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ETFs vs Index Funds: What’s the Difference?

The main difference between exchange-traded funds (ETFs) vs. index funds stems from a difference in how each type of fund is structured.

Index funds, like many mutual funds, are open-end funds with a portfolio based on a basket of securities (e.g. stocks and bonds). Fund shares are priced once at the end of the trading day, based on the fund’s net asset value (NAV).

An ETF is a type of investment fund that also includes a basket of securities, but shares of the fund are designed to be traded throughout the day on an exchange, similar to stocks.

Although index funds and most ETFs track a benchmark index and are passively managed, ETFs rely on a special creation and redemption mechanism that help make ETF shares more liquid, and the fund potentially more tax efficient.

In order to understand the differences between ETFs vs. index funds, it helps to know how each type of fund works.

Key Points

•   ETFs and index funds both offer investors exposure to a basket of securities, which may provide portfolio diversification.

•   ETFs can be traded throughout the day, while index mutual funds are traded at the end of the day.

•   ETFs typically disclose their holdings daily, whereas index funds disclose quarterly.

•   ETFs tend to have higher expense ratios than index funds, but can offer more trading flexibility.

•   ETFs are generally more tax efficient than index funds.

What Are Index Funds?

Index funds are a type of mutual fund. Like other mutual funds, an index fund portfolio is a collection of stocks, bonds, or other securities that are bundled together into a pooled investment fund.

Index Funds Are Passive

Unlike most other types of mutual funds, which are actively managed by a portfolio manager, index funds are designed to mirror the holdings and the performance of an index like the S&P 500 index of U.S. large-cap stocks, or the Russell 2000 index of small-cap stocks.

Because index funds are passively managed, they tend to be lower cost than other types of mutual funds.

Not as Liquid

Investors buy shares of the fund, which gives them exposure to the basket of securities within the fund. As noted above, index mutual fund trades can only be executed once per day, which makes them less liquid than ETFs.

In addition, index funds (and mutual funds in general) have to reveal their holdings every quarter, so they tend to be less transparent than ETFs, which typically reveal their holdings once a day.

There are thousands of indexes to choose from, and it’s possible to create an investing portfolio from index funds alone.

Recommended: Portfolio Diversification: What It Is, Why It Matters

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What Are ETFs?

Unlike index funds, ETF shares can be traded on exchanges throughout the day, just like stocks, so ETFs require a different wrapper or structure than traditional mutual funds.

How ETF Shares Are Created and Redeemed

Because an ETF itself can hold hundreds or even thousands of securities, these funds utilize a special creation and redemption mechanism that allows for intraday trading of shares. This helps to reconcile the number of ETF shares that are traded with the price of the underlying securities in the fund, thus keeping share price as close to the value of the underlying securities as possible.

As a result, ETF shares are not only more liquid than index funds from a cash standpoint, they are also more fluid from a trading standpoint. An investor can place a trade while markets are open, and get real-time pricing information with relative ease by checking financial websites or calling a broker. That’s a plus for investors and financial professionals who prefer to make trades based on market conditions.

ETF Costs

When trading ETFs, bear in mind that the average expense ratio of ETFs is 0.15%, according to the Investment Company Institute, which is historically low — but still higher than most index mutual funds, which have an average expense ratio of 0.05%.

Depending on the brokerage involved, investors may also pay commissions and a bid-ask spread, which is the difference between the ask price and the bid price of an ETF share, although this has less of an impact for buy-and-hold investors.

ETFs and Tax Efficiency

Owing to the way ETF shares are created and redeemed, ETFs may be more tax efficient than index funds. When investors sell shares of an index fund, the underlying securities in the fund must be sold, and if there is a capital gain it’s passed onto all the fund shareholders.

When an investor sells shares of an ETF, the fund doesn’t incur capital gains, owing to the mechanism for redeeming shares. But if the investor sees a profit from the sale, this would result in capital gains (which is also true when selling index fund shares), which has specific tax implications.

Of course, investors who hold ETFs or index funds within an IRA or other retirement account would not be subject to capital gains tax events.

When picking ETFs, however, bear in mind that the majority of ETFs are passively managed: i.e. they are index ETFs. Only about 2% of ETFs are actively managed, owing to the complexity of their structure and industry rules about transparency for these funds.

ETFs vs. Index Funds: Key Differences and Similarities

When comparing ETFs vs. index funds, there are a few similarities:

•   Both types of funds include a basket of securities that can include stocks, bonds, and other securities.

•   ETFs and index funds may provide some portfolio diversification.

•   Index funds and most ETFs are considered passive investments because they typically mirror the constituents of a benchmark index. (By comparison, actively managed mutual funds and active ETFs have a live portfolio manager who oversees the fund, and makes trades with the goal of outperformance.)

This chart helps to summarize the similarities and differences between ETFs vs index funds.

ETFs

Index Funds

Similarities:
Portfolio consists of many securities Portfolio consists of many securities
Provides diversification via exposure to different asset classes Provides diversification via exposure to different asset classes
ETF expense ratios are generally low Index fund expense ratios are generally low
Most ETFs are passively managed Index funds are passively managed
Differences:
A special creation-redemption mechanism enables intraday share trading Shares bought and sold/redeemed via the fund itself
Shares trade during market hours on an exchange Trades executed at end of day
Fund holdings disclosed daily Fund holdings disclosed quarterly
Shares are more liquid Shares are less liquid
Investors may also pay a commission on trades or other fees Investors may pay a sales load or other fees
ETFs tend to be more tax efficient Index funds may be less tax efficient

Recommended: Learn what actively managed ETFs are and how they work.

ETF vs. Index Fund: Which Is Right for You?

