Apr
09
2025
Guide to Accrued Interest: What You Should Know

What Is Accrued Interest? Everything You Should Know

By | Debt Payoff, Financial Independence, money | Comments Off on What Is Accrued Interest? Everything You Should Know

Accrued interest represents the interest that accumulates in between payments on a financial product. Accrued interest can apply to both lending and investment products, ranging from home loans and credit cards to bonds or savings accounts.

Accrued interest is different from regular interest, and it’s an important concept to understand.

What Is Accrued Interest?

When you are investing and earning interest, you’ll probably encounter accrued interest. And in the opposite situation, if you borrow money and owe interest payments, you’ll also deal with accrued interest.

This type of interest accrues in between payments. For instance, if you have a credit card balance of $1,000, and you make a partial payment on the 30th of the month, the remaining balance and any new charges will begin to accrue interest. It will be due on the 30th of the following month.

Think of accrued interest as interest that is building up, bit by bit, until that payment is made. In the case of an investment like bonds, in which you’re essentially loaning money to an entity like the government or a company, the accrued interest is interest earned on the money you invested that is eventually paid to you.

💡 Quick Tip: Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

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How Does Accrued Interest Work?

It’s possible to owe accrued interest on a variety of lending products, like credit cards and loans. It’s also possible to earn accrued interest on certain investing products and savings accounts.

Whenever an individual borrows money, they owe interest. They are paying to use that money. On the flip side, when they are investing and giving a financial institution, government agency, or company money to borrow for an investment, such as a bond, then the individual is owed interest.

Accrued Interest When Borrowing Money

When you borrow money, with an installment loan, for instance, interest typically accrues daily. At the end of the month, the accrued interest is added to the total monthly payment amount.

With credit cards, unless you pay your balance in full every month, the same daily accrual happens after the cardholder makes a charge with their card. The interest is building up as the month goes on. How much interest accrues depends on the balance and the interest rate.

Accrued Interest When Saving

Accounts that earn interest, such as certificates of deposits (CDs) and high-yield savings accounts, also often accrue interest daily. The amount of interest accrued is based on the account’s average daily balance. An exception to that is bonds, which generate a fixed interest payment on a quarterly, semiannual, or annual basis.

How to Calculate Accrued Interest

How interest accrues varies by the lender and product that’s generating the interest, which could be a loan, a line of credit, an investment product, or a bank account such as a savings account.

Example of Accrued Interest When Borrowing

To calculate how much interest will accrue daily with a credit card, for example, an individual needs to divide their APR (annual percentage rate) by 365 (for the number of days in a year). Then, they would multiply their current credit card balance by their daily rate. So if a credit card has an APR of 24.37% with a balance of $500, the calculation for how much interest accrues daily looks like this:

24.37 / 365 = 0.067%

$500 x 0.00067 = $0.34 interest that accrues daily

To calculate the monthly interest charge, multiply the daily rate by the number of days in the credit card billing cycle. So if there are 30 days in the billing cycle the calculation would look like this:

$0.34 x 30 = $10.20 in interest

Although credit card interest accrues daily, the total amount accrued is typically not added to your balance until the end of the billing cycle. So if you pay your balance in full by the due date, you can avoid paying accrued interest.

Example of Accrued Interest When Saving

To calculate accrued interest on a savings account, for example, take your yearly interest rate, which banks generally list as an APY, or the percentage of total interest you can earn on your account per year. To find the monthly interest rate, divide the APY by 12 (for the number of months in the year). So, if the APY is 5%, the calculation would look like this:

5 / 12 = 0.416% monthly interest rate

Next, to calculate how much interest you will actually earn on your money, you need to know if the interest is simple interest vs. compound interest. Most savings accounts use compound interest, and it is calculated depending on how often it compounds, such as monthly.

To determine how much annual interest you’ll earn on a balance of $1,000 in your savings account, the formula is:

P(1 + R / N)˄NT

P is the principal amount (the $1,000), R is your APY (calculated in decimal form), N is the frequency of compounding, which is monthly, and T is the amount of time, which in this case is 1 for one year. It would look like this:

1,000(1+ 0.05 / 12)˄12 x 1 = $1,250

💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.

Accrued Interest vs Regular Interest

Accrued interest is different from regular interest. Accrued interest typically indicates interest charges that have accumulated but not yet been paid. Perhaps you have heard the term in this context with student loans: The interest may start accruing (adding up) when the loan is disbursed, but it could only become due at your studies’ completion. You may not be paying the interest just yet, but you can know the interest will be assessed.

