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https://www.investopedia.com/instacart-boosts-ipo-valuation-after-successful-arm-debut-7970227

Instacart Boosts IPO Valuation After Successful Arm Debut

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Grocery delivery company Instacart raised the proposed price range for its initial public offering (IPO) Friday after chip company Arm Holdings had a strong debut this week.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Grocery delivery app Instacart bumped its per-share proposed IPO price range from $26 to $28 to $28 to $30, raising its total valuation to $10 billion.</li><li>The boost in Instacart's IPO price range comes after Arm's IPO Thursday, which led to 25% gains on its first day of trading.</li><li>A string of IPOs are to follow in the next few weeks, which investors hope will generate renewed activity after an IPO drought.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> By revising its terms to target a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fullydilutedshares.asp">fully diluted valuation</a> of up to $10 billion, Instacart is signaling strong investor demand for the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">IPO</a>. Instacart is now seeking to raise as much as $660 million, offering 22 million shares for $28 to $30 per share. Previously, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/instacart-files-for-highly-anticipated-ipo-7967921">indicated range had been $26 to $28</a> for a target of $616 million.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Instacart's IPO is long-awaited and the company is looking to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/instacart-files-for-ipo-documents-reveal-higher-revenue-7853455">take advantage of an IPO market that is warming up</a>. Chip designer Arm's Thursday IPO was the largest in the U.S. since 2021. Shares of the SoftBank-owned company rose <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/arm-ads-s-take-off-in-first-day-of-trading-after-biggest-ipo-since-2021-7969955">25% on the first day of trading</a>, which likely fueled Instacart's valuation increase.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Despite that, the largest grocery delivery company in the U.S. is seeking a valuation of billions of dollars less than what it was worth a few years back. In 2021, the company was valued at $39 billion, but a more recently challenging climate for online delivery has dragged its worth down.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Instacart has recently started generating a profit. In the first half of 2023, its profit was $242 million, swinging from a loss of $74 million the previous year.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Among investors interested in Instacart's listing, which will trade under the ticker "CART," is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/052216/how-does-pepsico-make-money-pep.asp">PepsiCo Inc.</a>, which will buy $175 million of its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/preferredstock.asp">preferred stock</a>. If the shares are priced at the top end of the range, cornerstone investors that have committed to purchasing up to $400 million worth of stock will generate about two-thirds of the total proceeds, according to a Reuters report.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Other IPOs in the wings are Neumora Therapeutics Inc., another portfolio company of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/what-softbank/">SoftBank</a>, and marketing firm Klaviyo Inc. German footwear maker <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/birkenstock-8-billion-ipo-september-2023-7568103">Birkenstock Group BV</a> also plans to offer shares in the U.S. in the next few weeks. Investors hope the new listings will perpetuate Arm's robust momentum.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

Grocery delivery company Instacart raised the proposed price range for its initial public offering (IPO) Friday after chip company Arm Holdings had a strong debut this week. ### Key Takeaways * Grocery delivery app Instacart bumped its per-share proposed IPO price range from $26 to $28 to $28 to $30, raising its total valuation to $10 billion. * The boost in Instacart's IPO price range comes after Arm's IPO Thursday, which led to 25% gains on its first day of trading. * A string of IPOs are to follow in the next few weeks, which investors hope will generate renewed activity after an IPO drought. By revising its terms to target a [fully diluted valuation](https://www.investopedia.com/terms/f/fullydilutedshares.asp) of up to $10 billion, Instacart is signaling strong investor demand for the [IPO](https://www.investopedia.com/terms/i/ipo.asp). Instacart is now seeking to raise as much as $660 million, offering 22 million shares for $28 to $30 per share. Previously, the [indicated range had been $26 to $28](https://www.investopedia.com/instacart-files-for-highly-anticipated-ipo-7967921) for a target of $616 million. Instacart's IPO is long-awaited and the company is looking to [take advantage of an IPO market that is warming up](https://www.investopedia.com/instacart-files-for-ipo-documents-reveal-higher-revenue-7853455). Chip designer Arm's Thursday IPO was the largest in the U.S. since 2021. Shares of the SoftBank-owned company rose [25% on the first day of trading](https://www.investopedia.com/arm-ads-s-take-off-in-first-day-of-trading-after-biggest-ipo-since-2021-7969955), which likely fueled Instacart's valuation increase. Despite that, the largest grocery delivery company in the U.S. is seeking a valuation of billions of dollars less than what it was worth a few years back. In 2021, the company was valued at $39 billion, but a more recently challenging climate for online delivery has dragged its worth down. Instacart has recently started generating a profit. In the first half of 2023, its profit was $242 million, swinging from a loss of $74 million the previous year. Among investors interested in Instacart's listing, which will trade under the ticker "CART," is [PepsiCo Inc.](https://www.investopedia.com/articles/investing/052216/how-does-pepsico-make-money-pep.asp), which will buy $175 million of its [preferred stock](https://www.investopedia.com/terms/p/preferredstock.asp). If the shares are priced at the top end of the range, cornerstone investors that have committed to purchasing up to $400 million worth of stock will generate about two-thirds of the total proceeds, according to a Reuters report. Other IPOs in the wings are Neumora Therapeutics Inc., another portfolio company of [SoftBank](https://www.investopedia.com/news/what-softbank/), and marketing firm Klaviyo Inc. German footwear maker [Birkenstock Group BV](https://www.investopedia.com/birkenstock-8-billion-ipo-september-2023-7568103) also plans to offer shares in the U.S. in the next few weeks. Investors hope the new listings will perpetuate Arm's robust momentum. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Grocery delivery company Instacart raised the proposed price range for its initial public offering (IPO) Friday after chip company Arm Holdings had a strong debut this week. Key Takeaways Grocery delivery app Instacart bumped its per-share proposed IPO price range from $26 to $28 to $28 to $30, raising its total valuation to $10 billion.The boost in Instacart's IPO price range comes after Arm's IPO Thursday, which led to 25% gains on its first day of trading.A string of IPOs are to follow in the next few weeks, which investors hope will generate renewed activity after an IPO drought. By revising its terms to target a fully diluted valuation of up to $10 billion, Instacart is signaling strong investor demand for the IPO. Instacart is now seeking to raise as much as $660 million, offering 22 million shares for $28 to $30 per share. Previously, the indicated range had been $26 to $28 for a target of $616 million. Instacart's IPO is long-awaited and the company is looking to take advantage of an IPO market that is warming up. Chip designer Arm's Thursday IPO was the largest in the U.S. since 2021. Shares of the SoftBank-owned company rose 25% on the first day of trading, which likely fueled Instacart's valuation increase. Despite that, the largest grocery delivery company in the U.S. is seeking a valuation of billions of dollars less than what it was worth a few years back. In 2021, the company was valued at $39 billion, but a more recently challenging climate for online delivery has dragged its worth down. Instacart has recently started generating a profit. In the first half of 2023, its profit was $242 million, swinging from a loss of $74 million the previous year. Among investors interested in Instacart's listing, which will trade under the ticker "CART," is PepsiCo Inc., which will buy $175 million of its preferred stock. If the shares are priced at the top end of the range, cornerstone investors that have committed to purchasing up to $400 million worth of stock will generate about two-thirds of the total proceeds, according to a Reuters report. Other IPOs in the wings are Neumora Therapeutics Inc., another portfolio company of SoftBank, and marketing firm Klaviyo Inc. German footwear maker Birkenstock Group BV also plans to offer shares in the U.S. in the next few weeks. Investors hope the new listings will perpetuate Arm's robust momentum. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/the-express-podcast-episode-168-8421370

Resetting Our Long-Term Expectations for the Markets as "Sound Money" Returns

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE7207788307" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title='Resetting our Long-Term Expectations for the Markets as "Sound Money" Returns'></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Joe Davis, Vanguard's Chief Global Economist, explains why the return of "Sound Money", with interest rates higher than the rate of inflation, will be good news for long-term investors, but will mean more muted returns for stocks than the past ten years. Plus, why he fears the Fed may cut too soon in 2024, bringing back memories of 1967. And, 2023 delivered some banner returns for certain stocks across sectors. Is this the beginning of new leadership in the stock market, or were those just last year's charms? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <strong>Do you have a news tip for Investopedia reporters?</strong> Please email us at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="mailto:tips@investopedia.com">tips@investopedia.com</a> </p></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) Joe Davis, Vanguard's Chief Global Economist, explains why the return of "Sound Money", with interest rates higher than the rate of inflation, will be good news for long-term investors, but will mean more muted returns for stocks than the past ten years. Plus, why he fears the Fed may cut too soon in 2024, bringing back memories of 1967. And, 2023 delivered some banner returns for certain stocks across sectors. Is this the beginning of new leadership in the stock market, or were those just last year's charms? **Do you have a news tip for Investopedia reporters?** Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Joe Davis, Vanguard's Chief Global Economist, explains why the return of "Sound Money", with interest rates higher than the rate of inflation, will be good news for long-term investors, but will mean more muted returns for stocks than the past ten years. Plus, why he fears the Fed may cut too soon in 2024, bringing back memories of 1967. And, 2023 delivered some banner returns for certain stocks across sectors. Is this the beginning of new leadership in the stock market, or were those just last year's charms? Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/what-the-proposed-expansion-of-the-child-tax-credit-means-means-for-you-8547579

What the Proposed Expansion of the Child Tax Credit Means For You

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A proposed bipartisan expansion to the child tax credit would allow low-income families to claim more of it.<br/></li><li>Lower-income families who benefit from the credit would see their tax refund increase by $680 on average, according to one analysis.<br/></li><li>The compromise falls far short of the Pandemic-era child tax credit expansion, which saw checks of up to $300 per child sent out monthly to eligible families.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Millions of children could benefit from a bipartisan compromise bill on the child tax credit proposed last week, but it would fall far short of the pandemic-era expansion of the popular tax benefit.<span class="ql-inline-citation" data-cite="1"></span><br/><br/>The proposed expansion to the child tax credit, put forward by Democratic senator Ron Wyden of Oregon and Republican congressman Jason Smith of Missouri could help lift 500,000 children out of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/poverty.asp">poverty</a>, and help about half of the lowest-income families, encompassing 16 million kids, according to analyses by think tanks.<span class="ql-inline-citation" data-cite="2"></span> Households who would benefit would gain about $680 when they filed their 2023 taxes, the Tax Policy Center, a nonpartisan think tank, said last week.<span class="ql-inline-citation" data-cite="3"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> During the pandemic, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childtaxcredit.asp">child tax credit</a> was temporarily expanded so that parents got payments of up to $300 per month per child.  Democratic politicians, including President Joe Biden, have advocated for making that measure permanent, noting that it helped cut child poverty in half when it was in effect in 2021. Those gains were promptly reversed in 2022 when the expansion of the credit expired, causing more than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/child-poverty-doubled-in-2022-after-key-pandemic-aid-expired-7968794">5 million children to fall back below the poverty level</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As it stands, parents with children under 18 can claim a credit worth up to $2,000 per child on their federal income taxes each year as long as they make over $2,500 a year in wages. However, only $1,600 of that credit is “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refundablecredit.asp">refundable</a>,” meaning it can be claimed even if you don’t earn enough to owe more than that amount in taxes. That means people with low incomes get less money from the credit than people who are better off.<br/><br/>To conservatives, that’s a feature, not a bug. The income requirement encourages parents to get jobs—an aspect of the credit that would be undermined by the new proposal, Matt Weidinger, a senior fellow at the American Enterprise Institute, a conservative think tank, said in a commentary.<span class="ql-inline-citation" data-cite="4"></span><br/><br/>While it is far less than the pandemic-era expansion of the credit, the new compromise presented in this proposal would change a feature of the credit that child poverty advocates have long criticized: the people who need it most benefit from it the least.<br/><br/>“Sixteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement.<br/><br/>The proposed law would make more of the proposal refundable every year until 2025, when it became fully refundable, meaning people with no income could claim the entire $2,000. <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>In the first year, it would benefit 80% of the 19 million children who live in families that don’t currently get the full credit, an analysis by the Center for Budget and Policy Priorities, a progressive think tank, found.<br/><br/>Breaking the numbers down another way, 51% of households making less than $21,000 would benefit from the change, as would 23.1% of those making under $40,500, according to the Tax Policy Center’s analysis.<br/><br/>In return for expanding the child tax credit, the bill would restore Trump-era business tax credits that had expired.<br/><br/>The bill was introduced in the House of Representatives last week, and was advanced in its committee but has yet to be voted on by the full house.<span class="ql-inline-citation" data-cite="5"></span> It’s part of a flurry of wheeling and dealing among Republicans and Democratic politicians over next year’s federal budget, which <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-signs-deal-funding-government-through-march-averting-shutdown-8546405">lawmakers have until March to pass</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Meanwhile, taxpayers can begin filing their federal income taxes as soon as next week, as the tax season <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/irs-says-2024-tax-season-will-start-on-jan-29-8423827">officially begins on Jan. 29</a>.  <br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * A proposed bipartisan expansion to the child tax credit would allow low-income families to claim more of it. * Lower-income families who benefit from the credit would see their tax refund increase by $680 on average, according to one analysis. * The compromise falls far short of the Pandemic-era child tax credit expansion, which saw checks of up to $300 per child sent out monthly to eligible families. Millions of children could benefit from a bipartisan compromise bill on the child tax credit proposed last week, but it would fall far short of the pandemic-era expansion of the popular tax benefit. The proposed expansion to the child tax credit, put forward by Democratic senator Ron Wyden of Oregon and Republican congressman Jason Smith of Missouri could help lift 500,000 children out of [poverty](https://www.investopedia.com/terms/p/poverty.asp), and help about half of the lowest-income families, encompassing 16 million kids, according to analyses by think tanks. Households who would benefit would gain about $680 when they filed their 2023 taxes, the Tax Policy Center, a nonpartisan think tank, said last week. During the pandemic, the [child tax credit](https://www.investopedia.com/terms/c/childtaxcredit.asp) was temporarily expanded so that parents got payments of up to $300 per month per child.  Democratic politicians, including President Joe Biden, have advocated for making that measure permanent, noting that it helped cut child poverty in half when it was in effect in 2021. Those gains were promptly reversed in 2022 when the expansion of the credit expired, causing more than [5 million children to fall back below the poverty level](https://www.investopedia.com/child-poverty-doubled-in-2022-after-key-pandemic-aid-expired-7968794). As it stands, parents with children under 18 can claim a credit worth up to $2,000 per child on their federal income taxes each year as long as they make over $2,500 a year in wages. However, only $1,600 of that credit is “[refundable](https://www.investopedia.com/terms/r/refundablecredit.asp),” meaning it can be claimed even if you don’t earn enough to owe more than that amount in taxes. That means people with low incomes get less money from the credit than people who are better off. To conservatives, that’s a feature, not a bug. The income requirement encourages parents to get jobs—an aspect of the credit that would be undermined by the new proposal, Matt Weidinger, a senior fellow at the American Enterprise Institute, a conservative think tank, said in a commentary. While it is far less than the pandemic-era expansion of the credit, the new compromise presented in this proposal would change a feature of the credit that child poverty advocates have long criticized: the people who need it most benefit from it the least. “Sixteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement. The proposed law would make more of the proposal refundable every year until 2025, when it became fully refundable, meaning people with no income could claim the entire $2,000. In the first year, it would benefit 80% of the 19 million children who live in families that don’t currently get the full credit, an analysis by the Center for Budget and Policy Priorities, a progressive think tank, found. Breaking the numbers down another way, 51% of households making less than $21,000 would benefit from the change, as would 23.1% of those making under $40,500, according to the Tax Policy Center’s analysis. In return for expanding the child tax credit, the bill would restore Trump-era business tax credits that had expired. The bill was introduced in the House of Representatives last week, and was advanced in its committee but has yet to be voted on by the full house. It’s part of a flurry of wheeling and dealing among Republicans and Democratic politicians over next year’s federal budget, which [lawmakers have until March to pass](https://www.investopedia.com/biden-signs-deal-funding-government-through-march-averting-shutdown-8546405). Meanwhile, taxpayers can begin filing their federal income taxes as soon as next week, as the tax season [officially begins on Jan. 29](https://www.investopedia.com/irs-says-2024-tax-season-will-start-on-jan-29-8423827).   Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways A proposed bipartisan expansion to the child tax credit would allow low-income families to claim more of it.Lower-income families who benefit from the credit would see their tax refund increase by $680 on average, according to one analysis.The compromise falls far short of the Pandemic-era child tax credit expansion, which saw checks of up to $300 per child sent out monthly to eligible families. Millions of children could benefit from a bipartisan compromise bill on the child tax credit proposed last week, but it would fall far short of the pandemic-era expansion of the popular tax benefit.The proposed expansion to the child tax credit, put forward by Democratic senator Ron Wyden of Oregon and Republican congressman Jason Smith of Missouri could help lift 500,000 children out of poverty, and help about half of the lowest-income families, encompassing 16 million kids, according to analyses by think tanks. Households who would benefit would gain about $680 when they filed their 2023 taxes, the Tax Policy Center, a nonpartisan think tank, said last week. During the pandemic, the child tax credit was temporarily expanded so that parents got payments of up to $300 per month per child.  Democratic politicians, including President Joe Biden, have advocated for making that measure permanent, noting that it helped cut child poverty in half when it was in effect in 2021. Those gains were promptly reversed in 2022 when the expansion of the credit expired, causing more than 5 million children to fall back below the poverty level. As it stands, parents with children under 18 can claim a credit worth up to $2,000 per child on their federal income taxes each year as long as they make over $2,500 a year in wages. However, only $1,600 of that credit is “refundable,” meaning it can be claimed even if you don’t earn enough to owe more than that amount in taxes. That means people with low incomes get less money from the credit than people who are better off.To conservatives, that’s a feature, not a bug. The income requirement encourages parents to get jobs—an aspect of the credit that would be undermined by the new proposal, Matt Weidinger, a senior fellow at the American Enterprise Institute, a conservative think tank, said in a commentary.While it is far less than the pandemic-era expansion of the credit, the new compromise presented in this proposal would change a feature of the credit that child poverty advocates have long criticized: the people who need it most benefit from it the least.“Sixteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement.The proposed law would make more of the proposal refundable every year until 2025, when it became fully refundable, meaning people with no income could claim the entire $2,000. In the first year, it would benefit 80% of the 19 million children who live in families that don’t currently get the full credit, an analysis by the Center for Budget and Policy Priorities, a progressive think tank, found.Breaking the numbers down another way, 51% of households making less than $21,000 would benefit from the change, as would 23.1% of those making under $40,500, according to the Tax Policy Center’s analysis.In return for expanding the child tax credit, the bill would restore Trump-era business tax credits that had expired.The bill was introduced in the House of Representatives last week, and was advanced in its committee but has yet to be voted on by the full house. It’s part of a flurry of wheeling and dealing among Republicans and Democratic politicians over next year’s federal budget, which lawmakers have until March to pass. Meanwhile, taxpayers can begin filing their federal income taxes as soon as next week, as the tax season officially begins on Jan. 29.   Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/c/cardnotpresent-fraud.asp

Card-Not-Present Fraud: What it is, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Card-not-present fraud is a type of credit card scam in which the customer does not physically present the card to the merchant during the fraudulent transaction. Card-not-present fraud can occur with transactions that are conducted online or over the phone in which the user only provides the credit card numbers.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Card-not-present fraud can be difficult to detect because the merchant cannot personally examine the credit card for signs of possible fraud, such as a missing hologram or altered account number. However, the merchant can take some steps to try to minimize the risk of card-not-present fraud, such as by verifying a user's mailing address associated with the card or using biometrics like fingerprints. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Nearly half of Americans have been the victim of digital payment fraud. Learn how it works and ways to prevent it.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Card-not-present fraud is a scam in which someone attempts to make a fraudulent credit card transaction with a credit card they don't own or have in their possession.</li><li>Online purchases and those done over-the-phone are prime examples of where just a credit card number is required. </li><li>The ubiquity of online shopping has contributed to an increase of card-not-present fraud.</li><li>To combat this type of fraud, many online merchants now require the CVV number to validate you have the card.</li></ul></div></div></div> <span class="heading-toc" id="toc-card-not-present-fraud-definition"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Card-Not-Present Fraud Definition </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-card-processing-companies-5080522">Credit card payment processors</a> take a number of steps to minimize card-not-present fraud. These include verifying that the address provided by the customer at the time of purchase matches the billing address on file with the credit card company, checking the validity of three-digit CVV security codes, and prohibiting merchants from storing these codes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> However, if the criminal has stolen these details, the fraudulent transaction may appear legitimate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-how-card-not-present-fraud-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> How Card-Not-Present Fraud Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Card-not-present fraud can occur when a criminal obtains a cardholder’s name, billing address, account number, three-digit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/validation-code.asp">CVV security code</a>, or card expiration date. These details can be stolen electronically without obtaining the physical card. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The theft of credit card data for use in card-not-present fraud most commonly occurs through online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/phishing.asp">phishing</a> or through theft of a customer's credit card information by dishonest employees. It also occurs less commonly through merchant database hacks.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> When card-not-present fraud occurs, the merchant bears the loss. This type of fraud can have a significant impact on the merchant’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bottomline.asp">bottom line</a>, especially for retail establishments, which tend to have smaller profit margins. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> By contrast, in card-present fraud, the credit card issuer usually bears the loss, not the merchant. Under credit card terms and conditions, the credit card issuer will not hold the cardholder liable for any fraudulent charges, whether through card-present or card-not-present fraud. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> How Card-Not-Present Fraud Is Detected </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Sophisticated technology can help detect many instances of attempted card-not-present fraud. For example, credit card companies have methods of detecting credit card purchases that are likely fraudulent given the accountholder’s typical card usage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Merchants can take steps like using biometric information like fingerprints or voice patterns to try to detect card-not-present fraud. They can also try to confirm the identity of a cardholder by using personal information like a mailing address. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> However, they cannot easily detect <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/online-shoplifting.asp">online shoplifting</a> or friendly fraud. In this scenario, the criminal will make a purchase online or by phone, receive the merchandise, then file a dispute with the credit card issuer saying that the merchandise is inferior or that it never arrived. The issuer initiates a chargeback and the merchant has to refund the dishonest customer.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-is-card-not-present-a-type-of-card-fraud"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Card-Not-Present a Type of Card Fraud?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Card-not-present fraud is a type of credit card fraud in which the criminal uses the numbers of your credit card to make purchases online, by mail, or over the phone. In these cases, they do not have to present the physical card to a merchant.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-how-do-you-detect-card-not-present-fraud"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Detect Card-Not-Present Fraud?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One way a merchant can detect card-not-present fraud is to use an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/address-verification-system.asp">Address Verification System</a>. With this strategy, the merchant can cross check a customer's address with the address associated with the credit card to help confirm the card belongs to the buyer.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-how-can-someone-use-your-card-without-having-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can Someone Use Your Card Without Having It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A criminal can use the numbers on your credit card, including the account number and expiration date, to make purchases online or over the telephone. Criminals can even use your debit card without physically having it.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Card-not-present fraud is a danger that can threaten your personal finances and personal identity. Merchants can work to prevent this type of fraud in a few ways, including by using biometrics for identification or verifying an identity with information like a mailing address.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Monitor your credit and credit card statements regularly and look for any signs of fraud, such as purchases you didn't make. If you believe you've been a victim of card-not-present fraud, contact your credit card company immediately.<br/> </p></div>

Card-not-present fraud is a type of credit card scam in which the customer does not physically present the card to the merchant during the fraudulent transaction. Card-not-present fraud can occur with transactions that are conducted online or over the phone in which the user only provides the credit card numbers. Card-not-present fraud can be difficult to detect because the merchant cannot personally examine the credit card for signs of possible fraud, such as a missing hologram or altered account number. However, the merchant can take some steps to try to minimize the risk of card-not-present fraud, such as by verifying a user's mailing address associated with the card or using biometrics like fingerprints. Nearly half of Americans have been the victim of digital payment fraud. Learn how it works and ways to prevent it. ### Key Takeaways * Card-not-present fraud is a scam in which someone attempts to make a fraudulent credit card transaction with a credit card they don't own or have in their possession. * Online purchases and those done over-the-phone are prime examples of where just a credit card number is required. * The ubiquity of online shopping has contributed to an increase of card-not-present fraud. * To combat this type of fraud, many online merchants now require the CVV number to validate you have the card. ## Card-Not-Present Fraud Definition [Credit card payment processors](https://www.investopedia.com/best-credit-card-processing-companies-5080522) take a number of steps to minimize card-not-present fraud. These include verifying that the address provided by the customer at the time of purchase matches the billing address on file with the credit card company, checking the validity of three-digit CVV security codes, and prohibiting merchants from storing these codes. However, if the criminal has stolen these details, the fraudulent transaction may appear legitimate. ## How Card-Not-Present Fraud Works Card-not-present fraud can occur when a criminal obtains a cardholder’s name, billing address, account number, three-digit [CVV security code](https://www.investopedia.com/terms/v/validation-code.asp), or card expiration date. These details can be stolen electronically without obtaining the physical card. ### The theft of credit card data for use in card-not-present fraud most commonly occurs through online [phishing](https://www.investopedia.com/terms/p/phishing.asp) or through theft of a customer's credit card information by dishonest employees. It also occurs less commonly through merchant database hacks. When card-not-present fraud occurs, the merchant bears the loss. This type of fraud can have a significant impact on the merchant’s [bottom line](https://www.investopedia.com/terms/b/bottomline.asp), especially for retail establishments, which tend to have smaller profit margins. By contrast, in card-present fraud, the credit card issuer usually bears the loss, not the merchant. Under credit card terms and conditions, the credit card issuer will not hold the cardholder liable for any fraudulent charges, whether through card-present or card-not-present fraud. ### How Card-Not-Present Fraud Is Detected Sophisticated technology can help detect many instances of attempted card-not-present fraud. For example, credit card companies have methods of detecting credit card purchases that are likely fraudulent given the accountholder’s typical card usage. Merchants can take steps like using biometric information like fingerprints or voice patterns to try to detect card-not-present fraud. They can also try to confirm the identity of a cardholder by using personal information like a mailing address. However, they cannot easily detect [online shoplifting](https://www.investopedia.com/terms/o/online-shoplifting.asp) or friendly fraud. In this scenario, the criminal will make a purchase online or by phone, receive the merchandise, then file a dispute with the credit card issuer saying that the merchandise is inferior or that it never arrived. The issuer initiates a chargeback and the merchant has to refund the dishonest customer. ## Is Card-Not-Present a Type of Card Fraud? Card-not-present fraud is a type of credit card fraud in which the criminal uses the numbers of your credit card to make purchases online, by mail, or over the phone. In these cases, they do not have to present the physical card to a merchant. ## How Do You Detect Card-Not-Present Fraud? One way a merchant can detect card-not-present fraud is to use an [Address Verification System](https://www.investopedia.com/terms/a/address-verification-system.asp). With this strategy, the merchant can cross check a customer's address with the address associated with the credit card to help confirm the card belongs to the buyer. ## How Can Someone Use Your Card Without Having It? A criminal can use the numbers on your credit card, including the account number and expiration date, to make purchases online or over the telephone. Criminals can even use your debit card without physically having it. ## The Bottom Line Card-not-present fraud is a danger that can threaten your personal finances and personal identity. Merchants can work to prevent this type of fraud in a few ways, including by using biometrics for identification or verifying an identity with information like a mailing address. Monitor your credit and credit card statements regularly and look for any signs of fraud, such as purchases you didn't make. If you believe you've been a victim of card-not-present fraud, contact your credit card company immediately.

Card-not-present fraud is a type of credit card scam in which the customer does not physically present the card to the merchant during the fraudulent transaction. Card-not-present fraud can occur with transactions that are conducted online or over the phone in which the user only provides the credit card numbers. Card-not-present fraud can be difficult to detect because the merchant cannot personally examine the credit card for signs of possible fraud, such as a missing hologram or altered account number. However, the merchant can take some steps to try to minimize the risk of card-not-present fraud, such as by verifying a user's mailing address associated with the card or using biometrics like fingerprints. Nearly half of Americans have been the victim of digital payment fraud. Learn how it works and ways to prevent it. Key Takeaways Card-not-present fraud is a scam in which someone attempts to make a fraudulent credit card transaction with a credit card they don't own or have in their possession.Online purchases and those done over-the-phone are prime examples of where just a credit card number is required. The ubiquity of online shopping has contributed to an increase of card-not-present fraud.To combat this type of fraud, many online merchants now require the CVV number to validate you have the card. Card-Not-Present Fraud Definition Credit card payment processors take a number of steps to minimize card-not-present fraud. These include verifying that the address provided by the customer at the time of purchase matches the billing address on file with the credit card company, checking the validity of three-digit CVV security codes, and prohibiting merchants from storing these codes. However, if the criminal has stolen these details, the fraudulent transaction may appear legitimate. How Card-Not-Present Fraud Works Card-not-present fraud can occur when a criminal obtains a cardholder’s name, billing address, account number, three-digit CVV security code, or card expiration date. These details can be stolen electronically without obtaining the physical card. The theft of credit card data for use in card-not-present fraud most commonly occurs through online phishing or through theft of a customer's credit card information by dishonest employees. It also occurs less commonly through merchant database hacks. When card-not-present fraud occurs, the merchant bears the loss. This type of fraud can have a significant impact on the merchant’s bottom line, especially for retail establishments, which tend to have smaller profit margins. By contrast, in card-present fraud, the credit card issuer usually bears the loss, not the merchant. Under credit card terms and conditions, the credit card issuer will not hold the cardholder liable for any fraudulent charges, whether through card-present or card-not-present fraud. How Card-Not-Present Fraud Is Detected Sophisticated technology can help detect many instances of attempted card-not-present fraud. For example, credit card companies have methods of detecting credit card purchases that are likely fraudulent given the accountholder’s typical card usage. Merchants can take steps like using biometric information like fingerprints or voice patterns to try to detect card-not-present fraud. They can also try to confirm the identity of a cardholder by using personal information like a mailing address. However, they cannot easily detect online shoplifting or friendly fraud. In this scenario, the criminal will make a purchase online or by phone, receive the merchandise, then file a dispute with the credit card issuer saying that the merchandise is inferior or that it never arrived. The issuer initiates a chargeback and the merchant has to refund the dishonest customer. Is Card-Not-Present a Type of Card Fraud? Card-not-present fraud is a type of credit card fraud in which the criminal uses the numbers of your credit card to make purchases online, by mail, or over the phone. In these cases, they do not have to present the physical card to a merchant. How Do You Detect Card-Not-Present Fraud? One way a merchant can detect card-not-present fraud is to use an Address Verification System. With this strategy, the merchant can cross check a customer's address with the address associated with the credit card to help confirm the card belongs to the buyer. How Can Someone Use Your Card Without Having It? A criminal can use the numbers on your credit card, including the account number and expiration date, to make purchases online or over the telephone. Criminals can even use your debit card without physically having it. The Bottom Line Card-not-present fraud is a danger that can threaten your personal finances and personal identity. Merchants can work to prevent this type of fraud in a few ways, including by using biometrics for identification or verifying an identity with information like a mailing address. Monitor your credit and credit card statements regularly and look for any signs of fraud, such as purchases you didn't make. If you believe you've been a victim of card-not-present fraud, contact your credit card company immediately.

https://www.investopedia.com/articles/investing/030515/what-cold-storage-bitcoin.asp

What Is Cryptocurrency Cold Storage and Which Method Is Safest?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-cryptocurrency-cold-storage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Cryptocurrency Cold Storage? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Cold storage is removing your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a> keys from your wallet and storing them somewhere that is not connected to another device, a network, or the internet. Additionally, cold storage methods shouldn't have the ability to communicate with any other electronic device unless it is physically plugged into that device when you're accessing your keys. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Cold storage became a concern early on in cryptocurrency's development because of concerns over key theft by hackers. Originally, it consisted of writing down the keys on a piece of paper and removing them from the wallet. Cold storage has since evolved because it is more popular and users demanded easier and more secure methods. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Cold storage is removing your cryptocurrency keys from your connected wallet so that they are more secure.</li><li>Cold storage is less convenient than other security methods, but that means it is more secure.</li><li>The less convenient a storage method is, the more secure it will be.</li><li>There are several different cold storage methods to choose from.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block has-details inline-video" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/3wuglthh/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0">What Is Cold Storage For Bitcoin? </h4></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-understanding-cryptocurrency-cold-storage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Understanding Cryptocurrency Cold Storage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> It's important to explore the concept of a cryptocurrency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bitcoin-wallets-5070283">wallet</a> to understand storage. For cryptocurrency users, wallets function somewhat similarly to physical wallets, which hold cash. However, these wallets hold cryptocurrency keys. They are digital storage tools that have both a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/public-key.asp">public</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/private-key.asp">private key</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The public key is similar to an email address because it is used as the address used to send and receive crypto. The private key is used to access the cryptocurrency. These keys are strings of characters necessary to complete cryptocurrency transfers to or from a wallet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For safety, you can store the keys somewhere other than your wallet—if the storage medium has a connection to a device that is connected to the internet, it is referred to as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hot-wallet.asp">hot</a>; cold storage does not have connection or is not connected to a device that is online.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block has-details inline-video" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_2-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/0WuIp5NY/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_2-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_2-0">Cryptocurrency Wallets Explained</h4> <div class="comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block" id="mntl-sc-block-inlinevideo__feature-link-wrapper_1-0"><span class="comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link" id="mntl-sc-block-inlinevideo__feature-link_1-0"></span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-cryptocurrency-cold-storage-methods"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Cryptocurrency Cold Storage Methods </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The most commonly used cold storage methods are hardware wallets. However, the number of cold storage techniques is limited only by the user's imagination. Some are more obscure, while others can be ultra-secure. Here are a few types that are or have been used. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Paper Wallets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paper-wallet.asp">Paper wallets</a> involve printing or writing your private keys on paper and storing them somewhere. Another technique used in the past was adding a QR code that can be scanned to make transactions faster, but this reduces security because you have to use a device with a camera, both of which could be compromised. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A paper wallet with a QR code contains all the information needed to spend the coins, so its safety is crucially important. Paper wallets can be misplaced, the ink can fade, or you could accidentally leave one on your desk and spill coffee on it. If you choose this method, be sure to have a safe box or other secure storage method. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you choose to use paper wallets, use a type of paper designed for longevity, such as archival paper or bond paper.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Hardware Wallets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Hardware wallets are storage devices that look like USB drives and can be plugged into or connected wirelessly to the device you use to access your wallet. They are one of the more safe and secure ways of placing your keys in cold storage. You can use anything from a standard USB storage drive to an advanced device with a battery, Bluetooth, software, and other features. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Air-gapped devices have no connection ability and are more secure than ones that can connect wirelessly. You can buy commercial hardware wallets from retailers and merchants; many are water and virus proof—some even support <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/multi-signature-wallets-definition-5271193">multi-signature</a> (multi-sig) transactions. Multi-sig is a cryptocurrency signature method that requires more than one user to approve a transaction using private keys. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Many advanced hardware storage devices are available, but it's important to remember that the less convenient a storage method is, the more secure it is. Likewise, the fewer features a method has, the more secure it is.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-subheading__text"> Sound Wallets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Sound wallets are an obscure and expensive way to store your keys, depending on your chosen medium. Sound wallets involve encrypting and recording your private keys in sound files on products such as Compact Discs (CDs) or vinyl disks (records). The code hidden in these audio files can be deciphered using a spectroscope application or high-resolution spectroscope. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-subheading__text"> Deep Cold Storage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Placing your cold storage hardware wallet in your safe is secure, but it isn't considered deep cold storage because it is easy to access. Deep cold storage is any method that is very inconvenient and requires time and effort to retrieve your keys. This could be anything from placing your hardware wallet in a waterproof container and burying it six feet down in your garden to using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/selecting-a-qualified-crypto-custodian-8400929">third-party service</a> that stores your cryptocurrency keys in a vault that requires multiple steps to access. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Burying your keys deep in the garden has several drawbacks, like lots of digging and remembering where you buried it, but so does the ultra-secure vault service. Vault services generally require your identity, proof of address, or other means of identification. Additionally, it can take hours or days to access your keys, depending on where they are physically stored. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Most cryptocurrency exchanges offer cold storage for their user's keys that is very secure. This deep cold storage is similar to enterprise-level data storage used by businesses and governments. However, there are risks to using third-party storage options like this, as exchanges are a favorite target for thieves. There is some measure of comfort to be had when using this method, as a few exchanges insure the assets you have in their storage. If you prefer to have a business hold your keys for you, make sure it insures your cryptoassets so you're protected if your keys are stolen while under its care. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-what-cold-storage-is-best-for-crypto"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Cold Storage Is Best for Crypto?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Any cold storage that removes your private keys from your wallet is good. The best method is deep cold storage, which is adding steps to your cold storage method to make more difficult to access.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-can-you-store-crypto-in-cold-storage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Store Crypto in Cold Storage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Crypto is not "stored" anywhere. Cryptocurrency is a token of ownership, like a driver's license, which is a token of your legal identity and access to driving privileges in your state. It represents your ownership of currency that exists only on a blockchain. The keys are what are stored in wallets, whether they are hot or cold.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-can-you-still-stake-crypto-in-cold-storage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Still Stake Crypto in Cold Storage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, because they are not the same thing. Cold storage is removing your keys from your wallet for security. Staking is locking your crypto on the blockchain as collateral for the privilege and chance of doing work for it and receiving fees if the network pays them. You can stake your crypto and place your keys in cold storage.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Cold storage is transferring your private cryptocurrency keys to a non-connected medium. The medium could be paper, a usb drive, a commercially designed USB device, or any other method you can think of that stores your keys. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> It's important to remember that it's the connection that makes a storage device hot or cold. When you're choosing a storage device, make sure you do your research and store your devices somewhere they cannot be damaged.<br> </br></p></div>

## What Is Cryptocurrency Cold Storage? Cold storage is removing your [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) keys from your wallet and storing them somewhere that is not connected to another device, a network, or the internet. Additionally, cold storage methods shouldn't have the ability to communicate with any other electronic device unless it is physically plugged into that device when you're accessing your keys. Cold storage became a concern early on in cryptocurrency's development because of concerns over key theft by hackers. Originally, it consisted of writing down the keys on a piece of paper and removing them from the wallet. Cold storage has since evolved because it is more popular and users demanded easier and more secure methods. ### Key Takeaways * Cold storage is removing your cryptocurrency keys from your connected wallet so that they are more secure. * Cold storage is less convenient than other security methods, but that means it is more secure. * The less convenient a storage method is, the more secure it will be. * There are several different cold storage methods to choose from. #### What Is Cold Storage For Bitcoin? ## Understanding Cryptocurrency Cold Storage It's important to explore the concept of a cryptocurrency [wallet](https://www.investopedia.com/best-bitcoin-wallets-5070283) to understand storage. For cryptocurrency users, wallets function somewhat similarly to physical wallets, which hold cash. However, these wallets hold cryptocurrency keys. They are digital storage tools that have both a [public](https://www.investopedia.com/terms/p/public-key.asp) and [private key](https://www.investopedia.com/terms/p/private-key.asp). The public key is similar to an email address because it is used as the address used to send and receive crypto. The private key is used to access the cryptocurrency. These keys are strings of characters necessary to complete cryptocurrency transfers to or from a wallet. For safety, you can store the keys somewhere other than your wallet—if the storage medium has a connection to a device that is connected to the internet, it is referred to as [hot](https://www.investopedia.com/terms/h/hot-wallet.asp); cold storage does not have connection or is not connected to a device that is online. #### Cryptocurrency Wallets Explained ## Cryptocurrency Cold Storage Methods The most commonly used cold storage methods are hardware wallets. However, the number of cold storage techniques is limited only by the user's imagination. Some are more obscure, while others can be ultra-secure. Here are a few types that are or have been used. ### Paper Wallets [Paper wallets](https://www.investopedia.com/terms/p/paper-wallet.asp) involve printing or writing your private keys on paper and storing them somewhere. Another technique used in the past was adding a QR code that can be scanned to make transactions faster, but this reduces security because you have to use a device with a camera, both of which could be compromised. A paper wallet with a QR code contains all the information needed to spend the coins, so its safety is crucially important. Paper wallets can be misplaced, the ink can fade, or you could accidentally leave one on your desk and spill coffee on it. If you choose this method, be sure to have a safe box or other secure storage method. ### If you choose to use paper wallets, use a type of paper designed for longevity, such as archival paper or bond paper. ### Hardware Wallets Hardware wallets are storage devices that look like USB drives and can be plugged into or connected wirelessly to the device you use to access your wallet. They are one of the more safe and secure ways of placing your keys in cold storage. You can use anything from a standard USB storage drive to an advanced device with a battery, Bluetooth, software, and other features. Air-gapped devices have no connection ability and are more secure than ones that can connect wirelessly. You can buy commercial hardware wallets from retailers and merchants; many are water and virus proof—some even support [multi-signature](https://www.investopedia.com/multi-signature-wallets-definition-5271193) (multi-sig) transactions. Multi-sig is a cryptocurrency signature method that requires more than one user to approve a transaction using private keys. ### Many advanced hardware storage devices are available, but it's important to remember that the less convenient a storage method is, the more secure it is. Likewise, the fewer features a method has, the more secure it is. ### Sound Wallets Sound wallets are an obscure and expensive way to store your keys, depending on your chosen medium. Sound wallets involve encrypting and recording your private keys in sound files on products such as Compact Discs (CDs) or vinyl disks (records). The code hidden in these audio files can be deciphered using a spectroscope application or high-resolution spectroscope. ### Deep Cold Storage Placing your cold storage hardware wallet in your safe is secure, but it isn't considered deep cold storage because it is easy to access. Deep cold storage is any method that is very inconvenient and requires time and effort to retrieve your keys. This could be anything from placing your hardware wallet in a waterproof container and burying it six feet down in your garden to using a [third-party service](https://www.investopedia.com/selecting-a-qualified-crypto-custodian-8400929) that stores your cryptocurrency keys in a vault that requires multiple steps to access. Burying your keys deep in the garden has several drawbacks, like lots of digging and remembering where you buried it, but so does the ultra-secure vault service. Vault services generally require your identity, proof of address, or other means of identification. Additionally, it can take hours or days to access your keys, depending on where they are physically stored. Most cryptocurrency exchanges offer cold storage for their user's keys that is very secure. This deep cold storage is similar to enterprise-level data storage used by businesses and governments. However, there are risks to using third-party storage options like this, as exchanges are a favorite target for thieves. There is some measure of comfort to be had when using this method, as a few exchanges insure the assets you have in their storage. If you prefer to have a business hold your keys for you, make sure it insures your cryptoassets so you're protected if your keys are stolen while under its care. ## What Cold Storage Is Best for Crypto? Any cold storage that removes your private keys from your wallet is good. The best method is deep cold storage, which is adding steps to your cold storage method to make more difficult to access. ## Can You Store Crypto in Cold Storage? No. Crypto is not "stored" anywhere. Cryptocurrency is a token of ownership, like a driver's license, which is a token of your legal identity and access to driving privileges in your state. It represents your ownership of currency that exists only on a blockchain. The keys are what are stored in wallets, whether they are hot or cold. ## Can You Still Stake Crypto in Cold Storage? Yes, because they are not the same thing. Cold storage is removing your keys from your wallet for security. Staking is locking your crypto on the blockchain as collateral for the privilege and chance of doing work for it and receiving fees if the network pays them. You can stake your crypto and place your keys in cold storage. ## The Bottom Line Cold storage is transferring your private cryptocurrency keys to a non-connected medium. The medium could be paper, a usb drive, a commercially designed USB device, or any other method you can think of that stores your keys. It's important to remember that it's the connection that makes a storage device hot or cold. When you're choosing a storage device, make sure you do your research and store your devices somewhere they cannot be damaged.