There’s no cut-and-dried answer to whether ETFs are better than index funds, but there are a number of pros and cons to consider for each type of fund.

Transparency

By law, mutual funds are required to disclose their holdings every quarter. This is a stark contrast with ETFs, which typically disclose their holdings each day.

Transparency may matter less when it comes to index funds, however, because index funds track an index, so the holdings are not in dispute. That said, many investors prefer the transparency of ETFs, whose holdings can be verified day to day.

Fund Pricing

Because a mutual fund’s net asset value (NAV) isn’t determined until markets close, it can be hard to know exactly how much shares of an index fund cost until the end of the trading day. That’s partly why mutual funds, including index funds, allow straight dollar amounts to be invested. If you buy an index fund at noon, you can buy $100 worth, for example, regardless of the price per share.

ETF shares, which trade throughout the day like stocks, are priced by the share like stocks as well. Knowing stock market basics can help you invest in ETFs, as well. If you have $100 and the ETF is $50 per share when you place the trade, you can buy two shares.

This ETF pricing structure also allows investors to use stop orders or limit orders to set the price at which they’re willing to buy or sell.

These types of orders, which are different than standard market orders, can also be executed through an online investing platform or by calling a broker.

Taxes

ETFs are generally considered more tax efficient than mutual funds, including index funds.

The way mutual funds are structured, there can be more tax implications as investors buy in and out of an index fund, and the cost of taxes is shared among different investors.

ETF shares are redeemed differently, so if there are capital gains, you would only owe them based on your ETF shares.

The Takeaway

Choosing between ETFs vs. index funds typically comes down to cost and flexibility, as well as understanding the tax implications of the two fund types. While both ETFs and index funds are low-cost, passively managed funds — two factors which can provide an upside when it comes to long-term performance — ETFs can have the upper hand when it comes to taxes.

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


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FAQ

Is it better to choose an ETF or an index fund?

ETFs and index funds each have their pros and cons. ETFs tend to be more tax efficient, and you can trade ETFs like stocks throughout the day. If you’re interested in a buy-and-hold strategy, an index fund may make more sense.

Are ETFs or index funds better for taxes?

In general, ETFs tend to be more tax efficient.

What are the differences between an ETF and an index fund?

While both types of funds can provide some portfolio diversification, ETFs are generally more transparent, and more tax efficient compared with index funds.


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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.


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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Different Types of Banking Accounts, Explained

Understanding the Different Types of Bank Accounts

If you’re in the market for a bank account, you likely see a lot of different terms, such as checking, savings, checking and savings, money market, and more.

Having a bank account (or two or a few) typically provides the foundation of your daily financial life, so it’s important to choose wisely. Bank accounts can allow you to safely store your money; track your earnings, spending, and saving; and potentially earn some interest as well. In these ways, bank accounts can help you meet your goals, from socking away the down payment for a house to retiring early.

For instance, in SoFi’s April 2024 Banking Survey of 500 U.S. adults, 88% of people said they have a checking account and 71% have a savings account.

Different accounts can serve different purposes and have their own pros and cons. This guide will help you understand which account or mix of accounts can be best for your unique financial situation and aspirations.

Key Points

•   Different types of bank accounts can help you meet different goals, from saving in the shorter-term for a vacation to saving over the years for retirement.

•   Checking accounts are designed for daily transactions and short-term financial needs, while savings accounts can be better for longer-term savings goals, given their higher interest rates.

•   Money market accounts and CDs typically offer higher interest rates, but come with certain restrictions — money market accounts may limit transactions, for example, while CDs typically require funds to remain in the account for a period of time.  

•   Retirement accounts like IRAs and 401(k)s are tax-advantaged and designed to help individuals grow their savings, but come with restrictions, such as penalties for early withdrawals.

•   Brokerage accounts allow people to trade securities: While these come with higher risk and potential fees, they have the potential to provide higher returns.

7 Types of Bank Accounts Explained

Here’s a rundown of the different types of banking accounts, how they’re different, and how they could make achieving financial goals simpler.

1. Checking Account

Checking accounts can be the hub of your financial life, as money flows in and out as you earn and spend (or deposit and withdraw funds). Some points to consider:

•   It doesn’t take much time to open a checking account (often less than a half hour), and they are available through traditional banks, credit unions, and online financial institutions.

•   Accounts are typically insured by the Federal Deposit Insurance Corporate (FDIC) or National Credit Union Administration (NCUA) for $250,000 per account holder, per ownership category, per insured institution.

•   Some checking accounts may charge fees, while others allow opening checking accounts for free but may have some restrictions. It may be possible to have fees waived on a checking account by meeting certain minimum account balances or setting up direct deposits from your employer.

•   Checking accounts got their name from one of their prominent features — writing checks. While writing checks may be less common these days, a debit card typically enables you to tap and swipe as you spend.

•   Many checking accounts offer no interest, though some do pay an interest rate, usually well under the rate of inflation. This means that if a person chooses to park all their money in this account, their money wouldn’t keep pace with inflation and would end up losing value year over year. That’s why, while many Americans have a checking account, it’s typically not their only bank account.

2. Savings Account

Another type of deposit account is a savings account. Checking and savings accounts often form the foundation of a person’s banking life.

•   Savings accounts generally earn more interest than a checking account, and you are likely to find some of the best rates at online banks. You may see the terms “high-yield” or “high-interest” used to describe these. According to SoFi’s survey, 23% of respondents have a high-yield savings account.

•   In general, it’s not recommended to use a savings account for day-to-day spending. Instead, it’s better suited for short-term savings goals, so that you can earn interest as you save.

