction Deposits

Transaction deposits can be made at a branch of the bank, at an ATM, and by transferring funds from another account. If you set up direct deposit with your employer, these deposits also qualify as transaction deposits.

If you want to access a transaction deposit, you can so for in a number of different ways, including:

•   Withdrawing money at a branch or ATM

•   Transferring the money to another account

•   Writing a check

•   Using auto-pay

•   Making a wire payment

Transaction Deposits vs Non-Transaction Deposits

To better understand transaction deposits, it helps to know the difference between the two main types of deposit accounts: transaction accounts and non-transaction accounts.

Transaction accounts allow account holders easy access to their money. These accounts may earn interest, but typically they do not.

Non-transaction accounts, such as most savings accounts, money market accounts, and certificates of deposit (CDs) typically earn interest, providing a return on the account holder’s investment. However, deposits made into a non-transaction account (called non-transaction deposits) are not as fully accessible as transaction deposits. Account holders may be limited or restricted from accessing all or some of the money, or they may need to make a request for a withdrawal.

For example, if you open a CD, your money is locked up for a certain period of time. If you want to access the money before the CD matures, you will typically pay a penalty. With many savings and money market accounts, the bank will impose limitations on the number of transactions you can make each month. If you exceed that limit, you may be charged withdrawal fees.

Here’s a look at transaction accounts vs non-transaction accounts:

Real-Life Examples of Transaction Deposits

A checking account is an example of a transaction account where transaction deposits are made. The key feature of a transaction account, and the deposits made into it, is that the money is liquid, or readily available. There are no requirements for leaving the money for a set amount of time like there are with a time (or term) deposit account, such as a CD.

Here are some common examples of transaction deposits:

•   Direct deposits from your employer into your account

•   Check or cash deposits made at your bank

•   Mobile deposits

•   An electronic funds transfer (EFT) made into your account

•   Payments from third parties

•   Refunds from vendors

Restrictions of Transaction Deposits

There are some instances, however, where a bank may impose some restrictions or a waiting period on certain deposits made to transaction accounts. This could happen if you deposit a large check that requires verification, or if the account is new and the account holder doesn’t yet have an established history. Once the holding period ends, the funds are fully accessible.

Non-transaction deposits, however, come with far more restrictions. In the past,
The Federal Reserve’s Regulation D restricted withdrawals from money market accounts and savings accounts to six per month. If you went over this limit, the bank would charge you a fee. If you consistently went over this limit, they could convert the account to a regular (non-interest-bearing) account.

However, the Federal Reserve suspended Regulation D in 2020. Banks can now set their own restrictions on savings account transactions, and they can vary from one bank to another. In other words, some financial institutions still limit savings accounts to those six transactions; check with your bank or read the fine print on your account agreement.

Recommended: How Long Does the Direct Deposit Transaction Take?

Advantages of Transaction Deposits

There are a number of advantages that come with transaction deposits. These include:

•   Money is readily available

•   No maturity period

•   No eligibility restrictions

•   No limit on the number of deposits, withdrawals, or transfers the account holder can make

•   No early withdrawal penalties

•   Sometimes interest-bearing

Disadvantages of Transaction Deposits

The main disadvantage of transaction deposits is that the money being deposited will generally earn no, or only a small amount of, interest.

The Takeaway

A transaction deposit is a deposit made to a transaction account, such as a checking account. This type of account is ideal for everyday banking, since you can generally put money in and take money out whenever you like.

Non-transaction deposits are the opposite — they are funds put into non-transaction accounts, which include savings accounts, money market accounts, and CDs. With a non-transaction account, you will face some restrictions in when and how often you can access your money. However, the advantage of non-transaction deposits is that this money will typically earn more interest than a transaction deposit will.

If you’re interested in getting the benefits of both types of accounts in one, consider what SoFi offers.

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

FAQ

What is a bank deposit transaction?

A bank deposit transaction is a deposit into a transactional bank account, such as a checking account. It includes direct deposits, transfers, and deposits made at a bank or ATM.

Is a deposit considered a transaction?