What Is Cryptocurrency Cold Storage? Cold storage is removing your cryptocurrency keys from your wallet and storing them somewhere that is not connected to another device, a network, or the internet. Additionally, cold storage methods shouldn't have the ability to communicate with any other electronic device unless it is physically plugged into that device when you're accessing your keys. Cold storage became a concern early on in cryptocurrency's development because of concerns over key theft by hackers. Originally, it consisted of writing down the keys on a piece of paper and removing them from the wallet. Cold storage has since evolved because it is more popular and users demanded easier and more secure methods. Key Takeaways Cold storage is removing your cryptocurrency keys from your connected wallet so that they are more secure.Cold storage is less convenient than other security methods, but that means it is more secure.The less convenient a storage method is, the more secure it will be.There are several different cold storage methods to choose from. What Is Cold Storage For Bitcoin? Understanding Cryptocurrency Cold Storage It's important to explore the concept of a cryptocurrency wallet to understand storage. For cryptocurrency users, wallets function somewhat similarly to physical wallets, which hold cash. However, these wallets hold cryptocurrency keys. They are digital storage tools that have both a public and private key. The public key is similar to an email address because it is used as the address used to send and receive crypto. The private key is used to access the cryptocurrency. These keys are strings of characters necessary to complete cryptocurrency transfers to or from a wallet. For safety, you can store the keys somewhere other than your wallet—if the storage medium has a connection to a device that is connected to the internet, it is referred to as hot; cold storage does not have connection or is not connected to a device that is online. Cryptocurrency Wallets Explained Cryptocurrency Cold Storage Methods The most commonly used cold storage methods are hardware wallets. However, the number of cold storage techniques is limited only by the user's imagination. Some are more obscure, while others can be ultra-secure. Here are a few types that are or have been used. Paper Wallets Paper wallets involve printing or writing your private keys on paper and storing them somewhere. Another technique used in the past was adding a QR code that can be scanned to make transactions faster, but this reduces security because you have to use a device with a camera, both of which could be compromised. A paper wallet with a QR code contains all the information needed to spend the coins, so its safety is crucially important. Paper wallets can be misplaced, the ink can fade, or you could accidentally leave one on your desk and spill coffee on it. If you choose this method, be sure to have a safe box or other secure storage method. If you choose to use paper wallets, use a type of paper designed for longevity, such as archival paper or bond paper. Hardware Wallets Hardware wallets are storage devices that look like USB drives and can be plugged into or connected wirelessly to the device you use to access your wallet. They are one of the more safe and secure ways of placing your keys in cold storage. You can use anything from a standard USB storage drive to an advanced device with a battery, Bluetooth, software, and other features. Air-gapped devices have no connection ability and are more secure than ones that can connect wirelessly. You can buy commercial hardware wallets from retailers and merchants; many are water and virus proof—some even support multi-signature (multi-sig) transactions. Multi-sig is a cryptocurrency signature method that requires more than one user to approve a transaction using private keys. Many advanced hardware storage devices are available, but it's important to remember that the less convenient a storage method is, the more secure it is. Likewise, the fewer features a method has, the more secure it is. Sound Wallets Sound wallets are an obscure and expensive way to store your keys, depending on your chosen medium. Sound wallets involve encrypting and recording your private keys in sound files on products such as Compact Discs (CDs) or vinyl disks (records). The code hidden in these audio files can be deciphered using a spectroscope application or high-resolution spectroscope. Deep Cold Storage Placing your cold storage hardware wallet in your safe is secure, but it isn't considered deep cold storage because it is easy to access. Deep cold storage is any method that is very inconvenient and requires time and effort to retrieve your keys. This could be anything from placing your hardware wallet in a waterproof container and burying it six feet down in your garden to using a third-party service that stores your cryptocurrency keys in a vault that requires multiple steps to access. Burying your keys deep in the garden has several drawbacks, like lots of digging and remembering where you buried it, but so does the ultra-secure vault service. Vault services generally require your identity, proof of address, or other means of identification. Additionally, it can take hours or days to access your keys, depending on where they are physically stored. Most cryptocurrency exchanges offer cold storage for their user's keys that is very secure. This deep cold storage is similar to enterprise-level data storage used by businesses and governments. However, there are risks to using third-party storage options like this, as exchanges are a favorite target for thieves. There is some measure of comfort to be had when using this method, as a few exchanges insure the assets you have in their storage. If you prefer to have a business hold your keys for you, make sure it insures your cryptoassets so you're protected if your keys are stolen while under its care. What Cold Storage Is Best for Crypto? Any cold storage that removes your private keys from your wallet is good. The best method is deep cold storage, which is adding steps to your cold storage method to make more difficult to access. Can You Store Crypto in Cold Storage? No. Crypto is not "stored" anywhere. Cryptocurrency is a token of ownership, like a driver's license, which is a token of your legal identity and access to driving privileges in your state. It represents your ownership of currency that exists only on a blockchain. The keys are what are stored in wallets, whether they are hot or cold. Can You Still Stake Crypto in Cold Storage? Yes, because they are not the same thing. Cold storage is removing your keys from your wallet for security. Staking is locking your crypto on the blockchain as collateral for the privilege and chance of doing work for it and receiving fees if the network pays them. You can stake your crypto and place your keys in cold storage. The Bottom Line Cold storage is transferring your private cryptocurrency keys to a non-connected medium. The medium could be paper, a usb drive, a commercially designed USB device, or any other method you can think of that stores your keys. It's important to remember that it's the connection that makes a storage device hot or cold. When you're choosing a storage device, make sure you do your research and store your devices somewhere they cannot be damaged.

https://www.investopedia.com/water-etfs-how-they-work-8426968

Water ETFs: What They Are and How They Work

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-water-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Are Water ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Water exchange-traded funds (ETFs) are professionally managed and allow investors to put money in the water industry without having to select and assess companies in the sector one by one. These ETFs hold stocks from water companies, including utilities, infrastructure, and treatment firms.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">KEY TAKEAWAYS</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Water ETFs offer investors exposure to companies involved in the water industry.</li> <li>Factors to consider when investing in water ETFs include expense ratios, liquidity, and underlying holdings.</li> <li>While investing in water ETFs carries potential risks, such as market fluctuations and changes in regulations, it also provides an avenue for environmentally focused investing.</li> <li>Leading water ETFs include Invesco Water Resources ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PHO">PHO</a>), First Trust Water ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FIW">FIW</a>), and Invesco S&amp;P Global Water Index ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CGW">CGW</a>).</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The water sector is all-important for economic growth, environmental sustainability, and the fundamental needs of life. Around 2 billion people worldwide lack access to clean and safe water, highlighting this sector's critical need for development.<span class="ql-inline-citation" data-cite="6"></span> Water infrastructure forms a cornerstone of sustainable development. Drinking water, agriculture, and food production all rely on this industry.<span class="ql-inline-citation" data-cite="7"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Supplying drinking and other forms of water, wastewater treatment, and related services is also essential to modern life and the world's economy.<span class="ql-inline-citation" data-cite="8"></span> In the U.S., firms in the industry and public water authorities grapple with public health hazards, water utilities face budget constraints, rising consumer costs, climate change, droughts, massive drainage in underground water supplies from years of misuse, and chronic underinvestment.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> By investing in these ETFs, investors can put money into firms responding to the rapidly rising global demand for water. Water ETFs offer the chance to invest in an essential resource while supporting businesses striving for sustainable water management. Investing in these funds is a strategic move for those who see water scarcity as a significant global issue, making them a crucial part of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversified portfolio</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Few industries can claim as much importance as this one. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Transparency Matters</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A significant problem among some parts of the water sector is that disclosure standards, especially for corporate water practices, can make it hard to assess the value of some companies in the industry.</p></div></div></div> <span class="heading-toc" id="toc-how-water-etfs-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How Water ETFs Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Water is a vital resource, and understanding the water industry, its potential risks, and opportunities is crucial for investors, communities, and nations facing water scarcity issues worldwide. The sector faces challenges such as contamination but also works to find solutions to solve one of the world's most significant problems.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Like other ETFs, these funds are pools of capital that hold stocks or derivatives tracking companies in the water industry. The ETFs trade their shares on the major stock exchanges like individual stocks. Here are three significant parts of how ETFs work: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li><strong>Sponsors</strong>: These firms create, market, and manage ETFs. However, sponsors, also called issuers or ETF managers, don't create ETF shares.</li> <li><strong>Market-makers</strong>: Companies that work with ETF sponsors and the stock exchange to ensure there's always a supply of shares in the ETF so you can easily enter or exit your water ETF position.</li> <li><strong>Authorized participants</strong>: All ETFs involve <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/authorizedparticipant.asp">authorized participants</a> who create and redeem shares for the ETF. This role is needed so that the shares trade as close as possible to the value of the water ETF's underlying assets. Traditionally, major financial institutions like Morgan Stanley and JPMorgan Chase &amp; Co. have played this part, creating ETF shares by buying the underlying assets (water stocks and so on) and exchanging them for shares in the fund. Going the other way, authorized participants buy ETF shares from investors and redeem them for the underlying assets held by the ETF.<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The price of ETF shares is determined by the net asset value of the stocks and other holdings in the water sector and is divided by the number of shares outstanding.<span class="ql-inline-citation" data-cite="12"></span> When reviewing these ETFs, you'll want to assess their expense ratios, assets under management, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp#:~:text=Liquidity%20refers%20to%20the%20ease,tangible%20items%20are%20less%20liquid.">liquidity</a>, and underlying holdings, among other matters.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> First entering the market in 2005, water ETFs have shown resilience given the constant need for water in life and almost all industrial sectors. In addition, specific trends in water ETFs usually mirror global water issues. An increase in investments may indicate a growing awareness of water scarcity and a commitment to sustainable water management. However, their returns, like all investments, are subject to market fluctuations.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-benefits-of-investing-in-water-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Benefits of Investing in Water ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Investing in these types of ETFs has several advantages. Water ETFs typically hold shares in companies focused on water purification and efficient usage. For instance, the Global X Clean Water ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AQWA">AQWA</a>) puts money into companies producing more clean water through industrial water treatment, storage, and other methods. Investing in this area also allows you to support and benefit from organizations actively addressing water scarcity and quality issues.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Water ETFs typically hold shares in companies like Danaher (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHR">DHR</a>), Ecolab (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ECL">ECL</a>), and Pentair (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PNR">PNR</a>), which are involved in producing and putting in place water-related technologies and services that help mitigate the effects of the global water crisis. Here are some more potential benefits of investing in water ETFs: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li><strong>Growing demand</strong>: Given the increasing global population and urbanization, the demand for clean and accessible water has been rising rapidly.<span class="ql-inline-citation" data-cite="7"></span> This should mean growth for the sector.</li><li><strong>Diversification</strong>: These ETFs typically invest in assorted companies involved in different aspects of the water industry, including treatment, infrastructure, and technology. Thus, you get broad exposure to the entire industry rather than depending on the performance of specific companies. In addition, these ETFs typically hold shares in companies from subsectors like utilities, infrastructure, and technology.</li><li><strong>Global exposure</strong>: Water ETFs often hold shares from companies working globally, providing exposure to international markets and reducing country-specific risk.</li><li><strong>Inflation hedge</strong>: Utilities, a major component held by water ETFs, are typically seen as a good hedge against inflation because they can pass on increased costs to consumers and there is demand for the essentials they provide even when the market tumbles. The water sector's performance also has some negative correlation with other assets.<br/></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Potential for stable returns</strong>: Water is a basic human necessity; thus, the industry tends to be less volatile than other sectors. This could offer more stable returns over the long term.</li><li><strong>Sustainability</strong>: Investors can contribute to sustainable development goals by investing in water ETFs. Many water-related companies are working on solutions to address water scarcity and pollution. As global water scarcity intensifies, there's also a growing focus on making water use more efficient. Buying shares in these ETFs indirectly supports companies at the forefront of these efforts, potentially driving progress toward more sustainable practices in the industry.<span class="ql-inline-citation" data-cite="10"></span></li><li><strong>Tech opportunities</strong>: The water sector is ripe for finding inventive solutions in areas like desalination, wastewater treatment, and smart metering. Companies leading in these areas can offer attractive investment opportunities since their products will be in demand.<span class="ql-inline-citation" data-cite="13"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Despite these potential benefits, the suitability of water ETFs for your portfolio depends on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetallocation.asp">asset allocation</a>, financial goals, and risk tolerance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-top-water-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Top Water ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The top three water ETFs regarding assets under management traded in the U.S. are PHO, FIW, and CGW.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <strong>Invesco Water Resources ETF (PHO)</strong>: With an expense ratio of 0.60%, this ETF tracks the investment results of the Nasdaq OMX U.S. Water Index. As of January 2024, it had assets under management (AUM) of about $1.89 billion.<span class="ql-inline-citation" data-cite="1"></span> The PHO ETF primarily invests in securities of companies in the water industry, focusing on sustainability and resource management.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>First Trust Water ETF (FIW)</strong>: This ETF targets companies engaged in the potable and wastewater industries. FIW ETF has an expense ratio of 0.53% and an AUM of about $1.48 billion.<span class="ql-inline-citation" data-cite="1"></span> The ETF tracks the price and yield of the ISE Clean Edge Water Index.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <strong>Invesco S&amp;P Global Water Index ETF (CGW)</strong>: This ETF tracks the S&amp;P Global Water Index, offering exposure to 50 of the largest corporations globally involved in water-related businesses. Its expense ratio is 0.57%, with an AUM of about $933 million.<span class="ql-inline-citation" data-cite="1"></span> The fund focuses on companies providing potable water, wastewater services, and other equipment and materials used for treating water.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As always, before investing in these or any ETFs, do careful due diligence and double-check recently updated information about these funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-risks-and-challenges-of-investing-in-water-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Risks and Challenges of Investing in Water ETFs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_48-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_49-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros and Cons of Water ETFs</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Diversified exposure to water industry stocks.<br/></p></li> <li><p>Potential for long-term growth as companies and governments gear up to face global water crisis.</p></li> <li><p>Broad and possibly effective investment exposure to the potable and wastewater industry.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Subject to sector-specific risks and uncertainties. Performance can be influenced by regulatory changes.<br/></p></li> <li><p>Limited number of "investable" companies in the sector.</p></li> <li><p>Thematic focus might not align with all investors' strategies.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Despite the potential for long-term growth because of the dangers to the global water supply, there are significant risks that investors need to consider. Let's go through some of them: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li><strong>Concentration risk</strong>: Water ETFs tend to be focused on specific sectors, countries, or groups of companies. This concentration can expose investors to more risk if that area faces a downturn or upheaval.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>Greenwashing</strong>: This is when companies overstate their environmental credentials. While the value of specific companies usually don't plunge because of reports of them emphasizing environmental, social, and governance (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">ESG</a>) credentials they haven't earned, reports of problems caused by companies for the environment and water supply certainly can.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>Liquidity concerns</strong>: Some water ETFs are not as heavily traded as others, which could lead to liquidity issues and make it more difficult for you to enter or exit your position in them.</li> <li><strong>Market volatility</strong>: Water ETFs are subject to fluctuations caused by natural disasters or political instability.</li> <li><strong>Regulatory changes</strong>: Changes in environmental policies and regulations can affect companies in the water sector. Changes in regulations could lead to increased costs, influencing their profitability.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Vague disclosure details</strong>: A significant challenge is the inconsistent and frequently missing disclosure of corporate water practices, making it difficult for investors to assess the actual value of their investments.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>Water scarcity and quality problems</strong>: Dwindling water sources, pollution, and climate change pose significant challenges to the water industry. These issues can increase operating costs and decrease the returns of water ETFs.<span class="ql-inline-citation" data-cite="11"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Lastly, it's worth noting that these are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/benefits-and-risks-thematic-etfs/">thematic ETFs</a> and, therefore, may not be suitable for all investors. Investing in water is driven by ensuring access to clean and safe water, which is a pressing ESG challenge. However, this thematic approach might not align with every investor's strategy or risk tolerance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-water-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Water ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Investing in water ETFs is relatively straightforward and can be done through your brokerage account. If you don't have one, you need to open an account, deposit funds, and buy shares of the desired water ETFs. Each ETF has a unique ticker symbol for trading on the stock exchange. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> To choose the right water ETF, review the fund's expense ratio, its investment strategy, and the specific segment of the water industry it targets. Keep an eye on your portfolio and seek advice from a financial advisor if needed to ensure it remains aligned with your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/risk_tolerance.asp">risk tolerance</a> and investment goals. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-are-other-ways-to-invest-in-water"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Other Ways To Invest in Water?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Aside from water ETFs, you could also invest in water by buying shares of companies (individual securities) that produce water-related equipment, such as pumps, meters, and filters, or companies that supply water. You can also research mutual funds that focus on water-related stocks.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-is-water-a-good-long-term-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Water a Good Long-Term Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Water might be an excellent long-term investment because of increasing global demand and limited supply. Companies in the water industry are likely to benefit from these trends, potentially yielding attractive returns for investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_66-0"><span class="heading-toc" id="toc-are-water-etfs-a-green-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Water ETFs a Green Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some water ETFs can be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/green-investing.asp">green investments</a> since they include companies involved in water conservation, purification, and infrastructure, which play a crucial role in sustainable water management.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_68-0"><span class="heading-toc" id="toc-can-water-etfs-be-part-of-a-socially-responsible-investing-strategy"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Water ETFs Be Part of a Socially Responsible Investing Strategy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, investing in water ETFs can be part of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sri.asp#:~:text=Socially%20responsible%20investments%E2%80%94known%20as,justice%2C%20environmental%20sustainability%2C%20and%20alternative">socially responsible investing </a>strategy as they often include companies focused on water conservation and sustainability.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Water ETFs offer the opportunity to tap into the critical water sector, providing diversification and the potential for stable, long-term returns. However, these ETFs carry specific market risks, including the potential for costly regulatory changes and operational issues within water companies. Despite these risks, the long-term benefits of investing in water ETFs, especially for addressing ESG challenges, make them appealing to many investors. </p></div>

## What Are Water ETFs? Water exchange-traded funds (ETFs) are professionally managed and allow investors to put money in the water industry without having to select and assess companies in the sector one by one. These ETFs hold stocks from water companies, including utilities, infrastructure, and treatment firms. ### KEY TAKEAWAYS * Water ETFs offer investors exposure to companies involved in the water industry. * Factors to consider when investing in water ETFs include expense ratios, liquidity, and underlying holdings. * While investing in water ETFs carries potential risks, such as market fluctuations and changes in regulations, it also provides an avenue for environmentally focused investing. * Leading water ETFs include Invesco Water Resources ETF ([PHO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PHO)), First Trust Water ETF ([FIW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FIW)), and Invesco S&P Global Water Index ETF ([CGW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CGW)). The water sector is all-important for economic growth, environmental sustainability, and the fundamental needs of life. Around 2 billion people worldwide lack access to clean and safe water, highlighting this sector's critical need for development. Water infrastructure forms a cornerstone of sustainable development. Drinking water, agriculture, and food production all rely on this industry. Supplying drinking and other forms of water, wastewater treatment, and related services is also essential to modern life and the world's economy. In the U.S., firms in the industry and public water authorities grapple with public health hazards, water utilities face budget constraints, rising consumer costs, climate change, droughts, massive drainage in underground water supplies from years of misuse, and chronic underinvestment. By investing in these ETFs, investors can put money into firms responding to the rapidly rising global demand for water. Water ETFs offer the chance to invest in an essential resource while supporting businesses striving for sustainable water management. Investing in these funds is a strategic move for those who see water scarcity as a significant global issue, making them a crucial part of a [diversified portfolio](https://www.investopedia.com/terms/d/diversification.asp). Few industries can claim as much importance as this one. ### Transparency Matters A significant problem among some parts of the water sector is that disclosure standards, especially for corporate water practices, can make it hard to assess the value of some companies in the industry. ## How Water ETFs Work Water is a vital resource, and understanding the water industry, its potential risks, and opportunities is crucial for investors, communities, and nations facing water scarcity issues worldwide. The sector faces challenges such as contamination but also works to find solutions to solve one of the world's most significant problems. Like other ETFs, these funds are pools of capital that hold stocks or derivatives tracking companies in the water industry. The ETFs trade their shares on the major stock exchanges like individual stocks. Here are three significant parts of how ETFs work: * **Sponsors**: These firms create, market, and manage ETFs. However, sponsors, also called issuers or ETF managers, don't create ETF shares. * **Market-makers**: Companies that work with ETF sponsors and the stock exchange to ensure there's always a supply of shares in the ETF so you can easily enter or exit your water ETF position. * **Authorized participants**: All ETFs involve [authorized participants](https://www.investopedia.com/terms/a/authorizedparticipant.asp) who create and redeem shares for the ETF. This role is needed so that the shares trade as close as possible to the value of the water ETF's underlying assets. Traditionally, major financial institutions like Morgan Stanley and JPMorgan Chase & Co. have played this part, creating ETF shares by buying the underlying assets (water stocks and so on) and exchanging them for shares in the fund. Going the other way, authorized participants buy ETF shares from investors and redeem them for the underlying assets held by the ETF. The price of ETF shares is determined by the net asset value of the stocks and other holdings in the water sector and is divided by the number of shares outstanding. When reviewing these ETFs, you'll want to assess their expense ratios, assets under management, [liquidity](https://www.investopedia.com/terms/l/liquidity.asp#:~:text=Liquidity%20refers%20to%20the%20ease,tangible%20items%20are%20less%20liquid.), and underlying holdings, among other matters. First entering the market in 2005, water ETFs have shown resilience given the constant need for water in life and almost all industrial sectors. In addition, specific trends in water ETFs usually mirror global water issues. An increase in investments may indicate a growing awareness of water scarcity and a commitment to sustainable water management. However, their returns, like all investments, are subject to market fluctuations.  ## Benefits of Investing in Water ETFs Investing in these types of ETFs has several advantages. Water ETFs typically hold shares in companies focused on water purification and efficient usage. For instance, the Global X Clean Water ETF ([AQWA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AQWA)) puts money into companies producing more clean water through industrial water treatment, storage, and other methods. Investing in this area also allows you to support and benefit from organizations actively addressing water scarcity and quality issues. Water ETFs typically hold shares in companies like Danaher ([DHR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHR)), Ecolab ([ECL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ECL)), and Pentair ([PNR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PNR)), which are involved in producing and putting in place water-related technologies and services that help mitigate the effects of the global water crisis. Here are some more potential benefits of investing in water ETFs: * **Growing demand**: Given the increasing global population and urbanization, the demand for clean and accessible water has been rising rapidly. This should mean growth for the sector. * **Diversification**: These ETFs typically invest in assorted companies involved in different aspects of the water industry, including treatment, infrastructure, and technology. Thus, you get broad exposure to the entire industry rather than depending on the performance of specific companies. In addition, these ETFs typically hold shares in companies from subsectors like utilities, infrastructure, and technology. * **Global exposure**: Water ETFs often hold shares from companies working globally, providing exposure to international markets and reducing country-specific risk. * **Inflation hedge**: Utilities, a major component held by water ETFs, are typically seen as a good hedge against inflation because they can pass on increased costs to consumers and there is demand for the essentials they provide even when the market tumbles. The water sector's performance also has some negative correlation with other assets. * **Potential for stable returns**: Water is a basic human necessity; thus, the industry tends to be less volatile than other sectors. This could offer more stable returns over the long term. * **Sustainability**: Investors can contribute to sustainable development goals by investing in water ETFs. Many water-related companies are working on solutions to address water scarcity and pollution. As global water scarcity intensifies, there's also a growing focus on making water use more efficient. Buying shares in these ETFs indirectly supports companies at the forefront of these efforts, potentially driving progress toward more sustainable practices in the industry. * **Tech opportunities**: The water sector is ripe for finding inventive solutions in areas like desalination, wastewater treatment, and smart metering. Companies leading in these areas can offer attractive investment opportunities since their products will be in demand. Despite these potential benefits, the suitability of water ETFs for your portfolio depends on your [asset allocation](https://www.investopedia.com/terms/a/assetallocation.asp), financial goals, and risk tolerance. ## Top Water ETFs The top three water ETFs regarding assets under management traded in the U.S. are PHO, FIW, and CGW. **Invesco Water Resources ETF (PHO)**: With an expense ratio of 0.60%, this ETF tracks the investment results of the Nasdaq OMX U.S. Water Index. As of January 2024, it had assets under management (AUM) of about $1.89 billion. The PHO ETF primarily invests in securities of companies in the water industry, focusing on sustainability and resource management. **First Trust Water ETF (FIW)**: This ETF targets companies engaged in the potable and wastewater industries. FIW ETF has an expense ratio of 0.53% and an AUM of about $1.48 billion. The ETF tracks the price and yield of the ISE Clean Edge Water Index. **Invesco S&P Global Water Index ETF (CGW)**: This ETF tracks the S&P Global Water Index, offering exposure to 50 of the largest corporations globally involved in water-related businesses. Its expense ratio is 0.57%, with an AUM of about $933 million. The fund focuses on companies providing potable water, wastewater services, and other equipment and materials used for treating water. As always, before investing in these or any ETFs, do careful due diligence and double-check recently updated information about these funds. ## Risks and Challenges of Investing in Water ETFs ### Pros and Cons of Water ETFs Pros * Diversified exposure to water industry stocks. * Potential for long-term growth as companies and governments gear up to face global water crisis. * Broad and possibly effective investment exposure to the potable and wastewater industry. Cons * Subject to sector-specific risks and uncertainties. Performance can be influenced by regulatory changes. * Limited number of "investable" companies in the sector. * Thematic focus might not align with all investors' strategies. Despite the potential for long-term growth because of the dangers to the global water supply, there are significant risks that investors need to consider. Let's go through some of them: * **Concentration risk**: Water ETFs tend to be focused on specific sectors, countries, or groups of companies. This concentration can expose investors to more risk if that area faces a downturn or upheaval. * **Greenwashing**: This is when companies overstate their environmental credentials. While the value of specific companies usually don't plunge because of reports of them emphasizing environmental, social, and governance ([ESG](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp)) credentials they haven't earned, reports of problems caused by companies for the environment and water supply certainly can. * **Liquidity concerns**: Some water ETFs are not as heavily traded as others, which could lead to liquidity issues and make it more difficult for you to enter or exit your position in them. * **Market volatility**: Water ETFs are subject to fluctuations caused by natural disasters or political instability. * **Regulatory changes**: Changes in environmental policies and regulations can affect companies in the water sector. Changes in regulations could lead to increased costs, influencing their profitability. * **Vague disclosure details**: A significant challenge is the inconsistent and frequently missing disclosure of corporate water practices, making it difficult for investors to assess the actual value of their investments. * **Water scarcity and quality problems**: Dwindling water sources, pollution, and climate change pose significant challenges to the water industry. These issues can increase operating costs and decrease the returns of water ETFs. Lastly, it's worth noting that these are [thematic ETFs](https://www.investopedia.com/investing/benefits-and-risks-thematic-etfs/) and, therefore, may not be suitable for all investors. Investing in water is driven by ensuring access to clean and safe water, which is a pressing ESG challenge. However, this thematic approach might not align with every investor's strategy or risk tolerance. ## How to Invest in Water ETFs Investing in water ETFs is relatively straightforward and can be done through your brokerage account. If you don't have one, you need to open an account, deposit funds, and buy shares of the desired water ETFs. Each ETF has a unique ticker symbol for trading on the stock exchange. To choose the right water ETF, review the fund's expense ratio, its investment strategy, and the specific segment of the water industry it targets. Keep an eye on your portfolio and seek advice from a financial advisor if needed to ensure it remains aligned with your [risk tolerance](https://www.investopedia.com/articles/pf/07/risk_tolerance.asp) and investment goals.  ## What Are Other Ways To Invest in Water? Aside from water ETFs, you could also invest in water by buying shares of companies (individual securities) that produce water-related equipment, such as pumps, meters, and filters, or companies that supply water. You can also research mutual funds that focus on water-related stocks. ## Is Water a Good Long-Term Investment? Water might be an excellent long-term investment because of increasing global demand and limited supply. Companies in the water industry are likely to benefit from these trends, potentially yielding attractive returns for investors. ## Are Water ETFs a Green Investment? Some water ETFs can be [green investments](https://www.investopedia.com/terms/g/green-investing.asp) since they include companies involved in water conservation, purification, and infrastructure, which play a crucial role in sustainable water management. ## Can Water ETFs Be Part of a Socially Responsible Investing Strategy? Yes, investing in water ETFs can be part of a [socially responsible investing](https://www.investopedia.com/terms/s/sri.asp#:~:text=Socially%20responsible%20investments%E2%80%94known%20as,justice%2C%20environmental%20sustainability%2C%20and%20alternative) strategy as they often include companies focused on water conservation and sustainability. ## The Bottom Line Water ETFs offer the opportunity to tap into the critical water sector, providing diversification and the potential for stable, long-term returns. However, these ETFs carry specific market risks, including the potential for costly regulatory changes and operational issues within water companies. Despite these risks, the long-term benefits of investing in water ETFs, especially for addressing ESG challenges, make them appealing to many investors.

What Are Water ETFs? Water exchange-traded funds (ETFs) are professionally managed and allow investors to put money in the water industry without having to select and assess companies in the sector one by one. These ETFs hold stocks from water companies, including utilities, infrastructure, and treatment firms. KEY TAKEAWAYS Water ETFs offer investors exposure to companies involved in the water industry. Factors to consider when investing in water ETFs include expense ratios, liquidity, and underlying holdings. While investing in water ETFs carries potential risks, such as market fluctuations and changes in regulations, it also provides an avenue for environmentally focused investing. Leading water ETFs include Invesco Water Resources ETF (PHO), First Trust Water ETF (FIW), and Invesco S&P Global Water Index ETF (CGW). The water sector is all-important for economic growth, environmental sustainability, and the fundamental needs of life. Around 2 billion people worldwide lack access to clean and safe water, highlighting this sector's critical need for development. Water infrastructure forms a cornerstone of sustainable development. Drinking water, agriculture, and food production all rely on this industry. Supplying drinking and other forms of water, wastewater treatment, and related services is also essential to modern life and the world's economy. In the U.S., firms in the industry and public water authorities grapple with public health hazards, water utilities face budget constraints, rising consumer costs, climate change, droughts, massive drainage in underground water supplies from years of misuse, and chronic underinvestment. By investing in these ETFs, investors can put money into firms responding to the rapidly rising global demand for water. Water ETFs offer the chance to invest in an essential resource while supporting businesses striving for sustainable water management. Investing in these funds is a strategic move for those who see water scarcity as a significant global issue, making them a crucial part of a diversified portfolio. Few industries can claim as much importance as this one. Transparency Matters A significant problem among some parts of the water sector is that disclosure standards, especially for corporate water practices, can make it hard to assess the value of some companies in the industry. How Water ETFs Work Water is a vital resource, and understanding the water industry, its potential risks, and opportunities is crucial for investors, communities, and nations facing water scarcity issues worldwide. The sector faces challenges such as contamination but also works to find solutions to solve one of the world's most significant problems. Like other ETFs, these funds are pools of capital that hold stocks or derivatives tracking companies in the water industry. The ETFs trade their shares on the major stock exchanges like individual stocks. Here are three significant parts of how ETFs work: Sponsors: These firms create, market, and manage ETFs. However, sponsors, also called issuers or ETF managers, don't create ETF shares. Market-makers: Companies that work with ETF sponsors and the stock exchange to ensure there's always a supply of shares in the ETF so you can easily enter or exit your water ETF position. Authorized participants: All ETFs involve authorized participants who create and redeem shares for the ETF. This role is needed so that the shares trade as close as possible to the value of the water ETF's underlying assets. Traditionally, major financial institutions like Morgan Stanley and JPMorgan Chase & Co. have played this part, creating ETF shares by buying the underlying assets (water stocks and so on) and exchanging them for shares in the fund. Going the other way, authorized participants buy ETF shares from investors and redeem them for the underlying assets held by the ETF. The price of ETF shares is determined by the net asset value of the stocks and other holdings in the water sector and is divided by the number of shares outstanding. When reviewing these ETFs, you'll want to assess their expense ratios, assets under management, liquidity, and underlying holdings, among other matters. First entering the market in 2005, water ETFs have shown resilience given the constant need for water in life and almost all industrial sectors. In addition, specific trends in water ETFs usually mirror global water issues. An increase in investments may indicate a growing awareness of water scarcity and a commitment to sustainable water management. However, their returns, like all investments, are subject to market fluctuations.  Benefits of Investing in Water ETFs Investing in these types of ETFs has several advantages. Water ETFs typically hold shares in companies focused on water purification and efficient usage. For instance, the Global X Clean Water ETF (AQWA) puts money into companies producing more clean water through industrial water treatment, storage, and other methods. Investing in this area also allows you to support and benefit from organizations actively addressing water scarcity and quality issues. Water ETFs typically hold shares in companies like Danaher (DHR), Ecolab (ECL), and Pentair (PNR), which are involved in producing and putting in place water-related technologies and services that help mitigate the effects of the global water crisis. Here are some more potential benefits of investing in water ETFs: Growing demand: Given the increasing global population and urbanization, the demand for clean and accessible water has been rising rapidly. This should mean growth for the sector.Diversification: These ETFs typically invest in assorted companies involved in different aspects of the water industry, including treatment, infrastructure, and technology. Thus, you get broad exposure to the entire industry rather than depending on the performance of specific companies. In addition, these ETFs typically hold shares in companies from subsectors like utilities, infrastructure, and technology.Global exposure: Water ETFs often hold shares from companies working globally, providing exposure to international markets and reducing country-specific risk.Inflation hedge: Utilities, a major component held by water ETFs, are typically seen as a good hedge against inflation because they can pass on increased costs to consumers and there is demand for the essentials they provide even when the market tumbles. The water sector's performance also has some negative correlation with other assets.Potential for stable returns: Water is a basic human necessity; thus, the industry tends to be less volatile than other sectors. This could offer more stable returns over the long term.Sustainability: Investors can contribute to sustainable development goals by investing in water ETFs. Many water-related companies are working on solutions to address water scarcity and pollution. As global water scarcity intensifies, there's also a growing focus on making water use more efficient. Buying shares in these ETFs indirectly supports companies at the forefront of these efforts, potentially driving progress toward more sustainable practices in the industry.Tech opportunities: The water sector is ripe for finding inventive solutions in areas like desalination, wastewater treatment, and smart metering. Companies leading in these areas can offer attractive investment opportunities since their products will be in demand. Despite these potential benefits, the suitability of water ETFs for your portfolio depends on your asset allocation, financial goals, and risk tolerance. Top Water ETFs The top three water ETFs regarding assets under management traded in the U.S. are PHO, FIW, and CGW. Invesco Water Resources ETF (PHO): With an expense ratio of 0.60%, this ETF tracks the investment results of the Nasdaq OMX U.S. Water Index. As of January 2024, it had assets under management (AUM) of about $1.89 billion. The PHO ETF primarily invests in securities of companies in the water industry, focusing on sustainability and resource management. First Trust Water ETF (FIW): This ETF targets companies engaged in the potable and wastewater industries. FIW ETF has an expense ratio of 0.53% and an AUM of about $1.48 billion. The ETF tracks the price and yield of the ISE Clean Edge Water Index. Invesco S&P Global Water Index ETF (CGW): This ETF tracks the S&P Global Water Index, offering exposure to 50 of the largest corporations globally involved in water-related businesses. Its expense ratio is 0.57%, with an AUM of about $933 million. The fund focuses on companies providing potable water, wastewater services, and other equipment and materials used for treating water. As always, before investing in these or any ETFs, do careful due diligence and double-check recently updated information about these funds. Risks and Challenges of Investing in Water ETFs Pros and Cons of Water ETFs Pros Diversified exposure to water industry stocks. Potential for long-term growth as companies and governments gear up to face global water crisis. Broad and possibly effective investment exposure to the potable and wastewater industry. Cons Subject to sector-specific risks and uncertainties. Performance can be influenced by regulatory changes. Limited number of "investable" companies in the sector. Thematic focus might not align with all investors' strategies. Despite the potential for long-term growth because of the dangers to the global water supply, there are significant risks that investors need to consider. Let's go through some of them: Concentration risk: Water ETFs tend to be focused on specific sectors, countries, or groups of companies. This concentration can expose investors to more risk if that area faces a downturn or upheaval. Greenwashing: This is when companies overstate their environmental credentials. While the value of specific companies usually don't plunge because of reports of them emphasizing environmental, social, and governance (ESG) credentials they haven't earned, reports of problems caused by companies for the environment and water supply certainly can. Liquidity concerns: Some water ETFs are not as heavily traded as others, which could lead to liquidity issues and make it more difficult for you to enter or exit your position in them. Market volatility: Water ETFs are subject to fluctuations caused by natural disasters or political instability. Regulatory changes: Changes in environmental policies and regulations can affect companies in the water sector. Changes in regulations could lead to increased costs, influencing their profitability. Vague disclosure details: A significant challenge is the inconsistent and frequently missing disclosure of corporate water practices, making it difficult for investors to assess the actual value of their investments. Water scarcity and quality problems: Dwindling water sources, pollution, and climate change pose significant challenges to the water industry. These issues can increase operating costs and decrease the returns of water ETFs. Lastly, it's worth noting that these are thematic ETFs and, therefore, may not be suitable for all investors. Investing in water is driven by ensuring access to clean and safe water, which is a pressing ESG challenge. However, this thematic approach might not align with every investor's strategy or risk tolerance. How to Invest in Water ETFs Investing in water ETFs is relatively straightforward and can be done through your brokerage account. If you don't have one, you need to open an account, deposit funds, and buy shares of the desired water ETFs. Each ETF has a unique ticker symbol for trading on the stock exchange. To choose the right water ETF, review the fund's expense ratio, its investment strategy, and the specific segment of the water industry it targets. Keep an eye on your portfolio and seek advice from a financial advisor if needed to ensure it remains aligned with your risk tolerance and investment goals.  What Are Other Ways To Invest in Water? Aside from water ETFs, you could also invest in water by buying shares of companies (individual securities) that produce water-related equipment, such as pumps, meters, and filters, or companies that supply water. You can also research mutual funds that focus on water-related stocks. Is Water a Good Long-Term Investment? Water might be an excellent long-term investment because of increasing global demand and limited supply. Companies in the water industry are likely to benefit from these trends, potentially yielding attractive returns for investors. Are Water ETFs a Green Investment? Some water ETFs can be green investments since they include companies involved in water conservation, purification, and infrastructure, which play a crucial role in sustainable water management. Can Water ETFs Be Part of a Socially Responsible Investing Strategy? Yes, investing in water ETFs can be part of a socially responsible investing strategy as they often include companies focused on water conservation and sustainability. The Bottom Line Water ETFs offer the opportunity to tap into the critical water sector, providing diversification and the potential for stable, long-term returns. However, these ETFs carry specific market risks, including the potential for costly regulatory changes and operational issues within water companies. Despite these risks, the long-term benefits of investing in water ETFs, especially for addressing ESG challenges, make them appealing to many investors.

https://www.investopedia.com/terms/a/alphabet-stock.asp

Alphabet Stock: What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-alphabet-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Alphabet Stock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An alphabet stock refers to a separate class of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a> that is tied to a specific subsidiary of a corporation. More broadly, it refers to shares of common stock that are distinguished in some way from other common stock of the same company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> It is called an alphabet stock because the classification system used to identify each class of common stock uses letters to distinguish it from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parentcompany.asp">parent company's</a> stock. Alphabet stock may have different <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/votingright.asp">voting rights</a> from the parent company's stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Alphabet stocks are shares of a publicly traded company that have different share classes, usually denoted as ".A shares" or ".B shares."</li><li>Often, these shares differ in terms of voting and dividend rights.</li><li>Alphabet stock may be designated to denote ownership in a particular subsidiary of a firm rather than the parent organization.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-alphabet-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Alphabet Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Publicly traded companies may issue alphabet stock when purchasing a business unit from another company. This unit becomes a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subsidiary.asp">subsidiary</a> of the acquirer, and holders of the alphabet stock are only entitled to the earnings, dividends, and rights of the subsidiary, not the entire acquirer. A similar situation would be the issuance of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingstocks.asp">tracking stock</a>, where a firm issues a subclass of shares on an existing subsidiary. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Alternatively, like with all stock <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/issue.asp">issuance</a>, a firm may issue a new class of common stock to raise capital. However, this new asset class of stock may have limited voting rights, allowing insiders and management to maintain control of the firm. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Alphabet shares may be indicative of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/complex-capital-structure.asp">complex capital structure</a>. Companies with complex capital structures and several subsidiaries and divisions may have a combination of several different varieties of common stock classes, with each <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/share_class.asp">share class</a> carrying different voting rights and dividend rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> When alphabet stock is issued, typical nomenclature is to see a period and letter behind the existing stock symbol, indicating a separate share class. So, for example, if ABC company, whose stock symbol is ABC, issued Class A and B shares, the new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-is-a-stock-ticker.asp">ticker</a> for these shares would be ABC.A. and ABC.B., respectively. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There is no standard format for alphabet stock in terms of which share class has more voting rights if voting rights differ among them. Typically, Class A shares would have more rights than Class B, and so forth, but it is important to read the details about share classes before investing. To learn more about the issuance of multiple share classes by a firm, check out <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/company-multiple-share-classes-super-voting-shares/">related</a> writing on the topic. </p></div>

## What Is Alphabet Stock? An alphabet stock refers to a separate class of [common stock](https://www.investopedia.com/terms/c/commonstock.asp) that is tied to a specific subsidiary of a corporation. More broadly, it refers to shares of common stock that are distinguished in some way from other common stock of the same company. It is called an alphabet stock because the classification system used to identify each class of common stock uses letters to distinguish it from the [parent company's](https://www.investopedia.com/terms/p/parentcompany.asp) stock. Alphabet stock may have different [voting rights](https://www.investopedia.com/terms/v/votingright.asp) from the parent company's stock. ### Key Takeaways * Alphabet stocks are shares of a publicly traded company that have different share classes, usually denoted as ".A shares" or ".B shares." * Often, these shares differ in terms of voting and dividend rights. * Alphabet stock may be designated to denote ownership in a particular subsidiary of a firm rather than the parent organization. ## Understanding Alphabet Stock Publicly traded companies may issue alphabet stock when purchasing a business unit from another company. This unit becomes a [subsidiary](https://www.investopedia.com/terms/s/subsidiary.asp) of the acquirer, and holders of the alphabet stock are only entitled to the earnings, dividends, and rights of the subsidiary, not the entire acquirer. A similar situation would be the issuance of [tracking stock](https://www.investopedia.com/terms/t/trackingstocks.asp), where a firm issues a subclass of shares on an existing subsidiary. Alternatively, like with all stock [issuance](https://www.investopedia.com/terms/i/issue.asp), a firm may issue a new class of common stock to raise capital. However, this new asset class of stock may have limited voting rights, allowing insiders and management to maintain control of the firm. Alphabet shares may be indicative of a [complex capital structure](https://www.investopedia.com/terms/c/complex-capital-structure.asp). Companies with complex capital structures and several subsidiaries and divisions may have a combination of several different varieties of common stock classes, with each [share class](https://www.investopedia.com/terms/s/share_class.asp) carrying different voting rights and dividend rates. ## Special Considerations When alphabet stock is issued, typical nomenclature is to see a period and letter behind the existing stock symbol, indicating a separate share class. So, for example, if ABC company, whose stock symbol is ABC, issued Class A and B shares, the new [ticker](https://www.investopedia.com/ask/answers/12/what-is-a-stock-ticker.asp) for these shares would be ABC.A. and ABC.B., respectively. There is no standard format for alphabet stock in terms of which share class has more voting rights if voting rights differ among them. Typically, Class A shares would have more rights than Class B, and so forth, but it is important to read the details about share classes before investing. To learn more about the issuance of multiple share classes by a firm, check out [related](https://www.investopedia.com/ask/answers/company-multiple-share-classes-super-voting-shares/) writing on the topic.

What Is Alphabet Stock? An alphabet stock refers to a separate class of common stock that is tied to a specific subsidiary of a corporation. More broadly, it refers to shares of common stock that are distinguished in some way from other common stock of the same company. It is called an alphabet stock because the classification system used to identify each class of common stock uses letters to distinguish it from the parent company's stock. Alphabet stock may have different voting rights from the parent company's stock. Key Takeaways Alphabet stocks are shares of a publicly traded company that have different share classes, usually denoted as ".A shares" or ".B shares."Often, these shares differ in terms of voting and dividend rights.Alphabet stock may be designated to denote ownership in a particular subsidiary of a firm rather than the parent organization. Understanding Alphabet Stock Publicly traded companies may issue alphabet stock when purchasing a business unit from another company. This unit becomes a subsidiary of the acquirer, and holders of the alphabet stock are only entitled to the earnings, dividends, and rights of the subsidiary, not the entire acquirer. A similar situation would be the issuance of tracking stock, where a firm issues a subclass of shares on an existing subsidiary. Alternatively, like with all stock issuance, a firm may issue a new class of common stock to raise capital. However, this new asset class of stock may have limited voting rights, allowing insiders and management to maintain control of the firm. Alphabet shares may be indicative of a complex capital structure. Companies with complex capital structures and several subsidiaries and divisions may have a combination of several different varieties of common stock classes, with each share class carrying different voting rights and dividend rates. Special Considerations When alphabet stock is issued, typical nomenclature is to see a period and letter behind the existing stock symbol, indicating a separate share class. So, for example, if ABC company, whose stock symbol is ABC, issued Class A and B shares, the new ticker for these shares would be ABC.A. and ABC.B., respectively. There is no standard format for alphabet stock in terms of which share class has more voting rights if voting rights differ among them. Typically, Class A shares would have more rights than Class B, and so forth, but it is important to read the details about share classes before investing. To learn more about the issuance of multiple share classes by a firm, check out related writing on the topic.

https://www.investopedia.com/nasdaq-s-ai-dynamic-m-elo-7974652

Nasdaq’s AI Order Type (Dynamic M-ELO): What to Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When buying or selling <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a>, investors place different types of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/order.asp">orders</a>, each with unique requirements. The order type determines how and when the trade is executed. For instance, some orders aim for the best price, while others specify a fixed price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> says its artificial intelligence (AI)-powered order type, called Dynamic Midpoint Extended Life Order (M-ELO), provides a more efficient way for investors to trade, helping to improve their rate of executed orders and reduce markouts, bad trades where the market immediately moves against you.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Dynamic M-ELO uses AI to adjust the waiting period for M-ELO orders.</li><li>Where M-ELO orders have a 10-millisecond waiting period, Dynamic M-ELO orders have waiting periods from 0.25 to 2.5 milliseconds.</li><li>Dynamic M-ELO aims to improve fill rates and reduce markouts.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-dynamic-m-elo"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Is Dynamic M-ELO? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Dynamic M-ELO is an order type that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> can use when buying or selling securities, and is the first powered by AI. Nasdaq said it had <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nasdaq-gets-permission-for-first-ever-exchange-ai-powered-order-type-7967452">obtained Securities and Exchange Commission (SEC) approval</a> in September 2023.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Nasdaq is positioning the order type for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp">traders</a> with a longer-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">investment horizon</a>, not day traders or others looking to move into and out of positions frequently. M-ELO orders execute only against other M-ELO orders at the midpoint of the spread between the bid price and the ask price.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Dynamic M-ELO makes a slight change to the standard M-ELO order type. AI analyzes more than 140 data points every 30 seconds to assess market conditions for a security. It then adjusts the waiting period for investors who submit a Dynamic M-ELO order within a range of 0.25 to 2.5 milliseconds, with a jump to 12 milliseconds during market instability.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Midpoint Execution</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Imagine two traders submitting M-ELO orders. John wants to buy 100 shares of XYZ, and Jane wishes to sell 100 shares of XYZ.</p><p>If the highest bid for XYZ is $20 and the lowest ask is $21, their M-ELO order will execute at $20.50, the midpoint of the bid-ask spread.</p></div></div></div> <span class="heading-toc" id="toc-how-does-this-ai-powered-order-type-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How Does This AI-Powered Order Type Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The process starts when a buyer enters a M-ELO order to buy a security. After a waiting period of 10 milliseconds, that order becomes eligible to execute against other M-ELO orders. Once a seller arrives, places a M-ELO sell order, and the 10-millisecond waiting period passes, the buyer and seller get matched, and the trade is executed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> M-ELO orders can help protect investors from undesired trade executions during market movements. Before the buyer’s trade can execute, if a sell <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/immediateorcancel.asp">immediate or cancel order</a> sweeps the bids, then the M-ELO order won’t execute. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Buyers are also protected if numerous sell orders enter the market and the price of a share drops. The midpoint of the bid-ask spread will also drop, causing the buy price of the M-ELO order to adjust to this level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Hence, M-ELO buyers and sellers will not receive order executions as quickly as someone using an order with no waiting period. However, they are protected from quick market movements because the price of their offer automatically adjusts with the bid-ask spread of the underlying security.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-ai-powered-order-types"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of AI-Powered Order Types </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> AI-powered order types can help investors make more complicated trades or get better prices, but they are not without drawbacks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Advantages of AI-Powered Order Types </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Here are some of the benefits of AI-powered orders: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>M-ELO orders only match with other M-ELO orders, allowing you to trade with like-minded investors.</li> <li>The price of your order automatically moves with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">bid-ask spread</a>, helping you avoid trading for a price that does not match the market value of a security.</li> <li>M-ELO and other AI orders may be off-book, functioning like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dark-pool.asp">dark pool trading</a>.</li> <li>M-ELO is compatible with existing exchange connectivity.<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Disadvantages of AI-Powered Order Types </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Here are some downsides of AI-powered order types to consider: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li>You rely on the AI to set the price for you, which could lead to buying or selling for a price far from what you expect.</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/11/automated-trading-systems.asp">Automated trading systems</a> and AI could be subject to technical failures.</li> <li>AI-powered order types like M-ELO can potentially obscure moves in the market. Decisions by algorithms may not be easily understandable by even the developers of the algorithms. As a result, it could be difficult to predict how these order types would behave under diverse market conditions.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-dynamic-m-elos-impact-on-the-stock-market"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Dynamic M-ELO’s Impact on the Stock Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Dynamic M-ELO is still a new order type, so it’s difficult to observe its effects on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a>. However, Nasdaq has released data showing that M-ELO on its own has helped improve order execution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> According to Nasdaq, orders using M-ELO had a 50% hit rate, meaning half of all orders received at least one execution, compared with 36% for orders with a holding period of 500 milliseconds. Similarly, the average fill rate was 49% for M-ELO orders compared with 35% for orders with a 500-millisecond holding period.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Nasdaq says that by leveraging AI, Dynamic M-ELO can improve trade execution even further, improving fill rates and reducing markouts.<span class="ql-inline-citation" data-cite="4"></span> The data indicates that it improves fill rates by more than 20% and reduces markouts by more than 11%, according to Nasdaq.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-the-future-of-ai-powered-order-types"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> The Future of AI-Powered Order Types </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Dynamic M-ELO is the first AI-powered order type to be approved by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">the SEC</a>, but it likely will not be the last. AI is already being used in the world of finance, with many major companies, including Deloitte and BlackRock, integrating AI into their firms’ work.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If Dynamic M-ELO proves successful, more AI-powered order types are likely to follow. Further advances in technology could lead to more efficient, agile, and responsive trading systems. They would, in theory, offer better liquidity, reduced trading costs, and improved execution quality. However, their evolution may also pose challenges regarding market fairness, regulation, and systemic risks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-what-are-the-risks-associated-with-ai-powered-order-types"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Risks Associated with AI-Powered Order Types?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>AI-powered order types rely on a machine rather than a person to handle order execution. If the AI becomes unresponsive because of a technical issue, it could lead to poor order fulfillment. The AI could also experience errors, leading to buying or selling securities at a subpar price.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-an-m-elo-order-type"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an M-ELO Order Type?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>M-ELO orders allow investors to place buy or sell orders with a short waiting period. These orders only execute against each other and do so at the midpoint of the bid-ask spread.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-is-priority-determined-for-m-elo-orders"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Priority Determined for M-ELO Orders?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>M-ELO orders are ranked in time priority among other M-ELO orders when they complete their waiting period and become eligible for execution.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-are-there-scenarios-when-dynamic-m-elo-might-be-particularly-useful"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Scenarios When Dynamic M-ELO Might Be Particularly Useful?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Dynamic M-ELO could be most helpful in volatile market conditions or when trading fewer liquid securities. Its AI-driven algorithms could navigate complex price fluctuations more effectively than traditional order types.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-what-are-the-risks-of-using-dynamic-m-elo"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Risks of Using Dynamic M-ELO?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While Dynamic M-ELO aims to improve fill rates and reduce markouts, it’s not a guarantee against risks in the market. In addition, the AI algorithms can’t perfectly predict market behavior, and there may be a learning curve for traders new to this order type.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Dynamic M-ELO is an AI-powered order type that adjusts the waiting period for a M-ELO order based on market conditions. It is the first AI-powered order type to receive SEC approval, and preliminary data indicates that it could help improve trade execution. If that proves lasting, Dynamic M-ELO is likely to open the doors for future AI-based products that power stock market orders. </p></div>

When buying or selling [securities](https://www.investopedia.com/terms/s/security.asp), investors place different types of [orders](https://www.investopedia.com/terms/o/order.asp), each with unique requirements. The order type determines how and when the trade is executed. For instance, some orders aim for the best price, while others specify a fixed price. [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) says its artificial intelligence (AI)-powered order type, called Dynamic Midpoint Extended Life Order (M-ELO), provides a more efficient way for investors to trade, helping to improve their rate of executed orders and reduce markouts, bad trades where the market immediately moves against you. ### Key Takeaways * Dynamic M-ELO uses AI to adjust the waiting period for M-ELO orders. * Where M-ELO orders have a 10-millisecond waiting period, Dynamic M-ELO orders have waiting periods from 0.25 to 2.5 milliseconds. * Dynamic M-ELO aims to improve fill rates and reduce markouts. ## What Is Dynamic M-ELO? Dynamic M-ELO is an order type that [investors](https://www.investopedia.com/terms/i/investor.asp) can use when buying or selling securities, and is the first powered by AI. Nasdaq said it had [obtained Securities and Exchange Commission (SEC) approval](https://www.investopedia.com/nasdaq-gets-permission-for-first-ever-exchange-ai-powered-order-type-7967452) in September 2023. Nasdaq is positioning the order type for [traders](https://www.investopedia.com/terms/t/trader.asp) with a longer-term [investment horizon](https://www.investopedia.com/terms/t/timehorizon.asp), not day traders or others looking to move into and out of positions frequently. M-ELO orders execute only against other M-ELO orders at the midpoint of the spread between the bid price and the ask price. Dynamic M-ELO makes a slight change to the standard M-ELO order type. AI analyzes more than 140 data points every 30 seconds to assess market conditions for a security. It then adjusts the waiting period for investors who submit a Dynamic M-ELO order within a range of 0.25 to 2.5 milliseconds, with a jump to 12 milliseconds during market instability. ### Midpoint Execution Imagine two traders submitting M-ELO orders. John wants to buy 100 shares of XYZ, and Jane wishes to sell 100 shares of XYZ. If the highest bid for XYZ is $20 and the lowest ask is $21, their M-ELO order will execute at $20.50, the midpoint of the bid-ask spread. ## How Does This AI-Powered Order Type Work? The process starts when a buyer enters a M-ELO order to buy a security. After a waiting period of 10 milliseconds, that order becomes eligible to execute against other M-ELO orders. Once a seller arrives, places a M-ELO sell order, and the 10-millisecond waiting period passes, the buyer and seller get matched, and the trade is executed. M-ELO orders can help protect investors from undesired trade executions during market movements. Before the buyer’s trade can execute, if a sell [immediate or cancel order](https://www.investopedia.com/terms/i/immediateorcancel.asp) sweeps the bids, then the M-ELO order won’t execute. Buyers are also protected if numerous sell orders enter the market and the price of a share drops. The midpoint of the bid-ask spread will also drop, causing the buy price of the M-ELO order to adjust to this level. Hence, M-ELO buyers and sellers will not receive order executions as quickly as someone using an order with no waiting period. However, they are protected from quick market movements because the price of their offer automatically adjusts with the bid-ask spread of the underlying security. ## Advantages and Disadvantages of AI-Powered Order Types AI-powered order types can help investors make more complicated trades or get better prices, but they are not without drawbacks. ### Advantages of AI-Powered Order Types Here are some of the benefits of AI-powered orders: * M-ELO orders only match with other M-ELO orders, allowing you to trade with like-minded investors. * The price of your order automatically moves with the [bid-ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp), helping you avoid trading for a price that does not match the market value of a security. * M-ELO and other AI orders may be off-book, functioning like [dark pool trading](https://www.investopedia.com/terms/d/dark-pool.asp). * M-ELO is compatible with existing exchange connectivity. ### Disadvantages of AI-Powered Order Types Here are some downsides of AI-powered order types to consider: * You rely on the AI to set the price for you, which could lead to buying or selling for a price far from what you expect. * [Automated trading systems](https://www.investopedia.com/articles/trading/11/automated-trading-systems.asp) and AI could be subject to technical failures. * AI-powered order types like M-ELO can potentially obscure moves in the market. Decisions by algorithms may not be easily understandable by even the developers of the algorithms. As a result, it could be difficult to predict how these order types would behave under diverse market conditions. ## Dynamic M-ELO’s Impact on the Stock Market Dynamic M-ELO is still a new order type, so it’s difficult to observe its effects on the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp). However, Nasdaq has released data showing that M-ELO on its own has helped improve order execution. According to Nasdaq, orders using M-ELO had a 50% hit rate, meaning half of all orders received at least one execution, compared with 36% for orders with a holding period of 500 milliseconds. Similarly, the average fill rate was 49% for M-ELO orders compared with 35% for orders with a 500-millisecond holding period. Nasdaq says that by leveraging AI, Dynamic M-ELO can improve trade execution even further, improving fill rates and reducing markouts. The data indicates that it improves fill rates by more than 20% and reduces markouts by more than 11%, according to Nasdaq. ## The Future of AI-Powered Order Types Dynamic M-ELO is the first AI-powered order type to be approved by [the SEC](https://www.investopedia.com/terms/s/sec.asp), but it likely will not be the last. AI is already being used in the world of finance, with many major companies, including Deloitte and BlackRock, integrating AI into their firms’ work. If Dynamic M-ELO proves successful, more AI-powered order types are likely to follow. Further advances in technology could lead to more efficient, agile, and responsive trading systems. They would, in theory, offer better liquidity, reduced trading costs, and improved execution quality. However, their evolution may also pose challenges regarding market fairness, regulation, and systemic risks. ## What Are the Risks Associated with AI-Powered Order Types? AI-powered order types rely on a machine rather than a person to handle order execution. If the AI becomes unresponsive because of a technical issue, it could lead to poor order fulfillment. The AI could also experience errors, leading to buying or selling securities at a subpar price. ## What Is an M-ELO Order Type? M-ELO orders allow investors to place buy or sell orders with a short waiting period. These orders only execute against each other and do so at the midpoint of the bid-ask spread. ## How Is Priority Determined for M-ELO Orders? M-ELO orders are ranked in time priority among other M-ELO orders when they complete their waiting period and become eligible for execution. ## Are There Scenarios When Dynamic M-ELO Might Be Particularly Useful? Dynamic M-ELO could be most helpful in volatile market conditions or when trading fewer liquid securities. Its AI-driven algorithms could navigate complex price fluctuations more effectively than traditional order types. ## What Are the Risks of Using Dynamic M-ELO? While Dynamic M-ELO aims to improve fill rates and reduce markouts, it’s not a guarantee against risks in the market. In addition, the AI algorithms can’t perfectly predict market behavior, and there may be a learning curve for traders new to this order type. ## The Bottom Line Dynamic M-ELO is an AI-powered order type that adjusts the waiting period for a M-ELO order based on market conditions. It is the first AI-powered order type to receive SEC approval, and preliminary data indicates that it could help improve trade execution. If that proves lasting, Dynamic M-ELO is likely to open the doors for future AI-based products that power stock market orders.