How People Use Their Savings Accounts

To save for emergencies

77%

To save for a specific goal such as a vacation

52%

To earn interest

48%

Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults

•   As with checking, the usual age to open a bank account on your own is 18.

•     Unlike a checking account, the cash stored in savings accounts is typically less accessible — that’s why they call it a saving not a spending account. A savings account may not have an ATM or debit card and it is most likely not possible to write a check from it either.

•     Some savings accounts may require a minimum balance. If an account holder goes below the minimum required balance, some banks will charge a fee.

•     Savings accounts may also have limits on how many withdrawals can be made from the account each month. Regulation D may limit the number of withdrawals from your savings account that can be made each month. In the past, Regulation D limited the number of withdrawals from savings accounts to six per month. This limitation was suspended indefinitely in 2022, though financial institutions may still assess fees for more than a certain number of outgoing transactions.

•     Additionally, some banks may charge maintenance fees for keeping a savings account open. Fees and policies will vary bank to bank, so it can be beneficial to account holders to shop around to different banks instead of settling with the first one they find.

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3. Checking and Savings Account

Another bank account type to consider: a checking and savings account, which is a hybrid that allows account holders to save and spend from one account. Often offered by online banks, these accounts may pay competitive interest rates, be more convenient, and have tech tools that can make tracking spending and saving very simple.

Another way to go is to open both a checking and a savings account at a single financial institution or different banks. While there’s no one “perfect” bank account, people can mix and match, some people may find that opening a number of bank accounts can help them meet both their daily needs and may be suitable for some short to mid-term goals. In fact, 31% of respondents in SoFi’s survey said they had two checking or savings accounts, and 20% had three accounts or more. Thirty-seven percent had just one checking or savings account.

Some factors to consider are the annual percentage yield (APY) or other perks available from the account.

4. Certificate of Deposit

A CD, or certificate of deposit, is sort of like a savings account, but more hands-off. Both types of accounts are meant for saving, but while an account holder can withdraw money from a savings account within the limits set by Regulation D, outlined above, money deposited in a CD is considered untouchable for a predetermined amount of time.

•   Length of CDs can range from a few months to several years or longer. The benefit of a longer CD term is generally a higher interest rate — that is, unless banks expect the federal funds rate to drop. In that case, a shorter-term CD may pay more than a longer-term CD. According to the FDIC , the national deposit rate cap for a three-month CD was 1.53% and for a 60-month CD is 1.43% as of mid-July 2024. You may find higher rates when shopping around.

•   But with that boost in interest rates comes a few caveats. In addition to its “no touch” policy (no early withdrawal) some CDs also have a minimum deposit, typically starting at $500 and up.

•   There is the option of no-penalty/early withdrawal CDs. However, be wary when signing up for these, as they often include specifics on how and when an account holder can withdraw early without fees and penalties.They may not earn more interest on your money either when compared with standard savings accounts.

•   CDs are usually insured and considered a safe place to store funds.

•   Another alternative is CD-laddering. That means buying CDs of varying intervals, so access to savings will be staggered as CDs expire.

5. Money Market Account

A money market account is another type of FDIC-insured account.

•   Money market accounts generally have a higher interest rate than a traditional savings account, but may have more restrictions.

•   These accounts are typically insured.

•   Additionally, taking funds out of a money market account can be relatively easy — many come with checks or the ability to execute online electronic transfers.

•   Money market accounts may also be restricted as under previous Regulation D guidelines and have monthly limits on transactions. That means withdrawals and transfers could be limited, making it not a good fit for day-to-day transactions.

•   Like savings accounts, money market accounts may have balance minimums. In some cases, these minimums are higher than a savings account. If an account holder doesn’t maintain the balance minimum, it’s likely they’ll be charged a monthly fee.

•   Money market accounts might be the right choice for people who want high-yield savings, but don’t need to access the capital too often and can meet the deposit minimums.

6. Brokerage Accounts

A brokerage account is a type of investment account that allows account holders to trade securities.

•   It’s important to note that while the return on these accounts could be positive, there is risk involved. Your money is not insured, and the value of your account could dip.

•   Depending on the service level of the brokerage, a brokerage account can come with fees. Typically, the more “full-service” firm, the more the firm does the work for the customer, the more fees. On the other hand, automated investing and DIY brokerages may have fewer fees associated with them.

•   To open a brokerage account, a person needs cash and an idea of what they’d like to purchase. Some accounts do not have a minimum deposit amount but others require a minimum deposit which may range depending on the account type.

•   In order to withdraw funds from a brokerage account, securities need to be sold first. After settlement, the money can be withdrawn from the account.

•   Withdrawn investments may be taxable, and investing is often thought of as a long-term savings strategy. A brokerage account is less liquid than a savings, checking, or money market account.

7. Retirement Accounts

Retirement accounts, like IRAs, 401(k)s, and SEPs, are designed to help individuals save for retirement. Deciding what kind of retirement account to open will depend on a number of factors:

•   Employer benefits. Some employers offer a 401(k) and may have a 401(k) matching program or other perks with their retirement plans. Taking advantage of those benefits can be worthwhile, especially up to the employer match.

•   Target retirement date. Working backwards using a retirement calculator, people can determine just how much they need to save each month to retire on time. From there, certain retirement plans might make more sense than others.

Selecting a retirement plan is a personal decision that depends on factors like their personal goals, the target date for retirement, risk tolerance, and more.

For questions, it can be helpful to consult with a qualified financial professional. With retirement accounts, the money contributed is locked-in until retirement. Withdrawing early can result in fees and penalties that can cut into savings.

Finding Accounts That Work for You

Since different types of accounts have different purposes, benefits, and uses, it is likely that individuals will have a few kinds of accounts to meet their needs. You might keep all or most of your accounts at one institution, or you might open them at various banks and/or brokerage firms.

