Mar
31
2025
Guide to Chartered Banks

Guide to Chartered Banks

By | money | Comments Off on Guide to Chartered Banks

A chartered bank is a bank whose operations and services are governed by a charter issued at the state or federal level.

A charter is a legal document that essentially tells the bank what it can and can’t do. Chartered banks can be commercial banks but they can also operate as savings banks, savings and loan associations, online-only banks, or credit unions. They can accept deposits and make loans, just like other banks.

There are, however, a few characteristics that make chartered banks unique. And it’s important to know that not all banking startups may offer the benefits of chartered banks. Learn the details here.

What Is a Chartered Bank?

A chartered bank is any bank that’s authorized to accept deposits or lend money according to the terms of a legally recognized charter. Chartered banks are subject to oversight from the government agency that issues their charters.

Like other banks, chartered banks can offer different types of financial accounts, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

•   Specialty accounts, such as custodial accounts or bank accounts for college students

Chartered banks can also offer various types of loans, including personal loans, auto loans, lines of credit, and mortgages.

A chartered bank may have a physical footprint with brick-and-mortar branches and ATMs. Or it may operate online-only. Both traditional and online chartered banks can allow customers to access their money via online banking, mobile banking, or phone banking.

How Does a Chartered Bank Work?

Chartered banks work by accepting deposits and making loans. When you deposit money into a savings account at a chartered bank, for instance, the bank may pay you interest on those funds. Meanwhile, the bank uses your deposits and those of other customers to make loans, charging borrowers interest in the process. That’s largely how banks make profit.

A chartered bank can also generate revenue by charging its customers fees. If you’ve ever paid an overdraft fee, for example, you’re aware of how much a single fee can add up to. How much you pay in fees to a chartered bank can depend on whether you’re dealing with a brick-and-mortar or online bank. Since online banks tend to have lower overhead costs, they can pass the savings on to their customers in the form of higher rates on deposits and lower fees.

Banks must apply for a charter; they’re not granted automatically. Each state sets its own requirements for state-chartered banks. The Office of the Comptroller of the Currency (OCC) regulates federally-chartered banks.

Regardless of whether the bank is chartered by the state or federal government, the bank must insure deposits through Federal Deposit Insurance Corporation (FDIC) coverage. This covers up to $250,000 per depositor, per account ownership category, per insured institution. The bank must also apply for approval to join the Federal Reserve System if it wishes to do so.

Chartered banks may or may not be part of the SWIFT banking system. SWIFT, short for Society for Worldwide Interbank Financial Telecommunication, is an electronic messaging system that’s used to send financial transactions around the world. A chartered bank can, however, still process wire transfers and other electronic transactions even if they’re not part of SWIFT.

What Is a State Chartered Bank?

You may wonder what it means if a bank is chartered by the state vs. the federal government. Here’s a closer look.

A state-chartered bank is a bank that receives its charter from the state. As such, it’s subject to regulation by the chartering agency in that state. Again, the requirements to obtain a charter and the rules the bank is expected to follow once they secure a charter will depend on the state.

In California, for example, the process to become a chartered bank is similar to the process for establishing a commercial bank. Before a bank can apply for a charter, it has to complete a feasibility study, receive approval to proceed from the local government, and receive voter approval. The application itself is just a simple form, often only a couple of pages.

State-chartered banks that are part of the Federal Reserve System are regulated by the Fed. Any state-chartered bank that isn’t part of the Federal Reserve System is regulated by the FDIC instead. The FDIC regulates more than 5,000 state-chartered banks and savings associations.

What Is a Federally Chartered Bank?

Next, here’s a look at what a federally chartered bank is. It’s a bank that receives its charter from the federal government. The Office of the Comptroller of the Currency is responsible for regulating nationally-chartered banks and savings associations. The OCC is an independent branch of the Treasury Department.

Federally chartered banks are authorized to operate on a national scale. A federally chartered bank can be a traditional financial institution or an online banking platform.

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Chartered Bank Oversight

Now that you know what is a chartered bank and what isn’t, here’s a bit more about how chartered banks are regulated. They are typically subject to oversight from the agency that issued their charter. Generally speaking, this oversight is designed to ensure the smooth operation of the bank itself while protecting consumer interests. Some of the things chartering agencies do include:

•   Visiting the bank to conduct on-site examinations

•   Monitoring the bank’s compliance with banking laws

•   Issuing regulations to cover banking operations

•   Taking enforcement actions when a bank violates a regulation or rule

•   Ensuring that the bank is financially sound and is conducting ethical banking practices

In extreme cases, the chartering agency may revoke the bank’s charter or close a bank if it fails. In the case of FDIC member banks, the FDIC steps in to cover deposits for customers. As noted, the current FDIC coverage limit is $250,000 per depositor, per account ownership category, per financial institution.

Chartered vs Online Banks

A bank can be chartered and have branches, or it can be chartered and operate online. In terms of what’s different between chartered banks that have physical branches and those that operate online, here are a few things to know:

•   Online banks tend to offer higher interest rates on savings accounts and possibly checking, too.

•   Online banks may also charge fewer bank fees, since they have lower overhead costs.

•   Brick-and-mortar chartered banks may offer a wider selection of banking products and services.