When buying or selling securities, investors place different types of orders, each with unique requirements. The order type determines how and when the trade is executed. For instance, some orders aim for the best price, while others specify a fixed price. Nasdaq says its artificial intelligence (AI)-powered order type, called Dynamic Midpoint Extended Life Order (M-ELO), provides a more efficient way for investors to trade, helping to improve their rate of executed orders and reduce markouts, bad trades where the market immediately moves against you. Key Takeaways Dynamic M-ELO uses AI to adjust the waiting period for M-ELO orders.Where M-ELO orders have a 10-millisecond waiting period, Dynamic M-ELO orders have waiting periods from 0.25 to 2.5 milliseconds.Dynamic M-ELO aims to improve fill rates and reduce markouts. What Is Dynamic M-ELO? Dynamic M-ELO is an order type that investors can use when buying or selling securities, and is the first powered by AI. Nasdaq said it had obtained Securities and Exchange Commission (SEC) approval in September 2023. Nasdaq is positioning the order type for traders with a longer-term investment horizon, not day traders or others looking to move into and out of positions frequently. M-ELO orders execute only against other M-ELO orders at the midpoint of the spread between the bid price and the ask price. Dynamic M-ELO makes a slight change to the standard M-ELO order type. AI analyzes more than 140 data points every 30 seconds to assess market conditions for a security. It then adjusts the waiting period for investors who submit a Dynamic M-ELO order within a range of 0.25 to 2.5 milliseconds, with a jump to 12 milliseconds during market instability. Midpoint Execution Imagine two traders submitting M-ELO orders. John wants to buy 100 shares of XYZ, and Jane wishes to sell 100 shares of XYZ.If the highest bid for XYZ is $20 and the lowest ask is $21, their M-ELO order will execute at $20.50, the midpoint of the bid-ask spread. How Does This AI-Powered Order Type Work? The process starts when a buyer enters a M-ELO order to buy a security. After a waiting period of 10 milliseconds, that order becomes eligible to execute against other M-ELO orders. Once a seller arrives, places a M-ELO sell order, and the 10-millisecond waiting period passes, the buyer and seller get matched, and the trade is executed. M-ELO orders can help protect investors from undesired trade executions during market movements. Before the buyer’s trade can execute, if a sell immediate or cancel order sweeps the bids, then the M-ELO order won’t execute. Buyers are also protected if numerous sell orders enter the market and the price of a share drops. The midpoint of the bid-ask spread will also drop, causing the buy price of the M-ELO order to adjust to this level. Hence, M-ELO buyers and sellers will not receive order executions as quickly as someone using an order with no waiting period. However, they are protected from quick market movements because the price of their offer automatically adjusts with the bid-ask spread of the underlying security. Advantages and Disadvantages of AI-Powered Order Types AI-powered order types can help investors make more complicated trades or get better prices, but they are not without drawbacks. Advantages of AI-Powered Order Types Here are some of the benefits of AI-powered orders: M-ELO orders only match with other M-ELO orders, allowing you to trade with like-minded investors. The price of your order automatically moves with the bid-ask spread, helping you avoid trading for a price that does not match the market value of a security. M-ELO and other AI orders may be off-book, functioning like dark pool trading. M-ELO is compatible with existing exchange connectivity. Disadvantages of AI-Powered Order Types Here are some downsides of AI-powered order types to consider: You rely on the AI to set the price for you, which could lead to buying or selling for a price far from what you expect. Automated trading systems and AI could be subject to technical failures. AI-powered order types like M-ELO can potentially obscure moves in the market. Decisions by algorithms may not be easily understandable by even the developers of the algorithms. As a result, it could be difficult to predict how these order types would behave under diverse market conditions. Dynamic M-ELO’s Impact on the Stock Market Dynamic M-ELO is still a new order type, so it’s difficult to observe its effects on the stock market. However, Nasdaq has released data showing that M-ELO on its own has helped improve order execution. According to Nasdaq, orders using M-ELO had a 50% hit rate, meaning half of all orders received at least one execution, compared with 36% for orders with a holding period of 500 milliseconds. Similarly, the average fill rate was 49% for M-ELO orders compared with 35% for orders with a 500-millisecond holding period. Nasdaq says that by leveraging AI, Dynamic M-ELO can improve trade execution even further, improving fill rates and reducing markouts. The data indicates that it improves fill rates by more than 20% and reduces markouts by more than 11%, according to Nasdaq. The Future of AI-Powered Order Types Dynamic M-ELO is the first AI-powered order type to be approved by the SEC, but it likely will not be the last. AI is already being used in the world of finance, with many major companies, including Deloitte and BlackRock, integrating AI into their firms’ work. If Dynamic M-ELO proves successful, more AI-powered order types are likely to follow. Further advances in technology could lead to more efficient, agile, and responsive trading systems. They would, in theory, offer better liquidity, reduced trading costs, and improved execution quality. However, their evolution may also pose challenges regarding market fairness, regulation, and systemic risks. What Are the Risks Associated with AI-Powered Order Types? AI-powered order types rely on a machine rather than a person to handle order execution. If the AI becomes unresponsive because of a technical issue, it could lead to poor order fulfillment. The AI could also experience errors, leading to buying or selling securities at a subpar price. What Is an M-ELO Order Type? M-ELO orders allow investors to place buy or sell orders with a short waiting period. These orders only execute against each other and do so at the midpoint of the bid-ask spread. How Is Priority Determined for M-ELO Orders? M-ELO orders are ranked in time priority among other M-ELO orders when they complete their waiting period and become eligible for execution. Are There Scenarios When Dynamic M-ELO Might Be Particularly Useful? Dynamic M-ELO could be most helpful in volatile market conditions or when trading fewer liquid securities. Its AI-driven algorithms could navigate complex price fluctuations more effectively than traditional order types. What Are the Risks of Using Dynamic M-ELO? While Dynamic M-ELO aims to improve fill rates and reduce markouts, it’s not a guarantee against risks in the market. In addition, the AI algorithms can’t perfectly predict market behavior, and there may be a learning curve for traders new to this order type. The Bottom Line Dynamic M-ELO is an AI-powered order type that adjusts the waiting period for a M-ELO order based on market conditions. It is the first AI-powered order type to receive SEC approval, and preliminary data indicates that it could help improve trade execution. If that proves lasting, Dynamic M-ELO is likely to open the doors for future AI-based products that power stock market orders.

https://www.investopedia.com/the-sec-sues-kraken-again-this-time-for-running-an-illegal-crypto-exchange-8405171

The SEC Sues Kraken Again—This Time For Running An Unregistered Crypto-Exchange

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The U.S. SEC has charged Kraken with operating an unregistered securities exchange, broker, dealer, and clearing agency.</li><li>This lawsuit against Kraken is similar to charges filed by the SEC against crypto exchanges Binance, Bittrex and Coinbase earlier in the year.</li><li>The lawsuit also alleges Kraken commingled customers' crypto assets and cash reserves with their own holdings.</li><li>Earlier this year, Kraken paid a $30 million settlement for charges related to its staking-as-a-service offering.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The U.S. Securities and Exchange Commission (SEC) fired a fresh salvo in its cryptocurrency crackdown on Monday when it sued Kraken for operating an unregistered securities exchange and allegedly mixing customer funds with its own.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-kraken-under-scrutiny-again"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Kraken Under Scrutiny Again </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The regulator has long held the view that most cryptocurrency tokens are securities and crypto exchanges offering sale of those tokens need to register as such.<span class="ql-inline-citation" data-cite="5"></span> The latest suit against Kraken is not much different from the ones the SEC filed against rival exchanges <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sec-files-13-charges-against-binance-and-founder-changpeng-zhao-7508246">Binance</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-exchange-bittrex-charged-by-sec-7481453">Bittrex</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669">Coinbase</a> (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=coin">COIN</a>) earlier in the year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Filed before a U.S. district court in California, the lawsuit against Kraken names specific cryptocurrencies the SEC considers securities and alleges Kraken is running an unregistered securities exchange by offering them for sale. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> These tokens include Cardano (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ADAusd">ADA</a>), Cosmos (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ATOMusd">ATOM</a>), Dash (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DASHusd">DASH</a>), Filecoin (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FILusd">FIL</a>), Internet Computer (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ICPusd">ICP</a>), Polygon (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MATICusd">MATIC</a>), and Solana (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOLusd">SOL</a>), among others.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> This is the second enforcement action Kraken has faced this year, as the crypto exchange previously paid a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/kraken-to-pay-30-million-shut-down-staking-business-in-sec-settlement-7107971">$30 million settlement</a> for charges related to their staking-as-a-service offering back in February.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-kraken-comingled-customer-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Kraken Comingled Customer Funds? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Comingling or mixing customer funds with its own is another allegation Kraken faces in the SEC's complaint. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> "For example, Kraken has at times held customer crypto assets valued at more than $33 billion, but it has commingled these crypto assets with its own, creating what its independent auditor had identified in its audit plan as 'a significant risk of loss' to its customers," the filing said.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The regulator also alleges Kraken has on occasion "paid operational expenses directly from bank accounts that hold customer cash." The company's business practices, internal controls, and recordkeeping were also found lacking. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433">Comingling user funds</a> was also one of the allegations faced by now-defunct crypto exchange FTX and its founder Sam Bankman-Fried. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Naturally, Kraken disagrees with the SEC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> "The SEC famously argues that digital asset trading platforms like Kraken can simply 'come in and register' with the agency," the company said in a blog post. "As most securities law experts know, there is not a single law on the books supporting this position."<span class="ql-inline-citation" data-cite="4"></span><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * The U.S. SEC has charged Kraken with operating an unregistered securities exchange, broker, dealer, and clearing agency. * This lawsuit against Kraken is similar to charges filed by the SEC against crypto exchanges Binance, Bittrex and Coinbase earlier in the year. * The lawsuit also alleges Kraken commingled customers' crypto assets and cash reserves with their own holdings. * Earlier this year, Kraken paid a $30 million settlement for charges related to its staking-as-a-service offering. The U.S. Securities and Exchange Commission (SEC) fired a fresh salvo in its cryptocurrency crackdown on Monday when it sued Kraken for operating an unregistered securities exchange and allegedly mixing customer funds with its own. ## Kraken Under Scrutiny Again The regulator has long held the view that most cryptocurrency tokens are securities and crypto exchanges offering sale of those tokens need to register as such. The latest suit against Kraken is not much different from the ones the SEC filed against rival exchanges [Binance](https://www.investopedia.com/sec-files-13-charges-against-binance-and-founder-changpeng-zhao-7508246), [Bittrex](https://www.investopedia.com/crypto-exchange-bittrex-charged-by-sec-7481453) and [Coinbase](https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669) ([COIN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=coin)) earlier in the year. Filed before a U.S. district court in California, the lawsuit against Kraken names specific cryptocurrencies the SEC considers securities and alleges Kraken is running an unregistered securities exchange by offering them for sale. These tokens include Cardano ([ADA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ADAusd)), Cosmos ([ATOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ATOMusd)), Dash ([DASH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DASHusd)), Filecoin ([FIL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FILusd)), Internet Computer ([ICP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ICPusd)), Polygon ([MATIC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MATICusd)), and Solana ([SOL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOLusd)), among others. This is the second enforcement action Kraken has faced this year, as the crypto exchange previously paid a [$30 million settlement](https://www.investopedia.com/kraken-to-pay-30-million-shut-down-staking-business-in-sec-settlement-7107971) for charges related to their staking-as-a-service offering back in February. ## Kraken Comingled Customer Funds? Comingling or mixing customer funds with its own is another allegation Kraken faces in the SEC's complaint. "For example, Kraken has at times held customer crypto assets valued at more than $33 billion, but it has commingled these crypto assets with its own, creating what its independent auditor had identified in its audit plan as 'a significant risk of loss' to its customers," the filing said. The regulator also alleges Kraken has on occasion "paid operational expenses directly from bank accounts that hold customer cash." The company's business practices, internal controls, and recordkeeping were also found lacking. [Comingling user funds](https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433) was also one of the allegations faced by now-defunct crypto exchange FTX and its founder Sam Bankman-Fried. “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. Naturally, Kraken disagrees with the SEC. "The SEC famously argues that digital asset trading platforms like Kraken can simply 'come in and register' with the agency," the company said in a blog post. "As most securities law experts know, there is not a single law on the books supporting this position." Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The U.S. SEC has charged Kraken with operating an unregistered securities exchange, broker, dealer, and clearing agency.This lawsuit against Kraken is similar to charges filed by the SEC against crypto exchanges Binance, Bittrex and Coinbase earlier in the year.The lawsuit also alleges Kraken commingled customers' crypto assets and cash reserves with their own holdings.Earlier this year, Kraken paid a $30 million settlement for charges related to its staking-as-a-service offering. The U.S. Securities and Exchange Commission (SEC) fired a fresh salvo in its cryptocurrency crackdown on Monday when it sued Kraken for operating an unregistered securities exchange and allegedly mixing customer funds with its own. Kraken Under Scrutiny Again The regulator has long held the view that most cryptocurrency tokens are securities and crypto exchanges offering sale of those tokens need to register as such. The latest suit against Kraken is not much different from the ones the SEC filed against rival exchanges Binance, Bittrex and Coinbase (COIN) earlier in the year. Filed before a U.S. district court in California, the lawsuit against Kraken names specific cryptocurrencies the SEC considers securities and alleges Kraken is running an unregistered securities exchange by offering them for sale. These tokens include Cardano (ADA), Cosmos (ATOM), Dash (DASH), Filecoin (FIL), Internet Computer (ICP), Polygon (MATIC), and Solana (SOL), among others. This is the second enforcement action Kraken has faced this year, as the crypto exchange previously paid a $30 million settlement for charges related to their staking-as-a-service offering back in February. Kraken Comingled Customer Funds? Comingling or mixing customer funds with its own is another allegation Kraken faces in the SEC's complaint. "For example, Kraken has at times held customer crypto assets valued at more than $33 billion, but it has commingled these crypto assets with its own, creating what its independent auditor had identified in its audit plan as 'a significant risk of loss' to its customers," the filing said. The regulator also alleges Kraken has on occasion "paid operational expenses directly from bank accounts that hold customer cash." The company's business practices, internal controls, and recordkeeping were also found lacking. Comingling user funds was also one of the allegations faced by now-defunct crypto exchange FTX and its founder Sam Bankman-Fried. “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. Naturally, Kraken disagrees with the SEC. "The SEC famously argues that digital asset trading platforms like Kraken can simply 'come in and register' with the agency," the company said in a blog post. "As most securities law experts know, there is not a single law on the books supporting this position." Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/articles/02/052202.asp

Everything You Need to Know About Junk Bonds

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Like any bond, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk bond</a> is an investment in debt. A company or a government raises a sum of money by issuing IOUs stating the amount it is borrowing (the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a>), the date it will return your money (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a>), and the interest rate (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp">coupon</a>) it will pay you on the borrowed money. The interest rate is the profit the investor will make for lending the money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Before it is issued, every bond is rated by Standard &amp; Poor's or Moody's, the major rating agencies that are tasked with determining the financial ability of the issuer to repay the debt it is taking on. The ratings range from AAA (the best) to D (the company is in default).<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The two agencies have slightly different labeling conventions. AAA from Standard &amp; Poor's, for example, is Aaa from Moody's. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Broadly speaking, all bonds can be placed in one of two categories: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentgrade.asp">Investment-grade</a> bonds are issued by low-risk to medium-risk lenders. A bond rating on investment-grade debt can range from AAA to BBB. These highly-rated bonds pay relatively low interest because their issuers don't have to pay more. Investors looking for an absolutely sound place to put their money will buy them.</li> <li>Junk bonds are riskier. They will be rated BB or lower by Standard &amp; Poor's and Ba or lower by Moody's. These lower-rated bonds pay a higher yield to investors. Their buyers are getting a bigger reward for taking a greater risk.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Junk bonds have a lower credit rating than investment-grade bonds, and therefore have to offer higher interest rates to attract investors.</li><li>Junk bonds are generally rated BB[+] or lower by Standard &amp; Poor's and Ba[1] or lower by Moody's.</li><li>The rating indicates the likelihood that the bond issuer will default on the debt.</li><li>A high-yield bond fund is one option for an investor interested in junk bonds but wary of picking them individually.</li></ul></div></div></div> <span class="heading-toc" id="toc-junk-bonds-and-investment-grade-bonds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Junk Bonds and Investment-Grade Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Think of a bond rating as the report card for a company's credit rating. Blue-chip firms with solid financials and steady income will get a high rating for their bonds. Riskier companies and government bodies with rocky financial histories will get a lower rating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The chart below shows the bond-rating scales from the two major rating agencies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_18-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:70.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/keWQ-09dd8uGl-6q-RvPC6XLev4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/keWQ-09dd8uGl-6q-RvPC6XLev4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg" data-srcset="https://www.investopedia.com/thmb/C9vkXv1zaT1-at6dOzVTRyqOWUg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg 750w" data-tracking-container="true" height="3635" id="mntl-sc-block-image_1-0" width="5130"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3635" sizes="750px" src="https://www.investopedia.com/thmb/keWQ-09dd8uGl-6q-RvPC6XLev4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg" srcset="https://www.investopedia.com/thmb/C9vkXv1zaT1-at6dOzVTRyqOWUg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg 750w" width="5130"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2020</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Historically, average yields on junk bonds have been 4% to 6% above those for comparable U.S. Treasuries. U.S. bonds are generally considered the standard for investment-grade bonds because the nation has never defaulted on a debt.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Bond investors break down junk bonds into two broad categories: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fallenangel.asp">Fallen angels</a> are bonds that were once rated investment grade but have since been reduced to junk-bond status because concerns have emerged about the financial health of the issuers.</li> <li>Rising stars are the opposite. The companies that issue these bonds are showing financial improvement. Their bonds are still junk, but they've been upgraded to a higher level of junk and, if all goes well, they could be on their way to investment quality.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-who-buys-junk-bonds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Who Buys Junk Bonds? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The obvious caveat is that junk bonds are a high-risk investment. There's a risk that the issuer will file for bankruptcy and you'll never get your money back. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> There is a market for junk bonds, but it is overwhelmingly dominated by institutional investors who can hire analysts with knowledge of specialized credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> This does not mean that junk-bond investing is strictly for the wealthy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> The High-Yield Bond Fund </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> For individual investors who are interested in junk bonds, investing in a high-yield <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondfund.asp">bond fund</a> can make sense. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> You're dabbling in a higher-risk investment, but you're relying on the skills of professional money managers to make the picks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> High-yield bond funds also lower the overall risk to the investor by diversifying their portfolios across asset types. The Fidelity Capital and Income Fund (FAGIX) keeps nearly 12.65% of its money in stocks as of June 30, 2023.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You need to know how long you can commit your cash before you decide to buy a junk bond fund. Many do not allow investors to cash out for at least one or two years.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> There is a point at which the rewards of junk bonds don't justify the risks. You can determine this by looking at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldspread.asp">yield spread</a> between junk bonds and U.S. Treasuries. The yield on junk is historically 4% to 6% above U.S. Treasuries. If you see the yield spread shrinking below 4%, it's probably not worth the added risk to invest in junk bonds. As of July 31, 2023, the spread is 3.79%.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> One more thing to look for is the default rate on junk bonds. This can be tracked on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.moodys.com/creditfoundations/Default-Trends-and-Rating-Transitions-05E002">Moody's website</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> One final warning: Junk bonds follow <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/022616/history-high-yield-bond-meltdowns.asp">boom and bust cycles</a>, just like stocks. In the 1980s and 1990s, investment grade bonds earned upwards of 15% and 20% annually depending on the specific year; however, a flood of defaults can cause these funds to produce stunning negative returns.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-why-buy-a-junk-bond"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Buy a Junk Bond?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The simple reason to buy a junk bond is for higher returns. Junk bonds are risky assets but due to their high risk, they come with returns that are higher than safer, investment-grade bonds. Investors willing to take on higher risk for higher returns would buy junk bonds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-is-a-disadvantage-of-a-junk-bond"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Disadvantage of a Junk Bond?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The primary disadvantage of a junk bond is the issuer defaulting on the bond. Junk bonds are issued by companies or countries that are low-rated. There is a high chance that the issuer may not be able to make the interest payments on the bond or that they may go bankrupt and not only not make payments but not repurchase the bond at maturity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-is-a-junk-bond-example"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Junk Bond Example?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Junk bonds are bonds that have a rating of BB or lower by S&amp;P or Ba and lower by Moody's. Any bonds with these ratings are junk bonds.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Junk bonds are low-rated bonds due to the increased risk that there will be a default on the bond, meaning the bond issuer may not be able to make the interest payments or buy back the bond at maturity. In order to entice investors to buy junk bonds, the interest/return on the bond is much higher than better-rated bonds. Investors seeking higher returns may do well investing in junk bonds but should be mindful of the higher risk. </p></div>

Like any bond, a [junk bond](https://www.investopedia.com/terms/j/junkbond.asp) is an investment in debt. A company or a government raises a sum of money by issuing IOUs stating the amount it is borrowing (the [principal](https://www.investopedia.com/terms/p/principal.asp)), the date it will return your money ([maturity date](https://www.investopedia.com/terms/m/maturitydate.asp)), and the interest rate ([coupon](https://www.investopedia.com/terms/c/coupon.asp)) it will pay you on the borrowed money. The interest rate is the profit the investor will make for lending the money. Before it is issued, every bond is rated by Standard & Poor's or Moody's, the major rating agencies that are tasked with determining the financial ability of the issuer to repay the debt it is taking on. The ratings range from AAA (the best) to D (the company is in default). The two agencies have slightly different labeling conventions. AAA from Standard & Poor's, for example, is Aaa from Moody's. Broadly speaking, all bonds can be placed in one of two categories: * [Investment-grade](https://www.investopedia.com/terms/i/investmentgrade.asp) bonds are issued by low-risk to medium-risk lenders. A bond rating on investment-grade debt can range from AAA to BBB. These highly-rated bonds pay relatively low interest because their issuers don't have to pay more. Investors looking for an absolutely sound place to put their money will buy them. * Junk bonds are riskier. They will be rated BB or lower by Standard & Poor's and Ba or lower by Moody's. These lower-rated bonds pay a higher yield to investors. Their buyers are getting a bigger reward for taking a greater risk. ### Key Takeaways * Junk bonds have a lower credit rating than investment-grade bonds, and therefore have to offer higher interest rates to attract investors. * Junk bonds are generally rated BB[+] or lower by Standard & Poor's and Ba[1] or lower by Moody's. * The rating indicates the likelihood that the bond issuer will default on the debt. * A high-yield bond fund is one option for an investor interested in junk bonds but wary of picking them individually. ## Junk Bonds and Investment-Grade Bonds Think of a bond rating as the report card for a company's credit rating. Blue-chip firms with solid financials and steady income will get a high rating for their bonds. Riskier companies and government bodies with rocky financial histories will get a lower rating. The chart below shows the bond-rating scales from the two major rating agencies. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Everything_You_Need_to_Know_About_Junk_Bonds_Dec_2020-01-5306bf5871c8424bacc317dd8bef5c90.jpg) Image by Sabrina Jiang © Investopedia 2020 Historically, average yields on junk bonds have been 4% to 6% above those for comparable U.S. Treasuries. U.S. bonds are generally considered the standard for investment-grade bonds because the nation has never defaulted on a debt. Bond investors break down junk bonds into two broad categories: * [Fallen angels](https://www.investopedia.com/terms/f/fallenangel.asp) are bonds that were once rated investment grade but have since been reduced to junk-bond status because concerns have emerged about the financial health of the issuers. * Rising stars are the opposite. The companies that issue these bonds are showing financial improvement. Their bonds are still junk, but they've been upgraded to a higher level of junk and, if all goes well, they could be on their way to investment quality. ## Who Buys Junk Bonds? The obvious caveat is that junk bonds are a high-risk investment. There's a risk that the issuer will file for bankruptcy and you'll never get your money back. There is a market for junk bonds, but it is overwhelmingly dominated by institutional investors who can hire analysts with knowledge of specialized credit. This does not mean that junk-bond investing is strictly for the wealthy. ### The High-Yield Bond Fund For individual investors who are interested in junk bonds, investing in a high-yield [bond fund](https://www.investopedia.com/terms/b/bondfund.asp) can make sense. You're dabbling in a higher-risk investment, but you're relying on the skills of professional money managers to make the picks. High-yield bond funds also lower the overall risk to the investor by diversifying their portfolios across asset types. The Fidelity Capital and Income Fund (FAGIX) keeps nearly 12.65% of its money in stocks as of June 30, 2023. ### You need to know how long you can commit your cash before you decide to buy a junk bond fund. Many do not allow investors to cash out for at least one or two years. There is a point at which the rewards of junk bonds don't justify the risks. You can determine this by looking at the [yield spread](https://www.investopedia.com/terms/y/yieldspread.asp) between junk bonds and U.S. Treasuries. The yield on junk is historically 4% to 6% above U.S. Treasuries. If you see the yield spread shrinking below 4%, it's probably not worth the added risk to invest in junk bonds. As of July 31, 2023, the spread is 3.79%. One more thing to look for is the default rate on junk bonds. This can be tracked on [Moody's website](https://www.moodys.com/creditfoundations/Default-Trends-and-Rating-Transitions-05E002). One final warning: Junk bonds follow [boom and bust cycles](https://www.investopedia.com/articles/investing/022616/history-high-yield-bond-meltdowns.asp), just like stocks. In the 1980s and 1990s, investment grade bonds earned upwards of 15% and 20% annually depending on the specific year; however, a flood of defaults can cause these funds to produce stunning negative returns. ## Why Buy a Junk Bond? The simple reason to buy a junk bond is for higher returns. Junk bonds are risky assets but due to their high risk, they come with returns that are higher than safer, investment-grade bonds. Investors willing to take on higher risk for higher returns would buy junk bonds. ## What Is a Disadvantage of a Junk Bond? The primary disadvantage of a junk bond is the issuer defaulting on the bond. Junk bonds are issued by companies or countries that are low-rated. There is a high chance that the issuer may not be able to make the interest payments on the bond or that they may go bankrupt and not only not make payments but not repurchase the bond at maturity. ## What Is a Junk Bond Example? Junk bonds are bonds that have a rating of BB or lower by S&P or Ba and lower by Moody's. Any bonds with these ratings are junk bonds. ## The Bottom Line Junk bonds are low-rated bonds due to the increased risk that there will be a default on the bond, meaning the bond issuer may not be able to make the interest payments or buy back the bond at maturity. In order to entice investors to buy junk bonds, the interest/return on the bond is much higher than better-rated bonds. Investors seeking higher returns may do well investing in junk bonds but should be mindful of the higher risk.

Like any bond, a junk bond is an investment in debt. A company or a government raises a sum of money by issuing IOUs stating the amount it is borrowing (the principal), the date it will return your money (maturity date), and the interest rate (coupon) it will pay you on the borrowed money. The interest rate is the profit the investor will make for lending the money. Before it is issued, every bond is rated by Standard & Poor's or Moody's, the major rating agencies that are tasked with determining the financial ability of the issuer to repay the debt it is taking on. The ratings range from AAA (the best) to D (the company is in default). The two agencies have slightly different labeling conventions. AAA from Standard & Poor's, for example, is Aaa from Moody's. Broadly speaking, all bonds can be placed in one of two categories: Investment-grade bonds are issued by low-risk to medium-risk lenders. A bond rating on investment-grade debt can range from AAA to BBB. These highly-rated bonds pay relatively low interest because their issuers don't have to pay more. Investors looking for an absolutely sound place to put their money will buy them. Junk bonds are riskier. They will be rated BB or lower by Standard & Poor's and Ba or lower by Moody's. These lower-rated bonds pay a higher yield to investors. Their buyers are getting a bigger reward for taking a greater risk. Key Takeaways Junk bonds have a lower credit rating than investment-grade bonds, and therefore have to offer higher interest rates to attract investors.Junk bonds are generally rated BB[+] or lower by Standard & Poor's and Ba[1] or lower by Moody's.The rating indicates the likelihood that the bond issuer will default on the debt.A high-yield bond fund is one option for an investor interested in junk bonds but wary of picking them individually. Junk Bonds and Investment-Grade Bonds Think of a bond rating as the report card for a company's credit rating. Blue-chip firms with solid financials and steady income will get a high rating for their bonds. Riskier companies and government bodies with rocky financial histories will get a lower rating. The chart below shows the bond-rating scales from the two major rating agencies. Image by Sabrina Jiang © Investopedia 2020 Historically, average yields on junk bonds have been 4% to 6% above those for comparable U.S. Treasuries. U.S. bonds are generally considered the standard for investment-grade bonds because the nation has never defaulted on a debt. Bond investors break down junk bonds into two broad categories: Fallen angels are bonds that were once rated investment grade but have since been reduced to junk-bond status because concerns have emerged about the financial health of the issuers. Rising stars are the opposite. The companies that issue these bonds are showing financial improvement. Their bonds are still junk, but they've been upgraded to a higher level of junk and, if all goes well, they could be on their way to investment quality. Who Buys Junk Bonds? The obvious caveat is that junk bonds are a high-risk investment. There's a risk that the issuer will file for bankruptcy and you'll never get your money back. There is a market for junk bonds, but it is overwhelmingly dominated by institutional investors who can hire analysts with knowledge of specialized credit. This does not mean that junk-bond investing is strictly for the wealthy. The High-Yield Bond Fund For individual investors who are interested in junk bonds, investing in a high-yield bond fund can make sense. You're dabbling in a higher-risk investment, but you're relying on the skills of professional money managers to make the picks. High-yield bond funds also lower the overall risk to the investor by diversifying their portfolios across asset types. The Fidelity Capital and Income Fund (FAGIX) keeps nearly 12.65% of its money in stocks as of June 30, 2023. You need to know how long you can commit your cash before you decide to buy a junk bond fund. Many do not allow investors to cash out for at least one or two years. There is a point at which the rewards of junk bonds don't justify the risks. You can determine this by looking at the yield spread between junk bonds and U.S. Treasuries. The yield on junk is historically 4% to 6% above U.S. Treasuries. If you see the yield spread shrinking below 4%, it's probably not worth the added risk to invest in junk bonds. As of July 31, 2023, the spread is 3.79%. One more thing to look for is the default rate on junk bonds. This can be tracked on Moody's website. One final warning: Junk bonds follow boom and bust cycles, just like stocks. In the 1980s and 1990s, investment grade bonds earned upwards of 15% and 20% annually depending on the specific year; however, a flood of defaults can cause these funds to produce stunning negative returns. Why Buy a Junk Bond? The simple reason to buy a junk bond is for higher returns. Junk bonds are risky assets but due to their high risk, they come with returns that are higher than safer, investment-grade bonds. Investors willing to take on higher risk for higher returns would buy junk bonds. What Is a Disadvantage of a Junk Bond? The primary disadvantage of a junk bond is the issuer defaulting on the bond. Junk bonds are issued by companies or countries that are low-rated. There is a high chance that the issuer may not be able to make the interest payments on the bond or that they may go bankrupt and not only not make payments but not repurchase the bond at maturity. What Is a Junk Bond Example? Junk bonds are bonds that have a rating of BB or lower by S&P or Ba and lower by Moody's. Any bonds with these ratings are junk bonds. The Bottom Line Junk bonds are low-rated bonds due to the increased risk that there will be a default on the bond, meaning the bond issuer may not be able to make the interest payments or buy back the bond at maturity. In order to entice investors to buy junk bonds, the interest/return on the bond is much higher than better-rated bonds. Investors seeking higher returns may do well investing in junk bonds but should be mindful of the higher risk.

https://www.investopedia.com/buy-now-pay-later-5182291

Buy Now, Pay Later (BNPL): What It Is, How It Works, Pros and Cons

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-buy-now-pay-later-bnpl"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Buy Now, Pay Later (BNPL)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Buy now, pay later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them over time. BNPL is also commonly known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/point-of-sale.asp">point-of-sale (POS)</a> installment loan that doesn't charge interest. Using <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-buy-now-pay-later-apps-5186864">BNPL financing</a> can be convenient, but there are also some potential traps to consider. Consumers can make purchases using BNPL services offered by traditional and online retailers or through apps provided by third-parties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Buy now, pay later is a type of short-term financing. </li><li>Consumers can make purchases and pay for them over time after an up-front payment.</li><li>Buy now, pay later plans typically charge no interest.</li><li>Compared to traditional credit cards and personal loans, BNPL loans are fairly easy for consumers to get approved for.</li><li>BNPL generally won’t affect your credit score unless you make late payments or fail to pay.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Buy Now, Pay Later: Short-term financing that allows consumers to make purchases and pay for them over time, usually with no interest." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0nT0hGH32sWAoahzGEw7_FI9U5s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0nT0hGH32sWAoahzGEw7_FI9U5s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png" data-srcset="https://www.investopedia.com/thmb/xO1vK_Me3p7tVQSbEsRzjH42bhY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Buy Now, Pay Later: Short-term financing that allows consumers to make purchases and pay for them over time, usually with no interest." class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/0nT0hGH32sWAoahzGEw7_FI9U5s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png" srcset="https://www.investopedia.com/thmb/xO1vK_Me3p7tVQSbEsRzjH42bhY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Joules Garcia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-buy-now-pay-later-bnpl-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How Buy Now, Pay Later (BNPL) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Buy now, pay later programs have different terms and conditions. They generally offer short-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan.asp">loans</a> with fixed payments, no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>, and no additional charges. This means you know your payment amounts up front, and each payment will be the same. You can use a BNPL app to make the purchase, or you may have BNPL options through your credit card. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> With BNPL, you can make a purchase at a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/major-retailers-that-accept-buy-now-pay-later-5187164">participating retailer</a> and opt for buy now, pay later at checkout. If approved, you make a small <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payment</a>, such as 25% of the overall purchase amount. You then pay off the remaining amount in a series of interest-free installments, usually over a few weeks or months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Payments can be deducted automatically from your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/checking-vs-savings-accounts-4783514">bank account</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a>. You may also be able to pay via check or bank transfer in some cases, although the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a> says that most BNPL lenders give consumers no choice other than <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/automatic-bill-payment.asp">autopay</a>.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The main difference between using BNPL and a credit card is that the credit card generally charges interest on any balance carried over to the next billing cycle. Although some credit cards offer 0% <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rates (APRs)</a>, it may only be for a limited time. With a credit card, you can carry a balance or use your credit line indefinitely.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Some purchases may not be eligible for buy-now-pay-later financing. Also, there are limits on the amount that you can finance this way.</p></div></div></div> <span class="heading-toc" id="toc-buy-now-pay-later-bnpl-trends"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Buy Now, Pay Later (BNPL) Trends </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> BNPL is a payment option you may see more now than you did in the earlier 2000s. During economic times when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> is high and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> rise, BNPL may be a helpful option for people making purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> A September 2022 report from the CFPB found that from 2019 to 2021, the number of BNPL loans originated in the U.S. by the five lenders it surveyed grew from 16.8 million to 180 million.<span class="ql-inline-citation" data-cite="12"></span> This kind of financing was once most popular for beauty and apparel purchases, but it has branched out into other areas like travel, pet care, groceries, and gas. Most BNPL loans range from $50 to $1,000.<span class="ql-inline-citation" data-cite="11"></span> The CFPB's research showed that the average loan was $135 over six weeks.<span class="ql-inline-citation" data-cite="28"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Companies, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-affirm-work-5183684">Affirm</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/121316/how-klarna-lets-you-pay-later-no-interest.asp">Klarna</a>, offer buy-now-pay-later financing on purchases at participating retailers. Some credit card issuers, such as Chase and American Express, have also set up similar financing arrangements.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Another CFPB report from March 2023 found that: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li>Users of buy-now-pay-later services were far more likely to have bank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft.asp">overdrafts</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loans</a>, pawn loans, and other high-interest financial products, indicating that they are more financially vulnerable than non-users of BNPL financing</li> <li>Black, Hispanic, and female consumers were more likely than average to use it, as were consumers with household incomes between $20,000 and $50,000<span class="ql-inline-citation" data-cite="23"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> While BNPL can help you make purchases you wouldn't otherwise be able to make at that time, if you're not careful, you could put yourself into a situation where you have more debt than you can afford. And that can impact your credit.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Walmart-backed One Finance announced <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-backed-fintech-to-offer-bnpl-6890492">plans to offer BNPL</a> financing to the retailer's customers in 2023. The service hasn't started yet as the company continues to use Affirm.</p></div></div></div> <span class="heading-toc" id="toc-how-buy-now-pay-later-bnpl-affects-your-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> How Buy Now, Pay Later (BNPL) Affects Your Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Most buy-now-pay-later companies only require a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft credit check</a> for approval, which doesn’t affect your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>. However, others may conduct a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard pull</a> of your credit file, which could knock a few points off your score temporarily. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> BNPL loans are only reported to one or more of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">three major credit bureaus</a> for late payments or nonpayments and could show up on your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a> and have an impact on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/does-bnpl-affect-credit-5188061">your credit score</a>.<span class="ql-inline-citation" data-cite="25"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> It's important to ensure that you can pay the monthly installments after you agree to the BNPL loan. If you do not pay your monthly payment for the BNPL loan, you could become delinquent on it and your credit history, report, and score could all be negatively impacted. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The CFPB found that those who used BNPL loans often had delinquencies on their other credit lines. These users also tended to have lower credit scores.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Since a BNPL loan is not reported to a credit bureau, it won’t help you build a good <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a> like a credit card would.<span class="ql-inline-citation" data-cite="25"></span></p></div></div></div> <span class="heading-toc" id="toc-risks-of-using-buy-now-pay-later-bnpl-apps"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Risks of Using Buy Now, Pay Later (BNPL) Apps </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> There are some risks to consider before entering into a BNPL arrangement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> First, you’ll want to understand the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> terms to which you’re agreeing because BNPL financing is not as closely regulated as credit cards are.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="26"></span> Terms can vary significantly. For example, some companies may require you to pay the remaining balance with biweekly payments over a month-long period. Others may give you three months, six months, or even longer to pay off your purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Understanding how your payments will work can help you plan for them in your budget. This ensures that you can afford your payments and make them on time. Missing a payment for a buy-now-pay-later agreement could result in late fees. Your late payment history could also be reported to the credit bureaus, which could hurt your credit score.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Finally, consider store return policies and how BNPL loans might affect your ability to return something that you’ve purchased. For example, a merchant may allow you to return the item, but you might not be able to cancel the buy now, pay later arrangement until you can provide proof that the return has been accepted and processed.<span class="ql-inline-citation" data-cite="24"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-buy-now-pay-later-bnpl"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Buy Now, Pay Later (BNPL) </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-subheading__text"> Advantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> As mentioned, buy-now-pay-later financing agreements allow consumers to pay for things over time without interest charges. And it’s possible to get approved for this type of financing even if you’ve been shut out of other loan options due to a low credit score or the lack of credit history. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> BNPL loans don’t add to your credit card <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a>, but they do add to your personal loan debt. They don’t usually affect your credit score unless you fail to pay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-subheading__text"> Disadvantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> BNPL does come with certain downsides. For instance, paying off a BNPL loan generally won’t help you establish and build good credit, either. You also miss out on any perks that credit cards offer, such as cash-back or rewards points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Also, if you want to return an item you bought via BNPL, it can get complicated. You should get your money back, but there can be a delay until the merchant informs the BNPL lender of the refund. You may have to keep making payments in the meantime. If you don’t, then the payment might be marked tardy or missing, resulting in added fees and a possible ding to your credit score. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_64-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_65-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Convenient way to pay for purchases over time</p></li> <li><p>Frequently no interest or lower interest rates than credit cards</p></li> <li><p>Good credit/high credit score not necessary to qualify</p></li> <li><p>Fast approval</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Payments can be hard to track</p></li> <li><p>Missing or late payments result in late fees and may damage credit score</p></li> <li><p>No rewards or cash back earned on purchases</p></li> <li><p>Payments may continue even if item is returned</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <span class="heading-toc" id="toc-teaching-teens-about-buy-now-pay-later-bnpl"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-heading__text"> Teaching Teens About Buy Now, Pay Later (BNPL) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> If you have a teenager in your life, there's a good chance they've seen buy now, pay later as an option when online shopping. It's important to explain to them how it works so they know the risks associated with installment loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Most BNPL loans require the borrower to be at least 18 years old.<span class="ql-inline-citation" data-cite="20"></span> And even if they are that age, they could be denied and need someone who has a strong credit history and good credit score to apply for the BNPL financing.<span class="ql-inline-citation" data-cite="17"></span> So if your teen is under 18, they likely won't be able to use a BNPL loan to purchase something on their own. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> BNPL may be easy and fast to use for purchase, but it may not be the best way to go about buying that item. For example, if a teen wants to buy a $100 jacket, BNPL may break down the cost of the jacket into four installments of $25, but the teen could also work to save up the $100 and then buy the jacket outright. The latter approach would help teach the teen about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/08/eight-tips.asp">saving and budgeting</a> their money. By the time they save up $100, the teen may not even want to spend it on the jacket anymore. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> On the flip side, BNPL could help teach a teen about paying monthly bills. If you agree to purchase the jacket with BNPL financing, you could require the teen to pay you $25 every month until it's paid off. There's still the chance that the teen doesn't pay you back, but it could be a good learning opportunity for them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> If your teen is old enough to use BNPL financing, make sure they know how it could impact their credit history, report, and score. Take the time to explain debt and the best ways to manage it, as well as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-tips-for-teens-7152864">how credit impacts teens</a> and why it's important for their financial future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-what-credit-score-do-you-need-for-a-buy-now-pay-later-bnpl-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Do You Need for a Buy Now, Pay Later (BNPL) Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no set credit score required for signing up for a BNPL plan. In fact, some providers of the service won’t even check your credit score or credit reports when you apply. Some run a soft credit check to understand your creditworthiness.<span class="ql-inline-citation" data-cite="24"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-what-are-the-dollar-limits-on-bnpl-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Dollar Limits on BNPL Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That also varies from provider to provider, and from retailer to retailer. In general, it may range from hundreds to thousands of dollars. Along with an overall limit, some plans set a per-purchase limit. That is worth checking out before you head to the store to buy a big-ticket item.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-what-is-the-interest-rate-on-a-bnpl-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Interest Rate on a BNPL Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most plans charge 0% interest as long as you make your payments on time.<span class="ql-inline-citation" data-cite="27"></span> However, if you fail to do so, interest rates can range up to 36%.<span class="ql-inline-citation" data-cite="19"></span> The plans may also charge late fees, typically $7 or $8, according to the Consumer Financial Protection Bureau.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> Buy now, pay later loans can let you make purchases immediately but pay them off over time with no interest. If you’re considering using a BNPL plan, be sure that you understand the terms and conditions, and that you’ll be able to make all the payments on time. Consider whether the payments are affordable and what penalties you may face if you’re unable to pay. Before you decide, it’s worth weighing the pros and cons of BNPL against other options, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">credit cards</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loans</a>. </p></div>

