When college freshmen step foot on campus, they may go to an activity fair and see members of sororities and fraternities encouraging recruits to join. They might want to know that becoming part of Greek life can have its upsides and downsides.
Whether or not students decide to let their Greek flag fly depends on their personality, their specific situation, and their goals while they are in school. Some may find Greek life incredibly enriching, and others could decide it’s a waste of their time.
Here’s a look at what Greek life is like and pros and cons you may want to consider when deciding if joining a fraternity or sorority is right for you.
Key Points
• Joining Greek life offers immediate friendship opportunities and a sense of community through shared activities and housing.
• Members benefit from networking opportunities that can aid in future job searches.
• Leadership roles within Greek organizations can enhance valuable management and organizational skills.
• The financial cost of joining can be significant, including membership dues and potential fines.
• Time commitments for Greek life events may interfere with academic responsibilities.
What Is Greek Life in College?
Greek life is made up of communities of students who live together, volunteer for different organizations, pursue networking opportunities, and much more. The communities consist of sororities for women and fraternities for men.
Sororities and fraternities may have various objectives, but overall they exist so that students can make meaningful connections with one another, develop leadership skills, and give back.
Roughly 15% of men join fraternities at U.S. colleges, while about 18% of women join sororities.
Students who are interested in becoming members must apply and then go through an initiation process. Once accepted, they will live with their sorority or fraternity, usually in a house on campus, and participate in activities like sports, dances, parties, and community service opportunities.
Sorority and fraternity names consist of two or three Greek letters, like Phi Kappa Theta, Sigma Pi, or Delta Zeta, a nod to the first U.S. Greek letter society, Phi Beta Kappa, founded in 1776 at the College of William and Mary as a literary, debating, and social club.
Many students only know about sororities and fraternities from pop culture references like “Revenge of the Nerds,” “Animal House,” “Legally Blonde,” and “Old School,” which depict a perennial party.
While that is certainly true in some instances — and fraternities have come under fire for their alcohol use and hazing rituals — Greek life can be much more meaningful and beneficial than these portrayals.
💡 Quick Tip: SoFi offers low fixed- or variable-interest rates. So you can get a private student loan that fits your budget.
Upsides of Greek Life
Joining a fraternity or sorority comes with a number of advantages. Here’s a look at some of the perks.
Friends
When new students first get to college, they may not know where to turn to make connections. If they become part of a sorority or fraternity, they could make many new friends right away, bond with them through different activities and social events, and remain friends for life.
Networking Opportunities
Students will also have the chance to network with their new peers. When they’re searching for internships or jobs, these connections can prove to be highly valuable.
Plus, if a job hunter lists their sorority or fraternity on a resume and a recruiter is a Greek life alumnus, that could open up a conversation and make a candidate stand out.
Living in college dorms can be pricey. If students are sharing a house with many members of a sorority or fraternity, they could potentially save money.
They may also save money by having access to a full kitchen, where they can make meals instead of purchasing a meal plan or eating at restaurants all the time.
Sororities and fraternities need leaders who will come up with ideas for activities, pilot volunteering efforts, and recruit members.
If members step up and decide they want to become leaders, then they are taking on new responsibilities and developing crucial skills that will be valuable when they graduate from college and start to look for jobs.
Volunteering Opportunities
Fraternities and sororities are often focused on philanthropy.
Students can participate in different volunteer projects with their fellow Greek life members and contribute to making the world a better place.
Not to mention, this will look good on a resume because it shows that a student is passionate about certain causes and wants to do their part to improve the lives of others.
Like a toga, Greek life isn’t a good look for everyone. Here are some possible cons.
Cost
You typically need to pay membership dues each year you are a member of a fraternity or sorority. The cost varies depending on the school and fraternity/sorority you join but, on average, you can expect to pay around $2,000 to $3,0000 for the first year.
Local and national chapter fees are not always covered in the regular monthly dues.
And if fraternities or sororities get into trouble, members could be fined as well.
Fraternities and sororities have gotten a bad rap from movies and TV.
Worse, students have died in hazing accidents throughout the years, leading colleges to take administrative action against fraternities especially.
Some fraternities and sororities do emphasize parties and drinking, which is all fun and games until someone begins to flunk out, becomes addicted, is involved in an assault, or is injured.
It’s best, of course, to socialize responsibly and always make academic studies the priority.
Time Commitment
Because Greek life involves so many events, and members are expected to participate, joining a sorority or fraternity means a huge time commitment.
Spending too much time on Greek life activities and not enough on studying or working at internships could have a negative impact on a student’s future.