Yes, a deposit is considered a transaction. Any money moving into and out of your account is considered a transaction.

What banks offer transaction deposits?

Any bank that offers a checking account is a bank that offers transaction deposits.

Photo credit: iStock/Prostock-Studio

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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.

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

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

SOBK-Q224-1939779-V1

Having a side hustle has become increasingly popular. According to one recent study, 54% of Americans said they have taken on a side hustle as a way to supplement their income.

And why not? Everyone likes a little extra cash in their pocket, especially if it’s from an activity they enjoy. Whether a side hustle involves using your tech skills to help people set up their computers or selling photos you take, it can be a great way to build an additional revenue stream.

But beyond the cash, there are other, potentially surprising benefits to having this kind of money-making venture.

What Is a Side Hustle?

A side hustle is a job or work, in addition to full-time employment, that helps boost an individual’s monthly income. It can involve ways to make money from home (say, as an online tutor or writer) as well as a part-time job outside the home.

For instance, maybe you do some pet-sitting when people in your town go on vacation. Or perhaps you have a Sunday gig as a barista. Or maybe you hunt for treasures at local yard sales and resell them on eBay or Etsy. These are just a few examples of side hustles, which can help you earn extra cash that you could use to pay bills or put into a bank account.

The amount Americans earn via a side hustle varies tremendously, as you might expect. Another recent survey of individuals with side hustles found that the average side hustle brings in about $688 a month. However, approximately 46% of people say they earn less than $250 a month from their side. About 19% say they make more than $1,000 a month.

Having a Side Hustle: 11 Benefits

An obvious benefit of a side hustle is the potential to generate extra cash each month. But on top of earning money, there are additional advantages to taking on extra work outside the typical 9-to-5.

If you’re wondering, “Should I start a side hustle?” read on and explore the unexpected benefits below.

1. Improving Ability to Budget

Having a solid budget is one of the important ways to improve your financial health. But getting that budget in place can be a challenge when money is tight, and it’s a struggle to make ends meet each month.

A side hustle has the potential to bring extra income, creating a little wiggle room in your budget. Creating a realistic budget may be easier with some more padding each month.

2. Developing Skills That Translate to Other Areas

Learning new skills is one of the more unexpected benefits of a side hustle. If a side hustler is starting to drive a ride-share, for instance, they may get a crash course in accounting as they learn to manage this income stream. Or if a side hustler’s gig is working weekends at a local café, they could develop important customer service skills they normally wouldn’t cultivate at their day job.

In other words, taking on an additional work endeavor can help you develop a more robust toolkit for future endeavors.

3. Improving Income and Financial Stability

Most people start side hustles to earn extra cash, and that benefit can’t be overstated. Additional monthly income can help give side hustlers a sense of financial stability. It could translate into less stress when the bills are due or even create a little breathing room to start saving and planning for the future.

With surplus cash in the budget, it may be time to set up a financial plan if you haven’t already. While it may be tempting to have fun spending the extra money, those funds could be put to work to help you build wealth.

4. Building a Stronger Work Ethic

Side hustles can be fun, but they are still a job. Spending more hours working can enhance your work ethic. After all, you are devoting what others might consider leisure time to a pursuit that will uplift your financial health. You should recognize your dedication and bask in the self-confidence boost you get along with the additional cash.

5. Improving Time Management Skills

It may be obvious, but taking on a side hustle means taking on more work hours. That translates into fewer free hours in the day, which means a side hustle can be a crash course in time management skills as well as cash management know-how.

With more responsibilities on your plate, you will likely get much more adept at being on time, meeting deadlines, and knowing how to pack in leisure activities in the time available. These are skills that will serve you well outside your side hustle.

6. Allowing You to Put More Into a Savings Account

Some start side hustles to help pay off outstanding debt or save for an upcoming trip, but earnings can be used to build up savings.

Once immediate financial needs are met, including bills and debt, surplus cash from a side hustle can go into a savings account. Not sure where to park your cash? Consider a high-yield bank account to help build your savings.