•   Traditional chartered banks can offer in-person banking, while online banks may limit you to accessing your account online or via a mobile banking app.

Whether it makes sense to choose a traditional chartered bank vs. an online bank can depend on your preferences and needs. If you want to get the best rates on savings and don’t mind branchless banking, then you might choose an online bank. On the other hand, if you like being able to pop into a branch from time to time, you might prefer a brick-and-mortar chartered bank.

Keep in mind, however, that not all online financial companies (sometimes called fintechs) are chartered banks. There are many startups, but it’s wise to do your research and see what benefits and protections they offer, either by reading the fine print or asking customer service.

Recommended: Online vs. Traditional Banking: What’s Your Best Option?

Chartered vs Commercial Banks

A commercial bank is a financial institution that engages in banking services, including accepting deposits and making loans. In that sense, it sounds similar to a chartered bank. In fact, a commercial bank can be a chartered bank, though not all commercial banks are.

Examples of chartered commercial banks include:

•   National banks that are chartered by the OCC

•   Non-member banks that are state-chartered but not part of the Federal Reserve System

•   State member banks that are state-chartered and part of the Federal Reserve System

When comparing a chartered vs. commercial bank, the main difference is the charter. A chartered bank is required to have either a state or national charter; a commercial bank may be chartered, but it isn’t required to be in order to operate.

Should I Do Business With a Chartered Bank?

Whether you opt to do business with a chartered bank is a matter of personal preference. Opening accounts with a chartered bank could give you some peace of mind since you know the bank is subject to regulation. And in the rare event that the bank fails, the FDIC can step in and restore your deposits to you.

When comparing chartered banks, consider such aspects as:

•   Account types offered

•   Account fees

•   Interest rates for deposit accounts

•   Interest rates for loans if you plan to borrow

•   Minimum deposit requirements

•   Access and convenience

•   Customer support availability

Security is another factor to weigh. The safety of mobile banking, for instance, might concern you if you’re used to managing your accounts at a branch or ATM. The good news is that online banks, chartered or not, have increasingly stepped up security efforts to protect customer accounts.

Keep in mind that you’re not limited to just one bank either. You may choose to open a checking account at a traditional chartered bank, for instance, and a high-yield savings account at an online bank. If you’re wondering whether to have a lot of bank accounts, it can be helpful to have checking and savings at a minimum.

You can use checking to hold the money you plan to spend now, and savings for the money you want to grow. Or you might prefer a simple hybrid approach that gives you the best of both worlds in one place.

Recommended: How to Open a New Bank Account

The Takeaway

Whether you open your accounts at a chartered bank or not, it’s important to find a financial institution that matches your needs. If you’ve only ever done business with traditional banks, you may want to consider the merits of using an online bank.

SoFi holds a national banking charter, an important point to consider as you think about your banking options.

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

Are all banks federally chartered?

No, not all banks are federally chartered. Some banks hold a state charter instead.

What is a non-chartered bank?

A non-chartered bank is a bank that does not have a federal or state charter. Neobanks are an example of a bank that has no charter, though technically, they do not meet the strict definition of a bank.

What is the difference between a state and federally chartered bank?

State-chartered banks receive their charters from state agencies. They’re subject to regulation by the FDIC or the Federal Reserve if they’re part of the Federal Reserve System. Federally-chartered banks receive their charters from the federal government and are regulated by the OCC, or Office of the Comptroller of Currency.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/ultramarine5

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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.

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.

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Mar
31
2025
Negative Balance on Credit Card Statement: What It Is, How It Happens, and What to Do

Negative Balance on Credit Card Statement: What It Is, How It Happens, and What to Do

By | Credit, Financial Independence | Comments Off on Negative Balance on Credit Card Statement: What It Is, How It Happens, and What to Do

It’s entirely possible to find, when looking at your credit card statement, that you don’t owe any money this month. In fact, you have a negative balance on your credit card. You may assume there is a glitch in the system, but there are several reasons this can happen.

Read on to learn what a negative balance means on a credit card, how it can occur, and what to do if you see a minus figure on your statement.

What Is a Negative Balance on a Credit Card?

A negative credit card balance is when the credit card issuer owes the cardholder money instead of the cardholder owing money to the credit company. If you have a negative balance on a credit card, your outstanding balance is below zero.

How Does a Negative Balance Happen?

A negative balance on a credit card usually occurs for one of several reasons, which include:

You Overpaid Your Credit Card Bill

The first reason you may have a negative credit card balance is that you may have overpaid. For example, say you entered a specific payment amount that exceeded the amount due. Or, perhaps if you used autopay to cover your credit card minimum payment but made a manual payment simultaneously, you could end up having a negative balance on a credit card.

You Returned Something You Bought With the Credit Card

If you return an item and the amount of the refund exceeds your current credit card balance, it could result in a credit card negative balance. For example, perhaps you bought a $50 frying pan from your local home supply store. If you paid off your credit card and then decided to return the frying pan, your credit issuer will refund the $50. This refund will now make your new balance -$50, meaning you have a credit card with a negative balance.

You Cashed Out Too Many Rewards

Some credit cards let you redeem your rewards in the form of a statement credit. If you redeem your rewards and also pay off your revolving balance in full, for instance, you could end up with a negative credit card balance.