Regular interest refers to the interest earned on, say, a home loan. Your payment plus interest is due on a certain date and is not accruing day after day or varying. The “regular interest” involves a known principal and interest rate, as well as a constant monthly payment that is due every month.

Why Is Accrued Interest Important?

Accrued interest shows how interest that an individual owes or is owed adds up. For example, with bonds, it may help you understand the interest that’s accruing so you can make sure you are earning the right amount. Or, if you have borrowed money, you can look at how the accruing interest could add to the amount you owe, which might, in turn, help you manage your money.

In the case of a credit card, if an individual sees how long it will take to pay off a credit card balance over a year or two, they could crunch the numbers on how much interest they will accrue during that time. They may find that paying the debt sooner could save them a lot of money, and then work to create a budget to help them pay down what they owe.

Understanding how that interest builds up is a valuable tool. By better comprehending how much you owe or are owed, you can manage your money and work to enhance your financial health.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Is accrued interest good or bad?

Accrued interest isn’t necessarily a bad or good thing. If someone borrows money, they may not enjoy paying accrued interest, but it is a part of their lending agreement. On the other hand, if someone earns accrued interest on investments or savings, they’ll probably consider it a good thing.

Why do I have to pay accrued interest?

Paying accrued interest is more often than not necessary when someone borrows money. Those payments are required by lenders in exchange for lending money to consumers.

What is the difference between interest and accrued interest?

Regular interest represents the payment made in exchange for borrowing money or as a form of income earned from an investment. Accrued interest represents the amount of interest that builds up in between payments.

How do you avoid accrued interest?

When an individual enters a borrowing agreement, they need to pay any interest they accrue. That said, there are ways to avoid paying accrued interest altogether or to minimize accrued interest payments. For instance, pay your credit cards in full. When you pay the balance in full, you won’t have to pay any accrued interest.

Also, to minimize how much accrued interest you owe on a loan, you can make additional payments. Paying down the principal faster will lower how much interest accrues on a monthly basis. You may even be able to pay off the loan early, which also helps avoid more interest accruing.

About the author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.


Photo credit: iStock/MicroStockHub


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3.80% APY
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.
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/.

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Apr
09
2025
Understanding ACH Returns: What They Are & How to Return an ACH Payment

Understanding ACH Returns: What They Are & How to Return an ACH Payment

By | Financial Independence, Life & Career, money | Comments Off on Understanding ACH Returns: What They Are & How to Return an ACH Payment

The Automated Clearing House Network, or ACH, is a network that allows individuals and businesses to electronically move money between bank accounts — often within the same day. But sometimes things just don’t go according to plan, and those quick, convenient ACH payments wind up getting returned or needing to be reversed. Usually, these electronic transactions run smoothly, but at times, the funds don’t or can’t get from point A to point B.

Here, we’ll take a look at why ACH payments are sometimes returned. We’ll cover:

•   What ACH turns are

•   Terms to know about ACH returns

•   What the difference is between an ACH return and a Notice of Change

•   How to return an ACH payment

What Are ACH Returns?

While most ACH payments are likely to go through, ACH returns occur when an ACH payment fails to be completed. This can happen for a few reasons, such as:

•   The originator providing inaccurate payment information or data

•   The originator providing non-existent or inadequate authorization

•   The originator isn’t authorized to debit the client’s account with an ACH payment

•   Insufficient funds to cover the transaction (which can happen, especially if the person paying doesn’t balance their bank account regularly)

Next, let’s look at how an ACH return transpires. If a merchant wants to debit their customer’s or client’s account, the merchant’s bank (at the merchant’s request) will send a request for an ACH debit from the customer’s account. The customer’s relevant ACH network will then receive an ACH payment request. Then the merchant’s bank will debit the customer’s account and the merchant’s account will be credited with the amount of money indicated in the ACH payment request.

If for some reason the customer’s bank account alerts the ACH network that they are not able to complete the transaction, the money will remain in the customer’s account. That’s an ACH return.

It costs money to process an ACH return, and that cost generally falls on the consumer. Similar to how consumers get charged a fee when they bounce a check, the consumer will typically need to pay a fee if an ACH return occurs. This bank fee is fairly small and typically only costs $2 to $5 per return.

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No account or overdraft fees. No minimum balance.

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Important Terms to Know About ACH Returns

To better understand how ACH returns work, it’s helpful to know a bit of the industry’s vocabulary — particularly ODFI and RDFI (which are the two parties involved in every ACH return). Here’s what these acronyms mean:

•   ODFI (Originating Depository Financial Institution): The originator of the transaction who’ll send funds

•   RDFI (Receiving Depository Financial Institution): The receiver of the funds

Another facet of ACH lingo that’s helpful to know are ACH return codes. Any ACH return that occurs will generate an ACH return code. These ACH return codes are made up of the letter R followed by some numerals. Each code represents a different reason for a return. These codes can be helpful because they inform the originator of why the ACH return happened.