7. Allowing You to Better Prepare for an Emergency

One of the benefits of a side hustle is the ability to contribute to an emergency fund. As noted above, once immediate needs are met in a budget, extra cash from a side hustle could go into a savings account or help you grow your emergency cash supply.

A general recommendation is to have at least three to six months’ worth of basic living expenses set aside in an easily accessed account. This gives you a cushion if an unexpected medical or household expense crops us or if you were to lose your job.

8. Allowing You to Pay Debt Quicker

If high-interest debt is eating away at paychecks, money from a side hustle can be a help. Interest from high-interest credit cards can compound, for example, making it harder to pay off as the balance grows. The current average credit card interest rate (as of mid 2024) is 24.62%, which can mean that those carrying a balance may have a challenging time paying debt down. With limited income, it may feel impossible to get on top of that monthly bill.

Using income from a side hustle to pay off debt could lead to paying it off faster or at least relieving some of the pressure.

9. Improving Ability to Reach Financial Goals

Even an extra $100 a month can help side-hustlers as they work to reach financial goals.

For example, if you’re planning a vacation in the next year but don’t have enough in your budget to save for it, you could take on seasonal gig work and put those paychecks towards the vacation. Without it, you might not be able to take the vacation.

Beyond small savings goals, a side hustle can help you work towards bigger financial goals like saving for a downpayment or putting more money into a retirement fund.

10. Allowing You to Expand Your Network

One of the less-discussed benefits of a side hustle is the ability to meet new people and expand your network. Whether a side hustle is related to your day job or is something completely different, you’re bound to meet new people and create new connections.

These connections may lead to many benefits, including more work, new friends, or a new career opportunity.

11. The Opportunity to Do Something You Love

In addition to bringing in more money, a side hustle can also reignite someone’s passion for a hobby or activity.

Because it’s not your primary source of income, you can experiment with turning a personal interest into an income source. If you don’t enjoy your side hustle, it can feel exhausting. But working on something you love might not even feel like work.

For example, a nurse might love quilting in their off time and decide to open an Etsy shop. If they were already using their spare time to quilt for family and friends, now they can keep doing what they love, earn money from home, and make a profit off the sale of their quilts. It’s a win-win! Who knows? Some side hustles even become a person’s main job over time as their network and their skills grow.

The Takeaway

While the biggest benefit of a side hustle is bound to be the extra cash it brings, there are plenty of secondary benefits. From plumping up an emergency fund to meeting new people, a side hustle can be both a key to financial freedom and an avenue for exploration and personal growth.

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

FAQ

Why is a side hustle important?

Having a side hustle can generate more income and help people pursue something they’re passionate about on the side. It also can build skills and open up new networks and opportunities.

Is it worth having a side hustle?

If someone has a side hustle they enjoy and it generates extra income without taking up every last minute of their day, it may be well worth it. However, deciding if a side hustle is worth it is ultimately up to the individual.

How much does the average side hustle make?

The average side hustle brings in about $688 a month, according to one recent survey, though 46% of those with a side hustle report they earn less than $250 monthly. Even so, a couple hundred dollars is a nice sum to help pay off student loans or credit card debt faster, or to put towards a vacation fund.

Photo credit: iStock/visualspace

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. Member FDIC. 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.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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 every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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-Q224-1939801-V1 Read more

High-risk investments may be types of investments or securities in which investors may experience significant losses, or significant gains. Generally, high-risk investments tend to be from cyclical, volatile industries, or take the form of equity in relatively new, untested companies. In contrast, lower-risk investments tend to be related to more established businesses or sectors.

But there are many types of high-risk investments. These can include stocks, cryptocurrencies, and even investing in venture capital or private equity (if available to you, as an investor). The important thing to know about high-risk investments is, broadly speaking, that the higher the associated potential reward with an investment, the higher the risks, too.

What Is Considered a High-Risk Investment?

There’s no set definition of “high-risk investment,” other than it can refer to any type of investment vehicle that may involve more innate or inherent risk than another type of investment. It may be helpful to think of risk as relative, too — if a Treasury bill, for instance, is generally considered to be a low-risk investment, a penny stock may exist on the other end of the spectrum.