You Had a Charge Removed from Your Statement

Here’s another example of a scenario that could leave you with a negative balance on a credit card: Say you reported a fraudulent charge on your credit card. If you decide to repay the entire amount that’s due without accounting for the fraudulent charge, you could have a negative balance once the charge is reimbursed to your account.

Also, if you had a fee canceled or removed from your account, this could happen as well. This could also happen in the case of a credit card chargeback.

How to Get Your Money Back From a Negative Balance

If you see a negative credit card balance, it’s not something you necessarily need to worry about. However, if it’s bothering you, there are actions you can take to bring your balance out of the negative.

Here are your options if your credit card balance is negative:

Leave the Balance Alone and Decide Later

If you discover a negative balance on your credit card, you don’t need to take immediate action. Instead, you can just let it be and decide how to move forward at a later time. Because you’re owed money from the credit card issuer, you won’t need to worry about credit card interest accruing.

Use Your Credit Card for Additional Purchases

One of the easiest ways to resolve a negative balance is to make other purchases. Given how credit cards work, spending money on your card can help your balance get back to zero.

For example, if you have a -$100 balance and then make a $100 purchase, your credit card balance will even back out. Then, you don’t have to do anything until you receive another bill, nor will you have to worry about the APR on your credit card yet.

Get Your Money Back as a Credit Balance Refund

If your negative balance is an amount that’s more than you’re comfortable with or you need the money for other expenses, you can request a refund from the company. To comply with the Truth and Lending Act, credit issuers must refund negative credit card balances that exceed $1 within seven business days of receiving a written request from the cardholder.

You can expect the refund to come in the form of a check, money order, or direct deposit to your bank account. In some cases, you might be able to get a cash refund if the card issuer has physical locations.

Is a Negative Balance a Bad Thing?

A negative credit card balance isn’t a bad thing. However, if you need the funds for other bills, it’s wise to request a refund immediately.

And if you’re concerned, a credit card negative balance could impact your credit score, don’t fret — it won’t. Credit scoring models generally treat negative credit card balances as the equivalent of a $0 balance. In fact, if you have a negative balance, it likely means you’ve been staying on top of paying your balance off each month and are in good standing.

Also, keep in mind that although a negative balance may temporarily allow you to spend beyond your credit card limit due to the addition of the negative funds, it won’t actually increase your limit.

Recommended: How Many Credit Cards Should I Have?

The Takeaway

While a credit card negative balance isn’t a bad thing, it’s always wise to keep tabs on your credit card activity. Not only should you monitor what you owe, but you should identify credits or refunds you’re entitled to and factor those in when paying your balance each month. If your balance does end up in the negative, there are steps you can take to bring it back to zero, but you’re also fine to just leave it alone — unless, of course, you need the funds for other things.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Will a negative credit card balance affect my credit?

No, a negative credit card balance will not affect your credit score. This is because credit bureaus consider negative balances as equivalent to a $0 balance.

Can I close my account with a negative balance?

Yes, you can close an account with a negative balance. In most cases, your card issuer will process a refund automatically. If they don’t, you can request one when closing the account.

What do you do with a negative balance on a closed credit card account?

Usually a credit issuer will refund your negative balance before completely closing the account. However, if the credit card is canceled and you lose access to your credit card login, you’ll need to contact your credit issuer to process a refund.

About the author

Ashley Kilroy

Ashley Kilroy

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


Photo credit: iStock/filadendron

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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Mar
31
2025
What Is Mystery Shopping?

What is Mystery Shopping?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What is Mystery Shopping?

Being a mystery shopper (or secret shopper) can sound like a dream come true: A company pays you, as an independent contractor, to hit the stores and buy things. You earn money by posing as a patron at a place of business and help evaluate the quality of the products and services.

However, not all mystery shopping jobs are legit (there are plenty of scams out there) and even the real jobs generally don’t pay enough to allow you to leave your day job. Still, working as a secret shopper can be a fun way to earn some extra cash. Read on to learn more about this type of marketing work and how to become a mystery shopper.

Key Points

•   Mystery shopping involves evaluating businesses by posing as a customer, providing feedback to improve services.

•   Payment for mystery shopping tasks can take 30 to 90 days to process.

•   Earnings from mystery shopping are variable and often modest, averaging $12.23 per hour.

•   Scams are prevalent in mystery shopping; legitimate opportunities don’t require upfront fees or promise unrealistic earnings.

•   Taxes apply if mystery shopping earnings exceed $400 annually, making detailed record-keeping essential for deductions.

What Is Mystery Shopping?

Mystery shopping means a company hires you to use its services covertly. For example, you might bring your car into a shop for an oil change, buy a new pair of jeans at the mall, or eat at a new restaurant. The crucial factor is that the company’s employees don’t know by whom you are employed or that you are evaluating them, so you’ll gain insight into what typical operations are like. The purpose is for the company to gather your feedback to improve their business.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

What Happens During Mystery Shopping?

During mystery shopping, you’ll head to the assigned business location and act like an average customer. You might have the job of returning something or noting the tidiness of the workspace.