The following ACH return codes are fairly common:

•   R01 – Insufficient funds. This code means that the available assets can’t cover the debit entry (like when an account is overdrawn).

•   R02 – Account closed. In other words, the client or the RDFI closed the account that should be debited or credited through an ACH payment.

•   R03 – No account/unable to locate account. In this case, the return occurred because the account intended for ACH payment doesn’t exist or the account’s owner is not the one noted by the debit entry.

•   R04 – Invalid account number structure. If something is wrong with the client’s bank account number or the number doesn’t pass validation, a R04 return code results.

•   R05 – Unauthorized debit to a consumer account. If the receiver hasn’t authorized the originator to request an ACH transfer from their bank account, the transfer can be blocked, and this ACH code will occur.

It’s worth noting that R05 return codes work a bit differently. Unlike the other ACH return codes listed, the return time frame for R05 is 60 banking days instead of two. This longer time frame gives the originator a chance to ask the receiver to allow the ACH transfer to occur or to provide them with a new bank account number to complete the transaction.

Recommended: Routing Number vs Account Number: How to Find Both

What Is the Difference Between a Notice of Change (NOC) And ACH Return?

It’s easy to confuse a Notice of Change (NOC) and an ACH return, but these are two different things. An NOC is a method used by financial institutions to notify a federal agency to correct or change account information. It applies to an entry processed by the federal agency through the ACH. A NOC is not a form of payment in and of itself. Nor does it represent a failure to complete an ACH payment transaction. It’s a request for an edit, basically, while an ACH return actually stops a transaction.

Recommended: How to Transfer Money From One Bank to Another

When Can You Request a Reversal of an ACH Payment?

For a reversal to occur on an ACH payment, certain requirements have to be met. Here are the guidelines for successfully putting the brakes on a transaction:

•   The reversal entry has to be transmitted to the bank within five banking days after the settlement date of the erroneous file.

•   Transmitting the reversing file has to occur within 24 hours of discovering the error.

If these criteria are met, the reversal of an ACH payment can proceed.

Why You Might Be Receiving an ACH Return

As you monitor your bank account, you may see that an ACH transaction, which usually happens so smoothly, is being returned. This can occur for a variety of reasons. For instance, the originator may have provided inaccurate payment information or may not have been authorized to debit the customer’s or client’s account with an ACH payment. The codes reviewed above can also shed light on why the transfer of funds was stopped. By the way, both returned mobile ACH payments and returned ACH card payments can occur.

How to Return an ACH Payment

Account holders and merchants who encounter issues with ACH payments can stop or reverse them.

If you may need to delay or adjust an ACH debit (which is an automatic “pull” from your account) as a consumer, you’ll want to contact the organization that is initiating the payment, whether this is the biller or your bank. If it is your bank, you’ll need to give them the name of the business or organization that is making the ACH debit and the amount. Ideally, you want to do this three business days before the scheduled payment date.

If you want to stop an ACH credit, which is when your bank “pulls” money from someone else’s account, you will need to notify your bank before the payment is debited. You will typically need to provide the name of the person or business that is paying you, the exact payment amount, and your account details.

The Takeaway

While ACH payments are a convenient payment method, sometimes a funds transfer fails to go through. In this situation, a returned ACH payment occurs. ACH returns can happen for a few reasons (such as the client’s bank account contains insufficient funds to complete the transfer). The entire process is fairly quick and is usually completed within two banking days. As more and more electronic transfers happen, it’s wise to be aware of this system that can step in if details are incorrect or one party can’t or won’t hold up their end of the arrangement.

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’s the time frame for an ACH debit return?

It usually takes two banking days for an ACH return to complete. However, there are select ACH return codes that result in a 60-day return period.

How much are ACH return fees?

Fees vary, but they usually cost about $2 to $5 per return. The consumer pays this charge. It’s similar to paying a fee for a bounced check.

What are ACH return codes?

Every time an ACH return happens, the originator will be sent an ACH return code. This code is represented by the letter R and a two-figure number and explains why the return happened. For example, a R01 return code indicates that the client’s bank account contains insufficient funds to complete the transfer.

Can returned ACH payments be disputed?

Yes, ACH returns can be disputed. What that process looks like varies with the reason why the ACH return occurred. Every ACH return code has a specific return time frame associated with it. Generally, the client needs to dispute the ACH return during that time frame.