Each financial institution is likely to have its own policies in place so it can be helpful to review the options available with a few different institutions as you build your financial portfolio. If you have questions, consider consulting with a financial professional who can provide personalized financial advice.

Recommended: Requirements to Open a Bank Account

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Looking for Something Different

When it comes to personal finance, different account types can serve different purposes. Checking accounts make it possible to easily withdraw and deposit money while accounts like 401(k) or IRAs are designed for longer-term goals, like investing toward retirement. People will generally have a mix of these accounts. A checking and savings account can offer account holders the ability to easily deposit and withdraw money into their account, while also earning a competitive interest rate.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What are the most common types of bank accounts?

There are a variety of common bank account types, depending on your financial needs and goals. These include checking, savings, checking and savings, and certificate of deposit (CD) accounts, among others.

What are the two most common types of bank accounts?

For many people, the two most common types of bank accounts are checking and savings. Typically, a checking account is for daily use, meaning depositing money and spending it. A savings account is geared towards savings and typically pays interest.

What is the best kind of bank account to open?

Of the different types of bank accounts, the best kind to open will depend on your particular needs. Many people find a checking account to be the hub of their financial life, allowing them to deposit and then spend funds. A savings account can be a good place to stash money for a while and earn interest. (There are other types to consider as well.) You will find variations in interest, minimum deposit and balance, fees, and other features depending on the financial institution.


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

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

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

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*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.


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.

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Beginners Guide to Index Fund Investing

What Are Index Funds, and How to Invest in Them

Index investing is a passive investment strategy in which you buy shares of an index fund that mirrors the composition and performance of a market index like the S&P 500.

Index investing is considered passive because index funds are formulated to follow the index and thus deliver market returns. There is no portfolio manager to oversee the fund or execute trades as there is with actively managed funds. Index funds can include mutual funds as well as exchange-traded funds (ETFs).

While index funds were once considered somewhat unsophisticated, a growing number of investors have come to embrace passive strategies in the last several years: In 2010, about 19% of total assets under management with U.S. investment firms were in passive funds. By 2023, passive strategies accounted for 48%.

Although index funds are considered passive, that doesn’t mean they are risk free; there are specific concerns for investors to bear in mind when considering index investing.

Key Points

•   Index funds are mutual funds that try to replicate the benchmark index for a market segment or sector.

•   Because index funds are passively managed and have low turnover, which helps keep costs lower than an actively managed fund.

•   Indexes — and the index funds that track them — may be weighted by market cap, price, or fundamentals.

•   Passive investing in index funds may help restrain investors’ emotional impulses and improve long-term returns.

•   Index investing offers diversification and cost efficiency, but lacks downside protection and flexibility.

What Are Index Funds?

An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks the performance of a market segment — like large-cap companies — or a sector like technology, by following the benchmark index for that sector.

Index funds typically hold a portfolio of securities — e.g., stocks, bonds, or other assets — that are identical or nearly identical to those in the relevant index. The idea is to try to replicate the chosen benchmark’s performance as closely as possible.

Unlike actively managed funds, which employ a portfolio manager that seeks to outperform the benchmark by actively trading securities within the fund, index funds aim to provide returns based solely on the performance of that particular market or sector.

There is an ongoing debate about the merits of pursuing active vs. passive strategies. In 2023, passive investments tended to outperform their active counterparts, according to industry data analyzed by Morningstar. That said, active strategies outperformed under certain conditions, and for specific markets.

There are index funds for the U.S. bond market, the U.S. stock market, international markets, and countless others represented by various market indexes like the Russell 2000 index of small-cap companies, the Nasdaq 100 index of tech companies, and so on.

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How Do Index Funds Work?

When you buy shares of an index fund — typically a mutual fund or ETF — your money is effectively invested in the many stocks or bonds that make up the particular index. This helps add some diversification to your portfolio, potentially more so than if you were buying individual securities.

In addition, index funds tend to be lower cost than active funds, because passive funds don’t require a live portfolio management team.

Passive investing comes with certain risks, however, chiefly the risk of being tied to the ups and downs of a specific market. Without an active manager at the helm, an index fund can only deliver market returns.

Why Index Funds Typically Cost Less

Because index funds are designed to track the securities in a given market index, an index fund’s portfolio is typically updated only when the constituents in the index itself change. Thus, there is typically low turnover in these funds, which helps keep overall costs low.

By contrast, actively managed funds typically employ a more frequent trading strategy in a quest for outperformance, which can add to the cost of the fund. In addition, active funds have a live portfolio manager and thus tend to charge higher fees.

Understanding the impact of investment fees is important to long-term performance, as many investors know.

How an Index Is Weighted

Some indexes give more weight to companies with a bigger market capitalization; these are market-cap-weighted indexes. This means index funds that track a weighted index, like the S&P 500, likewise allocate a higher percentage to those bigger companies — and those companies influence the performance of the index.

Indexes can also be weighted by price (with higher priced companies making up a higher proportion of the index) or by company fundamentals. While the weighting structure of the index may not matter to individual investors at first, it ultimately influences the holdings of any related index funds or ETFs, and may be something to bear in mind when selecting an index fund.

Well-Known Big Market Indexes

There are thousands of indexes in the U.S. alone, each one designed to reflect how a certain aspect of the market is doing. Some of the biggest indexes include:

•   S&P 500 Index — Standard & Poor’s 500 tracks the 500 largest companies in the U.S. by market capitalization.

•   Dow Jones Industrial Average (DIJA) — The Dow tracks 30 blue-chip companies; this is a price-weighted index.