Joining a fraternity or a sorority can be a great decision, especially for freshmen who may not know anyone on campus. If they are a part of Greek life, then they will stay busy, make friends, network, and contribute.
On the flipside, if they are in a campus family that is constantly throwing parties and not interested in enriching members’ lives in a meaningful way, then joining might not be a good idea.
If you’re concerned about being able to afford the cost of joining a fraternity or sorority, keep in mind that there are a number of ways to cover the cost of college tuition and living expenses, including grants, scholarships, subsidized and unsubsidized federal student loans, and private student loans.
A sorority or fraternity can provide camaraderie and enduring connections, and enhance a call for service and leadership. It can also be time consuming, expensive, and distracting. Greek life isn’t for everyone, but some will find it a life-changing college choice.
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.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
Declaring a major in college is a big decision, but the choices don’t stop there. Once students know their area of study, then comes the selection of courses. And, generally, you can’t just sign up for classes willy-nilly. Students typically need to start at one point before they can progress to another. This is where upper and lower division courses come into play.
Like levels in a video game, students have to start with beginner lessons before they can take on advanced challenges. Here’s a closer look at what lower division and upper division courses are and how they differ.
When signing up for their first semester of classes, college students might notice that there are many more offerings than they had in high school.
In addition, core classes are different, and requirements will vary based on a student’s course of study.
While a college student can take everything from astronomy to architecture, here’s how courses are typically designated:
• Lower division
• Upper division
• Major courses
• Minor courses
• General education courses
💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.
Degree Requirements
Every college major will have different courses, electives, and requirements that are necessary for graduating.
In addition to core requirements, students might need to take general education courses. These courses are required for all students, no matter their area of study. (Some will “CLEP out of” some or all gen ed courses. The College-Level Examination Program® offers 34 exams that cover intro-level college course material. Others might pass AP or International Baccalaureate exams to get college credit.)
Students won’t get to graduate just by taking classes for four years. They’ll need to meet the requirements of the major (and minor, if applicable) they’ve selected.
Each course has a number of credits, and students usually will need to accumulate a number of credits to qualify for their degree.
Degree requirements will vary based on what a student studies, but each will come with a mix of lower division and upper division courses to round out the educational experience.
Lower division courses are the building blocks of an undergraduate’s major. College beginners might have restrictions in the courses they can enroll in.
Unless they bring in AP, IB, or college credits, they’ll need to take (and pass) lower division courses in their major before being able to sign up for upper division courses.
In general, here’s what student can expect in lower division classes :
• Introductory material Typically, lower division courses teach the building blocks of concepts that students will use more down the line. For example, a biology major might start the course requirements with a lower division Introduction to Biology lecture before moving on to more challenging material.
• Younger students Generally, students will find more freshmen and sophomores in their lower division courses.
• A larger class Depending on the size of the school, lower division classes are often larger because they may cover a broad swath of material that applies to multiple majors and areas of study. A lower division class might even have more than one section a semester because so many students need to take it. In these larger lectures, participation might be limited, and attendance might not even count toward a grade.
• A stricter structure Students might find that lower division courses vary by the book (or syllabus). Each class, a professor covers exactly what was detailed in the syllabus — nothing more, nothing less. Similarly, test questions might come straight out of lecture notes or assigned readings. Often this is done to ensure that students know the basics by heart before moving on to more challenging courses in their major.
• Evaluation by test Due in part to their larger class sizes and structure, students can often expect multiple-choice tests in lower division courses.
Of course, every college’s policies on classes are different, but for the most part, students can expect to take lower division courses as they begin their academic career.
Lower division courses may be required by a major or minor, or they might be a general education course all students are asked to take.
If lower division courses are the foundation an education is built on, upper division courses are the structure on top.
Lower division courses sometimes count as prerequisites for upper division classes. That means an undergraduate must take, and pass, a lower division class before enrolling in an upper division course.
Here’s what a student might experience in an upper division course:
• In-depth curriculum Upper division classes are a deeper dive into areas of study or more complex topics. Once students master a lower division class, they’ll be challenged with harder concepts in an upper division class. Upper division classes are more likely to have words like “advanced” in the title.
• Older students Third- and fourth-year students are more likely to be in these courses, typically because they’ve taken the prerequisites.
• Smaller classes Whereas lower division classes may be large lectures, upper division classes start to get smaller, in part because the curriculum is more specialized. The deeper a student gets into a major, the more in-depth classes become.
• A fluid structure Upper division courses likely have a syllabus and required reading, but the day-to-day structure of the class may be less lecture-focused. In fact, some classes are seminars where students are encouraged to contribute ideas in a discussion format, often resulting in a participation grade.