About the author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.


Photo credit: iStock/Nicola Katie

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.
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.

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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What Is an Online Savings Account and How Does It Work?

What Is an Online Savings Account and How Does It Work?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is an Online Savings Account and How Does It Work?

Savings accounts at online-only banks — often referred to simply as online savings accounts — function similarly to traditional savings accounts, except you will manage your account entirely online or by app. Not only can these savings accounts be one-click convenient, they may offer you a healthier interest rate than accounts held at a brick-and-mortar bank.

If you’re trying to decide whether an online savings account or traditional savings account would suit you best, here are the details you need.

Key Points

•   Online savings accounts are managed digitally, and often provide higher interest rates and lower fees than traditional banks with brick-and-mortar locations.

•   Online savings accounts typically provide 24/7 access and a broad range of online banking tools; however, they lack in-person interactions and may not offer as many banking services or products.

•   To deposit money into or withdraw it from an online savings account, a customer may use an ATM in the bank’s ATM network, sign up for direct deposit, transfer funds between accounts, use a check, or complete a wire transfer.

•   While cash deposits are not possible at every online bank, some banks enable customers to make deposits at ATMs in their ATM network or at certain retailers.

•   Opening an online savings account typically involves filling out an online application, choosing an account type, designating beneficiaries, making an initial deposit, and creating an account login.

What Is an Online Savings Account?

An online savings account functions similarly to one offered by a traditional bank, except you manage your banking needs digitally. With an online savings account, you won’t have the option of walking into a bank when you need support, but you will be able to quickly click your way ahead and complete most transactions.

Many traditional banks also typically offer online banking, and this feature tends to be widely used by members across different types of banks. According to SoFi’s April 2024 Banking Survey of the bank usage of 500 U.S. adults, 48% of people reported they use online banking daily.

Since the principle is that your money will sit and grow in these accounts, rather than flow in and out constantly, banks pay you interest on these funds. They get to use your money, and they give you interest in return for that privilege. As your cash grows in the account, you can achieve different goals, such as building up an emergency fund, saving for a vacation, or getting a down payment together for a house. SoFi’s survey found that 77% of respondents with a savings account use it to save for emergencies, and 52% use it to save for a goal like a vacation or a house.

Of the percentage using a savings account to save for a goal, the survey showed that they are saving for different things:

•   40% are saving equally for long-term and short-term goals

•   35% are saving primarily for short-term goals like a vacation or for holiday spending

•   26% are saving primarily for long-term goals like a house or a child’s education

Earn up to 3.80% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $3M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


How Does an Online Savings Account Work?

You start an online savings account with an opening deposit, and then you’re ready to start saving. With an online savings account, you can manage your savings from anywhere in the world at any time of day. While there are plenty of banks and credit unions that have online account management services, purely online savings accounts often come with unique perks. For example, online banks usually don’t have a minimum balance requirement like traditional banks do. They often pay a higher interest rate, too.

You can transfer funds in and out as needed, as with any savings account. Typically, savings accounts had only allowed six or fewer transfers per month. Initiate more than that, and you might have to pay a fee. However, many banks have stopped following this guideline in recent years. Check with your bank to know the details.

It’s also worth mentioning that with an online account, you won’t be able to deposit or withdraw cash from your account by strolling into a branch. There aren’t physical banking locations to visit. You’ll need to transfer funds in and out electronically, or you may be able to use ATMs. There’s a silver lining, though. In exchange for not having to pay for the overhead that comes with running an in-person bank, online banks often offer lower fees and higher interest rates.

Depositing Funds Into an Online Savings Account

As mentioned above, it’s not possible to deposit cash into an online savings account by visiting a branch. Instead, you can deposit money in the following ways:

•   Transfer money from a linked account into your online savings account. (If you’re really committed to saving, you may want to automate recurring transfers). SoFi’s survey found that 63% of people said they frequently transfer funds between accounts using online banking.

•   Use a check; this deposit can be done by mobile deposit, which 43% of respondents in SoFi’s survey said they do frequently, or by mail.

•   Complete a wire transfer into your online savings account.

•   Set up direct deposit of funds (say, your paycheck or other benefits) to go into the account.

Withdrawing Money From an Online Savings Account

Next, consider withdrawing and spending money from a savings account. When you have an online savings account, here are your options:

•   Transfer funds into another account (say, one held at a traditional bank), and then take out cash in person.

•   Use an ATM. Some online banks allow you to link your savings to a debit card, which makes this possible.

•   Initiate a wire transfer.

•   Put in a check request.

•   Digitally send money to other people (say, by a P2P transfer) so you don’t need to take out cash.