## What Is Buy Now, Pay Later (BNPL)? Buy now, pay later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them over time. BNPL is also commonly known as a [point-of-sale (POS)](https://www.investopedia.com/terms/p/point-of-sale.asp) installment loan that doesn't charge interest. Using [BNPL financing](https://www.investopedia.com/best-buy-now-pay-later-apps-5186864) can be convenient, but there are also some potential traps to consider. Consumers can make purchases using BNPL services offered by traditional and online retailers or through apps provided by third-parties. ### Key Takeaways * Buy now, pay later is a type of short-term financing. * Consumers can make purchases and pay for them over time after an up-front payment. * Buy now, pay later plans typically charge no interest. * Compared to traditional credit cards and personal loans, BNPL loans are fairly easy for consumers to get approved for. * BNPL generally won’t affect your credit score unless you make late payments or fail to pay. ![Buy Now, Pay Later: Short-term financing that allows consumers to make purchases and pay for them over time, usually with no interest.]() :max_bytes(150000):strip_icc()/buy-now-pay-later-5182291-final-4dcaa9bea32a4aa398eb99e5ca5406bb.png) Investopedia / Joules Garcia ## How Buy Now, Pay Later (BNPL) Works Buy now, pay later programs have different terms and conditions. They generally offer short-term [loans](https://www.investopedia.com/terms/l/loan.asp) with fixed payments, no [interest](https://www.investopedia.com/terms/i/interest.asp), and no additional charges. This means you know your payment amounts up front, and each payment will be the same. You can use a BNPL app to make the purchase, or you may have BNPL options through your credit card. With BNPL, you can make a purchase at a [participating retailer](https://www.investopedia.com/major-retailers-that-accept-buy-now-pay-later-5187164) and opt for buy now, pay later at checkout. If approved, you make a small [down payment](https://www.investopedia.com/terms/d/down_payment.asp), such as 25% of the overall purchase amount. You then pay off the remaining amount in a series of interest-free installments, usually over a few weeks or months. Payments can be deducted automatically from your [debit card](https://www.investopedia.com/terms/d/debitcard.asp), [bank account](https://www.investopedia.com/checking-vs-savings-accounts-4783514), or [credit card](https://www.investopedia.com/terms/c/creditcard.asp). You may also be able to pay via check or bank transfer in some cases, although the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) says that most BNPL lenders give consumers no choice other than [autopay](https://www.investopedia.com/terms/a/automatic-bill-payment.asp). The main difference between using BNPL and a credit card is that the credit card generally charges interest on any balance carried over to the next billing cycle. Although some credit cards offer 0% [annual percentage rates (APRs)](https://www.investopedia.com/terms/a/apr.asp), it may only be for a limited time. With a credit card, you can carry a balance or use your credit line indefinitely. ### Some purchases may not be eligible for buy-now-pay-later financing. Also, there are limits on the amount that you can finance this way. ## Buy Now, Pay Later (BNPL) Trends BNPL is a payment option you may see more now than you did in the earlier 2000s. During economic times when [inflation](https://www.investopedia.com/terms/i/inflation.asp) is high and [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) rise, BNPL may be a helpful option for people making purchases. A September 2022 report from the CFPB found that from 2019 to 2021, the number of BNPL loans originated in the U.S. by the five lenders it surveyed grew from 16.8 million to 180 million. This kind of financing was once most popular for beauty and apparel purchases, but it has branched out into other areas like travel, pet care, groceries, and gas. Most BNPL loans range from $50 to $1,000. The CFPB's research showed that the average loan was $135 over six weeks. Companies, such as [Affirm](https://www.investopedia.com/how-does-affirm-work-5183684) and [Klarna](https://www.investopedia.com/articles/personal-finance/121316/how-klarna-lets-you-pay-later-no-interest.asp), offer buy-now-pay-later financing on purchases at participating retailers. Some credit card issuers, such as Chase and American Express, have also set up similar financing arrangements. Another CFPB report from March 2023 found that: * Users of buy-now-pay-later services were far more likely to have bank [overdrafts](https://www.investopedia.com/terms/o/overdraft.asp), [payday loans](https://www.investopedia.com/terms/p/payday-loans.asp), pawn loans, and other high-interest financial products, indicating that they are more financially vulnerable than non-users of BNPL financing * Black, Hispanic, and female consumers were more likely than average to use it, as were consumers with household incomes between $20,000 and $50,000 While BNPL can help you make purchases you wouldn't otherwise be able to make at that time, if you're not careful, you could put yourself into a situation where you have more debt than you can afford. And that can impact your credit. ### Walmart-backed One Finance announced [plans to offer BNPL](https://www.investopedia.com/walmart-backed-fintech-to-offer-bnpl-6890492) financing to the retailer's customers in 2023. The service hasn't started yet as the company continues to use Affirm. ## How Buy Now, Pay Later (BNPL) Affects Your Credit Most buy-now-pay-later companies only require a [soft credit check](https://www.investopedia.com/terms/s/soft-inquiry.asp) for approval, which doesn’t affect your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). However, others may conduct a [hard pull](https://www.investopedia.com/terms/h/hard-inquiry.asp) of your credit file, which could knock a few points off your score temporarily. BNPL loans are only reported to one or more of the [three major credit bureaus](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/) for late payments or nonpayments and could show up on your [credit reports](https://www.investopedia.com/terms/c/creditreport.asp) and have an impact on [your credit score](https://www.investopedia.com/does-bnpl-affect-credit-5188061). It's important to ensure that you can pay the monthly installments after you agree to the BNPL loan. If you do not pay your monthly payment for the BNPL loan, you could become delinquent on it and your credit history, report, and score could all be negatively impacted. The CFPB found that those who used BNPL loans often had delinquencies on their other credit lines. These users also tended to have lower credit scores. ### Since a BNPL loan is not reported to a credit bureau, it won’t help you build a good [credit history](https://www.investopedia.com/terms/c/credit-history.asp) like a credit card would. ## Risks of Using Buy Now, Pay Later (BNPL) Apps There are some risks to consider before entering into a BNPL arrangement. First, you’ll want to understand the [repayment](https://www.investopedia.com/terms/r/repayment.asp) terms to which you’re agreeing because BNPL financing is not as closely regulated as credit cards are. Terms can vary significantly. For example, some companies may require you to pay the remaining balance with biweekly payments over a month-long period. Others may give you three months, six months, or even longer to pay off your purchases. Understanding how your payments will work can help you plan for them in your budget. This ensures that you can afford your payments and make them on time. Missing a payment for a buy-now-pay-later agreement could result in late fees. Your late payment history could also be reported to the credit bureaus, which could hurt your credit score. Finally, consider store return policies and how BNPL loans might affect your ability to return something that you’ve purchased. For example, a merchant may allow you to return the item, but you might not be able to cancel the buy now, pay later arrangement until you can provide proof that the return has been accepted and processed. ## Advantages and Disadvantages of Buy Now, Pay Later (BNPL) ### Advantages As mentioned, buy-now-pay-later financing agreements allow consumers to pay for things over time without interest charges. And it’s possible to get approved for this type of financing even if you’ve been shut out of other loan options due to a low credit score or the lack of credit history. BNPL loans don’t add to your credit card [debt](https://www.investopedia.com/terms/d/debt.asp), but they do add to your personal loan debt. They don’t usually affect your credit score unless you fail to pay. ### Disadvantages BNPL does come with certain downsides. For instance, paying off a BNPL loan generally won’t help you establish and build good credit, either. You also miss out on any perks that credit cards offer, such as cash-back or rewards points. Also, if you want to return an item you bought via BNPL, it can get complicated. You should get your money back, but there can be a delay until the merchant informs the BNPL lender of the refund. You may have to keep making payments in the meantime. If you don’t, then the payment might be marked tardy or missing, resulting in added fees and a possible ding to your credit score. Pros * Convenient way to pay for purchases over time * Frequently no interest or lower interest rates than credit cards * Good credit/high credit score not necessary to qualify * Fast approval Cons * Payments can be hard to track * Missing or late payments result in late fees and may damage credit score * No rewards or cash back earned on purchases * Payments may continue even if item is returned ## Teaching Teens About Buy Now, Pay Later (BNPL) If you have a teenager in your life, there's a good chance they've seen buy now, pay later as an option when online shopping. It's important to explain to them how it works so they know the risks associated with installment loans. Most BNPL loans require the borrower to be at least 18 years old. And even if they are that age, they could be denied and need someone who has a strong credit history and good credit score to apply for the BNPL financing. So if your teen is under 18, they likely won't be able to use a BNPL loan to purchase something on their own. BNPL may be easy and fast to use for purchase, but it may not be the best way to go about buying that item. For example, if a teen wants to buy a $100 jacket, BNPL may break down the cost of the jacket into four installments of $25, but the teen could also work to save up the $100 and then buy the jacket outright. The latter approach would help teach the teen about [saving and budgeting](https://www.investopedia.com/articles/younginvestors/08/eight-tips.asp) their money. By the time they save up $100, the teen may not even want to spend it on the jacket anymore. On the flip side, BNPL could help teach a teen about paying monthly bills. If you agree to purchase the jacket with BNPL financing, you could require the teen to pay you $25 every month until it's paid off. There's still the chance that the teen doesn't pay you back, but it could be a good learning opportunity for them. If your teen is old enough to use BNPL financing, make sure they know how it could impact their credit history, report, and score. Take the time to explain debt and the best ways to manage it, as well as [how credit impacts teens](https://www.investopedia.com/credit-tips-for-teens-7152864) and why it's important for their financial future. ## What Credit Score Do You Need for a Buy Now, Pay Later (BNPL) Plan? There is no set credit score required for signing up for a BNPL plan. In fact, some providers of the service won’t even check your credit score or credit reports when you apply. Some run a soft credit check to understand your creditworthiness. ## What Are the Dollar Limits on BNPL Loans? That also varies from provider to provider, and from retailer to retailer. In general, it may range from hundreds to thousands of dollars. Along with an overall limit, some plans set a per-purchase limit. That is worth checking out before you head to the store to buy a big-ticket item. ## What Is the Interest Rate on a BNPL Loan? Most plans charge 0% interest as long as you make your payments on time. However, if you fail to do so, interest rates can range up to 36%. The plans may also charge late fees, typically $7 or $8, according to the Consumer Financial Protection Bureau. ## The Bottom Line Buy now, pay later loans can let you make purchases immediately but pay them off over time with no interest. If you’re considering using a BNPL plan, be sure that you understand the terms and conditions, and that you’ll be able to make all the payments on time. Consider whether the payments are affordable and what penalties you may face if you’re unable to pay. Before you decide, it’s worth weighing the pros and cons of BNPL against other options, such as [credit cards](https://www.investopedia.com/best-credit-cards-4801582) and [personal loans](https://www.investopedia.com/best-personal-loans-4773300).

What Is Buy Now, Pay Later (BNPL)? Buy now, pay later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them over time. BNPL is also commonly known as a point-of-sale (POS) installment loan that doesn't charge interest. Using BNPL financing can be convenient, but there are also some potential traps to consider. Consumers can make purchases using BNPL services offered by traditional and online retailers or through apps provided by third-parties. Key Takeaways Buy now, pay later is a type of short-term financing. Consumers can make purchases and pay for them over time after an up-front payment.Buy now, pay later plans typically charge no interest.Compared to traditional credit cards and personal loans, BNPL loans are fairly easy for consumers to get approved for.BNPL generally won’t affect your credit score unless you make late payments or fail to pay. Investopedia / Joules Garcia How Buy Now, Pay Later (BNPL) Works Buy now, pay later programs have different terms and conditions. They generally offer short-term loans with fixed payments, no interest, and no additional charges. This means you know your payment amounts up front, and each payment will be the same. You can use a BNPL app to make the purchase, or you may have BNPL options through your credit card. With BNPL, you can make a purchase at a participating retailer and opt for buy now, pay later at checkout. If approved, you make a small down payment, such as 25% of the overall purchase amount. You then pay off the remaining amount in a series of interest-free installments, usually over a few weeks or months. Payments can be deducted automatically from your debit card, bank account, or credit card. You may also be able to pay via check or bank transfer in some cases, although the Consumer Financial Protection Bureau (CFPB) says that most BNPL lenders give consumers no choice other than autopay. The main difference between using BNPL and a credit card is that the credit card generally charges interest on any balance carried over to the next billing cycle. Although some credit cards offer 0% annual percentage rates (APRs), it may only be for a limited time. With a credit card, you can carry a balance or use your credit line indefinitely. Some purchases may not be eligible for buy-now-pay-later financing. Also, there are limits on the amount that you can finance this way. Buy Now, Pay Later (BNPL) Trends BNPL is a payment option you may see more now than you did in the earlier 2000s. During economic times when inflation is high and interest rates rise, BNPL may be a helpful option for people making purchases. A September 2022 report from the CFPB found that from 2019 to 2021, the number of BNPL loans originated in the U.S. by the five lenders it surveyed grew from 16.8 million to 180 million. This kind of financing was once most popular for beauty and apparel purchases, but it has branched out into other areas like travel, pet care, groceries, and gas. Most BNPL loans range from $50 to $1,000. The CFPB's research showed that the average loan was $135 over six weeks. Companies, such as Affirm and Klarna, offer buy-now-pay-later financing on purchases at participating retailers. Some credit card issuers, such as Chase and American Express, have also set up similar financing arrangements. Another CFPB report from March 2023 found that: Users of buy-now-pay-later services were far more likely to have bank overdrafts, payday loans, pawn loans, and other high-interest financial products, indicating that they are more financially vulnerable than non-users of BNPL financing Black, Hispanic, and female consumers were more likely than average to use it, as were consumers with household incomes between $20,000 and $50,000 While BNPL can help you make purchases you wouldn't otherwise be able to make at that time, if you're not careful, you could put yourself into a situation where you have more debt than you can afford. And that can impact your credit. Walmart-backed One Finance announced plans to offer BNPL financing to the retailer's customers in 2023. The service hasn't started yet as the company continues to use Affirm. How Buy Now, Pay Later (BNPL) Affects Your Credit Most buy-now-pay-later companies only require a soft credit check for approval, which doesn’t affect your credit score. However, others may conduct a hard pull of your credit file, which could knock a few points off your score temporarily. BNPL loans are only reported to one or more of the three major credit bureaus for late payments or nonpayments and could show up on your credit reports and have an impact on your credit score. It's important to ensure that you can pay the monthly installments after you agree to the BNPL loan. If you do not pay your monthly payment for the BNPL loan, you could become delinquent on it and your credit history, report, and score could all be negatively impacted. The CFPB found that those who used BNPL loans often had delinquencies on their other credit lines. These users also tended to have lower credit scores. Since a BNPL loan is not reported to a credit bureau, it won’t help you build a good credit history like a credit card would. Risks of Using Buy Now, Pay Later (BNPL) Apps There are some risks to consider before entering into a BNPL arrangement. First, you’ll want to understand the repayment terms to which you’re agreeing because BNPL financing is not as closely regulated as credit cards are. Terms can vary significantly. For example, some companies may require you to pay the remaining balance with biweekly payments over a month-long period. Others may give you three months, six months, or even longer to pay off your purchases. Understanding how your payments will work can help you plan for them in your budget. This ensures that you can afford your payments and make them on time. Missing a payment for a buy-now-pay-later agreement could result in late fees. Your late payment history could also be reported to the credit bureaus, which could hurt your credit score. Finally, consider store return policies and how BNPL loans might affect your ability to return something that you’ve purchased. For example, a merchant may allow you to return the item, but you might not be able to cancel the buy now, pay later arrangement until you can provide proof that the return has been accepted and processed. Advantages and Disadvantages of Buy Now, Pay Later (BNPL) Advantages As mentioned, buy-now-pay-later financing agreements allow consumers to pay for things over time without interest charges. And it’s possible to get approved for this type of financing even if you’ve been shut out of other loan options due to a low credit score or the lack of credit history. BNPL loans don’t add to your credit card debt, but they do add to your personal loan debt. They don’t usually affect your credit score unless you fail to pay. Disadvantages BNPL does come with certain downsides. For instance, paying off a BNPL loan generally won’t help you establish and build good credit, either. You also miss out on any perks that credit cards offer, such as cash-back or rewards points. Also, if you want to return an item you bought via BNPL, it can get complicated. You should get your money back, but there can be a delay until the merchant informs the BNPL lender of the refund. You may have to keep making payments in the meantime. If you don’t, then the payment might be marked tardy or missing, resulting in added fees and a possible ding to your credit score. Pros Convenient way to pay for purchases over time Frequently no interest or lower interest rates than credit cards Good credit/high credit score not necessary to qualify Fast approval Cons Payments can be hard to track Missing or late payments result in late fees and may damage credit score No rewards or cash back earned on purchases Payments may continue even if item is returned Teaching Teens About Buy Now, Pay Later (BNPL) If you have a teenager in your life, there's a good chance they've seen buy now, pay later as an option when online shopping. It's important to explain to them how it works so they know the risks associated with installment loans. Most BNPL loans require the borrower to be at least 18 years old. And even if they are that age, they could be denied and need someone who has a strong credit history and good credit score to apply for the BNPL financing. So if your teen is under 18, they likely won't be able to use a BNPL loan to purchase something on their own. BNPL may be easy and fast to use for purchase, but it may not be the best way to go about buying that item. For example, if a teen wants to buy a $100 jacket, BNPL may break down the cost of the jacket into four installments of $25, but the teen could also work to save up the $100 and then buy the jacket outright. The latter approach would help teach the teen about saving and budgeting their money. By the time they save up $100, the teen may not even want to spend it on the jacket anymore. On the flip side, BNPL could help teach a teen about paying monthly bills. If you agree to purchase the jacket with BNPL financing, you could require the teen to pay you $25 every month until it's paid off. There's still the chance that the teen doesn't pay you back, but it could be a good learning opportunity for them. If your teen is old enough to use BNPL financing, make sure they know how it could impact their credit history, report, and score. Take the time to explain debt and the best ways to manage it, as well as how credit impacts teens and why it's important for their financial future. What Credit Score Do You Need for a Buy Now, Pay Later (BNPL) Plan? There is no set credit score required for signing up for a BNPL plan. In fact, some providers of the service won’t even check your credit score or credit reports when you apply. Some run a soft credit check to understand your creditworthiness. What Are the Dollar Limits on BNPL Loans? That also varies from provider to provider, and from retailer to retailer. In general, it may range from hundreds to thousands of dollars. Along with an overall limit, some plans set a per-purchase limit. That is worth checking out before you head to the store to buy a big-ticket item. What Is the Interest Rate on a BNPL Loan? Most plans charge 0% interest as long as you make your payments on time. However, if you fail to do so, interest rates can range up to 36%. The plans may also charge late fees, typically $7 or $8, according to the Consumer Financial Protection Bureau. The Bottom Line Buy now, pay later loans can let you make purchases immediately but pay them off over time with no interest. If you’re considering using a BNPL plan, be sure that you understand the terms and conditions, and that you’ll be able to make all the payments on time. Consider whether the payments are affordable and what penalties you may face if you’re unable to pay. Before you decide, it’s worth weighing the pros and cons of BNPL against other options, such as credit cards and personal loans.

https://www.investopedia.com/stock-analysis/cotd/072915/four-great-stocks-day-traders-bbg-sgyp-ziop.aspx

Great Stock for Day Traders

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There isn't a perfect day trading stock, as trading styles vary by trader. That said, most day traders prefer tight <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">spreads</a> and lots of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">volume</a>. A lot of price movement is also something many day traders seek; it is easier to jump in and out for a profit in a stock that is moving a lot, compared to one that isn't. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Ideal stocks for day trading include those with high volume and tight trading spreads.</li><li>Lots of price movement and liquidity are trademarks for day trading stocks.</li><li>A good day trading stock can typically be traded for several months or more before conditions change, however. </li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The following stock combines liquidity with excellent intraday price movement, making them ideal for most day traders. Conditions do change though, so while these stocks currently offer what day traders are looking for, weeks or months from now they may not. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-example-of-day-trading-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Example of Day Trading Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Stocks with high trading volume is the first thing to look for. ZIOPHARM Oncology, Inc. (ZIOP) has a 100-day average volume of 2.4 million shares per day. The stock has a high average day range (from high to low). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Look for stocks that are shortable, but note that a high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortinterest.asp">short interest</a> can make the stock <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hardtoborrowlist.asp">hard to borrow</a> some days. The below ZIOPHARM chart shows the 6-month daily price history, daily volume, and the performance of the stock (percentage) over the 6-month period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-low-res" id="mntl-sc-block_12-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:75.7%;"> <img alt="ZIOP" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/a66X9nmUgtltHYrHeQqFNTNgc0Q=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/VWzLHuoPjRBr9bsQ6vpZ1AVdgws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png" data-srcset="https://www.investopedia.com/thmb/0gztIVSaEeJeC7FXRlZrVX61fcU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png 750w" data-tracking-container="true" height="530" id="mntl-sc-block-image_1-0" width="700"/> <noscript> <img alt="ZIOP" class="img--noscript universal-image__image" height="530" sizes="750px" src="https://www.investopedia.com/thmb/VWzLHuoPjRBr9bsQ6vpZ1AVdgws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png" srcset="https://www.investopedia.com/thmb/0gztIVSaEeJeC7FXRlZrVX61fcU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png 750w" width="700"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Many ideal day trading stocks are priced below $20. A lower share price allows day traders to trade stocks with volatility and volume at an affordable price for smaller trading accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For those seeking greater volume, the SPDR S&amp;P 500 (SPY) is popular among traders of all types. For those seeking significant volume and volatility, the iPath S&amp;P 500 VIX ST Futures ETN (VXX) or VelocityShares 2x VIX ST ETN (TVIX) are currently offering both in abundance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> As well, other ETFs worth considering include Financial Select Sector SPDR (XLF) and Invesco QQQ (QQQ). Specific industry ETFs that are ideal for day traders include the VanEck Vectors Gold Miners ETF (GDX) and iPath S&amp;P 500 VIX Short-Term Futures ETN (VXX). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> In the simplest form, look for high volume stocks with a high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp">beta</a>, such as Advanced Micro Devices (AMD). Other stocks meeting that criteria include Twilio (TWLO) and Tesla (TSLA). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> These types of stocks are of potential interest to day traders because they provide liquidity and significant daily percentage price movements each day (usually). No specific direction or trade is recommended. Anyone who day trades should have a sound strategy they trade and be prepared for the volatility these stocks offer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Conditions do change though. A stock with high volume currently could see it reduced (or increased) in the weeks ahead. volatility could also increase or decrease. A good day trading stock can typically be traded for several months or more before conditions change enough to consider trading something else. Some day traders trade the exact same stock, ETF, or several stocks and ETFs for their entire career. </p></div>

There isn't a perfect day trading stock, as trading styles vary by trader. That said, most day traders prefer tight [spreads](https://www.investopedia.com/terms/b/bid-askspread.asp) and lots of [volume](https://www.investopedia.com/terms/v/volume.asp). A lot of price movement is also something many day traders seek; it is easier to jump in and out for a profit in a stock that is moving a lot, compared to one that isn't. ### Key Takeaways * Ideal stocks for day trading include those with high volume and tight trading spreads. * Lots of price movement and liquidity are trademarks for day trading stocks. * A good day trading stock can typically be traded for several months or more before conditions change, however. The following stock combines liquidity with excellent intraday price movement, making them ideal for most day traders. Conditions do change though, so while these stocks currently offer what day traders are looking for, weeks or months from now they may not. ## Example of Day Trading Stock Stocks with high trading volume is the first thing to look for. ZIOPHARM Oncology, Inc. (ZIOP) has a 100-day average volume of 2.4 million shares per day. The stock has a high average day range (from high to low). Look for stocks that are shortable, but note that a high [short interest](https://www.investopedia.com/terms/s/shortinterest.asp) can make the stock [hard to borrow](https://www.investopedia.com/terms/h/hardtoborrowlist.asp) some days. The below ZIOPHARM chart shows the 6-month daily price history, daily volume, and the performance of the stock (percentage) over the 6-month period. ![ZIOP]() :max_bytes(150000):strip_icc()/sc-a1f89bf9b0ac421c87e82bdf54afde0f.png) Many ideal day trading stocks are priced below $20. A lower share price allows day traders to trade stocks with volatility and volume at an affordable price for smaller trading accounts. For those seeking greater volume, the SPDR S&P 500 (SPY) is popular among traders of all types. For those seeking significant volume and volatility, the iPath S&P 500 VIX ST Futures ETN (VXX) or VelocityShares 2x VIX ST ETN (TVIX) are currently offering both in abundance. As well, other ETFs worth considering include Financial Select Sector SPDR (XLF) and Invesco QQQ (QQQ). Specific industry ETFs that are ideal for day traders include the VanEck Vectors Gold Miners ETF (GDX) and iPath S&P 500 VIX Short-Term Futures ETN (VXX). In the simplest form, look for high volume stocks with a high [beta](https://www.investopedia.com/terms/b/beta.asp), such as Advanced Micro Devices (AMD). Other stocks meeting that criteria include Twilio (TWLO) and Tesla (TSLA). ## The Bottom Line These types of stocks are of potential interest to day traders because they provide liquidity and significant daily percentage price movements each day (usually). No specific direction or trade is recommended. Anyone who day trades should have a sound strategy they trade and be prepared for the volatility these stocks offer. Conditions do change though. A stock with high volume currently could see it reduced (or increased) in the weeks ahead. volatility could also increase or decrease. A good day trading stock can typically be traded for several months or more before conditions change enough to consider trading something else. Some day traders trade the exact same stock, ETF, or several stocks and ETFs for their entire career.

There isn't a perfect day trading stock, as trading styles vary by trader. That said, most day traders prefer tight spreads and lots of volume. A lot of price movement is also something many day traders seek; it is easier to jump in and out for a profit in a stock that is moving a lot, compared to one that isn't. Key Takeaways Ideal stocks for day trading include those with high volume and tight trading spreads.Lots of price movement and liquidity are trademarks for day trading stocks.A good day trading stock can typically be traded for several months or more before conditions change, however. The following stock combines liquidity with excellent intraday price movement, making them ideal for most day traders. Conditions do change though, so while these stocks currently offer what day traders are looking for, weeks or months from now they may not. Example of Day Trading Stock Stocks with high trading volume is the first thing to look for. ZIOPHARM Oncology, Inc. (ZIOP) has a 100-day average volume of 2.4 million shares per day. The stock has a high average day range (from high to low). Look for stocks that are shortable, but note that a high short interest can make the stock hard to borrow some days. The below ZIOPHARM chart shows the 6-month daily price history, daily volume, and the performance of the stock (percentage) over the 6-month period. Many ideal day trading stocks are priced below $20. A lower share price allows day traders to trade stocks with volatility and volume at an affordable price for smaller trading accounts. For those seeking greater volume, the SPDR S&P 500 (SPY) is popular among traders of all types. For those seeking significant volume and volatility, the iPath S&P 500 VIX ST Futures ETN (VXX) or VelocityShares 2x VIX ST ETN (TVIX) are currently offering both in abundance. As well, other ETFs worth considering include Financial Select Sector SPDR (XLF) and Invesco QQQ (QQQ). Specific industry ETFs that are ideal for day traders include the VanEck Vectors Gold Miners ETF (GDX) and iPath S&P 500 VIX Short-Term Futures ETN (VXX). In the simplest form, look for high volume stocks with a high beta, such as Advanced Micro Devices (AMD). Other stocks meeting that criteria include Twilio (TWLO) and Tesla (TSLA). The Bottom Line These types of stocks are of potential interest to day traders because they provide liquidity and significant daily percentage price movements each day (usually). No specific direction or trade is recommended. Anyone who day trades should have a sound strategy they trade and be prepared for the volatility these stocks offer. Conditions do change though. A stock with high volume currently could see it reduced (or increased) in the weeks ahead. volatility could also increase or decrease. A good day trading stock can typically be traded for several months or more before conditions change enough to consider trading something else. Some day traders trade the exact same stock, ETF, or several stocks and ETFs for their entire career.

https://www.investopedia.com/how-long-is-a-credit-pull-good-for-an-auto-loan-7556628

How Long Is a Credit Pull Good for an Auto Loan?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When you apply for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loan</a>—whether from your dealer, a bank, or a credit union—they will check your credit. This is known as a hard inquiry, and can temporarily affect your credit score. Since multiple credit checks within 45 days generally won’t affect your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> more than a single check, you have that time to shop around for the best deal with minimal credit score impact.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lenders</a> will accept a credit check that is 30 to 60 days old, and the amount of time depends on the lender. Even if your lender needs to run another <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit check</a> that affects your credit score, the benefits of shopping around typically outweigh the temporary effect on your credit.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>When you apply for a car loan, your lender will check your credit score.</li><li>A hard credit check can temporarily reduce your score.<span class="ql-inline-citation" data-cite="9"></span></li><li>Multiple inquiries within 45 days won’t affect your credit score anymore than just one check.<span class="ql-inline-citation" data-cite="9"></span></li><li>You can shop around for several auto loans within a short period of time without significantly impacting your credit score.</li><li>The benefits of shopping around typically outweigh the temporary effect on your credit from applying with multiple lenders.</li></ul></div></div></div> <span class="heading-toc" id="toc-hard-vs-soft-credit-pulls"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Hard vs. Soft Credit Pulls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When you apply for an auto loan, your lender will perform a credit inquiry, commonly known as a credit check. There are two types of inquiry: a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> and a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft inquiry</a>. Soft inquiries are generally used for pre-approval, whereas hard inquiries are used to check that you can repay a loan.<span class="ql-inline-citation" data-cite="5"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Most lenders will perform a hard inquiry (also known as a hard credit pull) when you apply for a car loan. With this type of inquiry, the lender will typically request a copy of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a> from one or more of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">three major credit bureaus</a>: Equifax, Experian, and TransUnion. A hard credit pull will decrease your credit score, but typically by 5 points or less, and this effect should be temporary.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you apply for car loans from multiple lenders, each will perform a hard credit pull. However, if these are all within a short period (45 days or less), they will count as one inquiry, so your credit score won’t suffer too much. This gives you time to shop around, but it also imposes a time limit on how long you can do so. Lenders won’t need to do another credit pull within this period, and even if they do, your credit score won’t suffer.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> No matter how many lenders you apply to, the impact on your credit is the same if your last credit check was within 45 days of the first credit check. Even after the 45-day period, the impact of another inquiry is fairly small, while shopping around for the best deal can save you money in the long run by helping you secure a lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a>.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you are looking for a new auto loan, check Investopedia’s roundup of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">best auto loan rates</a>.<br/></p></div></div></div> <span class="heading-toc" id="toc-how-hard-inquiries-impact-your-credit-report"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> How Hard Inquiries Impact Your Credit Report </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Any type of hard credit inquiry will be noted on your credit report, causing a small credit score decrease. However, multiple inquiries in a short period of time (45 days for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO Scores</a>, 14 days for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vantagescore.asp">VantageScores</a>) count as a single check. Hard inquiries remain on your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-does-negative-information-stay-on-your-credit-report-4769774">credit report for two years</a>, although they have no effect on your credit score after one year.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In addition, lenders (and credit scoring models) make allowances in some situations. For example, within a short period of time, most FICO credit scores are not affected by multiple inquiries no matter if they are with auto, mortgage, or student loan lenders. They are generally treated as a single inquiry and will have little impact on your credit scores.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>While multiple inquiries for a car loan won’t have a big impact since they count as one, applying for other forms of credit at the same time (like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit cards</a> or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a>) while trying to get a car loan will count as separate inquiries. This could lower your credit score significantly.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-what-factors-affect-your-credit-score"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> What Factors Affect Your Credit Score?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Your FICO Score is calculated based on five factors: payment history, amounts owed, length of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>, new credit, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-mix.asp">credit mix</a>. FICO is not the only type of credit score, but it is one of the most common measurements that lenders use to determine the risk involved in doing business with a borrower.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Although FICO does not reveal its specific calculation for determining your credit score, it does report the main factors used to calculate its credit scores. These categories with their relative weights are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>Payment history (35%)</li><li>Amounts owed (30%)</li><li>Length of credit history (15%)</li><li>New credit (10%)</li><li>Credit mix (10%)<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-how-to-minimize-the-impact-of-hard-inquiries-on-your-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> How to Minimize the Impact of Hard Inquiries on Your Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If you apply for multiple car loans in a short period of time, the effect on your credit score will be temporary. However, you shouldn’t apply for other types of loan that require a hard credit check—such as a credit card—at the same time, or your credit score might take a hit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The best way to minimize the impact of hard inquiries on your credit is to build up a solid score, and to keep your inquiries to a minimum.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-how-car-loans-positively-impact-your-credit-score"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> How Car Loans Positively Impact Your Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Paying your car loan can improve your credit score if you make the payments on time and don’t skip any. Making on-time payments accounts for 35% of your credit score, making it the most important factor affecting your credit score.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Likewise, making on-time payments during the length of the car loan could boost other factors affecting your credit score. These include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li>Amounts owed (30%) </li><li>Length of credit history (15%) </li><li>Credit mix (10%)<span class="ql-inline-citation" data-cite="1"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-how-long-should-i-wait-between-credit-pulls"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Should I Wait Between Credit Pulls?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You should wait as long as possible between credit pulls. However, a good rule of thumb is to wait at least 90 days. A hard credit pull remains on your credit report for up to two years.<span class="ql-inline-citation" data-cite="9"></span> You can make soft credit pulls as frequently as you’d like without affecting your credit score.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-how-many-credit-pulls-are-considered-too-many"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Credit Pulls Are Considered Too Many?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How many credit pulls are considered too many depends on your credit score. Too many hard inquiries over a short period (a few months) can cause credit rating agencies to view this as a red flag that you may be desperate for money. This can harm your credit score.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-does-paying-off-a-car-loan-early-hurt-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Paying Off a Car Loan Early Hurt Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happens-early-loan-payoff-7505190">Paying off your car loan early</a> can hurt your credit score. Anytime you close a credit account, your score will fall by a few points. If you want to protect your credit score for other big purchases, it can be best to wait to pay off your car loan.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-long-does-it-take-for-your-credit-score-to-go-up-after-you-pay-off-your-auto-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take for Your Credit Score to Go Up After You Pay Off Your Auto Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Your credit score should rebound within one or two months, and the record that you’ve paid the loan off will stay on your credit report for 10 years.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-do-soft-inquiries-appear-on-your-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Soft Inquiries Appear on Your Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Soft inquiries do appear on your credit report, but they won’t affect your credit score. Soft inquiries are credit checks that are unofficial and are used for pre-approvals. When you officially apply for a loan, the lender will run a hard inquiry to confirm your credit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> When you apply for a car loan, your lender will check your credit score. This can temporarily reduce your score, but multiple inquiries within 45 days won’t affect it anymore than just one check.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> This gives you time to shop around for an auto loan without causing significant harm to your credit score. Even if your lender needs to run another credit check, the benefits of shopping around typically outweigh the temporary effect on your credit. </p></div>

When you apply for a [car loan](https://www.investopedia.com/auto-loans-4689734)—whether from your dealer, a bank, or a credit union—they will check your credit. This is known as a hard inquiry, and can temporarily affect your credit score. Since multiple credit checks within 45 days generally won’t affect your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) more than a single check, you have that time to shop around for the best deal with minimal credit score impact. Most [lenders](https://www.investopedia.com/terms/l/lender.asp) will accept a credit check that is 30 to 60 days old, and the amount of time depends on the lender. Even if your lender needs to run another [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp) that affects your credit score, the benefits of shopping around typically outweigh the temporary effect on your credit. ### Key Takeaways * When you apply for a car loan, your lender will check your credit score. * A hard credit check can temporarily reduce your score. * Multiple inquiries within 45 days won’t affect your credit score anymore than just one check. * You can shop around for several auto loans within a short period of time without significantly impacting your credit score. * The benefits of shopping around typically outweigh the temporary effect on your credit from applying with multiple lenders. ## Hard vs. Soft Credit Pulls When you apply for an auto loan, your lender will perform a credit inquiry, commonly known as a credit check. There are two types of inquiry: a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) and a [soft inquiry](https://www.investopedia.com/terms/s/soft-inquiry.asp). Soft inquiries are generally used for pre-approval, whereas hard inquiries are used to check that you can repay a loan.  Most lenders will perform a hard inquiry (also known as a hard credit pull) when you apply for a car loan. With this type of inquiry, the lender will typically request a copy of your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) from one or more of the [three major credit bureaus](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/): Equifax, Experian, and TransUnion. A hard credit pull will decrease your credit score, but typically by 5 points or less, and this effect should be temporary. If you apply for car loans from multiple lenders, each will perform a hard credit pull. However, if these are all within a short period (45 days or less), they will count as one inquiry, so your credit score won’t suffer too much. This gives you time to shop around, but it also imposes a time limit on how long you can do so. Lenders won’t need to do another credit pull within this period, and even if they do, your credit score won’t suffer. No matter how many lenders you apply to, the impact on your credit is the same if your last credit check was within 45 days of the first credit check. Even after the 45-day period, the impact of another inquiry is fairly small, while shopping around for the best deal can save you money in the long run by helping you secure a lower [interest rate](https://www.investopedia.com/terms/i/interestrate.asp). ### If you are looking for a new auto loan, check Investopedia’s roundup of the [best auto loan rates](https://www.investopedia.com/best-auto-loan-rates-4846394). ## How Hard Inquiries Impact Your Credit Report Any type of hard credit inquiry will be noted on your credit report, causing a small credit score decrease. However, multiple inquiries in a short period of time (45 days for [FICO Scores](https://www.investopedia.com/terms/f/ficoscore.asp), 14 days for [VantageScores](https://www.investopedia.com/terms/v/vantagescore.asp)) count as a single check. Hard inquiries remain on your [credit report for two years](https://www.investopedia.com/how-long-does-negative-information-stay-on-your-credit-report-4769774), although they have no effect on your credit score after one year. In addition, lenders (and credit scoring models) make allowances in some situations. For example, within a short period of time, most FICO credit scores are not affected by multiple inquiries no matter if they are with auto, mortgage, or student loan lenders. They are generally treated as a single inquiry and will have little impact on your credit scores. ### While multiple inquiries for a car loan won’t have a big impact since they count as one, applying for other forms of credit at the same time (like [credit cards](https://www.investopedia.com/terms/c/creditcard.asp) or a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp)) while trying to get a car loan will count as separate inquiries. This could lower your credit score significantly. ## What Factors Affect Your Credit Score? Your FICO Score is calculated based on five factors: payment history, amounts owed, length of [credit history](https://www.investopedia.com/terms/c/credit-history.asp), new credit, and [credit mix](https://www.investopedia.com/terms/c/credit-mix.asp). FICO is not the only type of credit score, but it is one of the most common measurements that lenders use to determine the risk involved in doing business with a borrower. Although FICO does not reveal its specific calculation for determining your credit score, it does report the main factors used to calculate its credit scores. These categories with their relative weights are: * Payment history (35%) * Amounts owed (30%) * Length of credit history (15%) * New credit (10%) * Credit mix (10%) ## How to Minimize the Impact of Hard Inquiries on Your Credit If you apply for multiple car loans in a short period of time, the effect on your credit score will be temporary. However, you shouldn’t apply for other types of loan that require a hard credit check—such as a credit card—at the same time, or your credit score might take a hit. The best way to minimize the impact of hard inquiries on your credit is to build up a solid score, and to keep your inquiries to a minimum.  ## How Car Loans Positively Impact Your Credit Score Paying your car loan can improve your credit score if you make the payments on time and don’t skip any. Making on-time payments accounts for 35% of your credit score, making it the most important factor affecting your credit score.  Likewise, making on-time payments during the length of the car loan could boost other factors affecting your credit score. These include: * Amounts owed (30%) * Length of credit history (15%) * Credit mix (10%) ## How Long Should I Wait Between Credit Pulls? You should wait as long as possible between credit pulls. However, a good rule of thumb is to wait at least 90 days. A hard credit pull remains on your credit report for up to two years. You can make soft credit pulls as frequently as you’d like without affecting your credit score. ## How Many Credit Pulls Are Considered Too Many? How many credit pulls are considered too many depends on your credit score. Too many hard inquiries over a short period (a few months) can cause credit rating agencies to view this as a red flag that you may be desperate for money. This can harm your credit score. ## Does Paying Off a Car Loan Early Hurt Your Credit Score? [Paying off your car loan early](https://www.investopedia.com/what-happens-early-loan-payoff-7505190) can hurt your credit score. Anytime you close a credit account, your score will fall by a few points. If you want to protect your credit score for other big purchases, it can be best to wait to pay off your car loan. ## How Long Does It Take for Your Credit Score to Go Up After You Pay Off Your Auto Loan? Your credit score should rebound within one or two months, and the record that you’ve paid the loan off will stay on your credit report for 10 years. ## Do Soft Inquiries Appear on Your Credit Report? Soft inquiries do appear on your credit report, but they won’t affect your credit score. Soft inquiries are credit checks that are unofficial and are used for pre-approvals. When you officially apply for a loan, the lender will run a hard inquiry to confirm your credit. ## The Bottom Line When you apply for a car loan, your lender will check your credit score. This can temporarily reduce your score, but multiple inquiries within 45 days won’t affect it anymore than just one check. This gives you time to shop around for an auto loan without causing significant harm to your credit score. Even if your lender needs to run another credit check, the benefits of shopping around typically outweigh the temporary effect on your credit.

When you apply for a car loan—whether from your dealer, a bank, or a credit union—they will check your credit. This is known as a hard inquiry, and can temporarily affect your credit score. Since multiple credit checks within 45 days generally won’t affect your credit score more than a single check, you have that time to shop around for the best deal with minimal credit score impact. Most lenders will accept a credit check that is 30 to 60 days old, and the amount of time depends on the lender. Even if your lender needs to run another credit check that affects your credit score, the benefits of shopping around typically outweigh the temporary effect on your credit. Key Takeaways When you apply for a car loan, your lender will check your credit score.A hard credit check can temporarily reduce your score.Multiple inquiries within 45 days won’t affect your credit score anymore than just one check.You can shop around for several auto loans within a short period of time without significantly impacting your credit score.The benefits of shopping around typically outweigh the temporary effect on your credit from applying with multiple lenders. Hard vs. Soft Credit Pulls When you apply for an auto loan, your lender will perform a credit inquiry, commonly known as a credit check. There are two types of inquiry: a hard inquiry and a soft inquiry. Soft inquiries are generally used for pre-approval, whereas hard inquiries are used to check that you can repay a loan.  Most lenders will perform a hard inquiry (also known as a hard credit pull) when you apply for a car loan. With this type of inquiry, the lender will typically request a copy of your credit report from one or more of the three major credit bureaus: Equifax, Experian, and TransUnion. A hard credit pull will decrease your credit score, but typically by 5 points or less, and this effect should be temporary. If you apply for car loans from multiple lenders, each will perform a hard credit pull. However, if these are all within a short period (45 days or less), they will count as one inquiry, so your credit score won’t suffer too much. This gives you time to shop around, but it also imposes a time limit on how long you can do so. Lenders won’t need to do another credit pull within this period, and even if they do, your credit score won’t suffer. No matter how many lenders you apply to, the impact on your credit is the same if your last credit check was within 45 days of the first credit check. Even after the 45-day period, the impact of another inquiry is fairly small, while shopping around for the best deal can save you money in the long run by helping you secure a lower interest rate. If you are looking for a new auto loan, check Investopedia’s roundup of the best auto loan rates. How Hard Inquiries Impact Your Credit Report Any type of hard credit inquiry will be noted on your credit report, causing a small credit score decrease. However, multiple inquiries in a short period of time (45 days for FICO Scores, 14 days for VantageScores) count as a single check. Hard inquiries remain on your credit report for two years, although they have no effect on your credit score after one year. In addition, lenders (and credit scoring models) make allowances in some situations. For example, within a short period of time, most FICO credit scores are not affected by multiple inquiries no matter if they are with auto, mortgage, or student loan lenders. They are generally treated as a single inquiry and will have little impact on your credit scores. While multiple inquiries for a car loan won’t have a big impact since they count as one, applying for other forms of credit at the same time (like credit cards or a mortgage) while trying to get a car loan will count as separate inquiries. This could lower your credit score significantly. What Factors Affect Your Credit Score?  Your FICO Score is calculated based on five factors: payment history, amounts owed, length of credit history, new credit, and credit mix. FICO is not the only type of credit score, but it is one of the most common measurements that lenders use to determine the risk involved in doing business with a borrower. Although FICO does not reveal its specific calculation for determining your credit score, it does report the main factors used to calculate its credit scores. These categories with their relative weights are: Payment history (35%)Amounts owed (30%)Length of credit history (15%)New credit (10%)Credit mix (10%) How to Minimize the Impact of Hard Inquiries on Your Credit If you apply for multiple car loans in a short period of time, the effect on your credit score will be temporary. However, you shouldn’t apply for other types of loan that require a hard credit check—such as a credit card—at the same time, or your credit score might take a hit. The best way to minimize the impact of hard inquiries on your credit is to build up a solid score, and to keep your inquiries to a minimum.  How Car Loans Positively Impact Your Credit Score Paying your car loan can improve your credit score if you make the payments on time and don’t skip any. Making on-time payments accounts for 35% of your credit score, making it the most important factor affecting your credit score.  Likewise, making on-time payments during the length of the car loan could boost other factors affecting your credit score. These include: Amounts owed (30%) Length of credit history (15%) Credit mix (10%) How Long Should I Wait Between Credit Pulls? You should wait as long as possible between credit pulls. However, a good rule of thumb is to wait at least 90 days. A hard credit pull remains on your credit report for up to two years. You can make soft credit pulls as frequently as you’d like without affecting your credit score. How Many Credit Pulls Are Considered Too Many? How many credit pulls are considered too many depends on your credit score. Too many hard inquiries over a short period (a few months) can cause credit rating agencies to view this as a red flag that you may be desperate for money. This can harm your credit score. Does Paying Off a Car Loan Early Hurt Your Credit Score? Paying off your car loan early can hurt your credit score. Anytime you close a credit account, your score will fall by a few points. If you want to protect your credit score for other big purchases, it can be best to wait to pay off your car loan. How Long Does It Take for Your Credit Score to Go Up After You Pay Off Your Auto Loan? Your credit score should rebound within one or two months, and the record that you’ve paid the loan off will stay on your credit report for 10 years. Do Soft Inquiries Appear on Your Credit Report? Soft inquiries do appear on your credit report, but they won’t affect your credit score. Soft inquiries are credit checks that are unofficial and are used for pre-approvals. When you officially apply for a loan, the lender will run a hard inquiry to confirm your credit. The Bottom Line When you apply for a car loan, your lender will check your credit score. This can temporarily reduce your score, but multiple inquiries within 45 days won’t affect it anymore than just one check. This gives you time to shop around for an auto loan without causing significant harm to your credit score. Even if your lender needs to run another credit check, the benefits of shopping around typically outweigh the temporary effect on your credit.