It’s important to remember that no matter what you’re adding to your portfolio, investing almost always involves risk. In other words, there are no “safe” investments, but some may be “safer” than others.

The question for most new investors will be how much risk they are willing to take on (often referred to as risk tolerance). If you’re looking to take on substantial risk to reap potential rewards, you may want to look at certain subsets of stocks. Of course, it’s important to remember that the more risk you take on, the more you stand to potentially lose.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Examples of High-Risk Investments

As noted, high-risk investments can take many forms. Here are some of the more common and higher-risk investments you may encounter.

Highly Volatile Stocks

Experts typically consider stocks to be one of the riskier asset categories to invest in, especially compared to bonds or certificates of deposits. But not all stocks are created equal, or have equal risk profiles. There are different classes of stocks that are riskier than others.

Here are some examples of high-risk, high-reward stocks that tend to be more volatile.

Penny Stocks

Broadly defined as stocks that trade at a market value of less than five dollars per share, penny stocks can be found across all industries. Penny stocks might represent shares of companies in utilities, energy, gold mining, technology, or anything else. Like other high-risk, high-reward stocks, penny stocks can yield high returns in a short amount of time. However, the risks of penny stocks may outweigh the potential for high rewards due to low trade volumes, lack of information on the companies, fraud, and other drawbacks.

IPO Stocks

Investing in stocks of newly public companies can also be higher risk. These initial public offering (IPO) stocks generally tend to be less tested by the market, making them more prone to price swings or ups and downs in business trends.

Commodities or Commodity Stocks

Commodity stocks, or stocks of companies that produce raw materials like oil, grains, and metals, tend to be highly volatile. That’s partly because these commodity industries are cyclical, or closely tied to economic growth. So, any sign of slowing growth or perceived signs of slowing growth can cause investors to sell this group.

💡 Recommended: Why Is It Risky to Invest in Commodities?

Cryptocurrencies

Bitcoin, and the entire digital currency market, have become mainstream fixtures in the financial markets. While certain cryptocurrencies are the most popular or recognizable, there are thousands of coins or tokens that investors could, potentially, get their hands on. But given Bitcoin’s wild price swings over the years, it’s easy to see why investors may want to try and ride its popularity to large returns.

However, the cryptocurrency market is still very volatile and highly speculative, with digital assets remaining mostly unregulated — for now. That’s likely to change in the years ahead. For investors, know this: Crypto is about as risky of an asset as you can find on the market.

💡 Recommended: Cryptocurrency Glossary

Spread Betting

Spread betting refers to making a bet on the direction of the price of an asset without actually holding it. In spread betting, you make money if the asset moves in the way you predicted, and you lose if it moves the opposite way. Investors can bet on currencies, bonds, commodities, or stocks.

Spread betting is often offered as a leveraged product, meaning investors can trade on margin. If the margin requirement were 10%, for example, a bet of $10,000 could be made with as little as $1,000. This amplifies both losses and gains. When trading on margin, investors are vulnerable to margin calls and can lose more than they initially invest.

Leveraged ETFs

A leveraged investment vehicle offers returns or losses several multiples higher than what someone has to invest, which makes an asset like a leveraged exchange-traded fund (ETF) potentially high-risk. Leveraged ETFs use debt or derivatives to generate two or three times the daily performance of an underlying index.

There are leveraged ETFs that rise in price along with the assets they track (bull ETFs) and those that rise in price when the assets they follow go down in price (bear ETFs, also known as leveraged inverse ETFs).

Hedge Funds

While not all investors are engaging with hedge funds, they’re worth discussing due to how relatively high-risk investing in one can be. Hedge funds operate by collecting a pool of investors’ money that gets invested in different assets. The goal of a typical hedge fund is to get high rates of return for investors by any means possible. That generally means taking calculated risks.

There is no established definition of what a hedge fund can invest in. Some hedge funds specialize in asset classes, like junk bonds, real estate, or equities — all relatively high-risk categories.

In general, hedge funds are only available to accredited investors. That means investors have to fit specific criteria. Specific financial entities like trusts and corporations can also be accredited investors.