After you complete your task, you’ll likely submit a write-up or complete a survey describing your experience, including what went well or how the company could sharpen their services. Generally, once the company receives your feedback, they will pay you.

How Much Do Mystery Shoppers Make?

According to Indeed, mystery shoppers across America earn $12.23 per hour on average, which would equal $28,597 if employed full time. Typically, you receive compensation per task instead of per hour. However, mystery shopping can be time-consuming, which is why the hourly pay is relatively low. Additionally, some mystery shopping opportunities don’t offer compensation.

While some side jobs, such as renting out a portion of your home, help you build passive income streams, mystery shopping pays by the gig. Therefore, to make continuous money, you’ll have to repeatedly take on mystery shopping jobs.

Can Mystery Shopping Be a Full-Time Job?

Companies pay mystery shoppers for their help, usually in the form of a flat fee. They may also repay all or part of the expenses you incurred performing the work. In either case, mystery shopping isn’t typically profitable enough to be a full-time job, though it can be a fun, low-cost side hustle. Remember, the time that mystery shopping takes and the hidden expenses such as unreimbursed travel expenses can reduce the value of your reimbursements.

Additionally, as independent contractors, mystery shoppers don’t receive benefits, such as health insurance and paid time off. Also, if you are self-employed, saving for retirement is on you.

As a result, you’ll need to subtract those costs from what you think you could earn as a full-time mystery shopper. With an average salary of $28,597 a year, it may be challenging to make ends meet.

Would Mystery Shopping Be Considered Variable or Fixed Income?

Fixed income is a set sum of money that you can expect on a regular basis. For example, when you earn a salary, you will usually get paid the same amount weekly or bi-weekly.

On the other hand, variable income fluctuates weekly or bi-weekly. Since the income earned from mystery shopping can vary by company and project, your mystery shopping income is usually variable.

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

Do Mystery Shoppers Pay Taxes?

The IRS requires you to file an income tax return if your net earnings from mystery shopping (or any side hustle) were $400 or more for the year. If you netted less than $400 from mystery shopping, the IRS stipulates that you still have to file an income tax return if you meet any other filing requirements listed in the Form 1040 and 1040-SR instructions. Remember to keep records of your expenses so you can maximize your deductions.

Becoming a Secret Shopper

If you strategically acquire legitimate mystery shopping jobs, you can make quick cash to pad your budget every month. Here are steps to becoming a secret shopper:

•   Search online for mystery shopping opportunities from businesses.

•   Vet the advertisement and company to ensure the opportunity isn’t a scam.

•   Apply to the mystery shopping job.

•   If necessary, submit a background check and sign any related disclosures or professional agreements.

•   After the company grants you access, check their website for jobs and select one you’d like to complete.

The Mystery Shopping Providers Association (MSPA) has an online database to help you find honest, authentic mystery shopping jobs. In addition, the organization offers two certifications that make you a more desirable mystery shopper for companies. You can earn the MSPA’s silver certificate online and participate in a day-long workshop for the gold certification.

Recommended: A Guide to Ethical Shopping

Benefits of Becoming a Mystery Shopper

By becoming a secret shopper, you’ll enjoy the following perks:

•   You earn money for shopping, trying a delicious meal, or spending the night at a hotel.

•   You can create your own schedule and practice a healthy work-life balance.

•   You may get to keep what you buy.

•   You can often work during evenings and weekends if that is your only available time.

•   You decide for whom you want to work, meaning you can be selective when choosing jobs.

•   You are your own boss to a large extent, setting your schedule.

•   You can supplement income from your day job with mystery shopping or even try going full time.

•   You’ll have variety and excitement from new experiences every day.

•   You can help companies you like improve their products and services.

Drawbacks of Becoming a Mystery Shopper

If you’re considering becoming a mystery shopper, it’s a good idea to be mindful of potential downsides:

•   You likely won’t have steady earnings like a typical job, meaning some weeks will be more lucrative than others. In addition, each job may pay differently.

•   Frequent travel can put extra miles on your car and possibly cause damage. Even if you’re reimbursed for miles, you may still lose more money through oil and tire changes.

•   You’ll probably have to sift through countless scams while looking for jobs. If you fall prey to one, you’ll likely lose money or waste time.

•   Payment could take up to 90 days to receive.

•   Starting out, you usually won’t be able to access some of the better assignments available only to seasoned shoppers.

Recommended: How to Earn Residual Income

Tips Before Becoming a Mystery Shopper

If you’re planning on becoming a secret shopper, consider this advice on staying organized and achieving success.

Keeping Receipts

You’ll likely submit receipts for many mystery shopping jobs. Therefore, you may spend time mailing, faxing, or scanning receipts. It’s recommended to make copies for your own records to ensure you retain proof of completed jobs.

Signing Up for Multiple Sites and Companies

To make substantial income, you’ll probably work with numerous companies. As a result, you’ll typically have to become well-versed in the methods and preferences of a plethora of businesses. It can be a good idea to organize your work into files for each company to keep you from getting mixed up.

Watching Your Income and Taxes

You’ll likely owe taxes on the income if you earn more than $400 as a mystery shopper. Therefore, it’s recommended to meticulously track your earnings to ensure your income level is accurate on your tax return.