https://www.investopedia.com/what-credit-score-is-needed-for-a-boat-loan-8286178

What Credit Score Is Needed for a Boat Loan?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Different lenders will have different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> requirements. If you want to apply for a boat loan, you can expect most lenders to require a minimum score of 680.<span class="ql-inline-citation" data-cite="3"></span> But there are lenders that will work with borrowers who have lower credit scores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Boat loans are a type of personal loan to finance the purchase of a new or used marine vessel.</li><li>Lenders offer boat loans to people with levels of credit ranging from fair to excellent and generally require a minimum score requirement of 680.</li><li>Boat loans can be unsecured or require collateral and offer repayment terms of up to 10 to 15 years.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is a Boat Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089#">boat loan</a> is a type of personal loan that is used to finance the purchase of a marine vessel. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-subheading__text"> Types of Boat Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Boat loans can be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-vs-unsecured-loans-7558592">secured or unsecured</a>. Unsecured loans do not require any collateral. Secured loans are backed by collateral. In the case of a boat loan, your boat would serve as collateral. If you are unable to make the payments on your loan, the lender can take possession of the boat. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-subheading__text"> Features </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li><strong>Terms</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-are-boat-loans-7975687">Boat loan terms</a> are typically 10 to 15 years.<span class="ql-inline-citation" data-cite="1"></span> Borrowers may also find loan terms of just a couple of years or longer than 15 years.</li> <li><strong>Interest rate</strong>: Lenders will charge <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest </a>on boat loans. Interest rates will vary based on several factors, including your credit score. If you have excellent credit, you can expect interest rates to start around 7.87%.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>Down payment</strong>: A lender may require you to pay a down payment. Down payments tend to range from 10% to 30% of the total purchase amount. <span class="ql-inline-citation" data-cite="4"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Personal Loan Calculator </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can use a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">personal loan calculator</a> determine how much your monthly payments will be and the total cost of your loan with interest.</p></div></div></div> <span class="heading-toc" id="toc-how-your-credit-score-affects-the-terms-on-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How Your Credit Score Affects the Terms on a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Lenders look at your credit score to assess your risk as a borrower. Borrowers with higher credit scores represent less risk, which means they will likely qualify for better loan terms and lower interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Your credit score is a three-digit number from 300 to 850. Credit scores are broken up into different ranges:<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li><strong>Poor</strong>: 300 to 579</li><li><strong>Fair</strong>: 580 to 669</li><li><strong>Good</strong>: 670 to 739</li><li><strong>Very good</strong>: 740 to 799</li><li><strong>Exceptional</strong>: 800 to 850</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Lenders will set their own <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-score-needed-personal-loan-7553033">minimum credit scores for borrowers</a>. While a credit score of 680 or higher is a typical minimum for personal loans, that is not the case with all lenders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-other-requirements-for-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Other Requirements for a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> In addition to your credit score, lenders will also likely consider your income and your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income ratio</a> (DTI). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Lenders want to know that you have enough income to repay the loan. Your DTI shows lenders how much of your income does toward paying your existing debt. If you have low income and a high DTI, lenders will consider you a higher-risk borrower. A high income and a low DTI are considered lower-risk, which will translate into more favorable terms and interest rates.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-how-to-get-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> How to Get a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> You can apply for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089">boat loan</a> with various lenders, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li><strong>Banks</strong>: Many banks offer personal loans, which can be used to finance the purchase of a boat.</li> <li><strong>Credit unions</strong>: Credit unions are another option for borrowers interested in applying for a boat loan. In most cases, you will need to be a credit union member to get a loan.</li> <li><strong>Online lenders</strong>: Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-a-personal-loan-online-7569494">online lenders</a> specialize in personal loans.</li> <li><strong>Marine dealerships</strong>: If you are planning to buy through a marine dealership, it may offer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dealer-financing.asp">dealer financing</a>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Once you choose a lender, you will need to gather the information required to apply. Lenders will typically ask for personal information on your income, assets, and debt. Some lenders will require you to apply in person, while others will offer online application processes.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-other-considerations-before-getting-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> Other Considerations Before Getting a Boat Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> A boat loan can finance the purchase of a boat, but <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199">the monthly payments on your loan</a> are not the only expenses to consider. Boat owners also have to pay for registration, maintenance, repairs, gas, taxes, docking fees and storage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Consider the other costs of a owning a boat along the your loan payments before you get a loan.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-can-you-get-a-boat-loan-with-bad-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Get a Boat Loan with Bad Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It is possible to get a boat loan with bad credit, but you may need to make a larger down payment, use a cosigner or apply for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured loan</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-will-a-boat-loan-drop-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will a Boat Loan Drop My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Taking out a boat loan, or any kind of personal loan, is not inherently harmful to your credit score. The hard <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit inquiry</a> a lender conducts when you apply for the loan may cause a temporary drop in your score. Taking on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111615/are-personal-loans-bad-your-credit-score.asp">new debt can also lower your score</a>. But making on-time payments on your loan can help to improve your credit score over time.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-what-is-a-good-interest-rate-for-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good Interest Rate for a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037">Interest rates for borrowers</a> with excellent credit start around 7.87%; anything under 8% would be a good rate.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-what-is-the-average-term-for-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Term for a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Boat loan length will vary, but 10- to 15-year terms are typical.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-where-is-the-easiest-place-to-get-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Is the Easiest Place to Get a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-boat-loan-7975515">get a boat loan</a> with a bank, credit union, online lender or marine dealership. Each lender will have different borrower requirements and application processes. You can compare a few options to decide what is easiest for you.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-the-oldest-boat-a-bank-will-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Oldest Boat a Bank Will Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You may find it more challenging to secure a loan for an older boat, but there are lenders that will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089#">finance boats as old as 19 years</a>. You may be able to get a loan for a boat even older if it is valuable.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Borrowers with a credit score of 680 or higher will be more likely to secure a boat loan. Some lenders work with borrowers who have lower credit scores. You can also explore the possibility of a secured loan or working with a cosigner. </p></div>

Different lenders will have different [credit score](https://www.investopedia.com/terms/c/credit_score.asp) requirements. If you want to apply for a boat loan, you can expect most lenders to require a minimum score of 680. But there are lenders that will work with borrowers who have lower credit scores. ### Key Takeaways * Boat loans are a type of personal loan to finance the purchase of a new or used marine vessel. * Lenders offer boat loans to people with levels of credit ranging from fair to excellent and generally require a minimum score requirement of 680. * Boat loans can be unsecured or require collateral and offer repayment terms of up to 10 to 15 years. ## What Is a Boat Loan? A [boat loan](https://www.investopedia.com/best-boat-loans-5085089#) is a type of personal loan that is used to finance the purchase of a marine vessel. ### Types of Boat Loans Boat loans can be [secured or unsecured](https://www.investopedia.com/secured-vs-unsecured-loans-7558592). Unsecured loans do not require any collateral. Secured loans are backed by collateral. In the case of a boat loan, your boat would serve as collateral. If you are unable to make the payments on your loan, the lender can take possession of the boat. ### Features * **Terms**: [Boat loan terms](https://www.investopedia.com/how-long-are-boat-loans-7975687) are typically 10 to 15 years. Borrowers may also find loan terms of just a couple of years or longer than 15 years. * **Interest rate**: Lenders will charge [interest](https://www.investopedia.com/terms/i/interestrate.asp) on boat loans. Interest rates will vary based on several factors, including your credit score. If you have excellent credit, you can expect interest rates to start around 7.87%. * **Down payment**: A lender may require you to pay a down payment. Down payments tend to range from 10% to 30% of the total purchase amount. ### Personal Loan Calculator You can use a [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) determine how much your monthly payments will be and the total cost of your loan with interest. ## How Your Credit Score Affects the Terms on a Boat Loan Lenders look at your credit score to assess your risk as a borrower. Borrowers with higher credit scores represent less risk, which means they will likely qualify for better loan terms and lower interest rates. Your credit score is a three-digit number from 300 to 850. Credit scores are broken up into different ranges: * **Poor**: 300 to 579 * **Fair**: 580 to 669 * **Good**: 670 to 739 * **Very good**: 740 to 799 * **Exceptional**: 800 to 850 Lenders will set their own [minimum credit scores for borrowers](https://www.investopedia.com/credit-score-needed-personal-loan-7553033). While a credit score of 680 or higher is a typical minimum for personal loans, that is not the case with all lenders. ## Other Requirements for a Boat Loan In addition to your credit score, lenders will also likely consider your income and your [debt-to-income ratio](https://www.investopedia.com/terms/d/dti.asp) (DTI). Lenders want to know that you have enough income to repay the loan. Your DTI shows lenders how much of your income does toward paying your existing debt. If you have low income and a high DTI, lenders will consider you a higher-risk borrower. A high income and a low DTI are considered lower-risk, which will translate into more favorable terms and interest rates. ## How to Get a Boat Loan You can apply for a [boat loan](https://www.investopedia.com/best-boat-loans-5085089) with various lenders, including: * **Banks**: Many banks offer personal loans, which can be used to finance the purchase of a boat. * **Credit unions**: Credit unions are another option for borrowers interested in applying for a boat loan. In most cases, you will need to be a credit union member to get a loan. * **Online lenders**: Many [online lenders](https://www.investopedia.com/how-to-get-a-personal-loan-online-7569494) specialize in personal loans. * **Marine dealerships**: If you are planning to buy through a marine dealership, it may offer [dealer financing](https://www.investopedia.com/terms/d/dealer-financing.asp). Once you choose a lender, you will need to gather the information required to apply. Lenders will typically ask for personal information on your income, assets, and debt. Some lenders will require you to apply in person, while others will offer online application processes. ## Other Considerations Before Getting a Boat Loan A boat loan can finance the purchase of a boat, but [the monthly payments on your loan](https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199) are not the only expenses to consider. Boat owners also have to pay for registration, maintenance, repairs, gas, taxes, docking fees and storage. Consider the other costs of a owning a boat along the your loan payments before you get a loan. ## Can You Get a Boat Loan with Bad Credit? It is possible to get a boat loan with bad credit, but you may need to make a larger down payment, use a cosigner or apply for a [secured loan](https://www.investopedia.com/secured-loans-5076025). ## Will a Boat Loan Drop My Credit Score? Taking out a boat loan, or any kind of personal loan, is not inherently harmful to your credit score. The hard [credit inquiry](https://www.investopedia.com/terms/c/credit-inquiry.asp) a lender conducts when you apply for the loan may cause a temporary drop in your score. Taking on [new debt can also lower your score](https://www.investopedia.com/ask/answers/111615/are-personal-loans-bad-your-credit-score.asp). But making on-time payments on your loan can help to improve your credit score over time. ## What Is a Good Interest Rate for a Boat Loan? [Interest rates for borrowers](https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037) with excellent credit start around 7.87%; anything under 8% would be a good rate. ## What Is the Average Term for a Boat Loan? Boat loan length will vary, but 10- to 15-year terms are typical. ## Where Is the Easiest Place to Get a Boat Loan? You can [get a boat loan](https://www.investopedia.com/what-is-a-boat-loan-7975515) with a bank, credit union, online lender or marine dealership. Each lender will have different borrower requirements and application processes. You can compare a few options to decide what is easiest for you. ## What Is the Oldest Boat a Bank Will Finance? You may find it more challenging to secure a loan for an older boat, but there are lenders that will [finance boats as old as 19 years](https://www.investopedia.com/best-boat-loans-5085089#). You may be able to get a loan for a boat even older if it is valuable. ## The Bottom Line Borrowers with a credit score of 680 or higher will be more likely to secure a boat loan. Some lenders work with borrowers who have lower credit scores. You can also explore the possibility of a secured loan or working with a cosigner.

Different lenders will have different credit score requirements. If you want to apply for a boat loan, you can expect most lenders to require a minimum score of 680. But there are lenders that will work with borrowers who have lower credit scores. Key Takeaways Boat loans are a type of personal loan to finance the purchase of a new or used marine vessel.Lenders offer boat loans to people with levels of credit ranging from fair to excellent and generally require a minimum score requirement of 680.Boat loans can be unsecured or require collateral and offer repayment terms of up to 10 to 15 years. What Is a Boat Loan? A boat loan is a type of personal loan that is used to finance the purchase of a marine vessel. Types of Boat Loans Boat loans can be secured or unsecured. Unsecured loans do not require any collateral. Secured loans are backed by collateral. In the case of a boat loan, your boat would serve as collateral. If you are unable to make the payments on your loan, the lender can take possession of the boat. Features Terms: Boat loan terms are typically 10 to 15 years. Borrowers may also find loan terms of just a couple of years or longer than 15 years. Interest rate: Lenders will charge interest on boat loans. Interest rates will vary based on several factors, including your credit score. If you have excellent credit, you can expect interest rates to start around 7.87%. Down payment: A lender may require you to pay a down payment. Down payments tend to range from 10% to 30% of the total purchase amount. Personal Loan Calculator You can use a personal loan calculator determine how much your monthly payments will be and the total cost of your loan with interest. How Your Credit Score Affects the Terms on a Boat Loan Lenders look at your credit score to assess your risk as a borrower. Borrowers with higher credit scores represent less risk, which means they will likely qualify for better loan terms and lower interest rates. Your credit score is a three-digit number from 300 to 850. Credit scores are broken up into different ranges: Poor: 300 to 579Fair: 580 to 669Good: 670 to 739Very good: 740 to 799Exceptional: 800 to 850 Lenders will set their own minimum credit scores for borrowers. While a credit score of 680 or higher is a typical minimum for personal loans, that is not the case with all lenders. Other Requirements for a Boat Loan In addition to your credit score, lenders will also likely consider your income and your debt-to-income ratio (DTI). Lenders want to know that you have enough income to repay the loan. Your DTI shows lenders how much of your income does toward paying your existing debt. If you have low income and a high DTI, lenders will consider you a higher-risk borrower. A high income and a low DTI are considered lower-risk, which will translate into more favorable terms and interest rates. How to Get a Boat Loan You can apply for a boat loan with various lenders, including: Banks: Many banks offer personal loans, which can be used to finance the purchase of a boat. Credit unions: Credit unions are another option for borrowers interested in applying for a boat loan. In most cases, you will need to be a credit union member to get a loan. Online lenders: Many online lenders specialize in personal loans. Marine dealerships: If you are planning to buy through a marine dealership, it may offer dealer financing. Once you choose a lender, you will need to gather the information required to apply. Lenders will typically ask for personal information on your income, assets, and debt. Some lenders will require you to apply in person, while others will offer online application processes. Other Considerations Before Getting a Boat Loan A boat loan can finance the purchase of a boat, but the monthly payments on your loan are not the only expenses to consider. Boat owners also have to pay for registration, maintenance, repairs, gas, taxes, docking fees and storage. Consider the other costs of a owning a boat along the your loan payments before you get a loan. Can You Get a Boat Loan with Bad Credit? It is possible to get a boat loan with bad credit, but you may need to make a larger down payment, use a cosigner or apply for a secured loan. Will a Boat Loan Drop My Credit Score? Taking out a boat loan, or any kind of personal loan, is not inherently harmful to your credit score. The hard credit inquiry a lender conducts when you apply for the loan may cause a temporary drop in your score. Taking on new debt can also lower your score. But making on-time payments on your loan can help to improve your credit score over time. What Is a Good Interest Rate for a Boat Loan? Interest rates for borrowers with excellent credit start around 7.87%; anything under 8% would be a good rate. What Is the Average Term for a Boat Loan? Boat loan length will vary, but 10- to 15-year terms are typical. Where Is the Easiest Place to Get a Boat Loan? You can get a boat loan with a bank, credit union, online lender or marine dealership. Each lender will have different borrower requirements and application processes. You can compare a few options to decide what is easiest for you. What Is the Oldest Boat a Bank Will Finance? You may find it more challenging to secure a loan for an older boat, but there are lenders that will finance boats as old as 19 years. You may be able to get a loan for a boat even older if it is valuable. The Bottom Line Borrowers with a credit score of 680 or higher will be more likely to secure a boat loan. Some lenders work with borrowers who have lower credit scores. You can also explore the possibility of a secured loan or working with a cosigner.

https://www.investopedia.com/terms/c/corporate-trade-payment.asp

Corporate Trade Payment (Ctp): What It Is, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-was-corporate-trade-payment-ctp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Was Corporate Trade Payment (CTP)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The corporate trade payment (CTP) was a form of transferring funds electronically that is no longer in use today. The CTP system was utilized by corporate and governmental entities to pay creditors using the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ach.asp">automated clearing house</a> (ACH) system. The CTP payment network became obsolete due to its lack of flexibility and since been replaced by more modern systems. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Corporate trade payment (CTP) was an early form of commercial payments network that was built on top of the automated clearing house (ACH) system.</li><li>Launched in 1983, it failed to keep up with technological progress and electronic transaction demand.<span class="ql-inline-citation" data-cite="1"></span></li><li>CTP was replaced by the corporate trade exchange (CTX) system for electronic payments, which is still in use today.<span class="ql-inline-citation" data-cite="4"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-corporate-trade-payment"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Corporate Trade Payment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The corporate trade payment (CTP) system was introduced in 1983 to address the limitations of the automated clearing house (ACH) system, which had been in place since 1974. The ACH system used a 94-character format to encode payment data in electronic form. Data encoded in this format typically included the institutions and account numbers of both payor and payee, as well as the relevant dates, payment amounts and processing codes.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The ACH system left 30 to 34 of the 94 available characters for messages, which was found to be insufficient. Further problems with the ACH system included the lack of standardized rules or procedures for passing any included messages on to the recipient of the transaction. Neither were there any standardized procedures for encoding message data or processing it.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> When the CTP system was introduced, it expanded the message attachment capability of an electronic payment to up to 4,999 additional 94-character messages. In theory, this allowed the payor to include with their payment information any necessary <em>payment advice, </em>or information that served to identify the reason for a payment and explain the amount of the payment.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Benefits of the CTP system for both payor and payee included the elimination of postage and handling costs and the reduction of bank fees. However, the costs of the CTP system meant that it was not ideal for sending or receiving simple, single-invoice payments, but was better suited to more complex remittances.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-failure-of-ctp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Failure of CTP </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The CTP system was phased out with the passage of the Debt Collection Improvement Act of 1996. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporate-trade-exchange-ctx.asp">corporate trade exchange (CTX)</a> system replaced the CTP system, with features that sought to rectify its predecessor's flaws.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The CTP system failed in part because of the requirements of its format, which made it difficult to package payment advice information into the addenda records. The CTP system also lacked a data content standard that would have made it easier for corporations to automate accounts receivable information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The CTX system provides for easier tracking of payments, and allows for the addition of more extensive and adequate payment advice records with each payment. The CTX system also corrects the problem of a data content standard that plagued the CTP, using X12 to automate the receipt of payments.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

## What Was Corporate Trade Payment (CTP)? The corporate trade payment (CTP) was a form of transferring funds electronically that is no longer in use today. The CTP system was utilized by corporate and governmental entities to pay creditors using the [automated clearing house](https://www.investopedia.com/terms/a/ach.asp) (ACH) system. The CTP payment network became obsolete due to its lack of flexibility and since been replaced by more modern systems. ### Key Takeaways * Corporate trade payment (CTP) was an early form of commercial payments network that was built on top of the automated clearing house (ACH) system. * Launched in 1983, it failed to keep up with technological progress and electronic transaction demand. * CTP was replaced by the corporate trade exchange (CTX) system for electronic payments, which is still in use today. ## Understanding Corporate Trade Payment The corporate trade payment (CTP) system was introduced in 1983 to address the limitations of the automated clearing house (ACH) system, which had been in place since 1974. The ACH system used a 94-character format to encode payment data in electronic form. Data encoded in this format typically included the institutions and account numbers of both payor and payee, as well as the relevant dates, payment amounts and processing codes. The ACH system left 30 to 34 of the 94 available characters for messages, which was found to be insufficient. Further problems with the ACH system included the lack of standardized rules or procedures for passing any included messages on to the recipient of the transaction. Neither were there any standardized procedures for encoding message data or processing it. When the CTP system was introduced, it expanded the message attachment capability of an electronic payment to up to 4,999 additional 94-character messages. In theory, this allowed the payor to include with their payment information any necessary *payment advice,* or information that served to identify the reason for a payment and explain the amount of the payment. Benefits of the CTP system for both payor and payee included the elimination of postage and handling costs and the reduction of bank fees. However, the costs of the CTP system meant that it was not ideal for sending or receiving simple, single-invoice payments, but was better suited to more complex remittances. ## Failure of CTP The CTP system was phased out with the passage of the Debt Collection Improvement Act of 1996. The [corporate trade exchange (CTX)](https://www.investopedia.com/terms/c/corporate-trade-exchange-ctx.asp) system replaced the CTP system, with features that sought to rectify its predecessor's flaws. The CTP system failed in part because of the requirements of its format, which made it difficult to package payment advice information into the addenda records. The CTP system also lacked a data content standard that would have made it easier for corporations to automate accounts receivable information. The CTX system provides for easier tracking of payments, and allows for the addition of more extensive and adequate payment advice records with each payment. The CTX system also corrects the problem of a data content standard that plagued the CTP, using X12 to automate the receipt of payments.

What Was Corporate Trade Payment (CTP)? The corporate trade payment (CTP) was a form of transferring funds electronically that is no longer in use today. The CTP system was utilized by corporate and governmental entities to pay creditors using the automated clearing house (ACH) system. The CTP payment network became obsolete due to its lack of flexibility and since been replaced by more modern systems. Key Takeaways Corporate trade payment (CTP) was an early form of commercial payments network that was built on top of the automated clearing house (ACH) system.Launched in 1983, it failed to keep up with technological progress and electronic transaction demand.CTP was replaced by the corporate trade exchange (CTX) system for electronic payments, which is still in use today. Understanding Corporate Trade Payment The corporate trade payment (CTP) system was introduced in 1983 to address the limitations of the automated clearing house (ACH) system, which had been in place since 1974. The ACH system used a 94-character format to encode payment data in electronic form. Data encoded in this format typically included the institutions and account numbers of both payor and payee, as well as the relevant dates, payment amounts and processing codes. The ACH system left 30 to 34 of the 94 available characters for messages, which was found to be insufficient. Further problems with the ACH system included the lack of standardized rules or procedures for passing any included messages on to the recipient of the transaction. Neither were there any standardized procedures for encoding message data or processing it. When the CTP system was introduced, it expanded the message attachment capability of an electronic payment to up to 4,999 additional 94-character messages. In theory, this allowed the payor to include with their payment information any necessary payment advice, or information that served to identify the reason for a payment and explain the amount of the payment. Benefits of the CTP system for both payor and payee included the elimination of postage and handling costs and the reduction of bank fees. However, the costs of the CTP system meant that it was not ideal for sending or receiving simple, single-invoice payments, but was better suited to more complex remittances. Failure of CTP The CTP system was phased out with the passage of the Debt Collection Improvement Act of 1996. The corporate trade exchange (CTX) system replaced the CTP system, with features that sought to rectify its predecessor's flaws. The CTP system failed in part because of the requirements of its format, which made it difficult to package payment advice information into the addenda records. The CTP system also lacked a data content standard that would have made it easier for corporations to automate accounts receivable information. The CTX system provides for easier tracking of payments, and allows for the addition of more extensive and adequate payment advice records with each payment. The CTX system also corrects the problem of a data content standard that plagued the CTP, using X12 to automate the receipt of payments.

https://www.investopedia.com/terms/s/savingsaccount.asp

What Is a Savings Account and How Does It Work?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Savings Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay only a modest interest rate, their safety and reliability make them a good option for parking cash that you want available for short-term needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Savings accounts may have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a>, saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn a little <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Because savings accounts pay interest while keeping your funds easily accessible, they’re a good option for emergency or short-term cash.</li><li>In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than that paid by more restrictive savings instruments and investments.</li><li>The amount you can withdraw from a savings account is generally unlimited.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span></li><li>The interest you earn on a savings account is considered taxable income.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Savings Account" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Kpx426mzfeUuZmr9RejfRovTJIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/Kpx426mzfeUuZmr9RejfRovTJIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg" data-srcset="https://www.investopedia.com/thmb/NGMZI0ttjNSHbunqEW7821bPA40=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Savings Account" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/Kpx426mzfeUuZmr9RejfRovTJIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg" srcset="https://www.investopedia.com/thmb/NGMZI0ttjNSHbunqEW7821bPA40=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Joules Garcia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-savings-accounts-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How Savings Accounts Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Savings and other deposit accounts are important sources of funds that financial institutions use for loans. For that reason, you can find savings accounts at virtually every bank or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit union</a>, whether they are traditional <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brickandmortar.asp">brick-and-mortar</a> institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Savings account interest rates vary. With the exception of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/promotional-cd-rate-bonus-cd-rate.asp">promotions</a> promising a fixed rate until a certain date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate, the more likely it is to fluctuate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Changes in the federal funds rate can trigger institutions to adjust their deposit rates. Some institutions offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631">high-yield savings accounts</a> with significantly higher interest rates for larger minimum deposits, which may be worth investigating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you're ready to shop for a new savings account, check out Investopedia's list of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">the best high-yield savings accounts</a>.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Some conventional savings accounts require a minimum balance to avoid monthly fees or earn the highest published rate, while others have no balance requirement. Know the rules of your particular account to ensure you avoid diluting your earnings with fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic transfer, or by direct deposit. Transfers can usually be arranged by phone, as well.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Some banks limit withdrawals to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/this-government-regulation-restricts-how-often-you-can-move-money-out-of-your-savings-account-4589978">six per month</a>. The Federal Reserve set that limit as a requirement for savings accounts but then withdrew it in April 2020. Exceed six withdrawals with some banks, and the bank may charge a fee, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-close-a-savings-account-7500880">close your account</a>, or convert it to a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a>. The amount that can be withdrawn is limited only to how much is in the account.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Just as with the interest earned on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060116/are-money-market-accounts-considered-checking-or-savings.asp">a money market</a>, certificate of deposit, or checking account, the interest earned on savings accounts is taxable income. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The financial institution where you hold your account will send a 1099-INT form at tax time whenever you earn more than $10 in interest income. The tax you’ll pay will depend on your marginal tax rate.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_28-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_29-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Fast and easy to set up, and to move money to and from.</p></li> <li><p>Can be conveniently linked to your primary checking account.</p></li> <li><p>Up to your full balance can be withdrawn at any time.</p></li> <li><p>Up to $250,000 is federally insured against bank failure.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Pays less interest than you can earn with certificates of deposit, Treasury bills, or investments.</p></li> <li><p>Easy access can make withdrawals tempting.</p></li> <li><p>Some savings accounts require minimum balances.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-pros-of-savings-accounts-explained"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Pros of Savings Accounts Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <strong>Fast and easy to set up and move money</strong>: Holding a savings account at the same institution as your primary checking account can offer several convenience and efficiency benefits. Because transfers between accounts at the same institution are usually instantaneous, deposits or withdrawals to your savings account from your checking account will take effect right away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <strong>Can be conveniently linked to your primary checking account</strong>: This makes it easy to transfer excess cash from your checking account and have it immediately earn interest—or transfer money the other way if you need to cover a large checking transaction. Because of the interest, it makes sense to keep any unneeded funds in a savings account instead of in your checking account, where it will likely earn little or nothing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <strong>Up to your full balance can be withdrawn at any time</strong>: Your access to funds in a savings account will remain extremely <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquid</a>, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <strong>Up to $250,000 is federally insured against bank failure</strong>: Federal protection against bank failures provided by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</a> will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp">keep your money safer</a> than it would be under your mattress or in your sock drawer.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-cons-of-saving-accounts-explained"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Cons of Saving Accounts Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>Pays less interest than many other instruments or investments</strong>: The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ida.asp">other savings instruments</a>. You can earn a higher return with certificates of deposit or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">Treasury bills</a>, or by investing in stocks and bonds, if your time horizon is long enough. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <strong>Easy access can make withdrawals tempting</strong>: The ready availability of funds may tempt you to spend what you’ve saved. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <strong>Some savings accounts require minimum balances</strong>: Certain savings accounts request a minimum balance to avoid monthly fees or earn the highest published rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-how-to-maximize-earnings-from-a-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> How to Maximize Earnings From a Savings Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Although most major banks offer low interest rates on their savings accounts, many banks and credit unions provide much higher returns. In particular, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/onlinebanking.asp">online banks</a> offer some of the highest savings account rates. Because they don’t have physical branches—or have very few—they spend less on overhead and can often offer higher, more competitive deposit rates as a result. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The key is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-choose-a-bank-5183999">shop around</a>, starting with the bank where you hold your checking account. Even if that institution doesn’t offer a competitive savings account rate, it will give you a frame of reference for how much more you can earn by moving your savings or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519">opening an additional account</a> elsewhere. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> As you shop for the best rates, however, beware of account features that can curtail your earnings, or even drain them. Some promotional savings accounts will only offer the attractive rate they’re advertising for a short period of time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Others will cap the balance that can earn the promotional rate, with dollar amounts above that maximum earning a paltry rate. Even worse is a savings account with fees that cut into the interest you earn each month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-how-to-open-a-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> How to Open a Savings Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> To set up a savings account, visit one of the bank or credit union’s branches, or establish the account online, for those institutions that offer it. You’ll need to provide your name, address, and telephone number, as well as photo identification. Also, because the account earns taxable interest, you’ll be required to provide your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssn.asp">Social Security number (SSN)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Some institutions will require you to make an initial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_deposit.asp">minimum deposit</a> at the time you open the account. Others will allow you to open the account first and fund it later. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_61-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_62-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You can make your initial deposit in a savings account with a transfer from an account at that institution, an external transfer, a mailed-in or mobile deposit check, or a deposit in person at a branch.</p></div></div></div> <span class="heading-toc" id="toc-how-much-to-keep-in-your-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> How Much to Keep in Your Savings Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp">amount you keep in your savings account</a> will depend on your goals for the funds, or your use of the account. If you’ve set up the savings account to sweep excess funds from your checking account, your balance is likely to vary regularly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> In contrast, if you are building up to a savings goal, your balance will likely start low and increase steadily over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> If you’ve instead established your savings account as an emergency fund, financial advisors typically recommend holding enough savings <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">to cover at least three to six months’ living expenses</a>, giving you a financial cushion in case you lose your job, face a medical issue, or encounter another money-draining emergency. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> However, some analysts recommend keeping only some of that emergency fund in a simple savings account, while moving the rest of it to an account or instrument that earns a higher return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> In any case, note that deposits at banks are covered by FDIC insurance and, at credit unions, by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> insurance. Both of these protect each individual account holder at the institution for up to $250,000 in deposit balances, should the institution fail. For most consumers, this more than covers what they have on deposit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> But if you are holding more than $250,000 in deposit accounts, you’ll want to split your balance across more than one account holder or institution.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_76-0"><span class="heading-toc" id="toc-how-do-you-open-a-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Open a Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can open a savings account by visiting a bank branch with your government-issued ID and any cash or checks you wish to deposit. You will also be asked for your address, contact information, and a Social Security number or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-indentification-number-tin.asp">taxpayer identification number (TIN)</a>. You may have to open a checking account as well as a savings account, and there may be a minimum deposit threshold. It is also possible to open a savings account with an online bank.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-what-savings-account-will-earn-you-the-most-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Savings Account Will Earn You the Most Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Savings account rates change often, so it is worth taking the time to compare the offerings from different banks and credit unions. As of April 2023, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best savings rates</a> ranged from about 4.5% to 5.0%.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-how-do-you-close-a-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Close a Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most banks allow three ways to close an account. You can either visit the bank in person, submit a written cancellation request form, or close the account over the phone. In each case, you may be asked to provide identifying information.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Savings accounts offer one of the simplest ways to earn interest on the money you have. They offer higher interest rates than a regular checking account, while still making it easy to spend and withdraw money. However, savings account rates are much lower than other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investments</a>, and they don't keep pace with inflation.<br/> </p></div>

## What Is a Savings Account? A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay only a modest interest rate, their safety and reliability make them a good option for parking cash that you want available for short-term needs. Savings accounts may have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp), saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn a little [interest](https://www.investopedia.com/terms/i/interestrate.asp). ### Key Takeaways * Because savings accounts pay interest while keeping your funds easily accessible, they’re a good option for emergency or short-term cash. * In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than that paid by more restrictive savings instruments and investments. * The amount you can withdraw from a savings account is generally unlimited. * The interest you earn on a savings account is considered taxable income. ![Savings Account]() :max_bytes(150000):strip_icc()/savings-account-4189674-2eb6da72dbd44fce97f5ad78268da7fc.jpg) Investopedia / Joules Garcia ## How Savings Accounts Work Savings and other deposit accounts are important sources of funds that financial institutions use for loans. For that reason, you can find savings accounts at virtually every bank or [credit union](https://www.investopedia.com/terms/c/creditunion.asp), whether they are traditional [brick-and-mortar](https://www.investopedia.com/terms/b/brickandmortar.asp) institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms. Savings account interest rates vary. With the exception of [promotions](https://www.investopedia.com/terms/p/promotional-cd-rate-bonus-cd-rate.asp) promising a fixed rate until a certain date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate, the more likely it is to fluctuate. Changes in the federal funds rate can trigger institutions to adjust their deposit rates. Some institutions offer [high-yield savings accounts](https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631) with significantly higher interest rates for larger minimum deposits, which may be worth investigating. ### If you're ready to shop for a new savings account, check out Investopedia's list of [the best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). Some conventional savings accounts require a minimum balance to avoid monthly fees or earn the highest published rate, while others have no balance requirement. Know the rules of your particular account to ensure you avoid diluting your earnings with fees. Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic transfer, or by direct deposit. Transfers can usually be arranged by phone, as well.  Some banks limit withdrawals to [six per month](https://www.investopedia.com/this-government-regulation-restricts-how-often-you-can-move-money-out-of-your-savings-account-4589978). The Federal Reserve set that limit as a requirement for savings accounts but then withdrew it in April 2020. Exceed six withdrawals with some banks, and the bank may charge a fee, [close your account](https://www.investopedia.com/how-to-close-a-savings-account-7500880), or convert it to a [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp). The amount that can be withdrawn is limited only to how much is in the account. Just as with the interest earned on [a money market](https://www.investopedia.com/ask/answers/060116/are-money-market-accounts-considered-checking-or-savings.asp), certificate of deposit, or checking account, the interest earned on savings accounts is taxable income. The financial institution where you hold your account will send a 1099-INT form at tax time whenever you earn more than $10 in interest income. The tax you’ll pay will depend on your marginal tax rate. Pros * Fast and easy to set up, and to move money to and from. * Can be conveniently linked to your primary checking account. * Up to your full balance can be withdrawn at any time. * Up to $250,000 is federally insured against bank failure. Cons * Pays less interest than you can earn with certificates of deposit, Treasury bills, or investments. * Easy access can make withdrawals tempting. * Some savings accounts require minimum balances. ## Pros of Savings Accounts Explained **Fast and easy to set up and move money**: Holding a savings account at the same institution as your primary checking account can offer several convenience and efficiency benefits. Because transfers between accounts at the same institution are usually instantaneous, deposits or withdrawals to your savings account from your checking account will take effect right away. **Can be conveniently linked to your primary checking account**: This makes it easy to transfer excess cash from your checking account and have it immediately earn interest—or transfer money the other way if you need to cover a large checking transaction. Because of the interest, it makes sense to keep any unneeded funds in a savings account instead of in your checking account, where it will likely earn little or nothing. **Up to your full balance can be withdrawn at any time**: Your access to funds in a savings account will remain extremely [liquid](https://www.investopedia.com/terms/l/liquidity.asp), unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon. **Up to $250,000 is federally insured against bank failure**: Federal protection against bank failures provided by the [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) will [keep your money safer](https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp) than it would be under your mattress or in your sock drawer. ## Cons of Saving Accounts Explained **Pays less interest than many other instruments or investments**: The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as [other savings instruments](https://www.investopedia.com/terms/i/ida.asp). You can earn a higher return with certificates of deposit or [Treasury bills](https://www.investopedia.com/terms/t/treasurybill.asp), or by investing in stocks and bonds, if your time horizon is long enough. **Easy access can make withdrawals tempting**: The ready availability of funds may tempt you to spend what you’ve saved. **Some savings accounts require minimum balances**: Certain savings accounts request a minimum balance to avoid monthly fees or earn the highest published rate. ## How to Maximize Earnings From a Savings Account Although most major banks offer low interest rates on their savings accounts, many banks and credit unions provide much higher returns. In particular, [online banks](https://www.investopedia.com/terms/o/onlinebanking.asp) offer some of the highest savings account rates. Because they don’t have physical branches—or have very few—they spend less on overhead and can often offer higher, more competitive deposit rates as a result. The key is to [shop around](https://www.investopedia.com/how-to-choose-a-bank-5183999), starting with the bank where you hold your checking account. Even if that institution doesn’t offer a competitive savings account rate, it will give you a frame of reference for how much more you can earn by moving your savings or [opening an additional account](https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519) elsewhere. As you shop for the best rates, however, beware of account features that can curtail your earnings, or even drain them. Some promotional savings accounts will only offer the attractive rate they’re advertising for a short period of time. Others will cap the balance that can earn the promotional rate, with dollar amounts above that maximum earning a paltry rate. Even worse is a savings account with fees that cut into the interest you earn each month. ## How to Open a Savings Account To set up a savings account, visit one of the bank or credit union’s branches, or establish the account online, for those institutions that offer it. You’ll need to provide your name, address, and telephone number, as well as photo identification. Also, because the account earns taxable interest, you’ll be required to provide your [Social Security number (SSN)](https://www.investopedia.com/terms/s/ssn.asp). Some institutions will require you to make an initial [minimum deposit](https://www.investopedia.com/terms/m/minimum_deposit.asp) at the time you open the account. Others will allow you to open the account first and fund it later. ### You can make your initial deposit in a savings account with a transfer from an account at that institution, an external transfer, a mailed-in or mobile deposit check, or a deposit in person at a branch. ## How Much to Keep in Your Savings Account The [amount you keep in your savings account](https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp) will depend on your goals for the funds, or your use of the account. If you’ve set up the savings account to sweep excess funds from your checking account, your balance is likely to vary regularly. In contrast, if you are building up to a savings goal, your balance will likely start low and increase steadily over time. If you’ve instead established your savings account as an emergency fund, financial advisors typically recommend holding enough savings [to cover at least three to six months’ living expenses](https://www.investopedia.com/terms/e/emergency_fund.asp), giving you a financial cushion in case you lose your job, face a medical issue, or encounter another money-draining emergency. However, some analysts recommend keeping only some of that emergency fund in a simple savings account, while moving the rest of it to an account or instrument that earns a higher return. In any case, note that deposits at banks are covered by FDIC insurance and, at credit unions, by [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) insurance. Both of these protect each individual account holder at the institution for up to $250,000 in deposit balances, should the institution fail. For most consumers, this more than covers what they have on deposit. But if you are holding more than $250,000 in deposit accounts, you’ll want to split your balance across more than one account holder or institution. ## How Do You Open a Savings Account? You can open a savings account by visiting a bank branch with your government-issued ID and any cash or checks you wish to deposit. You will also be asked for your address, contact information, and a Social Security number or [taxpayer identification number (TIN)](https://www.investopedia.com/terms/t/tax-indentification-number-tin.asp). You may have to open a checking account as well as a savings account, and there may be a minimum deposit threshold. It is also possible to open a savings account with an online bank. ## What Savings Account Will Earn You the Most Money? Savings account rates change often, so it is worth taking the time to compare the offerings from different banks and credit unions. As of April 2023, the [best savings rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) ranged from about 4.5% to 5.0%. ## How Do You Close a Savings Account? Most banks allow three ways to close an account. You can either visit the bank in person, submit a written cancellation request form, or close the account over the phone. In each case, you may be asked to provide identifying information. ## The Bottom Line Savings accounts offer one of the simplest ways to earn interest on the money you have. They offer higher interest rates than a regular checking account, while still making it easy to spend and withdraw money. However, savings account rates are much lower than other [investments](https://www.investopedia.com/terms/i/investment.asp), and they don't keep pace with inflation.

What Is a Savings Account? A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay only a modest interest rate, their safety and reliability make them a good option for parking cash that you want available for short-term needs. Savings accounts may have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an emergency fund, saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn a little interest. Key Takeaways Because savings accounts pay interest while keeping your funds easily accessible, they’re a good option for emergency or short-term cash.In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than that paid by more restrictive savings instruments and investments.The amount you can withdraw from a savings account is generally unlimited.The interest you earn on a savings account is considered taxable income. Investopedia / Joules Garcia How Savings Accounts Work Savings and other deposit accounts are important sources of funds that financial institutions use for loans. For that reason, you can find savings accounts at virtually every bank or credit union, whether they are traditional brick-and-mortar institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms. Savings account interest rates vary. With the exception of promotions promising a fixed rate until a certain date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate, the more likely it is to fluctuate. Changes in the federal funds rate can trigger institutions to adjust their deposit rates. Some institutions offer high-yield savings accounts with significantly higher interest rates for larger minimum deposits, which may be worth investigating. If you're ready to shop for a new savings account, check out Investopedia's list of the best high-yield savings accounts. Some conventional savings accounts require a minimum balance to avoid monthly fees or earn the highest published rate, while others have no balance requirement. Know the rules of your particular account to ensure you avoid diluting your earnings with fees. Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic transfer, or by direct deposit. Transfers can usually be arranged by phone, as well.  Some banks limit withdrawals to six per month. The Federal Reserve set that limit as a requirement for savings accounts but then withdrew it in April 2020. Exceed six withdrawals with some banks, and the bank may charge a fee, close your account, or convert it to a checking account. The amount that can be withdrawn is limited only to how much is in the account. Just as with the interest earned on a money market, certificate of deposit, or checking account, the interest earned on savings accounts is taxable income. The financial institution where you hold your account will send a 1099-INT form at tax time whenever you earn more than $10 in interest income. The tax you’ll pay will depend on your marginal tax rate. Pros Fast and easy to set up, and to move money to and from. Can be conveniently linked to your primary checking account. Up to your full balance can be withdrawn at any time. Up to $250,000 is federally insured against bank failure. Cons Pays less interest than you can earn with certificates of deposit, Treasury bills, or investments. Easy access can make withdrawals tempting. Some savings accounts require minimum balances. Pros of Savings Accounts Explained Fast and easy to set up and move money: Holding a savings account at the same institution as your primary checking account can offer several convenience and efficiency benefits. Because transfers between accounts at the same institution are usually instantaneous, deposits or withdrawals to your savings account from your checking account will take effect right away. Can be conveniently linked to your primary checking account: This makes it easy to transfer excess cash from your checking account and have it immediately earn interest—or transfer money the other way if you need to cover a large checking transaction. Because of the interest, it makes sense to keep any unneeded funds in a savings account instead of in your checking account, where it will likely earn little or nothing. Up to your full balance can be withdrawn at any time: Your access to funds in a savings account will remain extremely liquid, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon. Up to $250,000 is federally insured against bank failure: Federal protection against bank failures provided by the Federal Deposit Insurance Corp. (FDIC) will keep your money safer than it would be under your mattress or in your sock drawer. Cons of Saving Accounts Explained Pays less interest than many other instruments or investments: The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as other savings instruments. You can earn a higher return with certificates of deposit or Treasury bills, or by investing in stocks and bonds, if your time horizon is long enough. Easy access can make withdrawals tempting: The ready availability of funds may tempt you to spend what you’ve saved. Some savings accounts require minimum balances: Certain savings accounts request a minimum balance to avoid monthly fees or earn the highest published rate. How to Maximize Earnings From a Savings Account Although most major banks offer low interest rates on their savings accounts, many banks and credit unions provide much higher returns. In particular, online banks offer some of the highest savings account rates. Because they don’t have physical branches—or have very few—they spend less on overhead and can often offer higher, more competitive deposit rates as a result. The key is to shop around, starting with the bank where you hold your checking account. Even if that institution doesn’t offer a competitive savings account rate, it will give you a frame of reference for how much more you can earn by moving your savings or opening an additional account elsewhere. As you shop for the best rates, however, beware of account features that can curtail your earnings, or even drain them. Some promotional savings accounts will only offer the attractive rate they’re advertising for a short period of time. Others will cap the balance that can earn the promotional rate, with dollar amounts above that maximum earning a paltry rate. Even worse is a savings account with fees that cut into the interest you earn each month. How to Open a Savings Account To set up a savings account, visit one of the bank or credit union’s branches, or establish the account online, for those institutions that offer it. You’ll need to provide your name, address, and telephone number, as well as photo identification. Also, because the account earns taxable interest, you’ll be required to provide your Social Security number (SSN). Some institutions will require you to make an initial minimum deposit at the time you open the account. Others will allow you to open the account first and fund it later. You can make your initial deposit in a savings account with a transfer from an account at that institution, an external transfer, a mailed-in or mobile deposit check, or a deposit in person at a branch. How Much to Keep in Your Savings Account The amount you keep in your savings account will depend on your goals for the funds, or your use of the account. If you’ve set up the savings account to sweep excess funds from your checking account, your balance is likely to vary regularly. In contrast, if you are building up to a savings goal, your balance will likely start low and increase steadily over time. If you’ve instead established your savings account as an emergency fund, financial advisors typically recommend holding enough savings to cover at least three to six months’ living expenses, giving you a financial cushion in case you lose your job, face a medical issue, or encounter another money-draining emergency. However, some analysts recommend keeping only some of that emergency fund in a simple savings account, while moving the rest of it to an account or instrument that earns a higher return. In any case, note that deposits at banks are covered by FDIC insurance and, at credit unions, by NCUA insurance. Both of these protect each individual account holder at the institution for up to $250,000 in deposit balances, should the institution fail. For most consumers, this more than covers what they have on deposit. But if you are holding more than $250,000 in deposit accounts, you’ll want to split your balance across more than one account holder or institution. How Do You Open a Savings Account? You can open a savings account by visiting a bank branch with your government-issued ID and any cash or checks you wish to deposit. You will also be asked for your address, contact information, and a Social Security number or taxpayer identification number (TIN). You may have to open a checking account as well as a savings account, and there may be a minimum deposit threshold. It is also possible to open a savings account with an online bank. What Savings Account Will Earn You the Most Money? Savings account rates change often, so it is worth taking the time to compare the offerings from different banks and credit unions. As of April 2023, the best savings rates ranged from about 4.5% to 5.0%. How Do You Close a Savings Account? Most banks allow three ways to close an account. You can either visit the bank in person, submit a written cancellation request form, or close the account over the phone. In each case, you may be asked to provide identifying information. The Bottom Line Savings accounts offer one of the simplest ways to earn interest on the money you have. They offer higher interest rates than a regular checking account, while still making it easy to spend and withdraw money. However, savings account rates are much lower than other investments, and they don't keep pace with inflation.

https://www.investopedia.com/articles/investing/070116/top-performers-sp-500-year.asp

Top Performers in the S&P 500 This Year

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Between the COVID-19 pandemic, the oil price war, and the enormous protests against police brutality in the United States, this has been an extremely eventful year. While the S&amp;P 500 had fallen by as much as 30% year to date in March, it has recovered much of the ground it lost. As of June 2, its year-to-date total return stands at just under 4%.<span class="ql-inline-citation" data-cite="2"></span> Here are the top 10 stocks by year-to-date total return in the S&amp;P 500 index as of June 2, 2020. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_3-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Top 10 S&amp;P 500 Companies by Year-to-Date Total Return</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Company Name (Ticker)</td> <td>Year-to-Date Total Return (%)</td> </tr> <tr> <td>Carrier Global Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CARR">CARR</a>)</td> <td>81.8%</td> </tr> <tr> <td>DexCom Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DXCM">DXCM</a>)</td> <td>73.1%</td> </tr> <tr> <td>Regeneron Pharmaceuticals Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=REGN">REGN</a>)</td> <td>59.7%</td> </tr> <tr> <td>NVIDIA Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>)</td> <td>49.8%</td> </tr> <tr> <td>NortonLifeLock Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NLOK">NLOK</a>)</td> <td>45.5%</td> </tr> <tr> <td>PayPal Holdings Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PYPL">PYPL</a>)</td> <td>42.9%</td> </tr> <tr> <td>West Pharmaceutical Services Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WST">WST</a>)</td> <td>41.4%</td> </tr> <tr> <td>Newmont Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NEM">NEM</a>)</td> <td>39.6%</td> </tr> <tr> <td>MarketAxess Holdings Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MKTX">MKTX</a>)</td> <td>37.4%</td> </tr> <tr> <td>ServiceNow Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NOW">NOW</a>)</td> <td>35.8%</td> </tr> <tr> <td>S&amp;P 500 Index</td> <td>-3.8%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ycharts.com/">Source: Ycharts</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Many of the stocks in the top 10 have likely benefited from the pandemic and resultant lockdown. Biotech firm Regeneron Pharmaceuticals has made some promising steps towards developing an antibody treatment for the virus. West Pharmaceutical Services manufactures drug-delivery systems, which are important when efforts are being poured into mass-producing a vaccine.<span class="ql-inline-citation" data-cite="1"></span> Others have benefited from the volatility the pandemic has caused, such as gold miner Newmont. That aforementioned volatility has substantially driven up gold prices. Still others have benefited from the quarantine caused by the pandemic, with ServiceNow, a cloud services firm specializing in workflow apps, benefiting from the boom in working from home. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The top performer, however, has little to do with current events and everything to do with big-picture trends. HVAC manufacturer Carrier Global was spun off from United Technologies Corp. along with Otis Elevators on April 3, 2020 when UTC merged with Raytheon to form Raytheon Technologies Corp.<span class="ql-inline-citation" data-cite="3"></span> Carrier Global benefits enormously from two long-term trends that have helped send its stock up enormously. The first is climate change, which has increased the demand for air conditioning. Even in the most optimistic climate change scenarios, the demand for air conditioning will be substantially higher in the 21st century than in the 20th. The second is the trend in recent decades away from industrial conglomerates, seen most prominently in the decline in prominence of General Electric Co. Carrier, spun-off from UTC, seems to be following in the footsteps of many spin-offs from industrial conglomerates with strong business tailwinds, and gaining in valuation. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