• Varied evaluations Depending on the class focus, testing may look different than that of a lower division course. Students may be asked to write in-depth research papers or create large presentations to show their learning. If tests are in use, they might rely less on multiple-choice questions.
Since upper division courses include more complex teachings, professors might expect students to show what they’ve learned in a more complex way. That might mean essays to prove an argument, or demonstration of critical thinking skills that don’t rely purely on lecture notes or readings.
A simple way to tell if a class is a lower or upper division course is using a school’s numbering system for classes.
Most college courses will have a three- to five-digit number. The number is unique to the course, and can help students know what they’re getting into before they sign up in terms of difficulty.
While numerical systems will change from college to college, they might follow these general formulas:
• 1-199 At UCLA , for example, all undergraduate courses are assigned a number between 1 and 199. Any class with a number between 1 and 99 is a lower division course, and any class with a number between 100 and 199 is an upper division class.
• 100-499 Other schools, like the University of Arizona , might start the numbering higher. All lower division classes are numbered from 100 to 299. Anything 300 to 399 is an upper division course. The University of Massachusetts uses a similar system, where every 100 is a different year of school (100s are for freshmen, 200s for sophomores, etc.)
The numerical system for a college course probably won’t help students compare classes across different universities, but it can be a useful guide in plotting academic schedules within one school and major.
💡 Quick Tip: Even if you don’t think you qualify for financial aid, you should fill out the FAFSA form. Many schools require it for merit-based scholarships, too. You can submit it as early as Oct. 1.
Finding a Way to Pay
Figuring out how to pay for college can feel like an upper division course in and of itself. After completing the Free Application for Federal Student Aid (FAFSA), you may find that you are eligible for grants, scholarships, and subsidized or unsubsidized student loans. However, you may still fall short of all the funding you need.
That’s where private student loans can come in. These loans are available through private lenders, including banks, credit unions, and online lenders. Rates and terms will vary depending on the lender. Some students may need a cosigner to qualify for private student loans due to a lack of credit history and income.
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.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
Banking today has a lot of one-click convenience, and you may hear the terms EFT and ACH used interchangeably. There is, however, a key difference between these two acronyms: ACH is one kind of EFT.
To understand this better, first know your definitions. Automated Clearing House (ACH) is a national network linking U.S. financial institutions. This electronic system allows them to debit money from one account and then credit it to another. ACH payments are one variety of EFT, or electronic funds transfer. The term EFT includes additional methods of moving money electronically, such as wire transfers.
So all ACH transactions are considered EFT, but not all EFTs are ACH.
Keep reading to learn more including:
• Which payments are considered ACH?
• What are some other EFT payment methods?
• How do EFT vs. ACH vs. wire transfers compare?
ACH Transfers
ACH stands for Automated Clearing House, a network governed by Nacha (National Automated Clearing House Association). The first ACH association appeared in 1972 in California; by 1974, multiple regional networks joined together to form Nacha, which has since overseen the ACH network nationally.
But what is ACH? Put simply, ACH is a type of electronic fund transfer (EFT) that allows individuals, corporations, and even the government to electronically move money from one bank account to another. It can be thought of as a hub that keeps funds flowing.
ACH payments work domestically; that is, among banks and credit unions within the United States. You may be able to send money via international ACH transfers, but other countries will have their own networks and governing bodies. Some countries do not have an equivalent network at all.
Funds first go to the Automated Clearing House, which then reviews the payments and releases them in batches throughout the day. For this reason, ACH transfers are not immediate. How long ACH transfers take can vary: Traditional ACH transfers can take one to two business days, but in recent years, Nacha has enabled same-day transfers for eligible transactions.
How Do ACH Transfers Work?
ACH transfers work thanks to a data file that includes information about a prospective payment. The file goes to the payor’s bank to the clearing house and then on to the payee’s bank, with details on the transaction. The funds get moved into the intended location, and the process is completed, transferring money from one account to another.
💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, transfers from one online bank account with SoFi.
How Is ACH Used?
Consumers and businesses can use ACH for a variety of purposes. For example, employers often use the ACH network for direct deposit. This enables them to deposit paychecks directly into employees’ bank accounts. When an entity, like an employer or the government, initiates the ACH process to send funds, this is classified as an ACH credit.
Individuals can provide bank account information to businesses, such as mortgage lenders and utility companies, to enable ACH debit transactions as part of their electronic banking. This means those companies are able to directly debit funds from the individual account using ACH as a form of electronic bill payment. Businesses and individuals may utilize ACH debit for autopay (recurring payments) or for one-time payments.