•   Nasdaq Composite Index — The Nasdaq Composite tracks all of the tech companies listed in the Nasdaq stock exchange (one of the major U.S. exchanges); this is a price-weighted index.

•   Wilshire 5000 Index — The Wilshire 5000 is a market-cap-weighted index, and it’s considered a total market index because it tracks all publicly traded companies with headquarters in the United States.

•   Bloomberg Barclays Aggregate Bond Index — Nicknamed the “Agg,” this index tracks over $50 trillion in fixed-income securities, and is often considered an indicator of the economy’s health.

Top 10 Equity Index Funds

While the above list reflects some of the larger market indexes, these don’t dictate what the most popular index funds may be. Some index funds are more cost efficient or do a better job of tracking their benchmark than others.

Following are the top 10 low-cost U.S. equity index mutual funds and ETFs in 2024, according to Morningstar, Inc., the industry ratings and research company.

1.   DFA US Large Company (DFUSX)

2.   Fidelity 500 Index (FXAIX)

3.   Fidelity Mid Cap Index (FSMDX)

4.   Fidelity Total Market Index (FSKAX)

5.   Fidelity ZERO Large Cap Index (FNILX)

6.   iShares Core S&P 500 ETF (IVV)

7.   iShares Core S&P Total US Stock Market ETF (ITOT)

8.   iShares S&P 500 Index (WFSPX)

9.   Schwab US Mid-Cap Index (SWMCX)

10.   Schwab Total Stock Market Index (SWTSX)

How to Invest in Index Funds: Step by Step

Investing in index funds requires as much due diligence as investing in any single security. Here’s how to start.

Step 1: Determine Your Goals, Time Horizon, and Risk Tolerance

You may want to consider some of the basic tenets of investing as you select your index fund or funds. Will you be adding an index fund to an existing portfolio? Are you starting a taxable account? Is this for retirement?

Knowing your goals, your time frame, and how much risk you feel comfortable with will inform the funds you choose.

Step 2: Choose an Index Fund

The name of a particular index fund may catch your eye, but it’s essential to examine what’s inside an index fund’s portfolio before investing in it. Some index funds track a larger market, such as the S&P 500 or Russell 3000. Others track a more narrow or even niche sector of the market.

Determine what your short- and long-term goals are, and what markets you are interested in. You may want to start with a broad market index fund focused on equities or bonds. Or you may want to target certain sectors like technology, sustainability, or health care.

Step 3: Open a Brokerage Account

Open and fund a brokerage account or online brokerage account, and explore the index fund options available. Be sure to check potential fees and trading costs, as well as account minimums and cost per share. The price per share can vary widely.

Step 4: Buy Shares of an Index Fund

Once you’ve selected the fund(s) you want, execute the trade. Decide whether to create an automatic investment (e.g. every month) to support your goals.

Step 5: Consider Your Index Strategy

While it’s possible to simply add one index fund to your portfolio, it’s also possible to populate your entire portfolio using only index funds. Again, bear in mind the pros and cons of index strategies in light of your current and long-term goals for this investment, as well as your risk tolerance.

Potential Advantages of Index Investing

Index investing has a number of merits to consider. As noted above, index investing tends to be cost efficient, and may offer some portfolio diversification. In addition, investors may benefit from other aspects of passive strategies.

Easier to Manage

It might seem as if active investors could have a better chance at seeing significant returns versus index investors, but this isn’t necessarily the case. Day trading and timing the market can be difficult, and may result in big losses or underperformance. After all, few individual investors have the time to master the ins and outs of financial markets.

Index investing offers a lower-cost, lower-maintenance alternative. Because index funds simply track different benchmarks, individual investors don’t have to concern themselves with the success or failure of an active portfolio manager. Also, index investing doesn’t necessarily require a wealth manager or advisor — you can assemble a portfolio of index funds on your own.

Behavioral Guardrails

Investors who pursue active strategies may succumb to emotional impulses, like timing the market, which can impact their portfolio’s performance. Investing in index funds, which takes a more hands-off approach, may help restrain investor behavior — which may help portfolio returns over time.

According to the 30th annual Quantitative Analysis of Investor Behavior (QAIB) report by DALBAR, the market research firm, equity investors typically underperform the S&P 500 over time.

The QAIB report is based on data from Bloomberg Barclays indices, the Investment Company Institute (ICI), and Standard and Poor’s, as well as proprietary sources. The study examined mutual fund sales, redemptions, and exchanges each month, from Jan. 1, 1985 to December 31, 2023, in order to measure investor behavior, and then compared investor returns to a relevant set of indices.

In 2023, the average equity investor earned 5.50% less than the return of the S&P 500 for that year — a common pattern, as DALBAR research shows.

Potential Disadvantages of Index Investing

The potential upsides of passive strategies have to be weighed against the potential risks.

No Downside Protection

Index funds track the market they’re based on, whether that’s small-cap stocks or corporate bonds. So, if the market drops, so does the index fund that’s trying to replicate that market’s performance. There is no live manager who can try to offset losses; index investors have to ride out any volatility on their own.

No Choice About Investments

Individual investors themselves typically can’t change the securities in any mutual fund or ETF, whether passive or active. But whereas active strategies are based on trading securities within the fund, index funds rarely change up their portfolios — unless the index itself changes constituents (which does happen).

Index Investing: a Long-Term Strategy

Some investors may try to time the market: meaning, they try to buy high and sell low. Investing in index funds tends to work when you hold your money in the fund for a longer period of time; or if you rely on dollar-cost averaging.

Dollar-cost averaging is a method of investing the same amount consistently over time to take advantage of both high and low points in market prices. Generally speaking, this strategy tends to lower the average cost of your investments over time, which may support returns. But dollar-cost averaging can be inflexible, and limit an investor’s ability to respond to certain market conditions.