Between the COVID-19 pandemic, the oil price war, and the enormous protests against police brutality in the United States, this has been an extremely eventful year. While the S&P 500 had fallen by as much as 30% year to date in March, it has recovered much of the ground it lost. As of June 2, its year-to-date total return stands at just under 4%. Here are the top 10 stocks by year-to-date total return in the S&P 500 index as of June 2, 2020. | Top 10 S&P 500 Companies by Year-to-Date Total Return | | | --- | --- | | Company Name (Ticker) | Year-to-Date Total Return (%) | | Carrier Global Corp. ([CARR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CARR)) | 81.8% | | DexCom Inc. ([DXCM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DXCM)) | 73.1% | | Regeneron Pharmaceuticals Inc. ([REGN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=REGN)) | 59.7% | | NVIDIA Corp. ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) | 49.8% | | NortonLifeLock Inc. ([NLOK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NLOK)) | 45.5% | | PayPal Holdings Inc. ([PYPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PYPL)) | 42.9% | | West Pharmaceutical Services Inc. ([WST](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WST)) | 41.4% | | Newmont Corp. ([NEM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NEM)) | 39.6% | | MarketAxess Holdings Inc. ([MKTX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MKTX)) | 37.4% | | ServiceNow Inc. ([NOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NOW)) | 35.8% | | S&P 500 Index | -3.8% | [Source: Ycharts](https://ycharts.com/) Many of the stocks in the top 10 have likely benefited from the pandemic and resultant lockdown. Biotech firm Regeneron Pharmaceuticals has made some promising steps towards developing an antibody treatment for the virus. West Pharmaceutical Services manufactures drug-delivery systems, which are important when efforts are being poured into mass-producing a vaccine. Others have benefited from the volatility the pandemic has caused, such as gold miner Newmont. That aforementioned volatility has substantially driven up gold prices. Still others have benefited from the quarantine caused by the pandemic, with ServiceNow, a cloud services firm specializing in workflow apps, benefiting from the boom in working from home. The top performer, however, has little to do with current events and everything to do with big-picture trends. HVAC manufacturer Carrier Global was spun off from United Technologies Corp. along with Otis Elevators on April 3, 2020 when UTC merged with Raytheon to form Raytheon Technologies Corp. Carrier Global benefits enormously from two long-term trends that have helped send its stock up enormously. The first is climate change, which has increased the demand for air conditioning. Even in the most optimistic climate change scenarios, the demand for air conditioning will be substantially higher in the 21st century than in the 20th. The second is the trend in recent decades away from industrial conglomerates, seen most prominently in the decline in prominence of General Electric Co. Carrier, spun-off from UTC, seems to be following in the footsteps of many spin-offs from industrial conglomerates with strong business tailwinds, and gaining in valuation. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Between the COVID-19 pandemic, the oil price war, and the enormous protests against police brutality in the United States, this has been an extremely eventful year. While the S&P 500 had fallen by as much as 30% year to date in March, it has recovered much of the ground it lost. As of June 2, its year-to-date total return stands at just under 4%. Here are the top 10 stocks by year-to-date total return in the S&P 500 index as of June 2, 2020. Top 10 S&P 500 Companies by Year-to-Date Total Return Company Name (Ticker) Year-to-Date Total Return (%) Carrier Global Corp. (CARR) 81.8% DexCom Inc. (DXCM) 73.1% Regeneron Pharmaceuticals Inc. (REGN) 59.7% NVIDIA Corp. (NVDA) 49.8% NortonLifeLock Inc. (NLOK) 45.5% PayPal Holdings Inc. (PYPL) 42.9% West Pharmaceutical Services Inc. (WST) 41.4% Newmont Corp. (NEM) 39.6% MarketAxess Holdings Inc. (MKTX) 37.4% ServiceNow Inc. (NOW) 35.8% S&P 500 Index -3.8% Source: Ycharts Many of the stocks in the top 10 have likely benefited from the pandemic and resultant lockdown. Biotech firm Regeneron Pharmaceuticals has made some promising steps towards developing an antibody treatment for the virus. West Pharmaceutical Services manufactures drug-delivery systems, which are important when efforts are being poured into mass-producing a vaccine. Others have benefited from the volatility the pandemic has caused, such as gold miner Newmont. That aforementioned volatility has substantially driven up gold prices. Still others have benefited from the quarantine caused by the pandemic, with ServiceNow, a cloud services firm specializing in workflow apps, benefiting from the boom in working from home. The top performer, however, has little to do with current events and everything to do with big-picture trends. HVAC manufacturer Carrier Global was spun off from United Technologies Corp. along with Otis Elevators on April 3, 2020 when UTC merged with Raytheon to form Raytheon Technologies Corp. Carrier Global benefits enormously from two long-term trends that have helped send its stock up enormously. The first is climate change, which has increased the demand for air conditioning. Even in the most optimistic climate change scenarios, the demand for air conditioning will be substantially higher in the 21st century than in the 20th. The second is the trend in recent decades away from industrial conglomerates, seen most prominently in the decline in prominence of General Electric Co. Carrier, spun-off from UTC, seems to be following in the footsteps of many spin-offs from industrial conglomerates with strong business tailwinds, and gaining in valuation. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/former-ftx-ceo-was-found-guilty-of-fraud-here-are-4-things-you-should-know-8386915

Former FTX CEO Was Found Guilty Of Fraud—Here are 4 Things You Should Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>FTX founder and former CEO Sam Bankman-Fried was found guilty by a jury on seven counts including fraud and money laundering.</li><li>Five of those counts carry a maximum of 20 years of prison sentence each, while two others could earn him maximum jail time of 5 years.</li><li>Bankman-Fried's sentencing will take place in March next year, he also faces a separate trial on charges of foreign bribery.</li><li>Misuse of FTX customer money funded trading, lavish personal purchases and substantial political contributions among others.<br/></li><li>FTX filed for bankruptcy last November, and the new management is still working on a plan to refund customers who lost their funds on the exchange.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-is-sam-bankman-fried-6830274">Sam Bankman-Fried</a>, "King of Crypto", founder and former CEO of crypto exchange FTX, was found guilty by a jury on seven counts including fraud and money laundering after a month-long trial. This verdict comes almost a year after the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">collapse of FTX</a>, once valued at $32 billion.<span class="ql-inline-citation" data-cite="8"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-subheading__text"> What He Was Found Guilty Of </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The biggest accusations against Bankman-fried involved misuse of FTX customer funds. He was charged with siphoning customer money from the FTX exchange to his cryptocurrency hedge fund, Alameda Research, and using it to fund a lavish personal lifestyle as well as make political contributions.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A report by crypto news outlet CoinDesk almost a year ago to the day raised suspicion about FTX's liquidity. That set off <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">a chain of events</a> that brought the exchange down in a matter of days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> How Much Jail Time He Could Face </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Bankman-Fried, was convicted of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering, each of which carries a maximum sentence of 20 years in prison. He was also found guilty on one charge of conspiracy to commit commodities fraud and one count of conspiracy to commit securities fraud that each carry up to five years of prison time.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The sentencing for these charges will take place in March next year. That's also when Bankman-Fried will face another trial for five additional charges, including bribery.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The disgraced crypto founder has been in prison since August, when he <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/former-ftx-ceo-bankman-fried-has-bail-revoked-heads-to-jail-7642662">had his bail revoked</a> for witness tampering. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-subheading__text"> He Took The Stand, As Did His Closest Aides </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Sam Bankman-Fried took the stand in his trial but had to endure testimony from some of his former closest aides. FTX co-founder Gary Wang said SBF plugged holes in his Alameda fund with FTX customer money from the early days of the exchange. Wang added that losses at the hedge fund eventually became too large to cover up.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Bankman-Fried said he was "very surprised" when he learned of an $8 billion shortfall at Alameda.<span class="ql-inline-citation" data-cite="3"></span> The crypto founder's ex-girlfriend and executive at FTX, Caroline Ellison, also took the stand, saying he directed her to funnel $14 billion of FTX funds to the investment firm.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> FTX Customers Lost Billions, Haven't Got a Refund Yet </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The collapsed crypto exchange has announced a new plan to send <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-ftx-plan-to-refund-90-percent-of-recovered-assets-doesnt-add-up-to-90-percent-of-what-customers-lost-8362556">90% of distributable funds</a>—money it has recovered—to its former customers. However, the exchange had a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433">shortfall of $8.7 billion, with only $6.9 billion</a> being recovered back by the new management, led by bankruptcy expert John J. Ray III. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Ray oversaw the bankruptcy of the infamous energy firm Enron but said that the FTX collapse was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-ceo-slammes-bankman-fried-6830115">the worst he had seen in his career</a>, due to a "complete failure of corporate controls." Bankman-Fried's largesse included using corporate funds to purchase homes and other personal items for employees and advisors in the Bahamas, sponsoring the FTX Arena in Miami, a Formula One team, and dishing out <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-seeks-donations-returned-7106383">$93 million in political donations</a>.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * FTX founder and former CEO Sam Bankman-Fried was found guilty by a jury on seven counts including fraud and money laundering. * Five of those counts carry a maximum of 20 years of prison sentence each, while two others could earn him maximum jail time of 5 years. * Bankman-Fried's sentencing will take place in March next year, he also faces a separate trial on charges of foreign bribery. * Misuse of FTX customer money funded trading, lavish personal purchases and substantial political contributions among others. * FTX filed for bankruptcy last November, and the new management is still working on a plan to refund customers who lost their funds on the exchange. [Sam Bankman-Fried](https://www.investopedia.com/who-is-sam-bankman-fried-6830274), "King of Crypto", founder and former CEO of crypto exchange FTX, was found guilty by a jury on seven counts including fraud and money laundering after a month-long trial. This verdict comes almost a year after the [collapse of FTX](https://www.investopedia.com/what-went-wrong-with-ftx-6828447), once valued at $32 billion. ### What He Was Found Guilty Of The biggest accusations against Bankman-fried involved misuse of FTX customer funds. He was charged with siphoning customer money from the FTX exchange to his cryptocurrency hedge fund, Alameda Research, and using it to fund a lavish personal lifestyle as well as make political contributions. A report by crypto news outlet CoinDesk almost a year ago to the day raised suspicion about FTX's liquidity. That set off [a chain of events](https://www.investopedia.com/what-went-wrong-with-ftx-6828447) that brought the exchange down in a matter of days. ### How Much Jail Time He Could Face Bankman-Fried, was convicted of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering, each of which carries a maximum sentence of 20 years in prison. He was also found guilty on one charge of conspiracy to commit commodities fraud and one count of conspiracy to commit securities fraud that each carry up to five years of prison time. The sentencing for these charges will take place in March next year. That's also when Bankman-Fried will face another trial for five additional charges, including bribery. The disgraced crypto founder has been in prison since August, when he [had his bail revoked](https://www.investopedia.com/former-ftx-ceo-bankman-fried-has-bail-revoked-heads-to-jail-7642662) for witness tampering. ### He Took The Stand, As Did His Closest Aides Sam Bankman-Fried took the stand in his trial but had to endure testimony from some of his former closest aides. FTX co-founder Gary Wang said SBF plugged holes in his Alameda fund with FTX customer money from the early days of the exchange. Wang added that losses at the hedge fund eventually became too large to cover up. Bankman-Fried said he was "very surprised" when he learned of an $8 billion shortfall at Alameda. The crypto founder's ex-girlfriend and executive at FTX, Caroline Ellison, also took the stand, saying he directed her to funnel $14 billion of FTX funds to the investment firm. ### FTX Customers Lost Billions, Haven't Got a Refund Yet The collapsed crypto exchange has announced a new plan to send [90% of distributable funds](https://www.investopedia.com/why-ftx-plan-to-refund-90-percent-of-recovered-assets-doesnt-add-up-to-90-percent-of-what-customers-lost-8362556)—money it has recovered—to its former customers. However, the exchange had a [shortfall of $8.7 billion, with only $6.9 billion](https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433) being recovered back by the new management, led by bankruptcy expert John J. Ray III. Ray oversaw the bankruptcy of the infamous energy firm Enron but said that the FTX collapse was [the worst he had seen in his career](https://www.investopedia.com/ftx-ceo-slammes-bankman-fried-6830115), due to a "complete failure of corporate controls." Bankman-Fried's largesse included using corporate funds to purchase homes and other personal items for employees and advisors in the Bahamas, sponsoring the FTX Arena in Miami, a Formula One team, and dishing out [$93 million in political donations](https://www.investopedia.com/ftx-seeks-donations-returned-7106383). Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways FTX founder and former CEO Sam Bankman-Fried was found guilty by a jury on seven counts including fraud and money laundering.Five of those counts carry a maximum of 20 years of prison sentence each, while two others could earn him maximum jail time of 5 years.Bankman-Fried's sentencing will take place in March next year, he also faces a separate trial on charges of foreign bribery.Misuse of FTX customer money funded trading, lavish personal purchases and substantial political contributions among others.FTX filed for bankruptcy last November, and the new management is still working on a plan to refund customers who lost their funds on the exchange. Sam Bankman-Fried, "King of Crypto", founder and former CEO of crypto exchange FTX, was found guilty by a jury on seven counts including fraud and money laundering after a month-long trial. This verdict comes almost a year after the collapse of FTX, once valued at $32 billion. What He Was Found Guilty Of The biggest accusations against Bankman-fried involved misuse of FTX customer funds. He was charged with siphoning customer money from the FTX exchange to his cryptocurrency hedge fund, Alameda Research, and using it to fund a lavish personal lifestyle as well as make political contributions. A report by crypto news outlet CoinDesk almost a year ago to the day raised suspicion about FTX's liquidity. That set off a chain of events that brought the exchange down in a matter of days. How Much Jail Time He Could Face Bankman-Fried, was convicted of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering, each of which carries a maximum sentence of 20 years in prison. He was also found guilty on one charge of conspiracy to commit commodities fraud and one count of conspiracy to commit securities fraud that each carry up to five years of prison time. The sentencing for these charges will take place in March next year. That's also when Bankman-Fried will face another trial for five additional charges, including bribery. The disgraced crypto founder has been in prison since August, when he had his bail revoked for witness tampering. He Took The Stand, As Did His Closest Aides Sam Bankman-Fried took the stand in his trial but had to endure testimony from some of his former closest aides. FTX co-founder Gary Wang said SBF plugged holes in his Alameda fund with FTX customer money from the early days of the exchange. Wang added that losses at the hedge fund eventually became too large to cover up. Bankman-Fried said he was "very surprised" when he learned of an $8 billion shortfall at Alameda. The crypto founder's ex-girlfriend and executive at FTX, Caroline Ellison, also took the stand, saying he directed her to funnel $14 billion of FTX funds to the investment firm. FTX Customers Lost Billions, Haven't Got a Refund Yet The collapsed crypto exchange has announced a new plan to send 90% of distributable funds—money it has recovered—to its former customers. However, the exchange had a shortfall of $8.7 billion, with only $6.9 billion being recovered back by the new management, led by bankruptcy expert John J. Ray III. Ray oversaw the bankruptcy of the infamous energy firm Enron but said that the FTX collapse was the worst he had seen in his career, due to a "complete failure of corporate controls." Bankman-Fried's largesse included using corporate funds to purchase homes and other personal items for employees and advisors in the Bahamas, sponsoring the FTX Arena in Miami, a Formula One team, and dishing out $93 million in political donations. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/p/plc.asp

What Public Limited Company (PLC) Means in the U.K.

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-public-limited-company-plc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Public Limited Company (PLC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A public limited company (PLC) is a public company in the United Kingdom. PLC is the equivalent of a U.S. publicly traded company that carries the Inc. or corporation designation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The use of the phrase “public limited company” or the PLC abbreviation after the name of a company is mandatory and communicates to investors and to anyone dealing with the company that it is a publicly traded corporation.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>PLC, or public limited company, is an abbreviation for public companies in the U.K.</li><li>All of the companies listed on the London Stock Exchange are PLCs.</li><li>Any retail investor may buy stock in a PLC.</li><li>Unlike privately held companies, public companies must publish certain financial data and disclosures for the public at regular intervals.</li><li>The formal names of some familiar U.K. brands like Burberry and Shell include the suffix PLC.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-public-limited-company-plc-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How a Public Limited Company (PLC) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A PLC designates a company that has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/033015/what-are-different-kinds-shares-public-limited-company-plc-can-issue.asp">offered shares of stock</a> to the general public. The buyers of those shares have limited liability, meaning that they cannot be held responsible for any business losses in excess of the amount they paid for the shares.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In the U.K., a PLC operates along similar lines as a public corporation in the U.S. Its operations are regulated and they are required to publish periodic reports to shareholders and prospective shareholders on its true financial health.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-requirements-for-a-plc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Requirements for a PLC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> U.K. company law says that a PLC must have the PLC or “public limited company” designation after the company name and minimum share capital of £50,000.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> Like a publicly traded company in the U.S., PLCs offer various types of shares, such as ordinary and cumulative preference shares. Ordinary shares of a PLC are similar to common stock issued by U.S. corporations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Cumulative preference shares are akin to preferred stock in the U.S. Other key requirements for a PLC include offering shares, appointing directors, and adhering to registration requirements.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The largest PLCs make up the Financial Times Stock Exchange 100 Index, known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftse.asp">Footsie</a>.</p></div></div></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-a-plc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of a PLC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The biggest advantage of forming a public limited company (PLC) is that it grants the ability to raise capital by issuing public shares. A listing on a public stock exchange attracts interest from hedge funds, mutual funds, and professional traders as well as individual investors. That tends to lead to increased access to capital for investment in the company than a private limited company can amass. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> On the other hand, there's much more regulation for a PLC in the U.K. than there is for a public corporation in the U.S. They are required to hold annual general meetings open to all shareholders and are held to higher standards of transparency in accounting.<span class="ql-inline-citation" data-cite="4"></span> Because they’re public, they’re also vulnerable to pressure from shareholders and takeover bids from rivals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> By becoming a PLC, the company is given greater access to capital, and shareholders are offered liquidity. These are similar benefits of a company in the U.S. going public. On the downside, becoming a PLC means more scrutiny and required reporting. The company will have more shareholders and the value of the company could become more volatile as it is determined by the financial markets.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_28-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>U.K. companies can raise more capital by being a PLC.</p></li> <li><p>Becoming a PLC allows shareholders liquidity.</p></li> <li><p>Increased ability to raise future capital and make acquisitions (by offering shares to target companies)</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Increased scrutiny and regulation</p></li> <li><p>Larger number of shareholders to be accountable to</p></li> <li><p>Volatility in valuation increases as the company is beholden to financial markets.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-public-limited-company-plc-vs-private-limited-company-ltd"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Public Limited Company (PLC) vs. Private Limited Company (LTD) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A PLC is a public company in the U.K. Meanwhile, there are private limited companies (LTDs), which are private companies in the U.K. Shares of a private limited company are not offered to the general public.<span class="ql-inline-citation" data-cite="10"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Private companies are still incorporated, generally with the Companies House. These companies are still required to have legal documents to form the business. Private companies must have at least one director.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> To raise capital via a public investment in the U.K. the company must be a PLC. PLCs are like LTDs, except they are publicly traded, with shares that can be freely sold and traded on a stock exchange. Meanwhile, PLCs must have at least two directors and hold annual shareholder meetings.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-a-plc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> How To Invest in a PLC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> As public companies, any retail investor in the United Kingdom can buy shares in a PLC. The simplest way to do so is through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage</a>: The investor can simply create an account, transfer money, and buy shares of the company. It is also to buy shares through a retirement account, so some people may own PLC shares without even knowing about it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> This may be more complicated for investors outside the United Kingdom. Many U.S. brokerages allow their clients to directly buy shares in foreign markets, exchanging dollars into local currency to make the purchase. In addition, many U.K. companies are tradable in American markets in the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts</a>. The downside is that the investor would assume an additional level of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyrisk.asp">currency risk</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-examples-of-plcs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> Examples of PLCs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> All of the companies listed on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lse.asp">London Stock Exchange</a> are, by definition, PLCs. The fashion retailer Burberry is Burberry Group plc. Rolls-Royce is Rolls-Royce Holdings plc. The 100 largest PLCs on the London Stock Exchange are grouped together in an index called the Financial Times Stock Exchange 100 (FTSE 100) or, colloquially, the Footsie. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The companies in this group are representative of the United Kingdom's economy as a whole. The Footsie is comparable to the Dow Jones Industrial Average (DJIA) in the U.S. The biggest PLCs by market capitalization in the Footsie, as of April 2024, included Shell, HSBC, and AstraZeneca.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The formal names of all of these companies include the PLC designation. Not all PLCs are listed on a stock exchange. A company may choose not to list on an exchange or may not meet the requirements for listing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-does-it-mean-to-be-a-public-limited-company-plc"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does It Mean To Be a Public Limited Company (PLC)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A PLC is a publicly traded company in the U.K. These companies must have PLC or the words "public limited company" after their name. For example, the oil and gas company, BP plc, is a U.K. publicly traded company that's headquartered in London, England.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-who-is-a-public-limited-company-owned-by"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is a Public Limited Company Owned by?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Like publicly traded companies headquartered in the U.S., PLCs are owned by shareholders. These companies are traded on exchanges where shares can be openly bought or sold by individuals, companies, and mutual funds. This listing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ltd-limited.asp">contrasts with the limited (Ltd.) listing</a> which does not trade publicly and has limitations on shares and shareholders.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-are-the-main-features-of-a-plc"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Features of a PLC?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The key feature of a PLC is that it's based in the U.K. and is publicly traded. The company must also have the PLC or "public limited company" designation after its name.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-public-and-private-limited-company"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Public and Private Limited Company?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A PLC is a publicly traded company, while a private limited company is also a U.K. company, except it is private. There are other notable differences between the two, such as the fact that a private limited company only has to have one director, while a PLC must have two.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> A PLC is the equivalent of an Inc. or Corp. company that trades in the U.S. stock market. PLCs are publicly traded companies in the U.K. Many famous U.K.-based companies are publicly traded and have the PLC designation after their name, such as consumer goods company Unilever plc and drugmaker AstraZeneca plc. </p></div>

## What Is a Public Limited Company (PLC)? A public limited company (PLC) is a public company in the United Kingdom. PLC is the equivalent of a U.S. publicly traded company that carries the Inc. or corporation designation. The use of the phrase “public limited company” or the PLC abbreviation after the name of a company is mandatory and communicates to investors and to anyone dealing with the company that it is a publicly traded corporation. ### Key Takeaways * PLC, or public limited company, is an abbreviation for public companies in the U.K. * All of the companies listed on the London Stock Exchange are PLCs. * Any retail investor may buy stock in a PLC. * Unlike privately held companies, public companies must publish certain financial data and disclosures for the public at regular intervals. * The formal names of some familiar U.K. brands like Burberry and Shell include the suffix PLC. ## How a Public Limited Company (PLC) Works A PLC designates a company that has [offered shares of stock](https://www.investopedia.com/ask/answers/033015/what-are-different-kinds-shares-public-limited-company-plc-can-issue.asp) to the general public. The buyers of those shares have limited liability, meaning that they cannot be held responsible for any business losses in excess of the amount they paid for the shares. In the U.K., a PLC operates along similar lines as a public corporation in the U.S. Its operations are regulated and they are required to publish periodic reports to shareholders and prospective shareholders on its true financial health. ## Requirements for a PLC U.K. company law says that a PLC must have the PLC or “public limited company” designation after the company name and minimum share capital of £50,000. Like a publicly traded company in the U.S., PLCs offer various types of shares, such as ordinary and cumulative preference shares. Ordinary shares of a PLC are similar to common stock issued by U.S. corporations. Cumulative preference shares are akin to preferred stock in the U.S. Other key requirements for a PLC include offering shares, appointing directors, and adhering to registration requirements. ### The largest PLCs make up the Financial Times Stock Exchange 100 Index, known as the [Footsie](https://www.investopedia.com/terms/f/ftse.asp). ## Advantages and Disadvantages of a PLC The biggest advantage of forming a public limited company (PLC) is that it grants the ability to raise capital by issuing public shares. A listing on a public stock exchange attracts interest from hedge funds, mutual funds, and professional traders as well as individual investors. That tends to lead to increased access to capital for investment in the company than a private limited company can amass. On the other hand, there's much more regulation for a PLC in the U.K. than there is for a public corporation in the U.S. They are required to hold annual general meetings open to all shareholders and are held to higher standards of transparency in accounting. Because they’re public, they’re also vulnerable to pressure from shareholders and takeover bids from rivals. By becoming a PLC, the company is given greater access to capital, and shareholders are offered liquidity. These are similar benefits of a company in the U.S. going public. On the downside, becoming a PLC means more scrutiny and required reporting. The company will have more shareholders and the value of the company could become more volatile as it is determined by the financial markets.  Pros * U.K. companies can raise more capital by being a PLC. * Becoming a PLC allows shareholders liquidity. * Increased ability to raise future capital and make acquisitions (by offering shares to target companies) Cons * Increased scrutiny and regulation * Larger number of shareholders to be accountable to * Volatility in valuation increases as the company is beholden to financial markets. ## Public Limited Company (PLC) vs. Private Limited Company (LTD) A PLC is a public company in the U.K. Meanwhile, there are private limited companies (LTDs), which are private companies in the U.K. Shares of a private limited company are not offered to the general public.  Private companies are still incorporated, generally with the Companies House. These companies are still required to have legal documents to form the business. Private companies must have at least one director.  To raise capital via a public investment in the U.K. the company must be a PLC. PLCs are like LTDs, except they are publicly traded, with shares that can be freely sold and traded on a stock exchange. Meanwhile, PLCs must have at least two directors and hold annual shareholder meetings. ## How To Invest in a PLC As public companies, any retail investor in the United Kingdom can buy shares in a PLC. The simplest way to do so is through a [brokerage](https://www.investopedia.com/terms/b/brokerageaccount.asp): The investor can simply create an account, transfer money, and buy shares of the company. It is also to buy shares through a retirement account, so some people may own PLC shares without even knowing about it. This may be more complicated for investors outside the United Kingdom. Many U.S. brokerages allow their clients to directly buy shares in foreign markets, exchanging dollars into local currency to make the purchase. In addition, many U.K. companies are tradable in American markets in the form of [American depositary receipts](https://www.investopedia.com/terms/a/adr.asp). The downside is that the investor would assume an additional level of [currency risk](https://www.investopedia.com/terms/c/currencyrisk.asp). ## Examples of PLCs All of the companies listed on the [London Stock Exchange](https://www.investopedia.com/terms/l/lse.asp) are, by definition, PLCs. The fashion retailer Burberry is Burberry Group plc. Rolls-Royce is Rolls-Royce Holdings plc. The 100 largest PLCs on the London Stock Exchange are grouped together in an index called the Financial Times Stock Exchange 100 (FTSE 100) or, colloquially, the Footsie. The companies in this group are representative of the United Kingdom's economy as a whole. The Footsie is comparable to the Dow Jones Industrial Average (DJIA) in the U.S. The biggest PLCs by market capitalization in the Footsie, as of April 2024, included Shell, HSBC, and AstraZeneca. The formal names of all of these companies include the PLC designation. Not all PLCs are listed on a stock exchange. A company may choose not to list on an exchange or may not meet the requirements for listing. ## What Does It Mean To Be a Public Limited Company (PLC)? A PLC is a publicly traded company in the U.K. These companies must have PLC or the words "public limited company" after their name. For example, the oil and gas company, BP plc, is a U.K. publicly traded company that's headquartered in London, England. ## Who Is a Public Limited Company Owned by? Like publicly traded companies headquartered in the U.S., PLCs are owned by shareholders. These companies are traded on exchanges where shares can be openly bought or sold by individuals, companies, and mutual funds. This listing [contrasts with the limited (Ltd.) listing](https://www.investopedia.com/terms/l/ltd-limited.asp) which does not trade publicly and has limitations on shares and shareholders. ## What Are the Main Features of a PLC? The key feature of a PLC is that it's based in the U.K. and is publicly traded. The company must also have the PLC or "public limited company" designation after its name. ## What Is the Difference Between a Public and Private Limited Company? A PLC is a publicly traded company, while a private limited company is also a U.K. company, except it is private. There are other notable differences between the two, such as the fact that a private limited company only has to have one director, while a PLC must have two. ## The Bottom Line A PLC is the equivalent of an Inc. or Corp. company that trades in the U.S. stock market. PLCs are publicly traded companies in the U.K. Many famous U.K.-based companies are publicly traded and have the PLC designation after their name, such as consumer goods company Unilever plc and drugmaker AstraZeneca plc.

What Is a Public Limited Company (PLC)? A public limited company (PLC) is a public company in the United Kingdom. PLC is the equivalent of a U.S. publicly traded company that carries the Inc. or corporation designation. The use of the phrase “public limited company” or the PLC abbreviation after the name of a company is mandatory and communicates to investors and to anyone dealing with the company that it is a publicly traded corporation. Key Takeaways PLC, or public limited company, is an abbreviation for public companies in the U.K.All of the companies listed on the London Stock Exchange are PLCs.Any retail investor may buy stock in a PLC.Unlike privately held companies, public companies must publish certain financial data and disclosures for the public at regular intervals.The formal names of some familiar U.K. brands like Burberry and Shell include the suffix PLC. How a Public Limited Company (PLC) Works A PLC designates a company that has offered shares of stock to the general public. The buyers of those shares have limited liability, meaning that they cannot be held responsible for any business losses in excess of the amount they paid for the shares. In the U.K., a PLC operates along similar lines as a public corporation in the U.S. Its operations are regulated and they are required to publish periodic reports to shareholders and prospective shareholders on its true financial health. Requirements for a PLC U.K. company law says that a PLC must have the PLC or “public limited company” designation after the company name and minimum share capital of £50,000. Like a publicly traded company in the U.S., PLCs offer various types of shares, such as ordinary and cumulative preference shares. Ordinary shares of a PLC are similar to common stock issued by U.S. corporations. Cumulative preference shares are akin to preferred stock in the U.S. Other key requirements for a PLC include offering shares, appointing directors, and adhering to registration requirements. The largest PLCs make up the Financial Times Stock Exchange 100 Index, known as the Footsie. Advantages and Disadvantages of a PLC The biggest advantage of forming a public limited company (PLC) is that it grants the ability to raise capital by issuing public shares. A listing on a public stock exchange attracts interest from hedge funds, mutual funds, and professional traders as well as individual investors. That tends to lead to increased access to capital for investment in the company than a private limited company can amass. On the other hand, there's much more regulation for a PLC in the U.K. than there is for a public corporation in the U.S. They are required to hold annual general meetings open to all shareholders and are held to higher standards of transparency in accounting. Because they’re public, they’re also vulnerable to pressure from shareholders and takeover bids from rivals. By becoming a PLC, the company is given greater access to capital, and shareholders are offered liquidity. These are similar benefits of a company in the U.S. going public. On the downside, becoming a PLC means more scrutiny and required reporting. The company will have more shareholders and the value of the company could become more volatile as it is determined by the financial markets.  Pros U.K. companies can raise more capital by being a PLC. Becoming a PLC allows shareholders liquidity. Increased ability to raise future capital and make acquisitions (by offering shares to target companies) Cons Increased scrutiny and regulation Larger number of shareholders to be accountable to Volatility in valuation increases as the company is beholden to financial markets. Public Limited Company (PLC) vs. Private Limited Company (LTD) A PLC is a public company in the U.K. Meanwhile, there are private limited companies (LTDs), which are private companies in the U.K. Shares of a private limited company are not offered to the general public.  Private companies are still incorporated, generally with the Companies House. These companies are still required to have legal documents to form the business. Private companies must have at least one director.  To raise capital via a public investment in the U.K. the company must be a PLC. PLCs are like LTDs, except they are publicly traded, with shares that can be freely sold and traded on a stock exchange. Meanwhile, PLCs must have at least two directors and hold annual shareholder meetings. How To Invest in a PLC As public companies, any retail investor in the United Kingdom can buy shares in a PLC. The simplest way to do so is through a brokerage: The investor can simply create an account, transfer money, and buy shares of the company. It is also to buy shares through a retirement account, so some people may own PLC shares without even knowing about it. This may be more complicated for investors outside the United Kingdom. Many U.S. brokerages allow their clients to directly buy shares in foreign markets, exchanging dollars into local currency to make the purchase. In addition, many U.K. companies are tradable in American markets in the form of American depositary receipts. The downside is that the investor would assume an additional level of currency risk. Examples of PLCs All of the companies listed on the London Stock Exchange are, by definition, PLCs. The fashion retailer Burberry is Burberry Group plc. Rolls-Royce is Rolls-Royce Holdings plc. The 100 largest PLCs on the London Stock Exchange are grouped together in an index called the Financial Times Stock Exchange 100 (FTSE 100) or, colloquially, the Footsie. The companies in this group are representative of the United Kingdom's economy as a whole. The Footsie is comparable to the Dow Jones Industrial Average (DJIA) in the U.S. The biggest PLCs by market capitalization in the Footsie, as of April 2024, included Shell, HSBC, and AstraZeneca. The formal names of all of these companies include the PLC designation. Not all PLCs are listed on a stock exchange. A company may choose not to list on an exchange or may not meet the requirements for listing. What Does It Mean To Be a Public Limited Company (PLC)? A PLC is a publicly traded company in the U.K. These companies must have PLC or the words "public limited company" after their name. For example, the oil and gas company, BP plc, is a U.K. publicly traded company that's headquartered in London, England. Who Is a Public Limited Company Owned by? Like publicly traded companies headquartered in the U.S., PLCs are owned by shareholders. These companies are traded on exchanges where shares can be openly bought or sold by individuals, companies, and mutual funds. This listing contrasts with the limited (Ltd.) listing which does not trade publicly and has limitations on shares and shareholders. What Are the Main Features of a PLC? The key feature of a PLC is that it's based in the U.K. and is publicly traded. The company must also have the PLC or "public limited company" designation after its name. What Is the Difference Between a Public and Private Limited Company? A PLC is a publicly traded company, while a private limited company is also a U.K. company, except it is private. There are other notable differences between the two, such as the fact that a private limited company only has to have one director, while a PLC must have two. The Bottom Line A PLC is the equivalent of an Inc. or Corp. company that trades in the U.S. stock market. PLCs are publicly traded companies in the U.K. Many famous U.K.-based companies are publicly traded and have the PLC designation after their name, such as consumer goods company Unilever plc and drugmaker AstraZeneca plc.

https://www.investopedia.com/articles/personal-finance/010215/apple-pay-vs-google-wallet-how-they-work.asp

Apple Pay vs. Google Wallet: How They Work

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Apple and Google inspire almost religious devotion in their loyal consumers, many of whom see comparisons between the two tech giants as a comparison between apples and oranges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> When it comes to their mobile payment systems, though, our findings suggest they are practically identical in what they can do. Apple Pay, also known as Apple Cash, seems easier to use, while Google Wallet, which was called Google Pay until 2022, has a few more features. For families with teenagers interested in using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/venmo-apple-wallet-digital-money-guide-parents-5220982">mobile payment app</a>, Apple's is likely to be more easily monitored and flexible.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Apple Pay and Google Wallet are widely accepted mobile payment systems; both also include a digital wallet, despite the difference in their names.</li> <li>Apple Pay and Google Wallet are similar in what they can do. Apple may be easier to use, but Google has more features, including Google Pay, its mobile payment app.</li> <li>Apple Pay is probably easier for teenagers 13 and up to use for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peertopeer-p2p-service.asp">peer-to-peer (P2P)</a> and retail payments, with parental monitoring.</li> <li>Google acts as an intermediary and stores your card details on its servers, while Apple has explicitly declared that it will never track your transactions.</li> </ul></div></div></div> <span class="heading-toc" id="toc-apple-pay-vs-google-wallet"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Apple Pay vs. Google Wallet </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Although their interfaces and user options are similar, there are ways Apple's and Google's mobile payment systems differ, primarily in terms of security. The following compares the two apps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_10-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td> <b>Apple Pay</b></td> <td><b>Google Wallet</b> </td> </tr> <tr> <td><b>Introduced</b></td> <td>2014 </td> <td> 2011</td> </tr> <tr> <td><b>Technology</b></td> <td>Contactless payment via near-field communication (NFC) </td> <td>Contactless payment via NFC</td> </tr> <tr> <td><b>Hardware</b></td> <td>Usable on Apple iPhones and iPads with Face or Touch ID, Apple Watch Series 1 and later, Mac models with Touch ID or Face ID</td> <td>Usable on most hardware because you use a PIN to sign in</td> </tr> <tr> <td><b>Online Purchases</b></td> <td>From an app or website, with Touch ID or Face ID</td> <td>From an app or website, with PIN </td> </tr> <tr> <td><b>Device Limitations</b></td> <td>Can only be used on Apple mobile devices</td> <td>Can only be used on Android and iOS devices</td> </tr> <tr> <td><b>Security</b></td> <td>Touch ID; uses tokenization</td> <td>PIN; uses Google Pay virtual card</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Both systems allow for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contactless-payment.asp">contactless payment</a> using <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/near-field-communication-nfc.asp">near-field communication (NFC)</a> technology, though they implement it slightly differently. Apple, with complete control over its hardware, makes Apple Pay available on iPhone models with Face ID and Touch ID (except the 5s), iPad models with Touch ID or Face ID, Apple Watch Series 1 and later, and Mac models with Touch ID.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Google, on the other hand, opts for a more traditional PIN-based authentication system. This allows it to work on older hardware than Apple Pay does. Both can make online purchases straight from an app or website, automatically handling the entire checkout process with pre-filled defaults and only requiring PIN or Touch ID verification to complete the transaction.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>From an industry point of view, the most significant breakthrough that mobile payment systems offer is in their security, and here, Apple and Google both incorporate some beneficial protections.</p></div></div></div> <span class="heading-toc" id="toc-google-wallet-vs-google-pay"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Google Wallet vs. Google Pay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Even though its maker reverted the overall product's name back to Google Wallet from Google Pay in 2022, there remain some differences between Google Pay and Google's wallet offering. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Google Wallet is a secure, private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-wallet.asp">digital wallet</a> that lets you store items such as:<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li>Payment cards</li><li>Flight and event tickets</li><li>Transit passes</li><li>Vaccination, loyalty, and gift cards</li><li>Digital car keys</li><li>Identification cards</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Google Pay, in contrast, is an app within the wallet that lets you manage your money and finances. It lets you: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li>Get insights about your spending.</li><li>Send money to friends and family and split bills.</li><li>Earn rewards on eligible transactions.</li><li>Find offers from merchants.</li><li>Gain quick access to your Google Wallet.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-apple-wallet-vs-apple-pay"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Apple Wallet vs. Apple Pay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The differences here are similar to those between Google Wallet and Google Pay. In this case, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apple-pay.asp">Apple Pay</a> is the secure payment system offered on Apple's products, and Apple Wallet is where you can digitally store your credit or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit cards</a> so you can use them with Apple Pay, along with other tickets, passes, IDs, and more.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-apple-pay-vs-google-wallet-for-teens-use"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Apple Pay vs. Google Wallet for Teens' Use </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If you're a parent or guardian of a teenager who's interested in access to a mobile payment option, Apple Wallet provides Apple Cash Family. As an adult, you can add family members younger than 18 under your own Apple Wallet, which allows you to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever the young person makes a transaction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In addition, Apple Cash Family comes closest to letting you use it like cash because most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept Apple Pay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> With Google Pay, a component of Google Wallet, kids of any age can be added by a parent to the parent's own Google account, which allows the adult to limit children's spending to certain apps or types of purchases, as well as require parental preauthorization for any purchase that the child makes. Note that kids under 13 can't make purchases using Google Assistant, the company's artificial intelligence (AI)-powered virtual assistant app.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Google Pay also offers another feature for family use, Purchase Requests. This allows kids to send a request to buy something to the adult supervising Google Pay's use by the family, even without a family payment method set up. Then the family manager of the account can review and decide whether to make the purchase for their young person.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Parents also can use Google's Family Link app to monitor kids' purchases in the Google Play store, Google accounts, the child's location, and time spent on supervised devices.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_43-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_44-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Because Google Pay only works on Google Play, kids can't use it to make purchases in physical stores or to send money to their friends or family, unless they get approval for those activities from the Google Pay Purchase Requests tool and the parent pays using the family payment mode.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <span class="heading-toc" id="toc-security-systems"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Security Systems </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">Credit card</a> fraud remains a significant problem worldwide. As banks and retailers work to upgrade their platforms, mobile payment systems like Apple Pay and Google Wallet may allow the U.S. to leapfrog to the forefront of payment security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Though the two systems appear to be equally robust, the companies take different approaches that shape what their products can and can't do. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> For the consumer, the use of Touch ID versus <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-identification-number.asp">personal identification (PIN)</a> authentication is the most visible difference, but behind the scenes, there is a lot more happening. Most important is the fact that neither system reveals the user's card details to the vendor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Google Security </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> With both systems, you provide your card details only once, during the initial setup. Google adopts an intermediary role and saves your card details on its servers. It then issues a virtual card to your device, the Google Pay virtual card. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_56-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>When paying, the device only transmits the Google Pay virtual card's information. The vendor never sees your real card, which is protected by Google's secure servers.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> When the seller charges the virtual card, Google, in turn, charges your stored <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debit.asp">debit</a> or credit card and is the only entity that ever sees your real card through this transaction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-subheading__text"> Apple Security </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Apple employs a different system known as tokenization. Here, when your card details are provided to the device, it contacts the issuing bank directly and, upon confirmation, receives a device- and card-specific token called the Device Account Number (DAN), which is stored on a secure chip on the device. The DAN structurally resembles a credit card number and is passed on to the merchant when any payment is made before getting authorized by the bank.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-does-apple-pay-charge-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Apple Pay Charge Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, Apple Pay doesn't charge consumers fees. Instead, it makes money directly from the bank that issued the card linked to the Apple Pay account.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-does-google-wallet-charge-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Google Wallet Charge Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, Google Wallet doesn't charge consumers fees. Google makes money by charging vendors a percentage of each transaction, as well as through targeted ads.<span class="ql-inline-citation" data-cite="18"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_66-0"><span class="heading-toc" id="toc-does-apple-pay-offer-a-credit-line"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Apple Pay Offer a Credit Line?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Apple Pay doesn't have its own credit line but pairs with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apple-credit-card-review-4798935">Apple Credit Card</a>.<span class="ql-inline-citation" data-cite="11"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_68-0"><span class="heading-toc" id="toc-does-google-pay-offer-a-credit-line"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Google Pay Offer a Credit Line?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, Google Pay doesn't offer a credit line in the U.S.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Apple Pay was once promoted as "Your wallet. Without the wallet," a description that, in truth, fits Google Wallet better. Google Pay, meanwhile, was promoted as "an easier way to pay," which in all fairness is what Apple ought to be saying. For the consumer, both systems offer convenience and a measure of security, so choosing between the two is mostly a matter of personal preference. </p></div>

Apple and Google inspire almost religious devotion in their loyal consumers, many of whom see comparisons between the two tech giants as a comparison between apples and oranges. When it comes to their mobile payment systems, though, our findings suggest they are practically identical in what they can do. Apple Pay, also known as Apple Cash, seems easier to use, while Google Wallet, which was called Google Pay until 2022, has a few more features. For families with teenagers interested in using a [mobile payment app](https://www.investopedia.com/venmo-apple-wallet-digital-money-guide-parents-5220982), Apple's is likely to be more easily monitored and flexible. ### Key Takeaways * Apple Pay and Google Wallet are widely accepted mobile payment systems; both also include a digital wallet, despite the difference in their names. * Apple Pay and Google Wallet are similar in what they can do. Apple may be easier to use, but Google has more features, including Google Pay, its mobile payment app. * Apple Pay is probably easier for teenagers 13 and up to use for [peer-to-peer (P2P)](https://www.investopedia.com/terms/p/peertopeer-p2p-service.asp) and retail payments, with parental monitoring. * Google acts as an intermediary and stores your card details on its servers, while Apple has explicitly declared that it will never track your transactions. ## Apple Pay vs. Google Wallet Although their interfaces and user options are similar, there are ways Apple's and Google's mobile payment systems differ, primarily in terms of security. The following compares the two apps. | | **Apple Pay** | **Google Wallet** | | --- | --- | --- | | **Introduced** | 2014 | 2011 | | **Technology** | Contactless payment via near-field communication (NFC) | Contactless payment via NFC | | **Hardware** | Usable on Apple iPhones and iPads with Face or Touch ID, Apple Watch Series 1 and later, Mac models with Touch ID or Face ID | Usable on most hardware because you use a PIN to sign in | | **Online Purchases** | From an app or website, with Touch ID or Face ID | From an app or website, with PIN | | **Device Limitations** | Can only be used on Apple mobile devices | Can only be used on Android and iOS devices | | **Security** | Touch ID; uses tokenization | PIN; uses Google Pay virtual card | Both systems allow for [contactless payment](https://www.investopedia.com/terms/c/contactless-payment.asp) using [near-field communication (NFC)](https://www.investopedia.com/terms/n/near-field-communication-nfc.asp) technology, though they implement it slightly differently. Apple, with complete control over its hardware, makes Apple Pay available on iPhone models with Face ID and Touch ID (except the 5s), iPad models with Touch ID or Face ID, Apple Watch Series 1 and later, and Mac models with Touch ID. Google, on the other hand, opts for a more traditional PIN-based authentication system. This allows it to work on older hardware than Apple Pay does. Both can make online purchases straight from an app or website, automatically handling the entire checkout process with pre-filled defaults and only requiring PIN or Touch ID verification to complete the transaction. ### Note From an industry point of view, the most significant breakthrough that mobile payment systems offer is in their security, and here, Apple and Google both incorporate some beneficial protections. ## Google Wallet vs. Google Pay Even though its maker reverted the overall product's name back to Google Wallet from Google Pay in 2022, there remain some differences between Google Pay and Google's wallet offering. Google Wallet is a secure, private [digital wallet](https://www.investopedia.com/terms/d/digital-wallet.asp) that lets you store items such as: * Payment cards * Flight and event tickets * Transit passes * Vaccination, loyalty, and gift cards * Digital car keys * Identification cards Google Pay, in contrast, is an app within the wallet that lets you manage your money and finances. It lets you: * Get insights about your spending. * Send money to friends and family and split bills. * Earn rewards on eligible transactions. * Find offers from merchants. * Gain quick access to your Google Wallet. ## Apple Wallet vs. Apple Pay The differences here are similar to those between Google Wallet and Google Pay. In this case, [Apple Pay](https://www.investopedia.com/terms/a/apple-pay.asp) is the secure payment system offered on Apple's products, and Apple Wallet is where you can digitally store your credit or [debit cards](https://www.investopedia.com/terms/d/debitcard.asp) so you can use them with Apple Pay, along with other tickets, passes, IDs, and more. ## Apple Pay vs. Google Wallet for Teens' Use If you're a parent or guardian of a teenager who's interested in access to a mobile payment option, Apple Wallet provides Apple Cash Family. As an adult, you can add family members younger than 18 under your own Apple Wallet, which allows you to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever the young person makes a transaction. In addition, Apple Cash Family comes closest to letting you use it like cash because most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept Apple Pay. With Google Pay, a component of Google Wallet, kids of any age can be added by a parent to the parent's own Google account, which allows the adult to limit children's spending to certain apps or types of purchases, as well as require parental preauthorization for any purchase that the child makes. Note that kids under 13 can't make purchases using Google Assistant, the company's artificial intelligence (AI)-powered virtual assistant app. Google Pay also offers another feature for family use, Purchase Requests. This allows kids to send a request to buy something to the adult supervising Google Pay's use by the family, even without a family payment method set up. Then the family manager of the account can review and decide whether to make the purchase for their young person. Parents also can use Google's Family Link app to monitor kids' purchases in the Google Play store, Google accounts, the child's location, and time spent on supervised devices. ### Because Google Pay only works on Google Play, kids can't use it to make purchases in physical stores or to send money to their friends or family, unless they get approval for those activities from the Google Pay Purchase Requests tool and the parent pays using the family payment mode. ## Security Systems [Credit card](https://www.investopedia.com/terms/c/creditcard.asp) fraud remains a significant problem worldwide. As banks and retailers work to upgrade their platforms, mobile payment systems like Apple Pay and Google Wallet may allow the U.S. to leapfrog to the forefront of payment security. Though the two systems appear to be equally robust, the companies take different approaches that shape what their products can and can't do. For the consumer, the use of Touch ID versus [personal identification (PIN)](https://www.investopedia.com/terms/p/personal-identification-number.asp) authentication is the most visible difference, but behind the scenes, there is a lot more happening. Most important is the fact that neither system reveals the user's card details to the vendor. ### Google Security With both systems, you provide your card details only once, during the initial setup. Google adopts an intermediary role and saves your card details on its servers. It then issues a virtual card to your device, the Google Pay virtual card. ### When paying, the device only transmits the Google Pay virtual card's information. The vendor never sees your real card, which is protected by Google's secure servers. When the seller charges the virtual card, Google, in turn, charges your stored [debit](https://www.investopedia.com/terms/d/debit.asp) or credit card and is the only entity that ever sees your real card through this transaction. ### Apple Security Apple employs a different system known as tokenization. Here, when your card details are provided to the device, it contacts the issuing bank directly and, upon confirmation, receives a device- and card-specific token called the Device Account Number (DAN), which is stored on a secure chip on the device. The DAN structurally resembles a credit card number and is passed on to the merchant when any payment is made before getting authorized by the bank. ## Does Apple Pay Charge Fees? No, Apple Pay doesn't charge consumers fees. Instead, it makes money directly from the bank that issued the card linked to the Apple Pay account. ## Does Google Wallet Charge Fees? No, Google Wallet doesn't charge consumers fees. Google makes money by charging vendors a percentage of each transaction, as well as through targeted ads. ## Does Apple Pay Offer a Credit Line? Apple Pay doesn't have its own credit line but pairs with the [Apple Credit Card](https://www.investopedia.com/apple-credit-card-review-4798935). ## Does Google Pay Offer a Credit Line? No, Google Pay doesn't offer a credit line in the U.S. ## The Bottom Line Apple Pay was once promoted as "Your wallet. Without the wallet," a description that, in truth, fits Google Wallet better. Google Pay, meanwhile, was promoted as "an easier way to pay," which in all fairness is what Apple ought to be saying. For the consumer, both systems offer convenience and a measure of security, so choosing between the two is mostly a matter of personal preference.