Further, part of what makes hedge funds risky is that they are not subjected to government regulations that offer protection to everyday investors. The reasoning is that only sophisticated investors should be involved in the first place.

Venture Capital

Venture capital is a form of investing that targets a new company and seeks to help it grow. Again, like hedge funds, many investors likely aren’t involved with venture capital, but at some point, they might be.

The requirements for companies to access the public equity markets, meaning they raise money by selling their shares on an exchange where any average investor can purchase them, are high. Most corporations aren’t eligible for this kind of funding, so some of them turn to venture capitalists.

Venture capital funds often receive funding from large institutions like pension funds, university endowments, insurance companies, and financial firms.

The term “venture capital” has become closely associated with the tech industry, as many entrepreneurs in technology that believe they have promising ideas turn to venture capitalists to fund their startups. Traditional business loans often require real assets as collateral, and with many modern companies being information-based, that kind of loan isn’t always an option.

The fact of the matter is that new businesses fail often (about 25% don’t even make it one year), making venture capital investing full of risk. But the possibility of early investment in the next big tech company means the potential reward can also be high.

Angel Investing

Angel investing is a form of equity financing — a way for businesses to fund their operations in exchange for a stake of ownership in the company. Compared to venture capital, “angel investor” is a more generic term that applies to anyone willing to take a gamble on a new startup. Angel investors are often high-net-worth individuals looking for significant returns on their investments.

Why Invest in High-Risk Stocks

Investors may invest in high-risk stocks and similar securities because they may provide substantial returns. For some, the prospect of massive returns is simply too much to ignore.

Very few people, however, probably put 100% of their portfolios into high-risk investments. Instead, taking on risk is considered part of a broader asset allocation strategy.

Ideally, investors take on just enough risk to potentially increase their returns without ruining their long-term prospects should they lose up to a significant percentage of their allocation to high-risk assets. The balance between safe and risky investments tends to be determined by individual investor goals.

Conventional wisdom often says that younger investors in their 20s or 30s tend to be able to afford greater risks since they will, in theory, have the rest of their working lives to earn back any potential losses. Meanwhile, investors closer to retirement typically focus on relatively safer investments that are likely to produce more reliable, albeit likely smaller, returns.

A Warning About High-Risk Investments

There are different ways to attempt to measure risk. Some are objective measurements of aspects of a specific investment, while others are more generic insights. Penny stocks and IPOs tend to be riskier than shares of big companies, for example, because their underlying businesses generally aren’t as stable or profitable.

Statistically-based risk measurements, such as standard deviation, seek to assign mathematical value to the risk involved in a particular investment. Calculating portfolio beta is another way to monitor how sensitive your stock holdings are to broader swings in the market.

An important thing to note is that riskier investments are generally considered ones with greater volatility and potential for negative returns. When it comes to high-risk stocks and other investments involving significant risk, wise investors often follow the adage: never invest more than you can afford to lose. High-risk investors must be prepared for the possibility of losing a significant amount or the entirety of an investment.

Remember, too, that it may also be worthwhile to discuss your strategy with a financial professional.

The Takeaway

High-risk investments are just that — risky — but that might not necessarily mean everyone must avoid them all the time. If you have the risk tolerance, you can utilize high-risk investments to help build wealth and meet your financial goals. Investing in more volatile companies may help individuals benefit from the potential growth of these businesses.

Again, though, it may be a good idea to stick to a larger investment strategy that incorporates high-risk investments in balance with more conservative ones. A financial professional can also help you review options and allocations based on your risk-tolerance, if you need guidance.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

Which type of investment has the highest risk?

It’s difficult, if not impossible to say which type of investment has the highest associated risk, but some of the investment vehicles that do fit the description are options, certain types of stocks (penny stocks, for instance), and investing in hedge funds or venture capital.

Which type of stock is the highest risk?

While it’s not really possible to pinpoint any one type as “the highest risk,” penny stocks have one of the highest associated risk profiles. Penny stocks, which trade for less than $5, generally, and are shares of unproven, small, or young companies.