The Takeaway

Index investing is considered a passive strategy because index funds track a benchmark that reflects a certain part of the market: e.g. large-cap stocks or tech stocks or green bonds. Indexing is considered a low-cost way to gain broad market exposure. But index funds are not without risks, and it’s wise to consider index funds in light of your long-term goals.

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

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What happens when you invest in an index?

You can’t invest in an index, per se, but you can invest in a fund that tracks a specific market index. When you invest in an index fund, you’re investing in not one stock, but in numerous stocks (or other securities, like bonds) that match that benchmark. A large-cap index fund would track big U.S. companies; an emerging market index fund would track emerging markets.

How much do index funds cost?

Index funds tend to have a lower annual expense ratio than actively managed funds, often under 0.05%. That said, investment fees can vary widely, and it’s essential to check a fund’s all-in costs.

Are index funds safe?

Investing in the capital markets always entails risk — no investment is 100% safe. That said, investing in an index fund may involve less risk than owning a single stock, because the range of securities in the fund’s portfolio provide some diversification. That doesn’t mean you can’t lose money. Index funds are only as stable as their underlying index.

Is it smart to put all your money in an index fund?

It’s possible to use an index investing strategy for your entire portfolio. Whether this makes sense for you is determined by your goals and risk tolerance. Index investing offers some potential advantages in terms of cost efficiency and broader market exposure, but comes with the risk of being tied to market returns, with no ability to adjust the portfolio allocation.


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


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

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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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How Much is My Truck Worth on Trade In Within the Next 5 Years?

How Much Is My Truck Worth on Trade-In Within the Next 5 Years?

The trade-in value of a truck is the amount a dealer is willing to give you to put toward the purchase of a new vehicle. Cars depreciate in value the moment you drive them off the lot, so over time, trade-in values tend to decrease as well. They are also impacted by a variety of factors, such as make and model, age, condition, and mileage.

Here’s a look at what your truck might be worth over the first five years of ownership, and the factors that impact that value.

Average Trade-In Value of a Truck After 5 Years of Ownership

The trade-in value of a truck is based on its market value, which is the amount a person is willing to pay based on the truck’s make, model, age, condition, etc. However, when saving up for a new car, it’s important to realize that what a dealer might offer for a trade-in is likely less than the market value. That’s because when the dealer eventually sells your vehicle, they will need to turn a profit. And their profit will be the difference between market value and trade-in value.

Cars, trucks, and other vehicles depreciate, meaning their market value decreases each year. Luckily for truck owners, trucks tend to depreciate more slowly than cars and SUVs.

For example, the average five-year depreciation of Toyota Tacoma, a midsize pick-up truck, is 20.4%, according to a 2024 study by iSeeCars. Average five-year depreciation for Ford F-150, a full-size pick-up truck, is 36.0%. Compare that to an average five-year depreciation rate of 38.8% for cars, 42.9% for midsize SUVs, and 49.1% for electric vehicles.

Depreciation is also an important factor to understand when leasing a vehicle, as your lease payment will cover the cost of depreciation to the lessor.

Supply chain issues, component shortgages, and increased demand for vehicles has driven up the price of new and used cars and trucks in recent years. This has had an impact on how fast vehicles depreciate. In 2024, the average five-year depreciation was 38.8%, compared to 49.1% in 2020.

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Factors That Impact Truck Value Over Time

As we mentioned above, the moment your car leaves the lot, it starts to lose value. (For that reason, savvy consumers often believe it’s better to buy a used car over a new one.) What happens to the car will have a big impact on value as well, from wear and tear to how much it’s driven and its accident history. As a result, depreciation and trade-in values will vary from vehicle to vehicle.

Age and Condition

Age and condition are two of the biggest factors that will affect your truck’s trade-in value. The older a vehicle is, the less value it tends to maintain (unless it’s a desirable vintage vehicle). The reason: It’s assumed that the older a car is, the more it will have been driven and the more wear and tear it will have experienced.

All sorts of factors big and small can go into determining condition, from dents and scratches to major repairs made after an accident. Only cars in pristine condition will fetch top market values and trade-in prices.

Mileage

How much a truck has been driven will also have an impact on trade-in value. The more you drive your truck, the more wear and tear you may be putting on the engine and other parts. As a result, trucks with lower numbers on their odometers tend to command.

Make and Model

A truck’s make and model refer to the company that makes the vehicle and the specific product, respectively. For example, Ford is a make while the F-150 is a model of truck. Some makes and models are more popular than others, which can increase trade-in value. This may be for a variety of reasons. For example, some may get better gas mileage or have roomier interiors that make them more appealing to used truck buyers.

Recommended: What Should Your Average Car Payment Be?

Trim Level

The trim level of a vehicle refers to the optional features it has. For example, higher trim levels may offer more equipment or luxury materials, such as leather seats. Automotive technology, such as back-up cameras and navigation systems, are in high demand. Higher trim levels can translate into higher trade-in values.

Accident History

Even if a car shows no outward signs of damage after an accident, vehicles that have been involved in a major accident or a natural disaster, such as a flood, will usually fetch lower trade-in values.

According to Carfax, any accident will remove $500 from the value of a car, on average, while a major accident can cost as much as $2,100 in lost value.

Local Market Demand

Where you resell your truck can have an affect on its market value. For example, if you live in an urban area, there may be less local demand for trucks than if you live in a suburban or rural location.

Geography can have other impacts on the value of your truck. For example, a truck that’s been through a number of harsh Northeast winters might be in worse condition than one from a warmer, dryer climate.