Apple and Google inspire almost religious devotion in their loyal consumers, many of whom see comparisons between the two tech giants as a comparison between apples and oranges. When it comes to their mobile payment systems, though, our findings suggest they are practically identical in what they can do. Apple Pay, also known as Apple Cash, seems easier to use, while Google Wallet, which was called Google Pay until 2022, has a few more features. For families with teenagers interested in using a mobile payment app, Apple's is likely to be more easily monitored and flexible. Key Takeaways Apple Pay and Google Wallet are widely accepted mobile payment systems; both also include a digital wallet, despite the difference in their names. Apple Pay and Google Wallet are similar in what they can do. Apple may be easier to use, but Google has more features, including Google Pay, its mobile payment app. Apple Pay is probably easier for teenagers 13 and up to use for peer-to-peer (P2P) and retail payments, with parental monitoring. Google acts as an intermediary and stores your card details on its servers, while Apple has explicitly declared that it will never track your transactions. Apple Pay vs. Google Wallet Although their interfaces and user options are similar, there are ways Apple's and Google's mobile payment systems differ, primarily in terms of security. The following compares the two apps.  Apple Pay Google Wallet  Introduced 2014   2011 Technology Contactless payment via near-field communication (NFC)  Contactless payment via NFC Hardware Usable on Apple iPhones and iPads with Face or Touch ID, Apple Watch Series 1 and later, Mac models with Touch ID or Face ID Usable on most hardware because you use a PIN to sign in Online Purchases From an app or website, with Touch ID or Face ID From an app or website, with PIN  Device Limitations Can only be used on Apple mobile devices Can only be used on Android and iOS devices Security Touch ID; uses tokenization PIN; uses Google Pay virtual card Both systems allow for contactless payment using near-field communication (NFC) technology, though they implement it slightly differently. Apple, with complete control over its hardware, makes Apple Pay available on iPhone models with Face ID and Touch ID (except the 5s), iPad models with Touch ID or Face ID, Apple Watch Series 1 and later, and Mac models with Touch ID. Google, on the other hand, opts for a more traditional PIN-based authentication system. This allows it to work on older hardware than Apple Pay does. Both can make online purchases straight from an app or website, automatically handling the entire checkout process with pre-filled defaults and only requiring PIN or Touch ID verification to complete the transaction. Note From an industry point of view, the most significant breakthrough that mobile payment systems offer is in their security, and here, Apple and Google both incorporate some beneficial protections. Google Wallet vs. Google Pay Even though its maker reverted the overall product's name back to Google Wallet from Google Pay in 2022, there remain some differences between Google Pay and Google's wallet offering. Google Wallet is a secure, private digital wallet that lets you store items such as: Payment cardsFlight and event ticketsTransit passesVaccination, loyalty, and gift cardsDigital car keysIdentification cards Google Pay, in contrast, is an app within the wallet that lets you manage your money and finances. It lets you: Get insights about your spending.Send money to friends and family and split bills.Earn rewards on eligible transactions.Find offers from merchants.Gain quick access to your Google Wallet. Apple Wallet vs. Apple Pay The differences here are similar to those between Google Wallet and Google Pay. In this case, Apple Pay is the secure payment system offered on Apple's products, and Apple Wallet is where you can digitally store your credit or debit cards so you can use them with Apple Pay, along with other tickets, passes, IDs, and more. Apple Pay vs. Google Wallet for Teens' Use If you're a parent or guardian of a teenager who's interested in access to a mobile payment option, Apple Wallet provides Apple Cash Family. As an adult, you can add family members younger than 18 under your own Apple Wallet, which allows you to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever the young person makes a transaction. In addition, Apple Cash Family comes closest to letting you use it like cash because most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept Apple Pay. With Google Pay, a component of Google Wallet, kids of any age can be added by a parent to the parent's own Google account, which allows the adult to limit children's spending to certain apps or types of purchases, as well as require parental preauthorization for any purchase that the child makes. Note that kids under 13 can't make purchases using Google Assistant, the company's artificial intelligence (AI)-powered virtual assistant app. Google Pay also offers another feature for family use, Purchase Requests. This allows kids to send a request to buy something to the adult supervising Google Pay's use by the family, even without a family payment method set up. Then the family manager of the account can review and decide whether to make the purchase for their young person. Parents also can use Google's Family Link app to monitor kids' purchases in the Google Play store, Google accounts, the child's location, and time spent on supervised devices. Because Google Pay only works on Google Play, kids can't use it to make purchases in physical stores or to send money to their friends or family, unless they get approval for those activities from the Google Pay Purchase Requests tool and the parent pays using the family payment mode. Security Systems Credit card fraud remains a significant problem worldwide. As banks and retailers work to upgrade their platforms, mobile payment systems like Apple Pay and Google Wallet may allow the U.S. to leapfrog to the forefront of payment security. Though the two systems appear to be equally robust, the companies take different approaches that shape what their products can and can't do. For the consumer, the use of Touch ID versus personal identification (PIN) authentication is the most visible difference, but behind the scenes, there is a lot more happening. Most important is the fact that neither system reveals the user's card details to the vendor. Google Security With both systems, you provide your card details only once, during the initial setup. Google adopts an intermediary role and saves your card details on its servers. It then issues a virtual card to your device, the Google Pay virtual card. When paying, the device only transmits the Google Pay virtual card's information. The vendor never sees your real card, which is protected by Google's secure servers. When the seller charges the virtual card, Google, in turn, charges your stored debit or credit card and is the only entity that ever sees your real card through this transaction. Apple Security Apple employs a different system known as tokenization. Here, when your card details are provided to the device, it contacts the issuing bank directly and, upon confirmation, receives a device- and card-specific token called the Device Account Number (DAN), which is stored on a secure chip on the device. The DAN structurally resembles a credit card number and is passed on to the merchant when any payment is made before getting authorized by the bank. Does Apple Pay Charge Fees? No, Apple Pay doesn't charge consumers fees. Instead, it makes money directly from the bank that issued the card linked to the Apple Pay account. Does Google Wallet Charge Fees? No, Google Wallet doesn't charge consumers fees. Google makes money by charging vendors a percentage of each transaction, as well as through targeted ads. Does Apple Pay Offer a Credit Line? Apple Pay doesn't have its own credit line but pairs with the Apple Credit Card. Does Google Pay Offer a Credit Line? No, Google Pay doesn't offer a credit line in the U.S. The Bottom Line Apple Pay was once promoted as "Your wallet. Without the wallet," a description that, in truth, fits Google Wallet better. Google Pay, meanwhile, was promoted as "an easier way to pay," which in all fairness is what Apple ought to be saying. For the consumer, both systems offer convenience and a measure of security, so choosing between the two is mostly a matter of personal preference.

https://www.investopedia.com/ask/answers/032515/what-does-it-mean-if-correlation-coefficient-positive-negative-or-zero.asp

Correlation Coefficients: Positive, Negative, and Zero

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Correlation coefficients are indicators of the strength of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/linearrelationship.asp">linear relationship</a> between two different variables, <em>x</em> and <em>y</em>. A linear correlation coefficient that is greater than zero indicates a positive relationship. A value that is less than zero signifies a negative relationship. Finally, a value of zero indicates no relationship between the two variables. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> This article explains the significance of linear correlation coefficients for investors, how to calculate covariance for stocks, and how investors can use correlation to predict the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways:</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Correlation coefficients are used to measure the strength of the linear relationship between two variables.</li><li>A correlation coefficient greater than zero indicates a positive relationship while a value less than zero signifies a negative relationship.</li><li>A value close to zero indicates a weak relationship between the two variables being compared.</li><li>A negative correlation, or inverse correlation, is a key concept in the creation of diversified portfolios that can better withstand portfolio volatility.</li><li>Calculating the correlation coefficient is time-consuming, so data is often plugged into a calculator, computer, or statistics program to find the coefficient.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-correlation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Correlation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The correlation coefficient (<em>ρ</em>) is a measure that determines the degree to which the movement of two different variables is associated. The most common correlation coefficient, generated by the Pearson product-moment correlation, is used to measure the linear relationship between two variables. However, in a non-linear relationship, this correlation coefficient may not always be a suitable measure of dependence. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The possible range of values for the correlation coefficient is -1.0 to 1.0. In other words, the values cannot exceed 1.0 or be less than -1.0. A correlation of -1.0 indicates a perfect <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/negative-correlation.asp">negative correlation</a> and a correlation of 1.0 indicates a perfect <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/positive-correlation.asp">positive correlation</a>. If the correlation coefficient is greater than zero, it is a positive relationship. Conversely, if the value is less than zero, it is a negative relationship. A value of zero indicates that there is no relationship between the two variables. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>When interpreting correlation, it's important to remember that just because two variables are correlated, it does not mean that one causes the other.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Correlation and the Financial Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In the financial markets, the correlation coefficient is used to measure the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/11/calculating-covariance.asp">correlation between two securities</a>. For example, when two stocks move in the same direction, the correlation coefficient is positive. Conversely, when two stocks move in opposite directions, the correlation coefficient is negative. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If the correlation coefficient of two variables is zero, there is no linear relationship between the variables. However, this is only for a linear relationship. Two variables can have a strong relationship but a weak correlation coefficient if the relationship between them is nonlinear. When the value of ρ is close to zero, generally between -0.1 and +0.1, the variables are said to have no linear relationship (or a very weak linear relationship). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> For example, suppose that the prices of coffee and computers are observed and found to have a correlation of +.0008. This means that there is only a very weak <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">correlation</a>, or relationship, between the two prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_21-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Graphs showing positive, negative, and no correlation" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/2b8kkUpoknl2tKdZfbsCzI-2X54=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/2b8kkUpoknl2tKdZfbsCzI-2X54=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png" data-srcset="https://www.investopedia.com/thmb/102rYyem2-HtYmV1DKQBT5PYRoM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Graphs showing positive, negative, and no correlation" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/2b8kkUpoknl2tKdZfbsCzI-2X54=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png" srcset="https://www.investopedia.com/thmb/102rYyem2-HtYmV1DKQBT5PYRoM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Investopedia / Hugo Lin</span> </figcaption></figure> <span class="heading-toc" id="toc-calculating-"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Calculating ρ </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/covariance.asp">covariance</a> of the two variables in question must be calculated before the correlation can be determined. Next, each variable's standard deviation is required. The correlation coefficient is determined by dividing the covariance by the product of the two variables' standard deviations.</p> <p>Standard deviation is a measure of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dispersion.asp">dispersion</a> of data from its average. Covariance is a measure of how two variables change together. However, its magnitude is unbounded, so it is difficult to interpret. The normalized version of the statistic is calculated by dividing covariance by the product of the two standard deviations. This is the correlation coefficient.</p> <p><span data-value="\text{Correlation}=\rho=\frac{\text{cov}(X,Y)}{\sigma_X\sigma_Y}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtext> Correlation </mtext> <mo> = </mo> <mi> ρ </mi> <mo> = </mo> <mfrac> <mrow> <mtext> cov </mtext> <mo> ( </mo> <mi> X </mi> <mo> , </mo> <mi> Y </mi> <mo> ) </mo> </mrow> <mrow> <msub> <mi> σ </mi> <mi> X </mi> </msub> <msub> <mi> σ </mi> <mi> Y </mi> </msub> </mrow> </mfrac> </mrow> <annotation encoding="application/x-tex"> \text{Correlation}=\rho=\frac{\text{cov}(X,Y)}{\sigma_X\sigma_Y} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord text"><span class="mord">Correlation</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord mathnormal">ρ</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mord mathnormal mtight">σ</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mathnormal mtight">X</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord mtight"><span class="mord mathnormal mtight">σ</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mathnormal mtight">Y</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mtight">cov</span></span><span class="mopen mtight">(</span><span class="mord mathnormal mtight">X</span><span class="mpunct mtight">,</span><span class="mord mathnormal mtight">Y</span><span class="mclose mtight">)</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-positive-correlation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Positive Correlation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A positive correlation—when the correlation coefficient is greater than 0—signifies that both variables tend to move in the same direction. When ρ is +1, it signifies that the two variables being compared have a perfect positive relationship; when one variable moves higher or lower, the other variable moves in the same direction with the same magnitude. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The closer the value of ρ is to +1, the stronger the linear relationship. For example, suppose the value of oil prices is directly related to the prices of airplane tickets, with a correlation coefficient of +0.95. The relationship between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042215/what-are-some-examples-positive-correlation-economics.asp">oil prices and airfares</a> has a very strong positive correlation since the value is close to +1. So, if the price of oil decreases, airfares also decrease, and if the price of oil increases, so do the prices of airplane tickets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In the chart below, we compare one of the largest U.S. banks, JPMorgan Chase &amp; Co. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>), with the Financial Select SPDR Exchange Traded Fund (ETF) (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLF">XLF</a>). As you can imagine, JPMorgan Chase &amp; Co. should have a positive correlation to the banking industry as a whole. From Oct. 2022 to Oct. 2023, we can see the correlation coefficient was +0.34, which signals a positive correlation, as expected; however, it is a weak correlation, due to JPM's approximate 13% increase in the past year and XLF's approximate 2.8% decrease.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_32-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/5P47D/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="JPM and XLF Correlation"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Understanding the correlation between two stocks (or a single stock) and their industry can help investors gauge how the stock is trading relative to its peers. All types of securities, including bonds, sectors, and ETFs, can be compared with the correlation coefficient. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-negative-correlation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Negative Correlation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> A negative (inverse) correlation occurs when the correlation coefficient is less than 0. This is an indication that both variables move in the opposite direction. In short, any reading between 0 and -1 means that the two securities move in opposite directions. When <em>ρ</em> is -1, the relationship is said to be perfectly negatively correlated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> In short, if one variable increases, the other variable decreases with the same magnitude (and vice versa). However, the degree to which two securities are negatively correlated might vary over time (and they are almost never exactly correlated all the time).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Examples of Negative Correlation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> For example, suppose a study is conducted to assess the relationship between the outside temperature and heating bills. The study concludes that there is a negative correlation between the prices of heating bills and the outdoor temperature. The correlation coefficient is calculated to be -0.96. This strong negative correlation signifies that as the temperature decreases outside, the prices of heating bills increase (and vice versa). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> When it comes to investing, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040815/how-should-i-interpret-negative-correlation.asp">negative correlation</a> does not necessarily mean that the securities should be avoided. The correlation coefficient can help investors <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/03/072303.asp">diversify their portfolios</a> by including a mix of investments that have a negative, or low, correlation to the stock market. In short, when reducing volatility risk in a portfolio, sometimes opposites do attract.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> For example, assume you have a $100,000 balanced portfolio that is invested 60% in stocks and 40% in bonds. In a year of strong economic performance, the stock component of your portfolio might generate a return of 12% while the bond component may return -2% because interest rates are rising (which means that bond prices are falling). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Thus, the overall return on your portfolio would be 6.4% ((12% x 0.6) + (-2% x 0.4). The following year, as the economy slows markedly and interest rates are lowered, your stock portfolio might generate -5% while your bond portfolio may return 8%, giving you an overall portfolio return of 0.2%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> What if, instead of a balanced portfolio, your portfolio were 100% equities? Using the same return assumptions, your all-equity portfolio would have a return of 12% in the first year and -5% in the second year. These figures are clearly more volatile than the balanced portfolio's returns of 6.4% and 0.2%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-linear-correlation-coefficient"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> Linear Correlation Coefficient </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables: x and y. The sign of the linear correlation coefficient indicates the direction of the linear relationship between x and y. When r (the correlation coefficient) is near 1 or −1, the linear relationship is strong; when it is near 0, the linear relationship is weak. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Even for small datasets, the computations for the linear correlation coefficient can be too long to do manually. Thus, data is often plugged into a calculator or, more likely, a computer or statistics program to find the coefficient. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> The Pearson Coefficient </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Both the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pearsoncoefficient.asp">Pearson coefficient </a>calculation and basic linear regression are ways to determine how statistical variables are linearly related. However, the two methods do differ. The Pearson coefficient is a measure of the strength and direction of the linear association between two variables with no assumption of causality. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> The Pearson coefficient shows correlation, not causation. Pearson coefficients range from +1 to -1, with +1 representing a positive correlation, -1 representing a negative correlation, and 0 representing no relationship. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Simple linear regression describes the linear relationship between a response variable (denoted by y) and an explanatory variable (denoted by x) using a statistical model. Statistical models are used to make predictions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_64-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_65-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Simplify linear regression by calculating correlation with software such as Excel.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> In finance, for example, correlation is used in several analyses including the calculation of portfolio standard deviation. Because it is so time-consuming, correlation is best calculated using software like Excel. Correlation combines statistical concepts, namely, variance and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviation</a>. Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance.</p> <h3>How to Calculate the Correlation Coefficient</h3> <p>Correlation combines several important and related statistical concepts, namely, variance and standard deviation. Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance. </p> <p><span data-tts="true">The formula is: </span></p> <p><span data-value="\bold{r}=\frac{n(\sum xy)-(\sum x)(\sum y)}{\sqrt{[n\sum x^2-(\sum x)^2][n\sum y^2-(\sum y)^2)]}}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mi> r </mi> <mo> = </mo> <mfrac> <mrow> <mi> n </mi> <mo> ( </mo> <mo> ∑ </mo> <mi> x </mi> <mi> y </mi> <mo> ) </mo> <mo> − </mo> <mo> ( </mo> <mo> ∑ </mo> <mi> x </mi> <mo> ) </mo> <mo> ( </mo> <mo> ∑ </mo> <mi> y </mi> <mo> ) </mo> </mrow> <msqrt> <mrow> <mo> [ </mo> <mi> n </mi> <mo> ∑ </mo> <msup> <mi> x </mi> <mn> 2 </mn> </msup> <mo> − </mo> <mo> ( </mo> <mo> ∑ </mo> <mi> x </mi> <msup> <mo> ) </mo> <mn> 2 </mn> </msup> <mo> ] </mo> <mo> [ </mo> <mi> n </mi> <mo> ∑ </mo> <msup> <mi> y </mi> <mn> 2 </mn> </msup> <mo> − </mo> <mo> ( </mo> <mo> ∑ </mo> <mi> y </mi> <msup> <mo> ) </mo> <mn> 2 </mn> </msup> <mo> ) </mo> <mo> ] </mo> </mrow> </msqrt> </mfrac> </mrow> <annotation encoding="application/x-tex"> \bold{r}=\frac{n(\sum xy)-(\sum x)(\sum y)}{\sqrt{[n\sum x^2-(\sum x)^2][n\sum y^2-(\sum y)^2)]}} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord mathbf">r</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord sqrt mtight"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class="svg-align"><span class="pstrut"></span><span class="mord mtight"><span class="mopen mtight">[</span><span class="mord mathnormal mtight">n</span><span class="mspace mtight"></span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mtight"><span class="mord mathnormal mtight">x</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mtight">2</span></span></span></span></span></span></span></span><span class="mbin mtight">−</span><span class="mopen mtight">(</span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mathnormal mtight">x</span><span class="mclose mtight"><span class="mclose mtight">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mtight">2</span></span></span></span></span></span></span></span><span class="mclose mtight">]</span><span class="mopen mtight">[</span><span class="mord mathnormal mtight">n</span><span class="mspace mtight"></span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mtight"><span class="mord mathnormal mtight">y</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mtight">2</span></span></span></span></span></span></span></span><span class="mbin mtight">−</span><span class="mopen mtight">(</span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mathnormal mtight">y</span><span class="mclose mtight"><span class="mclose mtight">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mtight">2</span></span></span></span></span></span></span></span><span class="mclose mtight">)]</span></span></span><span class=""><span class="pstrut"></span><span class="hide-tail mtight"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathnormal mtight">n</span><span class="mopen mtight">(</span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mathnormal mtight">x</span><span class="mord mathnormal mtight">y</span><span class="mclose mtight">)</span><span class="mbin mtight">−</span><span class="mopen mtight">(</span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mathnormal mtight">x</span><span class="mclose mtight">)</span><span class="mopen mtight">(</span><span class="mop op-symbol small-op mtight">∑</span><span class="mspace mtight"></span><span class="mord mathnormal mtight">y</span><span class="mclose mtight">)</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span></span></p> <p>The computing is too long to do manually, and software, such as Excel, or a statistics program, are tools used to calculate the coefficient. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Finding Correlation Using Excel </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> There are several methods to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/031015/how-can-you-calculate-correlation-using-excel.asp" rel="noopener noreferrer">calculate correlation in Excel</a>. The simplest is to get two data sets side-by-side and use the built-in correlation formula: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_71-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:62.3%;"> <img alt="Understanding and calculating correlation" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/xX0Rk1KirAWYOfKw5qzKTFqKqYU=/1290x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/UjI19n0aHVkHDrmG3p8Cb-SwzaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66" data-srcset="https://www.investopedia.com/thmb/LZ5jzxaBVdpOfojCGEJsehY6Qok=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66 750w" data-tracking-container="true" height="804" id="mntl-sc-block-image_2-0" width="1290"/> <noscript> <img alt="Understanding and calculating correlation" class="img--noscript universal-image__image" height="804" sizes="750px" src="https://www.investopedia.com/thmb/UjI19n0aHVkHDrmG3p8Cb-SwzaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66" srcset="https://www.investopedia.com/thmb/LZ5jzxaBVdpOfojCGEJsehY6Qok=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66 750w" width="1290"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-owner">Investopedia.com</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> If you want to create a correlation matrix across a range of data sets, Excel has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.microsoft.com/en-gb/office/load-the-analysis-toolpak-in-excel-6a63e598-cd6d-42e3-9317-6b40ba1a66b4" rel="sponsored nofollow">Data Analysis plugin</a> that is found on the Data tab, under Analyze.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> Select the table of returns. In this case, our columns are titled, so we want to check the box "Labels in first row," so Excel knows to treat these as titles. Then you can choose to output on the same sheet or on a new sheet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_76-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.1%;"> <img alt="Understanding and calculating correlation" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/lmueLr-oSDZ3NFzOGHvtdTqIHcc=/1235x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/P__jAZMoth3StK4LhsZPDC2AX3g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709" data-srcset="https://www.investopedia.com/thmb/8M63MMGkosGJmKowhbl2oxAnTlQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709 750w" data-tracking-container="true" height="619" id="mntl-sc-block-image_3-0" width="1235"/> <noscript> <img alt="Understanding and calculating correlation" class="img--noscript universal-image__image" height="619" sizes="750px" src="https://www.investopedia.com/thmb/P__jAZMoth3StK4LhsZPDC2AX3g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709" srcset="https://www.investopedia.com/thmb/8M63MMGkosGJmKowhbl2oxAnTlQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709 750w" width="1235"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner">Investopedia.com</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Once you hit enter, the data is automatically created. You can add some text and conditional formatting to clean up the result. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_79-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:17.8%;"> <img alt="Understanding and calculating correlation" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/099gpSrbK1fxOXSSoWn81zMP0zY=/864x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/pIgFgQvNIyS2VJgOC4h4KgTRqpg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400" data-srcset="https://www.investopedia.com/thmb/n3qN374g79TrGYjIJg1RuJ65P9E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400 750w" data-tracking-container="true" height="154" id="mntl-sc-block-image_4-0" width="864"/> <noscript> <img alt="Understanding and calculating correlation" class="img--noscript universal-image__image" height="154" sizes="750px" src="https://www.investopedia.com/thmb/pIgFgQvNIyS2VJgOC4h4KgTRqpg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400" srcset="https://www.investopedia.com/thmb/n3qN374g79TrGYjIJg1RuJ65P9E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400 750w" width="864"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_4-0"> <span class="figure-article-caption-owner">Investopedia.com</span> </figcaption></figure> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-subheading__text"> Finding Correlation on a Graphing Calculator </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> A graphing calculator, such as a TI-84, can also be used to calculate the correlation coefficient. The following instructions are provided by Statology.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> <strong>Step 1: Turn on Diagnostics</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> You will only need to do this step once on your calculator. After that, you can always start at step 2 below. If you don’t do this, r (the correlation coefficient) will not show up when you run the linear regression function. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> Press [2nd] and then [0] to enter your calculator’s catalog. Scroll until you see “diagnosticsOn”. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Press enter until the calculator screen says “Done”. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> This is important to repeat: You never have to do this again unless you reset your calculator. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> <strong>Step 2: Enter Data</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> Enter your data into the calculator by pressing [STAT] and then selecting 1:Edit. To make things easier, you should enter all of your “x data” into L1 and all of your “y data” into L2. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> <strong>Step 3: Calculate!</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> Once you have your data in, you will now go to [STAT] and then the CALC menu up top. Finally, select 4:LinReg and press enter. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> That’s it! You’re done! Now you can simply read off the correlation coefficient right from the screen (its r). Remember, if r doesn’t show on your calculator, then diagnostics need to be turned on. This is also the same place on the calculator where you will find the linear regression equation and the coefficient of determination.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables, x and y. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_105-0"><span class="heading-toc" id="toc-what-is-the-linear-correlation-coefficient"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Linear Correlation Coefficient?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_107-0"><span class="heading-toc" id="toc-what-is-meant-by-linear-correlation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Meant by Linear Correlation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The correlation coefficient is a value between -1 and +1. A correlation coefficient of +1 indicates a perfect positive correlation. As variable x increases, variable y increases. As variable x decreases, variable y decreases. A correlation coefficient of -1 indicates a perfect negative correlation. As variable x increases, variable z decreases. As variable x decreases, variable z increases.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_109-0"><span class="heading-toc" id="toc-what-is-considered-a-strong-correlation-coefficient"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Considered a Strong Correlation Coefficient?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, the closer a correlation coefficient is to 1.0 (or -1.0) the stronger the relationship between the two variables is said to be. While there is no clear boundary to what makes a "strong" correlation, a coefficient above 0.75 (or below -0.75) is considered a high degree of correlation, while one between -0.3 and 0.3 is a sign of weak or no correlation. In experimental science, researchers will sometimes repeat the same study to see if a high degree of correlation can be reproduced.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> The linear correlation coefficient can be helpful in determining the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032315/how-do-i-calculate-correlation-between-market-indicators-and-specific-stocks.asp">relationship between an investment and the overall market</a> or other securities. It is often used to predict stock market returns. This statistical measurement is useful in many ways, particularly in the finance industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> For example, it can be helpful in determining how well a mutual fund is behaving compared to its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> index, or it can be used to determine how a mutual fund behaves in relation to another fund or asset class. By adding a low, or negatively correlated mutual fund to an existing portfolio, diversification benefits are gained. </p></div>

Correlation coefficients are indicators of the strength of the [linear relationship](https://www.investopedia.com/terms/l/linearrelationship.asp) between two different variables, *x* and *y*. A linear correlation coefficient that is greater than zero indicates a positive relationship. A value that is less than zero signifies a negative relationship. Finally, a value of zero indicates no relationship between the two variables. This article explains the significance of linear correlation coefficients for investors, how to calculate covariance for stocks, and how investors can use correlation to predict the market. ### Key Takeaways: * Correlation coefficients are used to measure the strength of the linear relationship between two variables. * A correlation coefficient greater than zero indicates a positive relationship while a value less than zero signifies a negative relationship. * A value close to zero indicates a weak relationship between the two variables being compared. * A negative correlation, or inverse correlation, is a key concept in the creation of diversified portfolios that can better withstand portfolio volatility. * Calculating the correlation coefficient is time-consuming, so data is often plugged into a calculator, computer, or statistics program to find the coefficient. ## Understanding Correlation The correlation coefficient (*ρ*) is a measure that determines the degree to which the movement of two different variables is associated. The most common correlation coefficient, generated by the Pearson product-moment correlation, is used to measure the linear relationship between two variables. However, in a non-linear relationship, this correlation coefficient may not always be a suitable measure of dependence. The possible range of values for the correlation coefficient is -1.0 to 1.0. In other words, the values cannot exceed 1.0 or be less than -1.0. A correlation of -1.0 indicates a perfect [negative correlation](https://www.investopedia.com/terms/n/negative-correlation.asp) and a correlation of 1.0 indicates a perfect [positive correlation](https://www.investopedia.com/terms/p/positive-correlation.asp). If the correlation coefficient is greater than zero, it is a positive relationship. Conversely, if the value is less than zero, it is a negative relationship. A value of zero indicates that there is no relationship between the two variables. ### When interpreting correlation, it's important to remember that just because two variables are correlated, it does not mean that one causes the other. ### Correlation and the Financial Markets In the financial markets, the correlation coefficient is used to measure the [correlation between two securities](https://www.investopedia.com/articles/financial-theory/11/calculating-covariance.asp). For example, when two stocks move in the same direction, the correlation coefficient is positive. Conversely, when two stocks move in opposite directions, the correlation coefficient is negative. If the correlation coefficient of two variables is zero, there is no linear relationship between the variables. However, this is only for a linear relationship. Two variables can have a strong relationship but a weak correlation coefficient if the relationship between them is nonlinear. When the value of ρ is close to zero, generally between -0.1 and +0.1, the variables are said to have no linear relationship (or a very weak linear relationship). For example, suppose that the prices of coffee and computers are observed and found to have a correlation of +.0008. This means that there is only a very weak [correlation](https://www.investopedia.com/terms/c/correlation.asp), or relationship, between the two prices. ![Graphs showing positive, negative, and no correlation]() :max_bytes(150000):strip_icc()/TC_3126228-how-to-calculate-the-correlation-coefficient-5aabeb313de423003610ee40.png) Investopedia / Hugo Lin ## Calculating ρ The [covariance](https://www.investopedia.com/terms/c/covariance.asp) of the two variables in question must be calculated before the correlation can be determined. Next, each variable's standard deviation is required. The correlation coefficient is determined by dividing the covariance by the product of the two variables' standard deviations. Standard deviation is a measure of the [dispersion](https://www.investopedia.com/terms/d/dispersion.asp) of data from its average. Covariance is a measure of how two variables change together. However, its magnitude is unbounded, so it is difficult to interpret. The normalized version of the statistic is calculated by dividing covariance by the product of the two standard deviations. This is the correlation coefficient. Correlation = ρ = cov ( X , Y ) σ X σ Y \text{Correlation}=\rho=\frac{\text{cov}(X,Y)}{\sigma\_X\sigma\_Y} Correlation=ρ=σX​σY​cov(X,Y)​ ## Positive Correlation A positive correlation—when the correlation coefficient is greater than 0—signifies that both variables tend to move in the same direction. When ρ is +1, it signifies that the two variables being compared have a perfect positive relationship; when one variable moves higher or lower, the other variable moves in the same direction with the same magnitude. The closer the value of ρ is to +1, the stronger the linear relationship. For example, suppose the value of oil prices is directly related to the prices of airplane tickets, with a correlation coefficient of +0.95. The relationship between [oil prices and airfares](https://www.investopedia.com/ask/answers/042215/what-are-some-examples-positive-correlation-economics.asp) has a very strong positive correlation since the value is close to +1. So, if the price of oil decreases, airfares also decrease, and if the price of oil increases, so do the prices of airplane tickets. In the chart below, we compare one of the largest U.S. banks, JPMorgan Chase & Co. ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)), with the Financial Select SPDR Exchange Traded Fund (ETF) ([XLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLF)). As you can imagine, JPMorgan Chase & Co. should have a positive correlation to the banking industry as a whole. From Oct. 2022 to Oct. 2023, we can see the correlation coefficient was +0.34, which signals a positive correlation, as expected; however, it is a weak correlation, due to JPM's approximate 13% increase in the past year and XLF's approximate 2.8% decrease. Understanding the correlation between two stocks (or a single stock) and their industry can help investors gauge how the stock is trading relative to its peers. All types of securities, including bonds, sectors, and ETFs, can be compared with the correlation coefficient. ## Negative Correlation A negative (inverse) correlation occurs when the correlation coefficient is less than 0. This is an indication that both variables move in the opposite direction. In short, any reading between 0 and -1 means that the two securities move in opposite directions. When *ρ* is -1, the relationship is said to be perfectly negatively correlated. In short, if one variable increases, the other variable decreases with the same magnitude (and vice versa). However, the degree to which two securities are negatively correlated might vary over time (and they are almost never exactly correlated all the time).  ### Examples of Negative Correlation For example, suppose a study is conducted to assess the relationship between the outside temperature and heating bills. The study concludes that there is a negative correlation between the prices of heating bills and the outdoor temperature. The correlation coefficient is calculated to be -0.96. This strong negative correlation signifies that as the temperature decreases outside, the prices of heating bills increase (and vice versa). When it comes to investing, a [negative correlation](https://www.investopedia.com/ask/answers/040815/how-should-i-interpret-negative-correlation.asp) does not necessarily mean that the securities should be avoided. The correlation coefficient can help investors [diversify their portfolios](https://www.investopedia.com/articles/03/072303.asp) by including a mix of investments that have a negative, or low, correlation to the stock market. In short, when reducing volatility risk in a portfolio, sometimes opposites do attract.   For example, assume you have a $100,000 balanced portfolio that is invested 60% in stocks and 40% in bonds. In a year of strong economic performance, the stock component of your portfolio might generate a return of 12% while the bond component may return -2% because interest rates are rising (which means that bond prices are falling). Thus, the overall return on your portfolio would be 6.4% ((12% x 0.6) + (-2% x 0.4). The following year, as the economy slows markedly and interest rates are lowered, your stock portfolio might generate -5% while your bond portfolio may return 8%, giving you an overall portfolio return of 0.2%. What if, instead of a balanced portfolio, your portfolio were 100% equities? Using the same return assumptions, your all-equity portfolio would have a return of 12% in the first year and -5% in the second year. These figures are clearly more volatile than the balanced portfolio's returns of 6.4% and 0.2%. ## Linear Correlation Coefficient The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables: x and y. The sign of the linear correlation coefficient indicates the direction of the linear relationship between x and y. When r (the correlation coefficient) is near 1 or −1, the linear relationship is strong; when it is near 0, the linear relationship is weak. Even for small datasets, the computations for the linear correlation coefficient can be too long to do manually. Thus, data is often plugged into a calculator or, more likely, a computer or statistics program to find the coefficient. ### The Pearson Coefficient Both the [Pearson coefficient](https://www.investopedia.com/terms/p/pearsoncoefficient.asp) calculation and basic linear regression are ways to determine how statistical variables are linearly related. However, the two methods do differ. The Pearson coefficient is a measure of the strength and direction of the linear association between two variables with no assumption of causality. The Pearson coefficient shows correlation, not causation. Pearson coefficients range from +1 to -1, with +1 representing a positive correlation, -1 representing a negative correlation, and 0 representing no relationship. Simple linear regression describes the linear relationship between a response variable (denoted by y) and an explanatory variable (denoted by x) using a statistical model. Statistical models are used to make predictions. ### Simplify linear regression by calculating correlation with software such as Excel. In finance, for example, correlation is used in several analyses including the calculation of portfolio standard deviation. Because it is so time-consuming, correlation is best calculated using software like Excel. Correlation combines statistical concepts, namely, variance and [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp). Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance. ### How to Calculate the Correlation Coefficient Correlation combines several important and related statistical concepts, namely, variance and standard deviation. Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance.  The formula is:  r = n ( ∑ x y ) − ( ∑ x ) ( ∑ y ) [ n ∑ x 2 − ( ∑ x ) 2 ] [ n ∑ y 2 − ( ∑ y ) 2 ) ] \bold{r}=\frac{n(\sum xy)-(\sum x)(\sum y)}{\sqrt{[n\sum x^2-(\sum x)^2][n\sum y^2-(\sum y)^2)]}} r=[n∑x2−(∑x)2][n∑y2−(∑y)2)]​n(∑xy)−(∑x)(∑y)​ The computing is too long to do manually, and software, such as Excel, or a statistics program, are tools used to calculate the coefficient. ### Finding Correlation Using Excel There are several methods to [calculate correlation in Excel](https://www.investopedia.com/ask/answers/031015/how-can-you-calculate-correlation-using-excel.asp). The simplest is to get two data sets side-by-side and use the built-in correlation formula: ![Understanding and calculating correlation]() :max_bytes(150000):strip_icc()/corr_ex1-5bfd884246e0fb002640aa66) Investopedia.com If you want to create a correlation matrix across a range of data sets, Excel has a [Data Analysis plugin](https://support.microsoft.com/en-gb/office/load-the-analysis-toolpak-in-excel-6a63e598-cd6d-42e3-9317-6b40ba1a66b4) that is found on the Data tab, under Analyze.  Select the table of returns. In this case, our columns are titled, so we want to check the box "Labels in first row," so Excel knows to treat these as titles. Then you can choose to output on the same sheet or on a new sheet. ![Understanding and calculating correlation]() :max_bytes(150000):strip_icc()/corr_ex2-5bfd884046e0fb005158c709) Investopedia.com Once you hit enter, the data is automatically created. You can add some text and conditional formatting to clean up the result. ![Understanding and calculating correlation]() :max_bytes(150000):strip_icc()/corr_matrix-5bfd883ec9e77c0026f45400) Investopedia.com ### Finding Correlation on a Graphing Calculator A graphing calculator, such as a TI-84, can also be used to calculate the correlation coefficient. The following instructions are provided by Statology. **Step 1: Turn on Diagnostics** You will only need to do this step once on your calculator. After that, you can always start at step 2 below. If you don’t do this, r (the correlation coefficient) will not show up when you run the linear regression function. Press [2nd] and then [0] to enter your calculator’s catalog. Scroll until you see “diagnosticsOn”. Press enter until the calculator screen says “Done”. This is important to repeat: You never have to do this again unless you reset your calculator. **Step 2: Enter Data** Enter your data into the calculator by pressing [STAT] and then selecting 1:Edit. To make things easier, you should enter all of your “x data” into L1 and all of your “y data” into L2. **Step 3: Calculate!** Once you have your data in, you will now go to [STAT] and then the CALC menu up top. Finally, select 4:LinReg and press enter. That’s it! You’re done! Now you can simply read off the correlation coefficient right from the screen (its r). Remember, if r doesn’t show on your calculator, then diagnostics need to be turned on. This is also the same place on the calculator where you will find the linear regression equation and the coefficient of determination. The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables, x and y. ## What Is the Linear Correlation Coefficient? The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables. ## What Is Meant by Linear Correlation? The correlation coefficient is a value between -1 and +1. A correlation coefficient of +1 indicates a perfect positive correlation. As variable x increases, variable y increases. As variable x decreases, variable y decreases. A correlation coefficient of -1 indicates a perfect negative correlation. As variable x increases, variable z decreases. As variable x decreases, variable z increases. ## What Is Considered a Strong Correlation Coefficient? Generally, the closer a correlation coefficient is to 1.0 (or -1.0) the stronger the relationship between the two variables is said to be. While there is no clear boundary to what makes a "strong" correlation, a coefficient above 0.75 (or below -0.75) is considered a high degree of correlation, while one between -0.3 and 0.3 is a sign of weak or no correlation. In experimental science, researchers will sometimes repeat the same study to see if a high degree of correlation can be reproduced. ## The Bottom Line The linear correlation coefficient can be helpful in determining the [relationship between an investment and the overall market](https://www.investopedia.com/ask/answers/032315/how-do-i-calculate-correlation-between-market-indicators-and-specific-stocks.asp) or other securities. It is often used to predict stock market returns. This statistical measurement is useful in many ways, particularly in the finance industry. For example, it can be helpful in determining how well a mutual fund is behaving compared to its [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index, or it can be used to determine how a mutual fund behaves in relation to another fund or asset class. By adding a low, or negatively correlated mutual fund to an existing portfolio, diversification benefits are gained.

Correlation coefficients are indicators of the strength of the linear relationship between two different variables, x and y. A linear correlation coefficient that is greater than zero indicates a positive relationship. A value that is less than zero signifies a negative relationship. Finally, a value of zero indicates no relationship between the two variables. This article explains the significance of linear correlation coefficients for investors, how to calculate covariance for stocks, and how investors can use correlation to predict the market. Key Takeaways: Correlation coefficients are used to measure the strength of the linear relationship between two variables.A correlation coefficient greater than zero indicates a positive relationship while a value less than zero signifies a negative relationship.A value close to zero indicates a weak relationship between the two variables being compared.A negative correlation, or inverse correlation, is a key concept in the creation of diversified portfolios that can better withstand portfolio volatility.Calculating the correlation coefficient is time-consuming, so data is often plugged into a calculator, computer, or statistics program to find the coefficient. Understanding Correlation The correlation coefficient (ρ) is a measure that determines the degree to which the movement of two different variables is associated. The most common correlation coefficient, generated by the Pearson product-moment correlation, is used to measure the linear relationship between two variables. However, in a non-linear relationship, this correlation coefficient may not always be a suitable measure of dependence. The possible range of values for the correlation coefficient is -1.0 to 1.0. In other words, the values cannot exceed 1.0 or be less than -1.0. A correlation of -1.0 indicates a perfect negative correlation and a correlation of 1.0 indicates a perfect positive correlation. If the correlation coefficient is greater than zero, it is a positive relationship. Conversely, if the value is less than zero, it is a negative relationship. A value of zero indicates that there is no relationship between the two variables. When interpreting correlation, it's important to remember that just because two variables are correlated, it does not mean that one causes the other. Correlation and the Financial Markets In the financial markets, the correlation coefficient is used to measure the correlation between two securities. For example, when two stocks move in the same direction, the correlation coefficient is positive. Conversely, when two stocks move in opposite directions, the correlation coefficient is negative. If the correlation coefficient of two variables is zero, there is no linear relationship between the variables. However, this is only for a linear relationship. Two variables can have a strong relationship but a weak correlation coefficient if the relationship between them is nonlinear. When the value of ρ is close to zero, generally between -0.1 and +0.1, the variables are said to have no linear relationship (or a very weak linear relationship). For example, suppose that the prices of coffee and computers are observed and found to have a correlation of +.0008. This means that there is only a very weak correlation, or relationship, between the two prices. Investopedia / Hugo Lin Calculating ρ The covariance of the two variables in question must be calculated before the correlation can be determined. Next, each variable's standard deviation is required. The correlation coefficient is determined by dividing the covariance by the product of the two variables' standard deviations. Standard deviation is a measure of the dispersion of data from its average. Covariance is a measure of how two variables change together. However, its magnitude is unbounded, so it is difficult to interpret. The normalized version of the statistic is calculated by dividing covariance by the product of the two standard deviations. This is the correlation coefficient. Correlation = ρ = cov ( X , Y ) σ X σ Y \text{Correlation}=\rho=\frac{\text{cov}(X,Y)}{\sigma_X\sigma_Y} Correlation=ρ=σX​σY​cov(X,Y)​ Positive Correlation A positive correlation—when the correlation coefficient is greater than 0—signifies that both variables tend to move in the same direction. When ρ is +1, it signifies that the two variables being compared have a perfect positive relationship; when one variable moves higher or lower, the other variable moves in the same direction with the same magnitude. The closer the value of ρ is to +1, the stronger the linear relationship. For example, suppose the value of oil prices is directly related to the prices of airplane tickets, with a correlation coefficient of +0.95. The relationship between oil prices and airfares has a very strong positive correlation since the value is close to +1. So, if the price of oil decreases, airfares also decrease, and if the price of oil increases, so do the prices of airplane tickets. In the chart below, we compare one of the largest U.S. banks, JPMorgan Chase & Co. (JPM), with the Financial Select SPDR Exchange Traded Fund (ETF) (XLF). As you can imagine, JPMorgan Chase & Co. should have a positive correlation to the banking industry as a whole. From Oct. 2022 to Oct. 2023, we can see the correlation coefficient was +0.34, which signals a positive correlation, as expected; however, it is a weak correlation, due to JPM's approximate 13% increase in the past year and XLF's approximate 2.8% decrease. Understanding the correlation between two stocks (or a single stock) and their industry can help investors gauge how the stock is trading relative to its peers. All types of securities, including bonds, sectors, and ETFs, can be compared with the correlation coefficient. Negative Correlation A negative (inverse) correlation occurs when the correlation coefficient is less than 0. This is an indication that both variables move in the opposite direction. In short, any reading between 0 and -1 means that the two securities move in opposite directions. When ρ is -1, the relationship is said to be perfectly negatively correlated. In short, if one variable increases, the other variable decreases with the same magnitude (and vice versa). However, the degree to which two securities are negatively correlated might vary over time (and they are almost never exactly correlated all the time).  Examples of Negative Correlation For example, suppose a study is conducted to assess the relationship between the outside temperature and heating bills. The study concludes that there is a negative correlation between the prices of heating bills and the outdoor temperature. The correlation coefficient is calculated to be -0.96. This strong negative correlation signifies that as the temperature decreases outside, the prices of heating bills increase (and vice versa). When it comes to investing, a negative correlation does not necessarily mean that the securities should be avoided. The correlation coefficient can help investors diversify their portfolios by including a mix of investments that have a negative, or low, correlation to the stock market. In short, when reducing volatility risk in a portfolio, sometimes opposites do attract.   For example, assume you have a $100,000 balanced portfolio that is invested 60% in stocks and 40% in bonds. In a year of strong economic performance, the stock component of your portfolio might generate a return of 12% while the bond component may return -2% because interest rates are rising (which means that bond prices are falling). Thus, the overall return on your portfolio would be 6.4% ((12% x 0.6) + (-2% x 0.4). The following year, as the economy slows markedly and interest rates are lowered, your stock portfolio might generate -5% while your bond portfolio may return 8%, giving you an overall portfolio return of 0.2%. What if, instead of a balanced portfolio, your portfolio were 100% equities? Using the same return assumptions, your all-equity portfolio would have a return of 12% in the first year and -5% in the second year. These figures are clearly more volatile than the balanced portfolio's returns of 6.4% and 0.2%. Linear Correlation Coefficient The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables: x and y. The sign of the linear correlation coefficient indicates the direction of the linear relationship between x and y. When r (the correlation coefficient) is near 1 or −1, the linear relationship is strong; when it is near 0, the linear relationship is weak. Even for small datasets, the computations for the linear correlation coefficient can be too long to do manually. Thus, data is often plugged into a calculator or, more likely, a computer or statistics program to find the coefficient. The Pearson Coefficient Both the Pearson coefficient calculation and basic linear regression are ways to determine how statistical variables are linearly related. However, the two methods do differ. The Pearson coefficient is a measure of the strength and direction of the linear association between two variables with no assumption of causality. The Pearson coefficient shows correlation, not causation. Pearson coefficients range from +1 to -1, with +1 representing a positive correlation, -1 representing a negative correlation, and 0 representing no relationship. Simple linear regression describes the linear relationship between a response variable (denoted by y) and an explanatory variable (denoted by x) using a statistical model. Statistical models are used to make predictions. Simplify linear regression by calculating correlation with software such as Excel. In finance, for example, correlation is used in several analyses including the calculation of portfolio standard deviation. Because it is so time-consuming, correlation is best calculated using software like Excel. Correlation combines statistical concepts, namely, variance and standard deviation. Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance. How to Calculate the Correlation Coefficient Correlation combines several important and related statistical concepts, namely, variance and standard deviation. Variance is the dispersion of a variable around the mean, and standard deviation is the square root of variance.  The formula is:  r = n ( ∑ x y ) − ( ∑ x ) ( ∑ y ) [ n ∑ x 2 − ( ∑ x ) 2 ] [ n ∑ y 2 − ( ∑ y ) 2 ) ] \bold{r}=\frac{n(\sum xy)-(\sum x)(\sum y)}{\sqrt{[n\sum x^2-(\sum x)^2][n\sum y^2-(\sum y)^2)]}} r=[n∑x2−(∑x)2][n∑y2−(∑y)2)]​n(∑xy)−(∑x)(∑y)​ The computing is too long to do manually, and software, such as Excel, or a statistics program, are tools used to calculate the coefficient. Finding Correlation Using Excel There are several methods to calculate correlation in Excel. The simplest is to get two data sets side-by-side and use the built-in correlation formula: Investopedia.com If you want to create a correlation matrix across a range of data sets, Excel has a Data Analysis plugin that is found on the Data tab, under Analyze.  Select the table of returns. In this case, our columns are titled, so we want to check the box "Labels in first row," so Excel knows to treat these as titles. Then you can choose to output on the same sheet or on a new sheet. Investopedia.com Once you hit enter, the data is automatically created. You can add some text and conditional formatting to clean up the result. Investopedia.com Finding Correlation on a Graphing Calculator A graphing calculator, such as a TI-84, can also be used to calculate the correlation coefficient. The following instructions are provided by Statology. Step 1: Turn on Diagnostics You will only need to do this step once on your calculator. After that, you can always start at step 2 below. If you don’t do this, r (the correlation coefficient) will not show up when you run the linear regression function. Press [2nd] and then [0] to enter your calculator’s catalog. Scroll until you see “diagnosticsOn”. Press enter until the calculator screen says “Done”. This is important to repeat: You never have to do this again unless you reset your calculator. Step 2: Enter Data Enter your data into the calculator by pressing [STAT] and then selecting 1:Edit. To make things easier, you should enter all of your “x data” into L1 and all of your “y data” into L2. Step 3: Calculate! Once you have your data in, you will now go to [STAT] and then the CALC menu up top. Finally, select 4:LinReg and press enter. That’s it! You’re done! Now you can simply read off the correlation coefficient right from the screen (its r). Remember, if r doesn’t show on your calculator, then diagnostics need to be turned on. This is also the same place on the calculator where you will find the linear regression equation and the coefficient of determination. The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables, x and y. What Is the Linear Correlation Coefficient? The linear correlation coefficient is a number calculated from given data that measures the strength of the linear relationship between two variables. What Is Meant by Linear Correlation? The correlation coefficient is a value between -1 and +1. A correlation coefficient of +1 indicates a perfect positive correlation. As variable x increases, variable y increases. As variable x decreases, variable y decreases. A correlation coefficient of -1 indicates a perfect negative correlation. As variable x increases, variable z decreases. As variable x decreases, variable z increases. What Is Considered a Strong Correlation Coefficient? Generally, the closer a correlation coefficient is to 1.0 (or -1.0) the stronger the relationship between the two variables is said to be. While there is no clear boundary to what makes a "strong" correlation, a coefficient above 0.75 (or below -0.75) is considered a high degree of correlation, while one between -0.3 and 0.3 is a sign of weak or no correlation. In experimental science, researchers will sometimes repeat the same study to see if a high degree of correlation can be reproduced. The Bottom Line The linear correlation coefficient can be helpful in determining the relationship between an investment and the overall market or other securities. It is often used to predict stock market returns. This statistical measurement is useful in many ways, particularly in the finance industry. For example, it can be helpful in determining how well a mutual fund is behaving compared to its benchmark index, or it can be used to determine how a mutual fund behaves in relation to another fund or asset class. By adding a low, or negatively correlated mutual fund to an existing portfolio, diversification benefits are gained.