Cash Deposits

Not all online banks enable you to deposit cash, as they have no physical banking locations of their own. However, many online banks allow you to deposit cash at participating retail locations, typically for a fee. Some may also have options for depositing cash at select in-network ATMs. See above for some of the other ways you can move your funds around so your cash gets where you want it to go.

Benefits of Using an Online Savings Account

Here are some of the key benefits you may enjoy with an online savings account.

•   Higher interest rates and lower fees. This means your savings can likely grow faster. These higher interest rates are possible because the financial institution doesn’t have to pay for expensive brick-and-mortar banking locations.

•   Manage accounts anywhere, anytime. It’s possible to do all of your basic savings account management whenever and wherever you like. The only requirement: a good, secure wifi connection.

•   Helpful mobile banking apps. Plenty of traditional banks have mobile apps, but online banks tend to have high-tech apps with more features.

•   More accessible customer service. You are likely to be able to get all of the banking support you need from the comfort of your own home or on the go. Online banks were built to be responsive in this way.

Disadvantages of Using an Online Savings Account

On the flip side, there are some disadvantages when you only bank online. Here are some of the cons of using an online savings account.

•   No face-to-face interaction. With online savings accounts, you can’t go into a physical banking location, ask questions, or sit down with a bank representative. For those who like face-to-face interaction, this can be a disadvantage.

•   Can lose account access. When a savings account is entirely online, you may lose account access temporarily in the rare event of the bank’s system going down.

•   ATM access can be limited. Some online banks don’t have their own ATMs. They may try to provide greater access with some independent ATM networks or by reimbursing customers for ATM fees incurred when using out-of-network ATMs.

•   Fewer financial services. Some online banks offer more limited product selections than larger traditional banks. If you’re looking to manage your savings account, loans, and other financial products in one place, you may find that an online savings account doesn’t meet your needs.

Pros of Online Savings Accounts

 Cons of Online Savings Accounts

•   Higher interest rates and lower fees

•   Ability to manage accounts anywhere, anytime

•   Helpful mobile banking apps

•   Accessible customer service options

•   No face-to-face interaction

•   May lose account access temporarily

•   ATM access may be limited

•   Fewer financial services

Opening an Online Savings Account

If you decide you want to open an online savings account, here are the steps you will likely take.

1.    Fill out the application. This process typically happens entirely online. Generally, you will be expected to provide such information as your name, proof of address, Social Security number, and government-issued photo ID (say, a driver’s license or a passport).

2.    Choose an account type. There may be an option to choose between different savings account types, such as an individual account or a joint account that you can share with a family member.

3.    Designate beneficiaries. Next, you will need to choose a beneficiary to whom the savings account would go if you were to die.

4.    Deposit funds. Some online banks won’t require a minimum initial deposit or will only request $1. Whatever the amount may be, you will need to make that minimum deposit. (There’s no typical online savings account minimum balance to maintain, by the way. Check with banks to understand their particular guidelines.)

5.    Create login information. All online savings accounts will need a username and password. It’s important to make the password a secure one that includes one or more capital letters, numerals, and symbols. Also, it bears repeating: Don’t reuse passwords. Unique passwords will help keep you secure from hackers. This is a big issue if you are wondering whether or not online savings accounts are safe.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

Online Savings vs Traditional Savings: Which Is Best for You?

There are both advantages and disadvantages to consider when choosing between an online savings account and a traditional savings account. Being aware of the unique advantages and disadvantages of each can make it easier to find the right fit.

Online Savings

 Traditional Savings

•   May offer better rates and low or no fees

•   Tend to have more robust digital tools and features

•   Offers the convenience of banking from just about anywhere, at any time

•   Potentially minimal ATM access in certain areas

•   May have fewer options for depositing and withdrawing cash

•   No face-to-face customer support

•   Provide in-person banking locations

•   May provide broader ATM access

•   May offer a broad range of products

•   May have fewer online resources

•   May have lower interest rates and higher fees

•   May not provide perks that many online banks offer, such as sign-up bonuses

The Takeaway

Online savings accounts vs. traditional ones can be more convenient, have more digital features, and offer lower fees and better interest rates. Traditional banks, however, may have more options for withdrawing and depositing funds, and they can be the right choice for people who like face-to-face interaction when it comes to their finances. Figuring out the right fit can depend on your money style and goals.

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 do I use an online savings account?

With access to a computer or a smartphone, you can access your online savings accounts from anywhere at any time simply by logging in.

What is the typical minimum balance for an online savings account?

That depends: Some online savings accounts have minimum balance requirements while others don’t. Check at the banks you are considering.