Even peer-to-peer (P2P) payment methods like PayPal and Venmo can utilize the Automated Clearing House network for electronic transfers. (When such services offer instant payments, they may charge a fee and use your credit card instead, so proceed carefully in these situations.)
Typically, the employer or merchant enabling ACH payments is the one to pay ACH fees.
Electronic fund transfers (EFTs) refer to a much broader range of electronic payments. ACH is a type of EFT, but EFT can also include payments like wire transfers, debit card payments, credit card payments, local bank transfers, instant P2P payments, and even ATM transfers. Electronic fund transfers can be domestic or international in scope.
The Consumer Finance Protection Bureau refers to electronic fund transfers as “any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape.”
Note: Another common term in finance is ETF (exchange-traded fund). The acronyms are similar, so it’s important to recognize that an ETF is an investment security, not a payment method.
How Do EFT Payments Work?
EFT payments may use the ACH network, or they may not. An example of a transaction that doesn’t use ACH is tapping or swiping your debit card to make a payment. It’s an instantaneous transfer of funds, without banking information being exchanged. The money is moved from your account to the store’s without any verification other than your PIN.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Types of EFT Payments
EFT payment is a broad category, including common transfers like ACH and wire transfers. Here is just a short list of payment methods that can be classified as EFT:
• ACH transfers
• Wire transfers
• Peer-to-peer payments (often done through ACH)
• Debit card transactions (in person or online)
• Credit card transactions (in person or online)
• ATM transfers
• E-checks
• Telephone orders
Do EFT Payments Have Fees?
Typically, a merchant will pay a small percentage of a transaction’s amount for the privilege of using an EFT method. In some situations, you, the consumer, may be assessed a fee for using these methods. For instance, some merchants may add a surcharge for credit card vs. cash or debit card payments. Or if you pay by phone, there may be a surcharge. You should be alerted to these add-on costs, however, in advance, so you can decide if you want to proceed or not.
What Is the Difference Between ACH and EFT?
We’ve established that the key difference between ACH and EFT is that an ACH is a type of EFT. This table further breaks down the distinction:
ACH
EFT
Availability
Traditional ACH is available domestically (in the U.S.).
Various types of EFTs can be used internationally.
Security
Transfers pass through the ACH, which provides an added level of security over paper checks and debit card transactions.
While ACH and wire transfers are less prone to fraud, other forms of EFTs (like debit and credit cards) can be susceptible.
Speed
Can be same-day but never instant; may take multiple days.
Can be instant.
ACH vs EFT vs Wire Transfers
When banking, you’re likely to hear about different ways to move money, including ACH, EFT, and wire transfers. Here’s a closer look: ACH is a type of EFT, but another common type of EFT is a wire transfer, which can be used to send money to someone’s bank account.
Wires can be both domestic and international and often have a fee for both the sender and the receiver, depending on the banks or transfer service agencies (like Western Union) involved. Wire transfers allow you to make an electronic payment “by wire,” such as through SWIFT, the Clearing House Interbank Payments System, or the Federal Reserve Wire Network. Wire transfers can take up to two days to fully process; international ones might take longer.
Should You Use Electronic Transfers?
Electronic transfers are common in modern banking. It is likely that you already utilize some form of electronic transfer, whether you receive a direct deposit from your employer like 96% of American workers, have your utility bills on autopay, pay for groceries with a debit card, or use peer-to-peer transfer apps to split the dinner bill or pay a friend for concert tickets. When you buy a house, the mortgage company may even ask you to wire funds in time for the closing.
The Takeaway
Automated clearing house (ACH) transfers are a type of electronic funds transfer (EFT), which allows for the direct debiting and crediting of funds from one bank account to another. Common examples of ACH include direct deposit from an employer into your bank account or an automatic bill payment debited from your account.
ACH is only one type of EFT, however; other types include wire transfers and debit and credit card payments, among others. These kinds of payments are commonly used today to keep funds flowing quickly and securely and play an important role in your banking life.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Is EFT the same as direct deposit?
EFT stands for electronic funds transfer. Direct deposit is one example of EFT.
Is ACH a wire transfer?
While ACH and wire transfers are similar transactions, they operate on different timelines and according to different rules. Wire transfers (especially domestic ones) can occur almost immediately, while ACH transactions can take a couple or a few business days.
What is the difference between ACH and autopay?
ACH is a method for electronically transferring funds between accounts. Autopay involves your setting up recurring payments of bills with a vendor. It typically uses the ACH network to complete those transactions.