Increase Your Truck’s Trade-In Value

Bring your truck up to the best condition to increase its trade-in value. Fix whatever damage you can, such as scratches, chips in the windshield, or minor engine repairs. Have your truck cleaned and detailed before an appraisal by a dealer. A money tracker app can help you carve out room in your budget for any repairs.

It’s worth noting that your credit score will also impact the deal you get on your new car. That’s because a higher credit score gets buyers a lower interest rate on car loans.

Recommended: Does Net Worth Include Home Equity?

The Takeaway

How much a truck is worth is calculated based on many factors, including make, model, age, mileage, and condition. The trade-in value will be less than the market value. Understanding your vehicle’s potential trade-in value is an important consideration when budgeting and saving for the purchase of a new or used truck. If you think you may trade it in for a newer model in the future, research vehicles that are likely to hold their value better.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is the trade-in value of a truck?

The trade-in value of a truck is how much money a dealer is willing to give you toward the purchase of a new vehicle in exchange for your old one. Because dealers want to turn a profit when they resell your vehicle, trade-in values tend to be lower than fair market values.

How is trade-in value calculated?

Your truck’s trade-in value is based on a variety of factors, including make, model, age, mileage, and condition of the vehicle. Your truck’s value will depreciate every year, until it no longer has a resale value.

How do I find the fair trade value of my car?

A number of online tools can help you find the fair trade-in value of your car. For example, Kelley Blue Book and Edmunds offer very good online tools. Enter your vehicle identification number, license plate number, or the year, make, model, and mileage of your truck to get an idea of what it may be worth.


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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.


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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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woman in striped shirt at desk

How Much Should I Have in Savings?

If you’re wondering how much you should have in savings, you may know that many financial experts feel three to six months’ worth of living expenses is vital. That said, you might also be curious if more cash in the bank may provide a greater sense of security and well-being.

Despite the saying that money can’t buy happiness, research indicates that having cash can indeed enhance one’s sense of well-being. A study conducted at the Wharton School of Management at the University of Pennsylvania found having more money does boost your positive feelings.

So with that in mind as well as your financial security, here’s a closer look at how much you should have in savings to get those good vibes going and give you a sense of security during uncertain times.

Key Points

•   Financial experts generally recommend having at least three to six months’ worth of living expenses in savings.

•   Savings recommendations vary by age, starting with $500 for young adults and increasing to six months of expenses for older adults, not including savings for long-term goals, such as retirement.

•   Many Americans lack sufficient savings, according to a 2024 SoFi survey, with 45% having less than $500 in their emergency funds.

•   Outside of savings accounts, you may consider putting your savings in retirement accounts and investment accounts — though higher risk, these options may help your money grow over time.

•   Budgeting, tracking spending, and cutting unnecessary expenses may help you build savings more effectively.

Why Should I Have Savings?

You want to be financially savvy, right? Most people do. But a startling 12% of Americans have no savings, according to a recent YouGov survey. Another 13% say they have less than $100 and 14% indicate they have between $1,000 and $4,999.

A savings account helps you avoid going into more debt and prepare for unexpected emergencies. Imagine if your car had a major breakdown, or your cell phone was trampled on during a weekend outing. How would you afford the unpredictable repairs?

An emergency fund stocked with extra cash can help you avoid taking out personal loans or using a credit card to cover an unexpected expense. And while emergencies are never fun, it might help you feel a little bit better knowing that you’re prepared. In SoFi’s April 2024 Banking survey of 500 U.S. adults, 45% of respondents said they have less than $500 in an emergency fund.

How Much Money Should I Have in Savings?

If you don’t have much in savings, where exactly do you start? A general rule of thumb is to have three to six months of living expenses saved up, not including money you’re setting aside for long-term planning, such as retirement funds. But keep in mind that your living expenses may increase as you age, as you start growing your family, have mortgage payments, or are saving for retirement, so you might need more in a checking and savings account.

But that is still a good figure to aim for. Once you figure out your bare minimum monthly expenses and multiply it by three or six, you can calculate how much to aim for and get that sum saved.

It’s worth noting that some money experts say 10 times your monthly expenses may be a wiser amount of a cash cushion to stash away.

However, many Americans are not yet stashing away enough for emergencies, according to our survey data.

Amount in emergency savings

People who have saved that amount

Less than $500 45%
$500 to $1,000 16%
$1,000 to $5,000 19%
$5,000 to $10,000 9%
More $10,000 10%

Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults

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How Much Money Should I Have in Savings by Age?

Now, here’s a look at how much to sock away in savings based on your age.

18-24: At Least $500 in Savings

Being a college student or recent grad is expensive. It’s hard to keep up with tuition and rent. However, as a college student, you can try starting with $500 in emergency savings and working your way up.

A $500 emergency fund is a great place to start for young people whose expenses are typically less than older Americans. Even just saving $10 per week can help you reach your goal in about a year.

20s: 3-6 Months of Expenses in Savings

After graduation, you’re figuring out the real world for the first time. Most post-graduates are determining how to pay back student loans, and maintain new living expenses. It may help to break down your larger goal of three to six months’ worth of living expenses into first saving $1,000 in your emergency fund.

This can help you feasibly achieve your savings goal while preparing for most emergencies with a sum of cash on hand. You might want to try automating your savings and having a small amount transferred from your checking account on payday to build up your reserves.

30s: 6+ Months of Expenses in Savings

By the time you reach your thirties, ideally you’d have at least six months of expenses saved. At this point, you may even be questioning if you should invest more or continue to save. An easy way to determine how much you need to save is to create a budget of your basic living expenses. Twenty-three percent of people in SoFi’s survey report using budgeting tools offered by their bank.