Is my money insured in an online savings account?

Your money should be safe in an online savings account, as long as the online savings account is insured by the FDIC. If so, your account is automatically insured for up to $250,000 per depositor, per account category, per insured institution.

What is the typical interest rate for an online savings account?

Interest rates vary over time and from bank to bank. Generally, online savings accounts offer higher interest rates than traditional savings accounts. High yield savings accounts at online banks may be 8x or more the national average rate for savings accounts.

How can online banks offer such good interest rates?

Because online banks don’t have the expensive overhead that comes with managing in-person banking locations, they can afford to pass their savings to their customers in the form of higher interest rates.

About the author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.


Photo credit: iStock/m-imagephotography

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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twin puppies on pink background

Ways to Pay for Unexpected Vet Bills

By | Budgeting & Goals, Family Finances, Life & Career, personal_loan | No Comments

When you adopted your furry friend, you may have underestimated just how much you could love them. Another thing you may not have been ready for: their vet bills.

If you’ve ever worried, What happens if I can’t pay the vet bill, know that you have options. So you never have to choose between your emergency fund and your doggo, kitten, iguana, or fish.

Key Points

•   Pet insurance can cover unexpected vet bills, providing financial protection.

•   Research policies to find the best coverage for specific needs and budget.

•   Consider deductibles, premiums, and payout limits when choosing a plan.

•   Some policies include wellness coverage for routine care, enhancing overall health.

•   Emergency care can be costly, with bills reaching thousands of dollars.

Pets as Family Members

American households increasingly include one or more pets. Currently, 66% of U.S. households have pets. And an overwhelming majority of American pet owners consider them to be members of the family.

So it’s no surprise to learn that Americans are willing to shell out big bucks for their fur babies. Dog owners spend, on average, $912 per year on them, and cat owners spend, on average, $653.

Caring for the physical health of our pets is as important as making sure they’re happy in our homes. Among dog owners, 36% would pay $4,000 dollars or more out of pocket for life-saving care.

Be Prepared With Pet Insurance

The best defense is a good offense, and when it comes to healthcare, that often means having an insurance plan. Like humans, pets, too, can have their own health insurance that can help with vet bills in case things go awry with their health.

A number of companies offer pet insurance plans at different price points. Just like human insurance, the plans offer coverage in exchange for paying premiums each month along with copays and deductibles. Checking out sites like PetInsuranceReview.com may be helpful when comparing plans and pricing to find the offering that fits you and your pet’s needs.

Recommended: 19 Tips to Save Money on Pets

Negotiate an Installment Plan With Your Vet

You may be able to negotiate a payment plan with your veterinarian, so long as you’re a client in good standing at the practice. This payment plan could work out to weekly or monthly installments, depending on what you and your provider agree upon.

However, it should be noted that this is not a standard practice and your veterinarian has every right to refuse to offer a plan. But it’s always worth asking, especially if it’s the veterinarian who has cared for your pet over its lifetime and knows you well.

Seek Out a Second Opinion or a Nearby Veterinary School

It can be important to get a second opinion before your pet undergoes major surgery or procedures (just as you would for yourself or a human loved one).

If a second veterinarian gives you the same diagnosis and you’re still unable to pay for the treatment, you may want to consider reaching out to a local veterinary college. Some offer low-cost clinics run by veterinary students supervised by experienced veterinarians and vet techs. The American Veterinary Medical Association (AVMA.org) provides a list of accredited schools on its website.

Recommended: Dog-Friendly Vacation Ideas

Seek Help From a Charitable Organization

Charities like Paws4aCure.org provide financial assistance for pet owners who cannot afford non-routine veterinary care for cats and dogs of any breed or age, or for any diagnosis.

If your pet has a non-basic, non-urgent care situation, such as a chronic illness or cancer, organizations like ThePetFund.com may be able to help.

Recommended: Emergency Fund Calculator: How Much Should I Save?

The Takeaway

According to AmericanPetProducts.org, pet owners spent more than $39.8 billion on veterinary care in 2024. While a typical routine visit costs between $50 and $250, emergency surgery for a dog can run up to $8,000 or more.

One option to cover the cost of expensive medical care for your pet is an unsecured personal loan, which could allow you to pay for your pet’s care upfront, then pay the loan off over time.

You can’t prevent unexpected vet bills, but you can prepare for other unplanned expenses by making sure you, your loved ones, and your belongings are properly insured.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

Find affordable auto, life, homeowners, and renters insurance with SoFi Protect.


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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What is the 100 Envelope Challenge?