Watching for Scams

Unfortunately, not all mystery shopping jobs are legitimate. Scammers devise websites and advertisements to look authentic. Here, some signs to watch out for:

•   A dead giveaway of a scam is typically the requirement that you must pay to access a job. Companies with legitimate mystery shopping opportunities won’t charge you or demand that you transfer money from your bank account. Additionally, since MSPA lists mystery shopping jobs at no charge, you should not have to pay to view opportunities.

•   Any mystery shopping job that promises you’ll make thousands of dollars during your first month is also likely to be fraudulent. While it is possible to generate significant income by mystery shopping, it takes time and certifications to access better-paying work. Even then, you would have to work at least 40 hours per week to earn enough to live on.

•   Beware scammers who use the MSPA name to con you into their fraud. MSPA is an excellent resource, but scammers posing as the organization try to lure mystery shoppers. The MSPA posts jobs but does not directly employ mystery shoppers. It can be wise to avoid advertisements for jobs with the MSPA, as they tend to be fake.

Knowing What You Signed Up For

It’s easy to get carried away when perusing mystery shopping opportunities. So before you click away, it’s a good idea to read the details about the opportunity first. For example, although you might see a job at your favorite store, the location might be an hour away instead of the one that’s a five-minute drive from home. Therefore, it’s wise to study jobs carefully before committing to something you may not enjoy or receive enough compensation for it to be worthwhile.

The Takeaway

Mystery shopping can be a fun way to earn extra money. Just keep in mind that it may not be the most profitable side hustle out there, and finding legitimate opportunities can be challenging. Still, the added perks of trying new products and having new experiences can make mystery shopping an enjoyable hobby that also puts a little extra padding in your bank account.

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

Is mystery shopping too good to be true?

Mystery shopping is a viable side gig that can increase your income by completing jobs for businesses that are looking to improve. However, scammers try to lure in would-be mystery shoppers by promising huge paychecks for quick jobs. Any mystery shopping job that sounds too good to be true probably is. That said, a wide array of mystery shopping jobs pay modest rewards that can pad your wallet.

Do mystery shoppers get to keep what they buy?

Mystery shoppers sometimes get to keep what they buy. It depends on the company’s policies for the specific job. The business might allow you to keep purchases in some cases and ask for you to return them in others.

Do mystery shoppers get paid upfront?

In most cases, mystery shoppers do not get paid upfront. It usually takes 30 to 90 days to receive payment for a mystery shopping job.

About the author

Ashley Kilroy

Ashley Kilroy

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


Photo credit: iStock/PeopleImages

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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

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.


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.

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Mar
31
2025
How To Calculate Marginal Propensity to Save

Guide to Marginal Propensity to Save (MPS)

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Marginal Propensity to Save (MPS)

The marginal propensity to save (MPS) is an economic concept that says when a person’s income rises, the MPS will determine the amount of money that is saved vs. spent on goods and services. This is an element in Keynesian Economic Theory, and it can have an important impact. The MPS can enable economists to figure out how to spend either government dollars or private funding.

But does MPS impact the average individual’s savings account? It can be a useful notion, and in this article you will learn:

•   What is marginal propensity to save (MPS)?

•   Why does MPS matter?

•   What does MPS mean to the average person?

The Keynesian Economic Theory, Explained

Economist John Maynard Keynes published The General Theory of Employment, Interest, and Money, or simply as The General Theory, in 1936. This text changed economic thought from that point on and is known as one of the classic economic publications. In the book, Keynes tried to explain economic fluctuations, especially the ones seen in the Great Depression of the 1930s.

Essentially, The General Theory was built on the idea that as a result of inadequate demand for goods and services, recessions and depressions could occur. Keynes’ theory was not just for economists—it was intended for policymakers worldwide. Keynes advocated for an increase in government spending, which would boost the production of goods and services to minimize unemployment rates and enhance economic activity. In general, this theory went against the traditional economic policy of laissez-faire, which requires minimal government involvement.

There are three main elements of this theory. These elements include:

• Aggregate demand: This is the demand influenced by the public and private sectors. The level of demand in the private sector may impact macroeconomic conditions. For instance, a lull in spending may bring an economy into a recession. At this point, the government can intervene with monetary stimulus.

• Prices: Wages, for example, are often slow to respond to supply and demand changes. This may result in an excess or shortage of labor supply.

• Changes in demand: Any change in aggregate demand results in the most considerable impact on economic production and employment. The theory states that consumer and government spending, investments, and exports increase output. Therefore, even a change to one of these factors and the output will change.

The Keynesian Multiplier was created as a result of the change in aggregate demand. The Keynesian Multiplier states, “The economy’s output is a multiple of the increase or decrease in spending. If the fiscal multiplier is greater than 1, then a $1 increase in spending will increase the total output by a value greater than $1.”

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

Calculating Marginal Propensity to Save

The Keynesian Multiplier value relies on the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Here’s how you can calculate the marginal propensity to save.

Marginal Propensity to Save Formula

When people receive additional income, the MPS is the change in the savings amount. If their income increases, the MPS measures the amount of income they choose to save instead of spending it on goods and services.

That said, this is how to calculate MPS: MPS = change in savings / change in income.