Is ACH the same as direct deposit?
Direct deposit is one kind of ACH payment, but other kinds of ACH transactions are possible as well.
What is the best EFT payment method?
The best EFT method will depend upon various factors, such as timing and the technology you can most easily access or are most comfortable using.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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.
It’s a common dream to become financially independent. Though the words “financial independence” can mean different things depending on a person’s situation and outlook, it usually refers to living comfortably off one’s savings and investments. That often means you have no or low debt.
In some scenarios, the definition of financially independent may also mean you have the ability to retire early, though not necessarily leaving a career you love. It’s more about working because you want to, not because you have to do so to pay bills.
If this sounds appealing, you’ll probably be happy to know that achieving financial freedom could be easier than you think. The process often boils down to a relatively simple concept: Spending less and saving more.
Below, you’ll learn more about what it means to become financially independent and explore some smart strategies for achieving it
What Does It Mean to Be Financially Independent?
While there is no set definition for financial independence, the term often means getting to a point where you don’t have to work to pay your living expenses. Usually, financial independence is achieved by relying on savings, investments, and other forms of passive income to pay the bills.
Though financial independence doesn’t have to mean leaving behind a job or career path, it can. In fact, for many people, knowing the answer to “When can I retire?” helps them judge whether they are on track to financial independence or not. The term “financial independence” is often used as a synonym for early retirement. What’s more, the two phrases are commonly strung together in the popular acronym FIRE, which stands for “financially independent, retire early.”
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.00% APY, with no minimum balance required.
• One of the biggest perks is the ability to have choices. You can choose to keep working if you enjoy it, or you can kick back and relax. You can save money to pass on to future generations, or you can splurge on a trip around the world.
• Achieving financial freedom can also enable you to enjoy work more. If you’re no longer doing it for the money, you can structure your job responsibilities so you’re only doing the things you want to do.
• Financial independence can also benefit your physical health. Having the ability to work less allows you to exercise more and get more sleep. You may have more time and energy to eat better too.
• Financial independence may also have emotional benefits. It can allow you to spend more time with a partner, kids, family, and friends. Having stronger relationships can lead to increased happiness in life.
How to Become Financially Independent in 6 Steps
Becoming financially independent typically requires having a clear plan in place and being willing to roll up your sleeves and get to work. Here are some key steps that can help you get there.
1. Setting Realistic Goals
Being financially independent can look different for everyone, so a good place to start can be to define what being financially independent means to you. What do you visualize? Maybe you want to be debt-free by 40, or you’d like to retire at 50. Or perhaps you’d love to relocate to some place warm and sunny in 10 years.
As you develop your goals, you may want to give them a reality test by consulting with a financial advisor or chatting with a trusted financial mentor. You may find that you need to retool your vision based on your financial situation and how much time you have to achieve your dream.
Once you’ve honed in on some specific, achievable long-term goals, you can begin to figure out what you’ll need to do to make them a reality — whether that’s cutting your spending, boosting your income, and/or saving and investing more than you currently are each month. Even if you are just starting out or not earning that much, it can be wise to forge ahead. There are even ways to save on a low income.
2. Understanding That Income Isn’t Everything
Another step in how to be independent financially: Learning that your salary may not be the only thing that matters. Many people have a tendency to fixate on how much money they are making. And while income is an important part of your financial big picture, other factors also count. Yes, it’s easier to amass assets if you have more monthly income, but one key to increasing your net worth is to spend less than you make.
For example, if you are making a comfortable salary but haven’t gotten into the habit of saving and investing, then you may not be leveraging your income to its full potential. Becoming financially independent often requires an understanding that the amount of money you make is just one piece of the puzzle.
The path to financial independence may become a little less daunting once you realize that a high income alone is not necessarily going to lead to sustainable wealth. There are several other factors that play a role in how much you are able to grow your finances, such as how much interest your investments are making and the rate at which you are able to save.
More than a high salary, financial independence typically requires foresight, long-term thinking, and a holistic understanding of how your income overlaps with your expenses, lifestyle, and future goals.
3. Building a Budget
No matter what your income level, one of the keys to becoming financially free is to spend less — and potentially a lot less — than you are earning. Doing that typically involves finding a budget method that works for you.
Budgeting is the process of measuring income, subtracting expenses, and deciding how to divert the difference toward reaching your goals. It’s often considered the essential first task in achieving financial independence.
You can set up a monthly budget by first assessing what you are currently earning (after taxes) each month. Next, you can tally up your actual spending by looking at the last three to 12 months of bank and credit card statements and recording your expenses on a spreadsheet.