100 Envelope Challenge Explained

By | Budgeting & Goals, Financial Independence, Growing Wealth, money | Comments Off on 100 Envelope Challenge Explained

Saving money can be daunting. But what if you could make it seem less like a chore and more like a game? That’s the idea behind TikTok’s viral 100 Envelope Challenge. With this popular money-saving hack, you set aside a predetermined dollar amount in different envelopes each day for 100 days. By the end of the challenge, you’ll have saved over $5,000.

One of the appeals of the 100 Envelope Challenge is that you visually see your progress as you fill up each envelope, which can make the process of saving more tangible and fun. And like many savings challenges, this money game can help you save a sizable sum in a short period of time.

That said, the 100 Envelope Challenge may not be realistic for everyone. Here’s a closer look at how it works, its pros and cons, plus some other fun saving strategies to consider.

Key Points

•   The 100 Envelope Challenge is a savings technique where participants set aside increasing amounts of money daily for 100 days, aiming to save over $5,000.

•   Participants can choose to fill envelopes in numeric order or randomly, providing flexibility in their savings approach tailored to individual preferences.

•   The challenge encourages financial discipline and provides a visual representation of progress, motivating individuals to stay committed to their savings goals.

•   While the challenge is simple to start, it may pose difficulties for those with tight budgets, as it requires consistent cash contributions over the designated period.

•   Alternatives to the challenge include shorter savings plans, like the 30-Day Savings Challenge or digital methods such as rounding up spare change from transactions.

What Is the 100 Envelope Challenge?

The 100 Envelope Challenge, also known as the 100-Day Money Challenge, is a savings technique that involves setting aside a specific amount of money each day for 100 days. The goal is to accumulate $5,050 in just over three months.

The concept is simple: You start with 100 envelopes and number them from 1 to 100. On day 1 of the challenge, you put $1 into envelope #1. On day 2, you put $2 into envelope #2. On day 3, you put $3 in envelope #3. You continue this pattern, increasing the amount by $1 each day until you reach the 100th day, when you deposit $100.

There are also variations on the game. For example, instead of stuffing envelopes in chronological order, you can shuffle the envelopes, put them in a bucket or basket, and then randomly pick one each day. This allows you to alternate between low and high cash amounts throughout the challenge.

If your budget is tight, and saving $5,050 in 100 days isn’t feasible, you can do the 100 Envelope Challenge over 100 weeks, rather than 100 days. You’ll still get to $5,050 — it will just take longer.

And if you’re not a fan of cash, you can do the challenge digitally. Simply download a free “100 Envelope Challenge” printable (widely available online). You then check off the “envelopes” in order (or use an online number generator to pick a random number each day). Once you’ve selected your envelope number, you transfer that amount to your savings account. If you open a high-yield savings account, you’ll have the added advantage of earning competitive interest on your cash.

Earn up to 3.80% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $3M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


How to Do The 100 Envelope Challenge

Here’s a step-by-step guide to the original 100 Envelope Challenge.

1. Assemble Your Supplies

You’ll need 100 plain envelopes and a marker or pen to set up the challenge. If you don’t normally carry cash, you’ll also want to hit the ATM and withdraw some money to cover you for the first week. You’ll likely make multiple trips as you make your way through the challenge — and your paychecks get deposited.

Recommended: How to Avoid ATM Fees

2. Prep Your Envelopes

Label each envelope with number, starting with #1 and ending with #100. You’ll also want to find a safe place to keep your envelopes, such as a box, drawer, or safe. The idea is to keep them accessible but still secure.

3. Start Stuffing

Each day, pick out an envelope in chronological order (or, as an alternative, you can choose randomly) and place the corresponding amount of cash inside.

4. Stay Consistent

The key to any money-saving challenge is consistency, so do your best to stick to the rules as closely as you can. If you miss a few days, don’t give up — simply dust yourself off and get back on track. Or consider switching to a weekly or biweekly schedule to make the challenge more manageable.

5. Put Your Savings to Good Use

When you reach the finish line, it’s time to put your envelope cash to good use. For example, you might use your $5,050 to start your emergency fund (if you don’t already have one), pay off credit card debt, or fund something fun like a vacation. Or you might use the money to get started on a larger, long-term goal, like a home down payment, kid’s college fund, or retirement savings.

How Much Money Is Involved in the 100 Envelope Challenge?

By the end of the 100 Envelope Challenge, you will have saved a total of $5,050. You get to this amount by progressively increasing your daily (or, if you prefer, biweekly or weekly) deposit, starting with $1 and ending with $100. While the amounts may seem small at first, they add up over time, demonstrating the power of consistent saving.