For example, let’s say someone received a $1,000 raise. Of that $1000 increase in income, they decide to spend $300 on new clothes, $200 on a fancy dinner out, and save the remaining $500, so the MPS is 0.5.

(1000 – 300 – 200) / 500 = 0.5

Marginal Propensity to Consume

Conversely, the MPC is the change in the spending, or consuming, amount. If someone’s income increases, the MPC measures the amount of income they choose to spend on goods and services instead of savings.

With this in mind, MPC is calculated as MPC = change in consumption / change in income.

By using the example above, the MPC would be 500 / 1000 = 0.5.

According to Keynesian economic theory, when production increases, the level of income rises too, triggering an increase in spending.

Marginal Propensity to Save Example

As mentioned above, the marginal propensity to save can be illustrated by someone getting a raise. If you receive a $5,000 raise and decide to spend $2,500 on a vacation and save the other half.

The MPS would be change in savings / change in income, or $2,500 / $5,000, or 0.5.

Top 3 Factors That Influence Saving

Knowing how to find MPS and MPC may seem pretty straightforward. However, both calculations only account for the excess of disposable income; the calculations don’t account for other factors that may influence a consumer’s consumption functions. If one of these non-income factors shifts, the entire consumption function may shift.

Here are some of the non-income factors that may influence a consumer’s consumption function.

1. Wealth

Wealth and income are two different variables in economics. For example, suppose Javier has a job earning $60,000 per year. If his aunt Ines passes away and leaves him $200,000 as an inheritance, his income is still $60,000 per year, but his wealth has increased.

Similarly, if Javier owns a piece of art that increases in value or his investment portfolio grows, his wealth has also gone up. Just because his wealth increases doesn’t mean his income does as well.

Therefore, an increase in wealth may increase consumption despite income levels staying the same. However, both the consumption and savings function may shift upwards as well because of the newfound wealth. The same is true in the opposite situation. If wealth decreases, the consumption and savings functions may decrease as well.

2. Expectations

In some cases, consumers may adjust their spending habits based on the expectation of future income coming their way. Expectations change the shift in consumption and savings functions because there is no change in actual income, just how it’s being spent.

For example, suppose Naomi assumes her income is going to increase soon. She may consume more now because of her expectation that her income is about to grow. This may highlight an upward shift in the consumption function without an increase in income.

On the other hand, if Naomi were pessimistic about her future income, such as the fear of losing her job, she may decrease her consumption without dropping her income. This scenario may also shift the consumption factor.

Debt

Consumers may also adjust their consumption and savings if they’re in debt. It’s observed that in economies where consumer debt rises, savings go up while consumption goes down. There is a level of debt when consumers typically feel uncomfortable spending more. Even if their income remains the same, if too much debt plagues their pocketbooks, they will start to save more and spend less so they can pay off their debt.

Conversely, if there are low levels of debt, consumers tend to spend more and save less.

Recommended: What is the Average Savings by Age?

Why Marginal Propensity to Save Matters

Using the data from MPS and MPC helps businesses, governments, and foreign policymakers determine how funds are allocated. For example, economists can assess this data to determine increases in government spending or investment spending, influencing savings numbers.

As for consumers, using the marginal propensity to save formula can help them make adjustments to their own spending habits. If their MPC is higher than their MPS, adjustments to consumption may need to be made.

How to Start Saving Money

While the way consumers spend helps the government and economists determine the best way to increase government spending, the way you choose to spend your money can help you set up a solid financial future. Carefully considering all of your spending options may get you on a path toward financial security. Being motivated to save money can have long-term benefits.

So if a windfall comes your way, you may want to consider carefully choosing how to spend those funds. While it’s tempting to use the money on a shopping spree, putting it in some type of savings account may be a better financial decision. After all, saving your extra disposable income can help build an emergency fund, avoid taking on debt, and accumulate a nest egg for your retirement.

Here are a few steps for getting started, even when it feels hard to save money:

Identifying Your Savings Goals

Do you have short-term goals like accumulating an emergency fund to pay for unexpected expenses? Or perhaps you want to save for a family vacation? Maybe you have a medium-term goal, such as paying for a wedding reception or a new kitchen renovation. Or would you like to save for retirement as a long-term goal? No matter your goals, you’ll want to have a clear idea of how much cash you need and by when.

First, decide on a goal date — when you want to have the money saved by. Then, divide the goal amount by the time frame, in months, to determine how much cash you need to stash away each month. Finally, decide where to keep the funds.

•   If your goal is short-term, you may want to consider putting your cash in a high-interest savings account or money market account. Either type of account is relatively low risk and is likely to be FDIC or NCUA insured, depending on the financial institution.

•   If the goals are more long-term, retirement accounts or brokerage accounts are worth considering since they may help your money grow.

Recommended: Take the guesswork out of saving for emergencies with our user-friendly emergency fund calculator.

Creating a Budget

It’s hard to track your money if you don’t know where it’s going. Creating and sticking to a budget is a great way to monitor your spending habits so you can stay on track.

•   To start, take note of your income and expenses for a month or two.

•   Next, create a monthly budget that reflects the average spending amounts for fixed expenses such as your mortgage and variable expenses such as eating out or clothes shopping. Also note money that goes towards savings.