Seeing it all laid out in black and white can help you identify unnecessary expenses you might be able to cut out. You can then put the difference toward your long-term goals instead. One rule of thumb is to try to put 20 percent of your monthly take-home income into savings or investments. Working couples might try to bank a substantial part of one salary if possible.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
4. Establishing A Safety Net
Achieving financial independence also means thinking about financial security. Having a dedicated emergency fund that can help you weather a health emergency or another large, unforeseen expense means. Having money set aside can mean you may not have to run up credit card debt or dip into your investment or other savings account in order to cover these costs.
If you haven’t already started an emergency savings account, consider whether or not you would be able to afford a sudden car repair or if you could handle paying out of pocket for an unexpected dental procedure.
Experts often recommend having at least three to six months’ worth of living expenses set aside in an account. Ideally, that account earns interest but can be easily and quickly accessed when you need it.
The more effective you are at dealing with financial emergencies, generally the faster your savings and investments can grow.
5. Putting a Debt Pay-Off Plan Into Action
Taking care of your debt is another important step to achieving financial independence. Today, debt can take many forms — whether it’s student loan debt, a home mortgage, a car loan, or credit card debt.
If you currently have debt, consider incorporating a debt reduction plan into the budget you create and calculate how you would need to tweak your current spending habits in order to prioritize becoming debt-free.
It can be wise to start with the debt that has the highest interest first, since borrowing from those creditors is costing you the most money.
If you have multiple credit card balances, you may want to target them one at a time. You can do this by paying more than the minimum each month on one balance (paying just the minimum on the others) until that balance is wiped out, then move on to the next.
6. Being a Smart And Savvy Investor
Becoming a smart investor is another key step you can take on your journey to financial independence. The world of investment can be confusing and carries risk, but it also has the potential to be lucrative.
You may want to first focus on tax-advantaged accounts. If you have an employer-sponsored option, such as a 401(k) plan, it can be a good idea to contribute some of each paycheck, especially if your employer offers to match your contributions. Depending on your situation, you may be able to open a traditional IRA, Roth IRA, or SEP IRA as well. (There may be contribution limits to adhere to, however.)
If you have children, you may also want to consider the benefits of a 529 plan to help you invest for their college educations.
If you’re able to invest additional funds, you can choose a financial firm you want to work with and then open a standard brokerage account. From there, you can put your money in a mutual fund or an exchange-traded fund (ETF) (which bundle different types of investments together). Another option: If you’re prepared to do a fair amount of research, pick and choose your own stocks and bonds.
If you’re new to investing, you may want to consider opening an investment account through a robo-advisor, an investment management service that uses computer algorithms to build and look after your investment portfolio and typically charges relatively low fees.
How Much Money Do You Need to Become Financially Independent?
How much you need to become financially independent will depend on a variety of variables, such as the cost of living you expect to have and the amount you plan to spend (will you be a no-car household? Two cars perhaps? How often would you like to travel?).
One way to look at this is to consider a formula used for retirement, which says you want to have 25 times the amount you plan to spend in a year, and that money needs to be invested in a 60/40 stocks and bonds portfolio to generate income.
Then, you would apply the 4% rule, which means that you would safely take 4% of your investments out each year (adjusting for inflation) in order to have those funds without outliving your money. Now, if you are a significantly younger person than the usual retirement age, you would have to adjust the numbers to cover more years.
Here, a couple of examples:
• Let’s say you plan to spend $50,000 a year on your living expenses. If you multiply that by 25, you get $1.25 million. That would need to be the amount of your available assets to be financially independent.
• Now, let’s say you plan to spend $125,000 a year on your living expenses. In this example, when you multiply $125K by 25, you would need $3,125,000 to be financially independent.
When looking at these numbers, don’t forget to consider other forms of income you might have coming in. Perhaps you earn passive income in some way or will eventually start to receive a pension. Maybe you will have money coming in from a side hustle you love or from Social Security. Consider all ways money could flow in your direction to understand your path to financial independence.
💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!
Habits That Can Get in the Way of Financial Freedom
As you pursue becoming financially independent, there can be habits than can hold you back. Here, a few to be aware of:
• Lack of planning: If you don’t take the time to dig into your finances and find a budget that works, you aren’t in control of your money or your goals. Thinking you can wing it typically doesn’t help you hit your marks or become financial freedom. Living with high-interest debt rather than figuring out how to pay it off is another example of how lack of planning can hinder you.
• Lack of financial literacy: This is another aspect of “winging it”: not educating yourself about how finances, net worth, and other facets of money management work can hinder you from reaching financial freedom. Seeing what resources your bank offers, listening to well-regarded podcasts, or reading well-researched books or websites can get you on the right track.