How much do you need to survive in the case of job loss or a medical emergency? A savings account of at least six months of your usual expenses can help you feel safe enough to cover rent, utilities, and food while you get back on your feet.

40s: 6+ Months of Expenses in Savings

How would you survive if faced with a job loss? According to the Center on Budget and Policy Priorities, unemployment benefits vary state-to-state, but many states give up to 26 weeks in benefits.

However, the amount you receive might not be on par with what you are earning, so consider alternative safety nets. As an example, in New York, which can have a high cost of living, unemployment benefits may range from $100 to $500 a week.

When you’re in your 40s and 50s, replacing your income may prove to be more difficult as you search for positions with more work experience. If the government covers roughly six months of unemployment, then you’ll likely want to have at least that much and then some in your own savings.

50s: 6+ Months of Expenses in Savings

If you are in your 50s and wondering how much to have in savings, the answer again is at least six months’ worth of living expenses and ideally significantly more. For many people, this is their period of peak earnings. They may have multiple expenses as well, such as a mortgage, children’s education, and eldercare. Yet only 10% of people in SoFi’s Banking survey have more than $10,000 in their emergency savings.

Given these pressing concerns, you want to make sure you have a cushion if you were to face an emergency like job loss. What’s more, you don’t want to tap your retirement savings, which can trigger steep early-withdrawal penalties.

Where Should I Put My Savings?

If you’re building up an emergency fund, then placing your savings in an account that can be easily accessed, like a savings account, is probably ideal. That said, there are different options for putting your savings, depending on your goals.

Retirement Accounts

Putting your near-term or emergency savings into a 401(k) or mutual fund might not be the best place for this purpose because these accounts are not very liquid. In other words, you can’t easily access the money when you need it.

Plus, withdrawing early from accounts specifically set up for retirement may come with penalties and hefty fees if you are under the age of 59.5. In addition, these funds may not be insured, depending on the type of account.

That said, a retirement account is an important tool for long-term savings, since they may help grow your funds over time to help provide you with the money you’ll need later in life.

Investments

Investments can offer a place to grow your savings at a healthy rate of return over time. However, this money will not be insured, and you could face losses if the market drops. That could leave you vulnerable if you needed to access money at that moment. You might look into short-term vs. long-term investments to see how you may want to balance different types of savings plans.

Savings Account

A savings account can provide a secure place to store your savings. There are different kinds of savings accounts to consider, and you may find varying rates of return depending on the annual percentage yield (APY) offered and how often compounding occurs. For instance, there are high-yield savings accounts that offer higher APYs, which 23% of the SoFi survey respondents said they have.

When comparing traditional vs. online banks, you may find that the latter, since they don’t have brick-and-mortar locations, may offer better rates and lower fees.

Recommended: Use SoFi’s savings account interest calculator to see how much your money can grow over time.

Checking Account

While a checking account is a secure, typically FDIC-insured place to store your savings, it’s really designed to be more of a place for paying bills and for everyday needs. You likely won’t earn much interest. In SoFi’s survey, 88% of the respondents with bank accounts have checking accounts, while 71% have savings accounts.

Cash

While cash is perhaps the most liquid of ways to store your money, it can’t promise security. You could be robbed or could lose your money. That’s not what you want to happen to your nest egg!

This chart helps you compare the different places to put your savings.

Location of Savings Rate of return Insured
Retirement Variable Maybe
Investments Variable No
Savings Low to moderate Yes
Checking No to low Yes
Cash None No

How Much Does the Average American Have in Savings

While you’ve now read the advice to have three to six months’ worth of living expenses stashed away, many Americans are not hitting that goal.

According to the Federal Reserve’s Board Survey of Consumer Finances, here are the average savings:

•   Under 35: $11,200

•  Age 35-44: $27,900

•  Age 45-54: $48,200

•  Age 55-64: $57,800.

Building Up Savings More Quickly

Convinced you need more savings, and a traditional savings account just won’t cut it? Here are a couple of ways to help build up your savings faster than a savings account alone.

Selling Your Stuff

Take inventory of things in your garage or closet that you can sell. There are several buy/sell apps out there that can make it easier to sell your unwanted items, and many places where you can sell your stuff and recoup some money.

Any money you make off of your items can be thrown into your savings account. This method is a win-win because you get rid of things you aren’t using, and you can build up your savings without changing your spending habits.

Cutting Out Unnecessary Spending

Want to make significant strides with your savings habit? It might be time to look at your expenses and cut out unnecessary spending.

There are several things you could change, even if it’s just temporary. Replace your $100 per month gym membership by exercising with free, full-length workout videos online. Cut out your cable expense and go all-in with a cheaper Netflix subscription.

How a Budget Can Help You Save

Yes, the dreaded budget. Actually seeing how much you spend each month in a written budget can help you save. When you track your monthly income and expenses, you can quickly identify what areas of life are costing the most so you can make adjustments.

An online budgeting tool like SoFi’s can help you track your spending, which can help you see where you might be able to trim some fat from your expenses.

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 3.80% APY on SoFi Checking and Savings.

FAQ

How much should a 30 year old have in savings?

How much money you should have in savings at age 30 will vary, but an individual should have at least three to six months’ worth of basic living expenses saved. Some financial advisors suggest that you should have the equivalent of one year’s salary (gross) saved.

How much does the average person have in savings?

Savings vary person to person, and with age. Currently, the average American under age 35 has approximately $11,200 saved.

Is $20000 a good amount of savings?

Whether $20000 is a good amount to have saved will depend on a few factors. If you are a single recent college grad, it could be a very good starting point for an emergency fund. However, if you have several dependents and are taking retirement savings into account, then you may consider strategies for increasing your savings.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


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

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

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

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*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.


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.

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