•   If you determine you’re spending more than you earn, you may want to look for ways to cut back on your expenses, such as canceling subscriptions you don’t use. Or you could bring in more earnings by starting a side hustle or selling items that are still useful but that you don’t need.

Using a tool like SoFi or another digital tool makes it easy to track and categorize your expenses. It also helps you find ways to save and lets you monitor your progress toward your goals.

Recommended: Struggling to create a balanced budget? Try our 50/30/20 budget calculator for a simple solution.

Opening a Savings Account

When you receive an increase in your income, setting up automatic contributions to your savings or retirement accounts allows you to set aside extra money by automating your savings instead of having to manually transfer money each month. Look for an account with higher than average interest rate, typically found at online vs. traditional banks.

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

Can MPS be greater than 1?

The marginal propensity to save (MPS) cannot be greater than one since it is a change in savings, and that difference cannot be greater than one, nor less than zero.

How do you calculate the marginal propensity to save?

To calculate the MPS, or the marginal propensity to save, use the formula of change in savings divided by change in income.

What is the difference between average and marginal propensity to save?

The average propensity to save is defined as the ratio of total savings to total income. However, when talking about the marginal propensity to save, or the MPS, that is the ratio of change in savings to a change in income. The latter reflects a shift.

Photo credit: iStock/MarsBars

About the author

Ashley Kilroy

Ashley Kilroy

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


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.
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 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.

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Mar
31
2025
What is a No-Interest Loan? A Personal Loan Guide

What Is a No-Interest Loan? A Personal Loan Guide

By | personal_loan | Comments Off on What Is a No-Interest Loan? A Personal Loan Guide

No-interest loans offer borrowers a way to obtain financing without the additional cost of interest. Instead, you are only responsible for paying back the original amount you borrowed, or the principal.

That may sound like a great deal, but financing offers that tout a 0% annual percentage rate (APR) often come with a catch: If you don’t follow the terms outlined in your loan agreement to the letter, you can end up paying interest on the full amount that you borrowed. In addition, some lenders charge fees for short-term zero-interest loans, which means you’ll end up paying back more than you borrow.

Read on to learn what no-interest loans are, how they work, and any potential costs that may be involved.

Key Points

•   No-interest loans allow borrowers to repay only the principal amount borrowed, but failing to meet loan terms may result in interest charges.

•   Various types of no-interest loans exist, including those for specific purchases, medical expenses, and nonprofit aid, but they may have associated fees.

•   Borrowers must be cautious of deferred interest, which can lead to retroactive charges if the loan isn’t repaid in full by the deadline.

•   While these loans can facilitate immediate purchases without interest, they may encourage impulsive spending and come with hidden costs.

•   Alternatives to no-interest loans include traditional personal loans, 0% APR credit cards, and borrowing from family members, which may better suit some financial situations.

Are Interest-Free Personal Loans Real?

Yes. It is possible to get a personal loan with no interest. Also referred to as zero-interest or 0% APR loans, no-interest loans are essentially loans that let you borrow money without additional interest charges, provided you closely follow the loan’s terms and conditions.

What you can use a no-interest personal loan for will depend on the lender and type of loan you apply for. For example, some zero-interest loans, like certain auto loans, can only be used for financing a car, while others are only available for a specific retail purchase.

Interest-free loans aren’t necessarily cost-free, however. Some of these loans come with fees, such as a set-up, origination, or application fee. Also, many so-called “interest-free loans” charge something called deferred interest.

Deferred interest is a delay in interest charges for a set time period. If you pay off your loan balance in full by the end of the zero-interest term, you won’t pay any interest. If you don’t pay the loan in full by that time, the lender may charge retroactive interest charges going back to the day you took out the loan, even if you’ve already paid off a good portion of your balance.

If you get hit with any of these charges, an interest-free loan could end up being more expensive than a regular personal loan.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

How Do Interest-Free Personal Loans Work?

With a standard personal loan, you pay back both the principal amount plus interest in regular (fixed) installments over the term of the loan. Interest is the cost of borrowing the funds. With a no-interest loan, however, you skip that additional interest charge. Instead, you only repay the original amount borrowed in regular installments.

Typically, no-interest loans have introductory offers that provide 0% APR for a set period of time. For example, a furniture or appliance store may say you can get interest-free financing for 24 months. If you don’t pay the balance in full by then, you’ll pay interest on any remaining balance (and, in some cases, the full balance).

Zero-interest loans are typically facilitated through third-party lenders, not by the stores themselves. These lenders may have specific eligibility criteria that borrowers must meet to qualify for 0%-interest personal loans, such as a certain minimum credit score, income level, and employment history.

No-Interest Loan Options

Here’s a look at some of the different types of 0-interest loans available.

Nonprofit Loan With No Interest

Some nonprofit and local organizations offer no-interest loans to people in financial need, individuals who have experienced emergencies, or businesses that operate in low-income communities. In some cases, there are strings attached, such as having to use the loan for a specific purpose.

In addition, some universities offer 0% APR emergency loans to students that are experiencing a financial emergency.

Medical Loans

Medical care can be expensive. To help make the cost of treatments and procedures more manageable, some doctors and medical practices participate in a no-interest loan program. While these services can be helpful, some charge a high interest rate if you don’t pay your bill in full by a certain deadline.