• Procrastination: Not getting started can hold you back financially. The sooner you begin saving, the closer you get to financial independence.
• Lifestyle creep and/or FOMO: If, as you earn more money, you spend more money, that’s lifestyle creep), and it can inhibit your ability to save. And iif you spend lavishly to keep up with friends, that’s FOMO, and it can prevent you from achieving financial independence.
If you avoid these habits and manage your money well and save steadily, you can be on the path to financial freedom.
Starting a Savings Account Today
One path to financial independence is to save regularly. Opening a savings account with a healthy return can be one step toward doing that.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
How do I start to become financially independent?
Becoming financially independent can involve budgeting well and avoiding overspending. It also typically involves managing your money to save steadily and invest your cash so it works for you.
How much money do you need to be financially independent?
One rule of thumb is to have 25 times the amount you plan to spend in a year in the bank in order to be financially independent. So if you plan on spending, say, $100K a year, you would need assets of $2.5 million.
How can I get financially free with no money?
With no money, it will be hard to be financially free unless you live off the grid. For most people, even those with low income, financial freedom is a matter of spending less than your make, paying off debt, saving aggressively, and investing.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Nothing is as certain as tax season. Like it or not, it comes every year, and taxpayers need to report and pay their dues on all taxable income. But did you know that some income is non-taxable?
That’s right: In some rare cases, Uncle Sam won’t be asking for his fair share. But you may wonder how to know the difference and how you can correctly file your taxes. This guide can help you understand this important distinction.
Read on to learn:
• What is taxable income vs. non-taxable income?
• What are some examples of taxable income?
• What are some examples of non-taxable income?
Taxable and Non-Taxable Income Explained
The difference between taxable and non-taxable income is pretty straightforward:
• Taxable income is subject to taxes. That means you must report it to the IRS on your tax return and pay taxes on it based on your filing status and tax bracket. And remember: Income isn’t just money that you earn. Income can come in the form of money, property, or services rendered.
• Non-taxable income is not subject to taxes. Though you may have pocketed money throughout the year (perhaps child support), you do not need to pay taxes on it. However, you may still need to report it on your tax return.
Understanding the differences between these two terms is easy. It’s understanding just what is considered taxable income vs. non-taxable income that can be more challenging without the help of an accountant.
Understanding your taxes is an important aspect of managing your finances. Incorrectly accounting for income could leave you owing the government money plus penalties, so read on to learn more.
💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.
What Is Taxable Income?
Taxable income is money, property, or services that you received that the IRS requires you to pay taxes on. Common types of taxable income include wages, self-employment earnings, and stock dividends.
Examples of Taxable Income
Wages are an easy example of taxable income, but the list of what kind of earnings are taxed is much more extensive. Below are some examples of taxable income to keep in mind when filing, but note that this list is not exhaustive, meaning you should research each type of income you earned throughout the year to determine if you owe taxes.
• Salary, wages, tips, bonuses, and self-employment income: First and foremost, the income you make for doing your job counts as taxable income. That includes both salaried and hourly workers who receive a W-2. If you earn tips — even cash tips — you’ve got to report those, too. Bonuses are also taxable, as is any income you make as a self-employed individual.
Self-employed taxpayers who receive 1099 forms have to pay more in taxes than salaried employees. That’s because they also owe self-employment taxes to cover items like Social Security and Medicare contributions.
• Investment income: If you rent out property (like a house or a vehicle), you must report that income to the IRS and pay taxes on it. If you have investments that pay interest and unqualified dividends, those are taxable as well.
• Fringe benefits: The IRS is careful to spell out that income isn’t just money you earn. For example, if your employer pays for an off-site gym membership or sends you a Christmas gift every year, these are considered fringe benefits — and you’ve got to report and pay taxes on the monetary value of those benefits. Not all fringe benefits are taxable; if you’re unsure whether you need to pay taxes on something, you can check out the IRS’s resource on fringe benefits or work with an accountant.
• Some retirement income: If you contributed to a traditional IRA or traditional 401(k) plan, those contributions were pre-tax. When you start withdrawing those funds, you unfortunately have to pay taxes on that money.
• Income from the sale of assets: When you sell something — whether it’s your car, a stock, or even an old couch — you generally have to report the capital gain from that sale. There are exceptions, including the big tax break you may receive when you sell your house (more on that below).
• Royalties: If you earn royalties from copyrights, patents, or oil, gas, and mineral properties, you’ll have to pay taxes on those royalties.