Recommended: 15 Creative Ways to Save Money

Pros and Cons of the 100 Envelope Challenge

The 100 Envelope Challenge comes with both pros and cons. Here are some to consider before you decide to jump in on the trend.

Pros of the 100 Envelope Challenge

•   Easy to start: You don’t need to comb through bank statements and set up spreadsheets to start this savings plan. All you need to get going are envelopes and some cash.

•   Visual progress: The envelopes provide a visual representation of your progress. Watching them stack up can motivate you to keep going.

•   Builds discipline: The challenge encourages regular saving habits, helping to build discipline and financial responsibility.

•   Flexible: You can adjust the challenge to fit your budget, preferences, and savings goals.

Cons of the 100 Envelope Challenge

•   Cash-based: The default design relies on using cash, which may not be convenient for everyone.

•   Risk of loss: Keeping cash in envelopes can be risky, since they can potentially get lost or stolen.

•   It’s not all fun and games: Even though it’s a game, you’ll likely need to cut back on spending (and, yes, fun) to come up with the cash you need to stick with the program, especially near the end, when you’re stuffing large sums every day.

•   Not realistic for everyone: If your monthly essential expenses are already close to your monthly income, you might find it difficult to stick with a 100-day Envelope challenge.

Alternatives to the 100 Envelope Challenge

While the 100 Envelope Challenge is a popular savings method, it may not be the right approach for everyone. Here are some alternatives to consider.

•   The 30-Day Savings Challenge: Here, you start with just 30 envelopes, numbered 1 through 30. Each day, you’ll save the amount indicated on the envelope you choose. You could go in order or shuffle the envelopes and randomly select one. At the end, you’ll have saved $465.

•   The Spare Change Challenge: This involves saving the spare change from your everyday transactions. You can do it manually, by dropping your spare change into a jar each day and, once it’s filled, bringing it to the bank. Or you can do it digitally, using an app that automatically rounds up your purchases and transfers that money into savings. Either way, you’ll accumulate savings without much effort

•   No-Spend Challenge: In a no-spend challenge, you commit to not spending money on non-essential items for a set period of time, such as a week or a month. This can help you identify and eliminate unnecessary expenses, allowing you to save more money.

•   Savings Percentage Challenge: In this challenge, you commit to saving a specific percentage of your income each month, such as 10% or 20%. To make it easy, you can set up an automatic transfer from checking to savings for this amount for the same day each month (ideally right after you get paid). This can help you save consistently and build your savings over time.

Recommended: 52 Week Savings Challenge (2024 Edition)

The Takeaway

The 100 Envelope Challenge is a simple yet effective way to save money and build financial discipline. By following the steps and sticking with the program, you can reach your savings goal and have a tangible reminder of your progress along the way.

If socking away $5,050 in a little over three months feels too challenging, however, you might want to try one of the many other ways to gamify saving. The best approach to boosting the balance in your savings account is the one you’ll stick with.

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 I save $5,000 in 3 months with 100 envelopes?

Yes, it’s possible to save around $5,000 in three months with the 100 Envelope Challenge. The challenge is designed to be completed over 100 days, which is a little over three months.

How it works: You gather 100 envelopes and number them from 1 to 100. Each day you fill up one envelope with the amount of cash to match the number on the envelope.You can fill up the envelopes in order or pick them at random. After you’ve filled up all the envelopes, you’ll have a total of $5,050 saved.

How long does it take to complete the 100 envelope challenge?

The 100 Envelope Challenge is designed to be completed over 100 days. Each day, you deposit a specific amount of money into an envelope, starting with $1 on day #1, and increasing by $1 each day until you reach $100 on day #100. By then, you’ll have saved $5,050.

You can also choose to do the 100 Envelope Challenge over 100 weeks, filling each envelope according to the week number. In this version, you’ll save $5,050 in a little less than two years.

What are other money saving challenges besides the 100 envelope challenge?

There are several other money-saving challenges that you can try besides the 100 Envelope Challenge. Some popular alternatives include:

•   30-day Savings Challenge Here, you start with 30 envelopes, numbered 1 through 30. Each day, you put cash into an envelope, basing the amount on the number written on the envelope you choose. At the end, you’ll have saved $465.

•   No-Spend Challenge With this approach, you commit to not spending any money on non-essentials for a set time period, say a week or a month. This can boost your bank account and highlight how much you spend on unnecessary purchases.

•   Savings Percentage Challenge In this challenge, you commit to saving a specific percentage of your income each month, such as 10% or 20%. If you set up an automatic transfer, you can build your savings without even thinking about it.

About the author

Julia Califano

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.


Photo credit: iStock/solidcolours

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