Recommended: How to Pay for Medical Bills You Can’t Afford

Car Loans

Some auto dealerships offer no-interest car loans to attract buyers. They may only do this at certain times of the year (to clear out space for new models) or when they want to get rid of slower-selling cars.

While a 0%-interest car loan is tempting, these loans often have shorter repayment terms, which means monthly payments may be high. Taking the 0-percent car financing deal could also mean missing out on incentives such as generous manufacturer rebates. It’s important to compare this with the average car loan interest rate, which can help you determine if a low-interest or cash-back incentive might offer more overall savings.

Recommended: Smarter Ways to Get a Car Loan

Retail Loans

Stores that sell furniture, appliances, electronics, and other big-ticket items will often offer no-interest loans to incentivize buyers to close a deal. But borrower beware: These loans often charge deferred interest, which means that if you don’t pay off the entire amount by a set time period, you’ll pay interest on the entire amount, even if you’ve already paid off most of the balance.

Buy Now, Pay Later Programs

Some online retailers offer buy now, pay later (BNPL) programs that provide interest-free loans for any shopping you do on their site. These plans often split up costs over several payments scheduled two to four weeks apart.

As long as you make payments as agreed, you typically won’t pay interest. However, if you miss a BNPL payment, you may be charged late fees and/or interest on your unpaid balance. Depending on the amount charged by the BNPL lender and how these fees are structured, they can add up quickly.

Pros of a 0%-Interest Personal Loan

Interest-free personal loans come with some significant advantages. Here are some to consider.

Complete a Purchase Without Waiting

An interest-free loan can make it possible to buy something you need now, even if you don’t have the available cash to cover the cost. Often, these loans allow you to pay for a purchase in multiple installments over time without any added expense.

Potential Savings in Interest Charges

A 0%-interest loan could help you save a significant amount of money in interest compared to putting a purchase on a credit card and carrying a balance over several months.

Flexible Qualification Requirements

Some lenders offer interest-free loans with a low bar to entry. Some BNPL companies, for example, won’t run a credit check. As long as you have a checking account with a positive balance and a steady paycheck, you may be able to get approved.

Cons of No-interest Personal Loans

Interest-free loans also have several potential downsides. Here are some you’ll want to keep in mind.

Fees

Some interest-free loans and BNPL apps offer no-interest loans but charge fees. Lenders may charge set-up fees, account maintenance fees, and/or late payment fees.

Deferred Interest

If you don’t follow the terms outlined in your loan agreement, you could end up paying interest on the original amount that you borrowed, not merely your unpaid balance.

Encourages Impulse Buying

Zero-interest loans, where you only need to repay the principal balance, often lure people into impulsively buying expensive items, like cars, appliances, and other luxury goods, they can’t really afford.

Pros of a No-Interest Loan

Cons of a No-Interest Loan

Allows you to get a needed purchase right now May come with fees that can increase the amount you have to repay
Saves money on interest If you don’t pay in full by a set date, the lender may charge interest retroactively
May not require a credit check Could encourage impulse purchasing

Interest-Free Loan Alternatives

Here are some alternatives you may want to consider, including exploring a debt consolidation loan
if you’re managing high-interest debt from multiple sources.

Personal Loans

One of the biggest benefits of a personal loan calculator is that they often charge lower fixed interest rates when compared to other forms of lending, like credit cards. Before applying, you can use a personal loan calculator to estimate your monthly payments and understand how different loan amounts and terms could fit into your budget.

A personal loan comes with a set repayment period and consistent monthly payments. Most personal loans are unsecured, but if you’re looking to secure a lower interest rate or need a larger loan amount, you might consider a secured personal loan, which uses collateral like a car or home to reduce the lender’s risk.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

0% APR Credit Card

With a 0% introductory purchase APR credit card, you won’t be charged interest on your purchases for a certain period of time, such as 12 or 18 months. If you use this type of card to make an expensive purchase and pay it off within the introductory period, it’s like an interest-free loan. At the end of the promotional period, however, any outstanding balance on your account would be subject to the regular purchase APR, and you’d be expected to pay the balance with interest.

Borrow Money From Loved Ones

Sometimes, asking a friend or family member for a loan might not be a bad option. As with any loan, you want to make sure you can repay it. Clear communication with a loved one in a strong financial situation — and perhaps a contract to define the terms of the loan, including whether or not interest will be charged — is a good way to keep money from hurting your relationship.

Recommended: Family Loans: Guide to Borrowing & Lending Money to Family

The Takeaway

Zero-interest loans do have their appeal. But they may cost you more than other financing alternatives in the end. Many zero-interest loan lenders charge fees. Plus, borrowers who fail to repay their balance before the interest-free period is over may face interest charges retroactive to the beginning of the loan term.

Before you jump at a 0-interest loan offer, it’s a good idea to take a close look at the terms of the deal, along with your budget. Are there any fees involved? If so, it may not be a great deal after all. Will you be able to meet the requirements necessary to maintain a 0% interest rate? If not, you may want to consider a more affordable alternative financing option.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

About the author

Ashley Kilroy

Ashley Kilroy

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


Photo credit: iStock/MicroStockHub

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