• Alimony, sometimes: Tax law on alimony payments has changed. If you got a divorce before 2019 and have not altered the agreement to expressly state that alimony isn’t considered income, then you’ll pay taxes on it.
• Unemployment compensation: Yes, even if you’re out of work and receiving unemployment benefits, you’ve got to pay taxes.
Remember, this list is not all-encompassing. The IRS has guidance on everything from cash for babysitting to bartering to lottery winnings. If you’re unsure what income to report, you may benefit from working with an accountant. As you prepare for tax season, these professionals can help you sort out what is taxable vs. non-taxable income so you can file correctly.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
What Is Non-Taxable Income?
Non-taxable income is money, property, or services that you received that the IRS does not require you to pay taxes on, though you may still need to report it on your tax return. Common types of non-taxable income include child support payments, cash rebates, and welfare payments.
As with taxable income, the list of non-taxable income is extensive (and has a lot of fine print). We’ve compiled some examples of non-taxable income below, but it’s a good idea to work with an accountant if you’re unsure how to report your income on your tax return. Again, this is not a complete list.
• Child support payments: Child support payments are not taxable income — and there’s no fine print to worry about with this money, either.
• Welfare: Welfare benefits are not taxable. Like child support payments, guidance is very straightforward on this.
• Alimony, sometimes: If you receive alimony for a divorce in 2019 or later, you do not pay taxes on that income. If you got a divorce before 2019 and modified the agreement after 2018, you may not have to pay taxes on alimony.
• The sale of a house, sometimes: If you’re quickly flipping houses for a profit, those capital gains are taxable. However, the government has provided a sizable tax break for homeowners. If you sold your home and lived in it for at least two of the last five years, you don’t have to pay taxes on the first $250,000 in profit ($500,000 if married, filing jointly). There’s more fine print about this tax break, so it’s a good idea to reference IRS materials if you have large capital gains from the sale of a house.
• Some fringe benefits: In general, fringe benefits are taxable, but the IRS does have a list of exclusions, like adoption assistance and dependent care assistance (up to certain limits). For full details, review the IRS’s detailed breakdown of fringe benefits and taxation; the link is provided above.
• Some retirement income: While you’ll pay taxes when withdrawing from your traditional IRA and 401(k) in retirement, you won’t have to worry about taxes when drawing from a Roth IRA and Roth 401(k). Why? Contributions are post-tax, so you’ve already paid taxes on the funds.
• Gifts and inheritances: You usually don’t have to pay taxes on (property) gifts you receive; the IRS doesn’t come for Santa’s presents!). What’s more, you likely don’t have to pay taxes on inheritances. Instead, the deceased’s estate pays taxes on the money before you receive the inheritance.
• Life insurance payout: If you receive proceeds as the recipient of a life insurance policy when the policyholder dies, that money is not taxable. But if you cash in a life insurance policy, some or all of it is taxable.
It’s possible to earn both taxable and non-taxable income. While the most common source of income — your paycheck — is taxable, you might receive some income for which you pay no taxes, like child support or capital gains on the sale of your home. It’s wise to make sure you fully understand how money you receive is categorized, so that you can file your taxes correctly. This could be accomplished by working with a tax professional, using tax software, or doing your own research.
Looking for a way to make more money from your cash? Open a SoFi bank account, which boasts a competitive annual percentage yield (APY) and charges no account fees, both of which can help your savings grow. You can also spend and save in one convenient place and have savings tools like Vaults and Roundups at your fingertips.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
What are the pros and cons of taxable income?
The largest pro of taxable income is that it inherently means you’re making money. Whether it’s from a salary or an investment, having income that’s taxable implies you are receiving the money you need to survive. And, of course, the con of taxable income is that not all of the income is yours — you’ll have to pay taxes on it, and generally, the more you earn, the more you’ll owe.
What are the pros and cons of non-taxable income?
The biggest pro of non-taxable income is that you don’t have to pay taxes on it. Every dollar you earn is yours to keep. Non-taxable income can have some cons, however, depending on the source. For example, you may receive non-taxable income as a life insurance payout or inheritance, which implies you’ve lost someone special in your life. Non-taxable income can also be more confusing to navigate on your tax return and could necessitate the help of a professional accountant.
How do you calculate taxable and non-taxable income?
The IRS has a comprehensive guide to taxable vs. non-taxable income. In assessing each source of your income, you can review IRS guidance for how to report it and whether it’s taxable or not. If you’re feeling overwhelmed, you may benefit from using tax preparation software or a professional tax preparer.
Photo credit: iStock/atakan
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 direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