https://www.investopedia.com/term-of-the-week-meme-stock-8648748

Term of the Week: Meme Stock

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Meme stocks made headlines this week as heavy trading activity in GameStop, AMC Entertainment, and other stocks drew speculation of a meme stock resurgence. </li><li>GameStop and AMC Entertainment shares soared on Monday and Tuesday, before dropping sharply later in the week.</li><li>The two-day rally to start the week was largely attributed to the online return of Keith Gill, a key figure in the meme stock craze of 2020 and 2021.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meme-stock-5206762">Meme stocks</a> made headlines this week as heavy trading activity in GameStop (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>), AMC Entertainment (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>), and other stocks drew speculation of a meme stock resurgence.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> GameStop and AMC Entertainment shares soared to start the week on Monday and Tuesday, sparked by the online return of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/keith-gill-roaring-kitty-8303143">Keith Gill</a>, a key figure in the meme stock craze of 2020 and 2021. However, both stocks <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gamestop-amc-stocks-plunge-as-meme-stock-rally-fades-almost-as-quickly-as-it-began-8648768">reversed course Wednesday</a> and continued to fall through Friday's close. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Despite dropping sharply Wednesday through Friday, both stocks posted gains for the week, with GameStop shares finishing 27% higher for the week at $22.21, and AMC registering a gain of 51% at $4.40 as of Friday's close. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-what-is-a-meme-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Is a Meme Stock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The term gained popularity in 2020, when an online group of retail traders flocked to buy GameStop shares after a YouTube video went viral from a user named Keith Gill, also known by his online persona "Roaring Kitty." The video detailed a path for GameStop's stock price to rise to $50 from $5. Gill and activist investor Ryan Cohen, who <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gamestop-names-activist-investor-ryan-cohen-president-and-ceo-7975950">eventually became GameStop's CEO</a>, led a collection of retail traders largely from the r/WallStreetBets subreddit group to buy and hold GameStop shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Because of perceived weaknesses in the business models of GameStop and AMC as movies and video games had shifted to the digital space, a number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">large hedge funds</a> took up large <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short positions</a> on the stocks, effectively betting that the companies would fail. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Gill, Cohen, and the group of retail traders believed that the higher they drove the share prices, the more financial pain they could cause to the multibillion-dollar hedge funds. By driving shares higher, they could squeeze the funds out of their short positions, forcing them to buy shares to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortcovering.asp">cover their losses</a>, driving the stocks even higher. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A number of other stocks have also achieved meme stock status, with retail investors rallying to support struggling businesses like Tupperware Brands (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TUP">TUP</a>), BlackBerry (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BB">BB</a>), and Bed Bath &amp; Beyond as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> At the peak of the meme stock frenzy in 2021, GameStop shares reached highs over $80, and AMC above $300. However, GameStop, AMC, and many other meme stocks weren't able to hold those levels for long. Gill stepped back from public life in June 2021, the hype around GameStop and AMC eventually faded, and despite the recent surge in interest, GameStop and AMC haven't reclaimed their 2021 highs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-why-are-meme-stocks-in-the-news-this-week"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Why Are Meme Stocks in the News This Week? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Sunday evening, Gill made his first post to social media in nearly three years, and has followed up with dozens of posts since. Many of the posts used quotes from a variety of TV and movie scenes alluding to his return after an extended absence.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In the first morning of trading after Gill's return, GameStop shares soared, with activity levels leading to a number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gamestop-stock-soars-as-roaring-kitty-posts-for-first-time-in-3-years-8647335">trading halts</a>. AMC shares followed, with some other meme stocks such as Tupperware and BlackBerry rising to a lesser extent. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> However, Vanda Securities analysts noted that inflows into GameStop and AMC on Monday and Tuesday were "a fraction" of the levels seen at the peak of meme stock mania, and expressed skepticism of whether the latest meme stock hype could lead to a repeat of 2021. They suggested hedge funds and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp">institutional investors</a> are also likely better prepared now than they were in 2021. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Ihor Dusaniwsky of S3 Partners wrote in a Tuesday note that while "a significant amount" of short sellers could be squeezed out of their GameStop and AMC positions, another wave will likely follow them to bet on the stocks falling like they did following the 2021 spikes. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * Meme stocks made headlines this week as heavy trading activity in GameStop, AMC Entertainment, and other stocks drew speculation of a meme stock resurgence. * GameStop and AMC Entertainment shares soared on Monday and Tuesday, before dropping sharply later in the week. * The two-day rally to start the week was largely attributed to the online return of Keith Gill, a key figure in the meme stock craze of 2020 and 2021. [Meme stocks](https://www.investopedia.com/meme-stock-5206762) made headlines this week as heavy trading activity in GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)), AMC Entertainment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)), and other stocks drew speculation of a meme stock resurgence.  GameStop and AMC Entertainment shares soared to start the week on Monday and Tuesday, sparked by the online return of [Keith Gill](https://www.investopedia.com/keith-gill-roaring-kitty-8303143), a key figure in the meme stock craze of 2020 and 2021. However, both stocks [reversed course Wednesday](https://www.investopedia.com/gamestop-amc-stocks-plunge-as-meme-stock-rally-fades-almost-as-quickly-as-it-began-8648768) and continued to fall through Friday's close. Despite dropping sharply Wednesday through Friday, both stocks posted gains for the week, with GameStop shares finishing 27% higher for the week at $22.21, and AMC registering a gain of 51% at $4.40 as of Friday's close. ## What Is a Meme Stock? The term gained popularity in 2020, when an online group of retail traders flocked to buy GameStop shares after a YouTube video went viral from a user named Keith Gill, also known by his online persona "Roaring Kitty." The video detailed a path for GameStop's stock price to rise to $50 from $5. Gill and activist investor Ryan Cohen, who [eventually became GameStop's CEO](https://www.investopedia.com/gamestop-names-activist-investor-ryan-cohen-president-and-ceo-7975950), led a collection of retail traders largely from the r/WallStreetBets subreddit group to buy and hold GameStop shares. Because of perceived weaknesses in the business models of GameStop and AMC as movies and video games had shifted to the digital space, a number of [large hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) took up large [short positions](https://www.investopedia.com/terms/s/short.asp) on the stocks, effectively betting that the companies would fail. Gill, Cohen, and the group of retail traders believed that the higher they drove the share prices, the more financial pain they could cause to the multibillion-dollar hedge funds. By driving shares higher, they could squeeze the funds out of their short positions, forcing them to buy shares to [cover their losses](https://www.investopedia.com/terms/s/shortcovering.asp), driving the stocks even higher. A number of other stocks have also achieved meme stock status, with retail investors rallying to support struggling businesses like Tupperware Brands ([TUP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TUP)), BlackBerry ([BB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BB)), and Bed Bath & Beyond as well. At the peak of the meme stock frenzy in 2021, GameStop shares reached highs over $80, and AMC above $300. However, GameStop, AMC, and many other meme stocks weren't able to hold those levels for long. Gill stepped back from public life in June 2021, the hype around GameStop and AMC eventually faded, and despite the recent surge in interest, GameStop and AMC haven't reclaimed their 2021 highs. ## Why Are Meme Stocks in the News This Week? Sunday evening, Gill made his first post to social media in nearly three years, and has followed up with dozens of posts since. Many of the posts used quotes from a variety of TV and movie scenes alluding to his return after an extended absence. In the first morning of trading after Gill's return, GameStop shares soared, with activity levels leading to a number of [trading halts](https://www.investopedia.com/gamestop-stock-soars-as-roaring-kitty-posts-for-first-time-in-3-years-8647335). AMC shares followed, with some other meme stocks such as Tupperware and BlackBerry rising to a lesser extent. However, Vanda Securities analysts noted that inflows into GameStop and AMC on Monday and Tuesday were "a fraction" of the levels seen at the peak of meme stock mania, and expressed skepticism of whether the latest meme stock hype could lead to a repeat of 2021. They suggested hedge funds and other [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) are also likely better prepared now than they were in 2021. Ihor Dusaniwsky of S3 Partners wrote in a Tuesday note that while "a significant amount" of short sellers could be squeezed out of their GameStop and AMC positions, another wave will likely follow them to bet on the stocks falling like they did following the 2021 spikes. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Meme stocks made headlines this week as heavy trading activity in GameStop, AMC Entertainment, and other stocks drew speculation of a meme stock resurgence. GameStop and AMC Entertainment shares soared on Monday and Tuesday, before dropping sharply later in the week.The two-day rally to start the week was largely attributed to the online return of Keith Gill, a key figure in the meme stock craze of 2020 and 2021. Meme stocks made headlines this week as heavy trading activity in GameStop (GME), AMC Entertainment (AMC), and other stocks drew speculation of a meme stock resurgence.  GameStop and AMC Entertainment shares soared to start the week on Monday and Tuesday, sparked by the online return of Keith Gill, a key figure in the meme stock craze of 2020 and 2021. However, both stocks reversed course Wednesday and continued to fall through Friday's close. Despite dropping sharply Wednesday through Friday, both stocks posted gains for the week, with GameStop shares finishing 27% higher for the week at $22.21, and AMC registering a gain of 51% at $4.40 as of Friday's close. What Is a Meme Stock? The term gained popularity in 2020, when an online group of retail traders flocked to buy GameStop shares after a YouTube video went viral from a user named Keith Gill, also known by his online persona "Roaring Kitty." The video detailed a path for GameStop's stock price to rise to $50 from $5. Gill and activist investor Ryan Cohen, who eventually became GameStop's CEO, led a collection of retail traders largely from the r/WallStreetBets subreddit group to buy and hold GameStop shares. Because of perceived weaknesses in the business models of GameStop and AMC as movies and video games had shifted to the digital space, a number of large hedge funds took up large short positions on the stocks, effectively betting that the companies would fail. Gill, Cohen, and the group of retail traders believed that the higher they drove the share prices, the more financial pain they could cause to the multibillion-dollar hedge funds. By driving shares higher, they could squeeze the funds out of their short positions, forcing them to buy shares to cover their losses, driving the stocks even higher. A number of other stocks have also achieved meme stock status, with retail investors rallying to support struggling businesses like Tupperware Brands (TUP), BlackBerry (BB), and Bed Bath & Beyond as well. At the peak of the meme stock frenzy in 2021, GameStop shares reached highs over $80, and AMC above $300. However, GameStop, AMC, and many other meme stocks weren't able to hold those levels for long. Gill stepped back from public life in June 2021, the hype around GameStop and AMC eventually faded, and despite the recent surge in interest, GameStop and AMC haven't reclaimed their 2021 highs. Why Are Meme Stocks in the News This Week? Sunday evening, Gill made his first post to social media in nearly three years, and has followed up with dozens of posts since. Many of the posts used quotes from a variety of TV and movie scenes alluding to his return after an extended absence. In the first morning of trading after Gill's return, GameStop shares soared, with activity levels leading to a number of trading halts. AMC shares followed, with some other meme stocks such as Tupperware and BlackBerry rising to a lesser extent. However, Vanda Securities analysts noted that inflows into GameStop and AMC on Monday and Tuesday were "a fraction" of the levels seen at the peak of meme stock mania, and expressed skepticism of whether the latest meme stock hype could lead to a repeat of 2021. They suggested hedge funds and other institutional investors are also likely better prepared now than they were in 2021. Ihor Dusaniwsky of S3 Partners wrote in a Tuesday note that while "a significant amount" of short sellers could be squeezed out of their GameStop and AMC positions, another wave will likely follow them to bet on the stocks falling like they did following the 2021 spikes. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/spy-etf-reaches-record-high-amid-nvidia-fueled-ai-rally-key-chart-pattern-to-watch-8599112

SPY ETF Reaches Record High Amid Nvidia-Fueled AI Rally—Key Chart Pattern to Watch

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The SPDR S&amp;P 500 ETF Trust closed at a record high Thursday, buoyed by a rally in AI-related mega-cap stocks after Nvidia's blowout earning's report.</li><li>Magnificent Seven stocks carry a 27.53% cumulative weighting in SPY’s portfolio, while Nvidia alone ranks as the ETF’s third-largest holding at 4.23%.</li><li>A break above or below a rising wedge pattern on the SPY chart could offer clues about the fund's future price direction.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-spdr-sp-500-etf-trust"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> SPDR S&amp;P 500 ETF Trust </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_4-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:40.5%;"> <img alt="This image depicts the SPY chart." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bqRhtICM2XWjBU2V6vUWrLxYWE0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bqRhtICM2XWjBU2V6vUWrLxYWE0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF" data-srcset="https://www.investopedia.com/thmb/8TI8DBKQC57kgw-PG___8AvHLpY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF 750w" data-tracking-container="true" height="719" id="mntl-sc-block-image_1-0" width="1774"/> <noscript> <img alt="This image depicts the SPY chart." class="img--noscript universal-image__image" height="719" sizes="750px" src="https://www.investopedia.com/thmb/bqRhtICM2XWjBU2V6vUWrLxYWE0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF" srcset="https://www.investopedia.com/thmb/8TI8DBKQC57kgw-PG___8AvHLpY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF 750w" width="1774"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Source: TradingView.com</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The SPDR S&amp;P 500 ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy">SPY</a>)—an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund (ETF)</a> that tracks the S&amp;P 500—mirrored its underlying index Thursday, climbing to an all-time high as investors piled into mega-cap technology stocks after <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> darling Nvidia's (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>) <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-nvidia-q4-fy2024-earnings-call-8598375">blowout quarterly report</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Other AI-related stocks in the S&amp;P 500 including Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>), Broadcom (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo">AVGO</a>), and Advanced Micro Devices (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd">AMD</a>) joined the rally, gaining between 2.4% and 10.7%. <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/synopsys-stock-soars-to-a-record-high-as-ai-boom-drives-bullish-outlook-earnings-beat-8598575">Synopsys</a> (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=snps">SNPS</a>), a company that makes software to test and develop chips, jumped 6.9%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> While leading technology names drove Thursday’s gains, the index’s rally saw broad-based participation, with every sector in the S&amp;P 500 rising except utilities, hinting that the current bull run may transcend touted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/magnificent-seven-stocks-8402262#:~:text=The%20Magnificent%20Seven%20stocks%20are,Microsoft%2C%20NVIDIA%2C%20and%20Tesla.">Magnificent Seven</a> members—a group of influential tech bellwethers including Alphabet (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl">GOOGL</a>), Amazon (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>), Apple (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>), Meta Platforms (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta">META</a>), Microsoft, Nvidia, and Tesla (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla">TSLA</a>) that carry a 27.5% cumulative weighting in SPY’s <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-advisor/steps-building-profitable-portfolio/">portfolio</a>. Nvidia alone ranks as the ETF’s third-largest holding at 4.2%.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Since falling below the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/013015/why-200-simple-moving-average-sma-so-common-traders-and-analysts.asp">200-day moving average</a> in late October, the SPY has made a remarkable recovery, trending sharply higher within a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/07/rising_wedge.asp">rising wedge</a> pattern. More recently, trading volumes have fallen away slightly as the fund reached record closes, indicating a lack of conviction by the bulls. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Looking ahead, a convincing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp">breakout</a> above the wedge pattern’s top trendline could set the stage for further gains, while a breakdown through the lower trendline could warn of a possible correction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? 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### Key Takeaways * The SPDR S&P 500 ETF Trust closed at a record high Thursday, buoyed by a rally in AI-related mega-cap stocks after Nvidia's blowout earning's report. * Magnificent Seven stocks carry a 27.53% cumulative weighting in SPY’s portfolio, while Nvidia alone ranks as the ETF’s third-largest holding at 4.23%. * A break above or below a rising wedge pattern on the SPY chart could offer clues about the fund's future price direction. ## SPDR S&P 500 ETF Trust ![This image depicts the SPY chart.]() :max_bytes(150000):strip_icc()/SPYChart-092a1b46eb1b489a91169d786eb506d4.GIF) Source: TradingView.com The SPDR S&P 500 ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy))—an [exchange-traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) that tracks the S&P 500—mirrored its underlying index Thursday, climbing to an all-time high as investors piled into mega-cap technology stocks after [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) darling Nvidia's ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)) [blowout quarterly report](https://www.investopedia.com/4-key-takeaways-from-nvidia-q4-fy2024-earnings-call-8598375). Other AI-related stocks in the S&P 500 including Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)), Broadcom ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo)), and Advanced Micro Devices ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd)) joined the rally, gaining between 2.4% and 10.7%. [Synopsys](https://www.investopedia.com/synopsys-stock-soars-to-a-record-high-as-ai-boom-drives-bullish-outlook-earnings-beat-8598575) ([SNPS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=snps)), a company that makes software to test and develop chips, jumped 6.9%. While leading technology names drove Thursday’s gains, the index’s rally saw broad-based participation, with every sector in the S&P 500 rising except utilities, hinting that the current bull run may transcend touted [Magnificent Seven](https://www.investopedia.com/magnificent-seven-stocks-8402262#:~:text=The%20Magnificent%20Seven%20stocks%20are,Microsoft%2C%20NVIDIA%2C%20and%20Tesla.) members—a group of influential tech bellwethers including Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl)), Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)), Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)), Meta Platforms ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta)), Microsoft, Nvidia, and Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla)) that carry a 27.5% cumulative weighting in SPY’s [portfolio](https://www.investopedia.com/financial-advisor/steps-building-profitable-portfolio/). Nvidia alone ranks as the ETF’s third-largest holding at 4.2%. Since falling below the [200-day moving average](https://www.investopedia.com/ask/answers/013015/why-200-simple-moving-average-sma-so-common-traders-and-analysts.asp) in late October, the SPY has made a remarkable recovery, trending sharply higher within a [rising wedge](https://www.investopedia.com/articles/trading/07/rising_wedge.asp) pattern. More recently, trading volumes have fallen away slightly as the fund reached record closes, indicating a lack of conviction by the bulls. Looking ahead, a convincing [breakout](https://www.investopedia.com/terms/b/breakout.asp) above the wedge pattern’s top trendline could set the stage for further gains, while a breakdown through the lower trendline could warn of a possible correction. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above securities.* Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The SPDR S&P 500 ETF Trust closed at a record high Thursday, buoyed by a rally in AI-related mega-cap stocks after Nvidia's blowout earning's report.Magnificent Seven stocks carry a 27.53% cumulative weighting in SPY’s portfolio, while Nvidia alone ranks as the ETF’s third-largest holding at 4.23%.A break above or below a rising wedge pattern on the SPY chart could offer clues about the fund's future price direction. SPDR S&P 500 ETF Trust Source: TradingView.com The SPDR S&P 500 ETF (SPY)—an exchange-traded fund (ETF) that tracks the S&P 500—mirrored its underlying index Thursday, climbing to an all-time high as investors piled into mega-cap technology stocks after artificial intelligence (AI) darling Nvidia's (NVDA) blowout quarterly report. Other AI-related stocks in the S&P 500 including Microsoft (MSFT), Broadcom (AVGO), and Advanced Micro Devices (AMD) joined the rally, gaining between 2.4% and 10.7%. Synopsys (SNPS), a company that makes software to test and develop chips, jumped 6.9%. While leading technology names drove Thursday’s gains, the index’s rally saw broad-based participation, with every sector in the S&P 500 rising except utilities, hinting that the current bull run may transcend touted Magnificent Seven members—a group of influential tech bellwethers including Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft, Nvidia, and Tesla (TSLA) that carry a 27.5% cumulative weighting in SPY’s portfolio. Nvidia alone ranks as the ETF’s third-largest holding at 4.2%. Since falling below the 200-day moving average in late October, the SPY has made a remarkable recovery, trending sharply higher within a rising wedge pattern. More recently, trading volumes have fallen away slightly as the fund reached record closes, indicating a lack of conviction by the bulls. Looking ahead, a convincing breakout above the wedge pattern’s top trendline could set the stage for further gains, while a breakdown through the lower trendline could warn of a possible correction. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above securities. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/e/eurozone.asp

Eurozone Definition, History, Member Countries

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-eurozone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Eurozone? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The eurozone, officially known as the euro area, is a geographic and economic region that consists of all the European Union countries that have fully incorporated the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euro</a> as their national currency. As of 2022, the eurozone consists of 19 countries in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanunion.asp">European Union</a> (EU): Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.<span class="ql-inline-citation" data-cite="1"></span> Approximately 340 million people live in the eurozone area.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The eurozone refers to an economic and geographic region consisting of all the European Union (EU) countries that incorporate the euro as their national currency.</li><li>In 1992, the Maastricht Treaty created the EU and paved the way for the formation of a common economic and monetary union consisting of a central banking system, a common currency, and a common economic region, the eurozone.</li><li>The eurozone consists of the following 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.</li><li>Not all European Union nations participate in the eurozone; some opt to use their own currency and maintain their financial independence.</li><li>European Union nations that decide to participate in the eurozone must meet requirements regarding price stability, sound public finances, the durability of convergence, and exchange rate stability.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-eurozone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding the Eurozone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The eurozone is one of the largest economic regions in the world and its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp" rel="noopener noreferrer">currency</a>, the euro, is considered one of the most <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidasset.asp" rel="noopener noreferrer">liquid</a> when compared to others. This region's currency continues to develop over time and is taking a more prominent position in the reserves of many <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp" rel="noopener noreferrer">central banks</a>. It is often used as an example when studying <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trilemma.asp" rel="noopener noreferrer">trilemmas</a>, an economic theory that postulates that nations have three options when making decisions regarding their international monetary policies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-history-of-the-eurozone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> History of the Eurozone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In 1992, the countries making up the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/european-community.asp" rel="noopener noreferrer">European Community (EC)</a> signed the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maastricht-treaty.asp" rel="noopener noreferrer">Maastricht Treaty</a>, thereby creating the EU. The creation of the EU had a few areas of major impact—it promoted greater coordination and cooperation in policy, broadly speaking, but it had specific effects on citizenship, security and defense policy, and economic policy.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Regarding economic policy, the Maastricht Treaty aimed to create a common economic and monetary union, with a central banking system—the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeancentralbank.asp" rel="noopener noreferrer">European Central Bank</a> (ECB)—and a common currency (the euro). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> In order to do this, the treaty called for the free movement of capital between the member states, which then graduated into increased cooperation between national central banks and the increased alignment of economic policy among member states. The final step was the introduction of the euro itself, along with the implementation of a singular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monetarypolicy.asp" rel="noopener noreferrer">monetary policy</a> coming from the ECB. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> For various reasons, not all EU nations are members of the eurozone. Denmark has opted out from joining, although it can do so in the future.<span class="ql-inline-citation" data-cite="1"></span> Some EU nations have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/r/ron-romanian-new-leu.asp">not yet met the conditions needed</a> to join the eurozone. Other countries choose to use their own currency as a way to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/050515/why-these-european-countries-dont-use-euro.asp">maintain their financial independence</a> regarding key economic and monetary issues. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Some countries that are not EU nations have adopted the euro as their national currency. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030613/secret-finances-vatican-economy.asp">The Vatican City</a>, Andorra, Monaco, and San Marino have monetary agreements with the EU allowing them to issue their own euro currency under certain restrictions.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-requirements-for-joining-the-eurozone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Requirements for Joining the Eurozone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In order to join the eurozone and use the euro as their currency, EU nations must meet certain criteria consisting of four <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a> indicators that focus on price stability, sound and sustainable public finances, the durability of convergence, and exchange rate stability.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> For an EU nation to demonstrate price stability, it must demonstrate sustainable price performance and average inflation no more than 1.5 percent above the rate of the three best-performing member states. To demonstrate sound public finances, the government must run a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscaldeficit.asp">budget deficit</a> no greater than 3% of GDP and hold public debt no greater than 60% of GDP.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A nation's durability of convergence is assessed through its long-term interest rates, which cannot be more than 2 percent above the rate in the three member states with the most stable prices. Lastly, the nation must demonstrate exchange rate stability by participating in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange-rate-mechanism.asp">Exchange Rate Mechanism</a> (ERM) II for at least two years "without severe tensions" and without devaluing against the euro.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

## What Is the Eurozone? The eurozone, officially known as the euro area, is a geographic and economic region that consists of all the European Union countries that have fully incorporated the [euro](https://www.investopedia.com/terms/e/euro.asp) as their national currency. As of 2022, the eurozone consists of 19 countries in the [European Union](https://www.investopedia.com/terms/e/europeanunion.asp) (EU): Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Approximately 340 million people live in the eurozone area. ### Key Takeaways * The eurozone refers to an economic and geographic region consisting of all the European Union (EU) countries that incorporate the euro as their national currency. * In 1992, the Maastricht Treaty created the EU and paved the way for the formation of a common economic and monetary union consisting of a central banking system, a common currency, and a common economic region, the eurozone. * The eurozone consists of the following 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. * Not all European Union nations participate in the eurozone; some opt to use their own currency and maintain their financial independence. * European Union nations that decide to participate in the eurozone must meet requirements regarding price stability, sound public finances, the durability of convergence, and exchange rate stability. ## Understanding the Eurozone The eurozone is one of the largest economic regions in the world and its [currency](https://www.investopedia.com/terms/c/currency.asp), the euro, is considered one of the most [liquid](https://www.investopedia.com/terms/l/liquidasset.asp) when compared to others. This region's currency continues to develop over time and is taking a more prominent position in the reserves of many [central banks](https://www.investopedia.com/terms/c/centralbank.asp). It is often used as an example when studying [trilemmas](https://www.investopedia.com/terms/t/trilemma.asp), an economic theory that postulates that nations have three options when making decisions regarding their international monetary policies. ## History of the Eurozone In 1992, the countries making up the [European Community (EC)](https://www.investopedia.com/terms/e/european-community.asp) signed the [Maastricht Treaty](https://www.investopedia.com/terms/m/maastricht-treaty.asp), thereby creating the EU. The creation of the EU had a few areas of major impact—it promoted greater coordination and cooperation in policy, broadly speaking, but it had specific effects on citizenship, security and defense policy, and economic policy.  Regarding economic policy, the Maastricht Treaty aimed to create a common economic and monetary union, with a central banking system—the [European Central Bank](https://www.investopedia.com/terms/e/europeancentralbank.asp) (ECB)—and a common currency (the euro). In order to do this, the treaty called for the free movement of capital between the member states, which then graduated into increased cooperation between national central banks and the increased alignment of economic policy among member states. The final step was the introduction of the euro itself, along with the implementation of a singular [monetary policy](https://www.investopedia.com/terms/m/monetarypolicy.asp) coming from the ECB. ## Special Considerations For various reasons, not all EU nations are members of the eurozone. Denmark has opted out from joining, although it can do so in the future. Some EU nations have [not yet met the conditions needed](https://www.investopedia.com/terms/forex/r/ron-romanian-new-leu.asp) to join the eurozone. Other countries choose to use their own currency as a way to [maintain their financial independence](https://www.investopedia.com/articles/investing/050515/why-these-european-countries-dont-use-euro.asp) regarding key economic and monetary issues. Some countries that are not EU nations have adopted the euro as their national currency. [The Vatican City](https://www.investopedia.com/articles/investing/030613/secret-finances-vatican-economy.asp), Andorra, Monaco, and San Marino have monetary agreements with the EU allowing them to issue their own euro currency under certain restrictions. ## Requirements for Joining the Eurozone In order to join the eurozone and use the euro as their currency, EU nations must meet certain criteria consisting of four [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) indicators that focus on price stability, sound and sustainable public finances, the durability of convergence, and exchange rate stability. For an EU nation to demonstrate price stability, it must demonstrate sustainable price performance and average inflation no more than 1.5 percent above the rate of the three best-performing member states. To demonstrate sound public finances, the government must run a [budget deficit](https://www.investopedia.com/terms/f/fiscaldeficit.asp) no greater than 3% of GDP and hold public debt no greater than 60% of GDP. A nation's durability of convergence is assessed through its long-term interest rates, which cannot be more than 2 percent above the rate in the three member states with the most stable prices. Lastly, the nation must demonstrate exchange rate stability by participating in the [Exchange Rate Mechanism](https://www.investopedia.com/terms/e/exchange-rate-mechanism.asp) (ERM) II for at least two years "without severe tensions" and without devaluing against the euro.

What Is the Eurozone? The eurozone, officially known as the euro area, is a geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency. As of 2022, the eurozone consists of 19 countries in the European Union (EU): Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Approximately 340 million people live in the eurozone area. Key Takeaways The eurozone refers to an economic and geographic region consisting of all the European Union (EU) countries that incorporate the euro as their national currency.In 1992, the Maastricht Treaty created the EU and paved the way for the formation of a common economic and monetary union consisting of a central banking system, a common currency, and a common economic region, the eurozone.The eurozone consists of the following 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.Not all European Union nations participate in the eurozone; some opt to use their own currency and maintain their financial independence.European Union nations that decide to participate in the eurozone must meet requirements regarding price stability, sound public finances, the durability of convergence, and exchange rate stability. Understanding the Eurozone The eurozone is one of the largest economic regions in the world and its currency, the euro, is considered one of the most liquid when compared to others. This region's currency continues to develop over time and is taking a more prominent position in the reserves of many central banks. It is often used as an example when studying trilemmas, an economic theory that postulates that nations have three options when making decisions regarding their international monetary policies. History of the Eurozone In 1992, the countries making up the European Community (EC) signed the Maastricht Treaty, thereby creating the EU. The creation of the EU had a few areas of major impact—it promoted greater coordination and cooperation in policy, broadly speaking, but it had specific effects on citizenship, security and defense policy, and economic policy.  Regarding economic policy, the Maastricht Treaty aimed to create a common economic and monetary union, with a central banking system—the European Central Bank (ECB)—and a common currency (the euro). In order to do this, the treaty called for the free movement of capital between the member states, which then graduated into increased cooperation between national central banks and the increased alignment of economic policy among member states. The final step was the introduction of the euro itself, along with the implementation of a singular monetary policy coming from the ECB. Special Considerations For various reasons, not all EU nations are members of the eurozone. Denmark has opted out from joining, although it can do so in the future. Some EU nations have not yet met the conditions needed to join the eurozone. Other countries choose to use their own currency as a way to maintain their financial independence regarding key economic and monetary issues. Some countries that are not EU nations have adopted the euro as their national currency. The Vatican City, Andorra, Monaco, and San Marino have monetary agreements with the EU allowing them to issue their own euro currency under certain restrictions. Requirements for Joining the Eurozone In order to join the eurozone and use the euro as their currency, EU nations must meet certain criteria consisting of four macroeconomic indicators that focus on price stability, sound and sustainable public finances, the durability of convergence, and exchange rate stability. For an EU nation to demonstrate price stability, it must demonstrate sustainable price performance and average inflation no more than 1.5 percent above the rate of the three best-performing member states. To demonstrate sound public finances, the government must run a budget deficit no greater than 3% of GDP and hold public debt no greater than 60% of GDP. A nation's durability of convergence is assessed through its long-term interest rates, which cannot be more than 2 percent above the rate in the three member states with the most stable prices. Lastly, the nation must demonstrate exchange rate stability by participating in the Exchange Rate Mechanism (ERM) II for at least two years "without severe tensions" and without devaluing against the euro.

https://www.investopedia.com/terms/p/premium.asp

Premium: Definition, Meanings in Finance, and Types

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-premium"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Premium? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Premium has several meanings in finance. Most commonly, it refers to: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <li>Generically, a security trading above its intrinsic or theoretical value is trading at a premium (in contrast to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discount.asp">discount</a>). The difference between the price paid for a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-incomesecurity.asp">fixed-income security</a> and the security's face amount at issue is referred to as a premium if that price is higher than par.</li> <li>The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">purchase price of an insurance policy</a> or the regular payments required by an insurer to provide coverage for a defined period of time.</li> <li>The total cost to buy an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">option</a> contract (often synonymous with its market price).</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Premium can mean a number of things in finance—including the cost to buy an insurance policy or an option.</li><li>Premium is also the price of a bond or other security above its issuance price or intrinsic value. </li><li>A bond might trade at a premium because its interest rate is higher than the current market interest rates.</li><li>People may pay a premium for certain in-demand items.</li><li>Something trading at a premium might also signal it is over-valued.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-premium"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding a Premium </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Broadly speaking, a premium is a price paid for above and beyond some basic or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intrinsicvalue.asp">intrinsic value</a>. Relatedly, it is the price paid for protection from a loss, hazard, or harm (e.g., insurance or options contracts). The word "premium" is derived from the Latin <em>praemium</em>, where it meant "reward" or "prize." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-types-of-premium"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Types of Premium </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-subheading__text"> Price Premium </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A price that exists above some sort of fundamental value is referred to as a premium, and such assets or objects are said to be trading at a premium. Assets may trade at a premium due to increased demand, limited supply, or perceptions of increased value in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A premium bond is a bond trading above its face value or in other words; it costs more than the face amount on the bond. A bond might trade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-premium.asp">at a premium</a> because its interest rate is higher than current rates in the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The concept of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premiumbond.asp">bond price premium</a> is related to the principle that the price of a bond is inversely related to interest rates; if a fixed-income security is purchased at a premium, this means that then-current interest rates are lower than the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp">coupon rate</a> of the bond. The investor thus pays a premium for an investment that will return an amount greater than existing interest rates.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskpremium.asp">risk premium</a> involves returns on an asset that are expected to be in excess of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk-freerate.asp">risk-free rate of return</a>. An asset's risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskfreeasset.asp">risk-free asset</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Similarly, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equityriskpremium.asp">equity risk premium</a> refers to an excess return that investing in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a> provides over a risk-free rate. This excess <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a> compensates investors for taking on the relatively higher risk of equity investing. The size of the premium varies and depends on the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk-profile.asp">level of risk</a> in a particular portfolio. It also changes over time as market risk fluctuates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Options Premium </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Premiums for options are the cost to buy an option. Options give the holder (owner) the right but not the obligation to buy or sell the underlying financial instrument at a specified strike price. The premium for a bond reflects changes in interest rates or risk profile since the issuance date. The buyer of an option has the right but not the obligation to buy (call) or sell (put) the underlying instrument at a given strike price for a given period of time.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The premium that is paid is its intrinsic value plus its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timevalue.asp">time value</a>; an option with a longer maturity always costs more than the same structure with a shorter maturity. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> of the market and how close the strike price is to the then-current market price also affect the premium.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Sophisticated investors sometimes sell one option (also known as writing an option) and use the premium received to cover the cost of buying the underlying instrument or another option. Buying multiple options can either increase or reduce the risk profile of the position, depending on how it is structured. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Insurance Premium </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Premiums for insurance include the compensation the insurer receives for bearing the risk of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payout.asp">payout</a> should an event occur that triggers coverage. The premium may also contain a sales agent's or broker's commissions. The most common types of coverage are auto, health, and homeowners insurance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Premiums are paid for many types of insurance, including health, homeowners, and rental insurance. These payments must be submitted on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fa-profession/091916/what-mode-premium.asp">regular mode or schedule</a> to continue a policy. A common example of an <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">insurance premium</a> comes from <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp">auto insurance</a>. A vehicle owner can insure the value of their vehicle against loss resulting from accident, theft, fire, and other potential problems.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economicprofit.asp">economic losses</a> incurred under the scope of the agreement. Premiums are based on both the risk associated with the insured and the amount of coverage desired. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-premium-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> Premium FAQs </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> What Does Paying a Premium Mean? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> To pay a premium generally means to pay above the going rate for something, because of some perceived added value or due to supply and demand imbalances. To pay a premium may also refer more narrowly to making payments for an insurance policy or options contract. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> What Is Another Word for Premium? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Synonyms for "premium" include prize, fee, dividend, or bonus. In insurance and options trading, it may be synonymous with "price." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> What Are Premium Pricing Examples? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Premium pricing is a marketing strategy that involves tactically setting the price of a particular product higher than either a more basic version of that product or versus the competition. The purpose of premium pricing is to convey higher quality or desirability than other options. </p></div>

## What Is a Premium? Premium has several meanings in finance. Most commonly, it refers to: 1. Generically, a security trading above its intrinsic or theoretical value is trading at a premium (in contrast to a [discount](https://www.investopedia.com/terms/d/discount.asp)). The difference between the price paid for a [fixed-income security](https://www.investopedia.com/terms/f/fixed-incomesecurity.asp) and the security's face amount at issue is referred to as a premium if that price is higher than par. 2. The [purchase price of an insurance policy](https://www.investopedia.com/terms/i/insurance-premium.asp) or the regular payments required by an insurer to provide coverage for a defined period of time. 3. The total cost to buy an [option](https://www.investopedia.com/terms/o/option.asp) contract (often synonymous with its market price). ### Key Takeaways * Premium can mean a number of things in finance—including the cost to buy an insurance policy or an option. * Premium is also the price of a bond or other security above its issuance price or intrinsic value. * A bond might trade at a premium because its interest rate is higher than the current market interest rates. * People may pay a premium for certain in-demand items. * Something trading at a premium might also signal it is over-valued. ## Understanding a Premium Broadly speaking, a premium is a price paid for above and beyond some basic or [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp). Relatedly, it is the price paid for protection from a loss, hazard, or harm (e.g., insurance or options contracts). The word "premium" is derived from the Latin *praemium*, where it meant "reward" or "prize." ## Types of Premium ### Price Premium A price that exists above some sort of fundamental value is referred to as a premium, and such assets or objects are said to be trading at a premium. Assets may trade at a premium due to increased demand, limited supply, or perceptions of increased value in the future. A premium bond is a bond trading above its face value or in other words; it costs more than the face amount on the bond. A bond might trade [at a premium](https://www.investopedia.com/terms/a/at-a-premium.asp) because its interest rate is higher than current rates in the market. The concept of a [bond price premium](https://www.investopedia.com/terms/p/premiumbond.asp) is related to the principle that the price of a bond is inversely related to interest rates; if a fixed-income security is purchased at a premium, this means that then-current interest rates are lower than the [coupon rate](https://www.investopedia.com/terms/c/coupon-rate.asp) of the bond. The investor thus pays a premium for an investment that will return an amount greater than existing interest rates. A [risk premium](https://www.investopedia.com/terms/r/riskpremium.asp) involves returns on an asset that are expected to be in excess of the [risk-free rate of return](https://www.investopedia.com/terms/r/risk-freerate.asp). An asset's risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a [risk-free asset](https://www.investopedia.com/terms/r/riskfreeasset.asp). Similarly, the [equity risk premium](https://www.investopedia.com/terms/e/equityriskpremium.asp) refers to an excess return that investing in the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) provides over a risk-free rate. This excess [return](https://www.investopedia.com/terms/r/return.asp) compensates investors for taking on the relatively higher risk of equity investing. The size of the premium varies and depends on the [level of risk](https://www.investopedia.com/terms/r/risk-profile.asp) in a particular portfolio. It also changes over time as market risk fluctuates. ### Options Premium Premiums for options are the cost to buy an option. Options give the holder (owner) the right but not the obligation to buy or sell the underlying financial instrument at a specified strike price. The premium for a bond reflects changes in interest rates or risk profile since the issuance date. The buyer of an option has the right but not the obligation to buy (call) or sell (put) the underlying instrument at a given strike price for a given period of time. The premium that is paid is its intrinsic value plus its [time value](https://www.investopedia.com/terms/t/timevalue.asp); an option with a longer maturity always costs more than the same structure with a shorter maturity. The [volatility](https://www.investopedia.com/terms/v/volatility.asp) of the market and how close the strike price is to the then-current market price also affect the premium. Sophisticated investors sometimes sell one option (also known as writing an option) and use the premium received to cover the cost of buying the underlying instrument or another option. Buying multiple options can either increase or reduce the risk profile of the position, depending on how it is structured. ### Insurance Premium Premiums for insurance include the compensation the insurer receives for bearing the risk of a [payout](https://www.investopedia.com/terms/p/payout.asp) should an event occur that triggers coverage. The premium may also contain a sales agent's or broker's commissions. The most common types of coverage are auto, health, and homeowners insurance. Premiums are paid for many types of insurance, including health, homeowners, and rental insurance. These payments must be submitted on a [regular mode or schedule](https://www.investopedia.com/articles/fa-profession/091916/what-mode-premium.asp) to continue a policy. A common example of an [insurance premium](https://www.investopedia.com/terms/i/insurance-premium.asp) comes from [auto insurance](https://www.investopedia.com/terms/a/auto-insurance.asp). A vehicle owner can insure the value of their vehicle against loss resulting from accident, theft, fire, and other potential problems.  The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any [economic losses](https://www.investopedia.com/terms/e/economicprofit.asp) incurred under the scope of the agreement. Premiums are based on both the risk associated with the insured and the amount of coverage desired. ## Premium FAQs ### What Does Paying a Premium Mean? To pay a premium generally means to pay above the going rate for something, because of some perceived added value or due to supply and demand imbalances. To pay a premium may also refer more narrowly to making payments for an insurance policy or options contract. ### What Is Another Word for Premium? Synonyms for "premium" include prize, fee, dividend, or bonus. In insurance and options trading, it may be synonymous with "price." ### What Are Premium Pricing Examples? Premium pricing is a marketing strategy that involves tactically setting the price of a particular product higher than either a more basic version of that product or versus the competition. The purpose of premium pricing is to convey higher quality or desirability than other options.

What Is a Premium? Premium has several meanings in finance. Most commonly, it refers to: Generically, a security trading above its intrinsic or theoretical value is trading at a premium (in contrast to a discount). The difference between the price paid for a fixed-income security and the security's face amount at issue is referred to as a premium if that price is higher than par. The purchase price of an insurance policy or the regular payments required by an insurer to provide coverage for a defined period of time. The total cost to buy an option contract (often synonymous with its market price). Key Takeaways Premium can mean a number of things in finance—including the cost to buy an insurance policy or an option.Premium is also the price of a bond or other security above its issuance price or intrinsic value. A bond might trade at a premium because its interest rate is higher than the current market interest rates.People may pay a premium for certain in-demand items.Something trading at a premium might also signal it is over-valued. Understanding a Premium Broadly speaking, a premium is a price paid for above and beyond some basic or intrinsic value. Relatedly, it is the price paid for protection from a loss, hazard, or harm (e.g., insurance or options contracts). The word "premium" is derived from the Latin praemium, where it meant "reward" or "prize." Types of Premium Price Premium A price that exists above some sort of fundamental value is referred to as a premium, and such assets or objects are said to be trading at a premium. Assets may trade at a premium due to increased demand, limited supply, or perceptions of increased value in the future. A premium bond is a bond trading above its face value or in other words; it costs more than the face amount on the bond. A bond might trade at a premium because its interest rate is higher than current rates in the market. The concept of a bond price premium is related to the principle that the price of a bond is inversely related to interest rates; if a fixed-income security is purchased at a premium, this means that then-current interest rates are lower than the coupon rate of the bond. The investor thus pays a premium for an investment that will return an amount greater than existing interest rates. A risk premium involves returns on an asset that are expected to be in excess of the risk-free rate of return. An asset's risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a risk-free asset. Similarly, the equity risk premium refers to an excess return that investing in the stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk of equity investing. The size of the premium varies and depends on the level of risk in a particular portfolio. It also changes over time as market risk fluctuates. Options Premium Premiums for options are the cost to buy an option. Options give the holder (owner) the right but not the obligation to buy or sell the underlying financial instrument at a specified strike price. The premium for a bond reflects changes in interest rates or risk profile since the issuance date. The buyer of an option has the right but not the obligation to buy (call) or sell (put) the underlying instrument at a given strike price for a given period of time. The premium that is paid is its intrinsic value plus its time value; an option with a longer maturity always costs more than the same structure with a shorter maturity. The volatility of the market and how close the strike price is to the then-current market price also affect the premium. Sophisticated investors sometimes sell one option (also known as writing an option) and use the premium received to cover the cost of buying the underlying instrument or another option. Buying multiple options can either increase or reduce the risk profile of the position, depending on how it is structured. Insurance Premium Premiums for insurance include the compensation the insurer receives for bearing the risk of a payout should an event occur that triggers coverage. The premium may also contain a sales agent's or broker's commissions. The most common types of coverage are auto, health, and homeowners insurance. Premiums are paid for many types of insurance, including health, homeowners, and rental insurance. These payments must be submitted on a regular mode or schedule to continue a policy. A common example of an insurance premium comes from auto insurance. A vehicle owner can insure the value of their vehicle against loss resulting from accident, theft, fire, and other potential problems.  The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any economic losses incurred under the scope of the agreement. Premiums are based on both the risk associated with the insured and the amount of coverage desired. Premium FAQs What Does Paying a Premium Mean? To pay a premium generally means to pay above the going rate for something, because of some perceived added value or due to supply and demand imbalances. To pay a premium may also refer more narrowly to making payments for an insurance policy or options contract. What Is Another Word for Premium? Synonyms for "premium" include prize, fee, dividend, or bonus. In insurance and options trading, it may be synonymous with "price." What Are Premium Pricing Examples? Premium pricing is a marketing strategy that involves tactically setting the price of a particular product higher than either a more basic version of that product or versus the competition. The purpose of premium pricing is to convey higher quality or desirability than other options.

https://www.investopedia.com/ask/answers/012615/what-are-legal-barriers-vertical-integration.asp

What are the legal barriers to vertical integration?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/verticalintegration.asp" rel="noopener noreferrer">Vertical integration</a> through internal expansion is not vulnerable to legal challenges. However, if the vertical integration is achieved through a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mergersandacquisitions.asp" rel="noopener noreferrer">merger</a>, it may, from the outset, be vulnerable to a challenge under the confines of antitrust laws. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Vertical integration through a merger is subject to the provisions laid out in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clayton-antitrust-act.asp" rel="noopener noreferrer">Clayton Antitrust Act</a> of 1914, which governs transactions that fall under the umbrella of antitrust law. The Act provides substance and clarification to the Sherman Antitrust Act of 1890.<span class="ql-inline-citation" data-cite="1"></span> With the Clayton Antitrust Act, if a legal challenge is made, the courts make a decision on the legality of the merger on the basis of whether the vertical integration unduly harms competition in the marketplace.<span class="ql-inline-citation" data-cite="2"></span> The courts reach this decision by weighing the pro-competitive and anti-competitive factors associated with the vertical integration on an individual case-by-case basis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Factors considered are the likelihood of changes in the patterns of industry behavior caused by the vertical integration. Some examples of these changes are if a supplier is likely to lose a market for its goods, if retail outlets are refused certain supplies or if competitors find their avenues to supplies or resources blocked. Vertical integrations may also be considered uncompetitive if they grant one company such entrenched market power that it discourages new competitors from entering that particular marketplace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Supreme Court has made three decisions on the topic of vertical integration. In the first case, United States v. E. I. du Pont de Nemours &amp; Co, the judges ruled that the vertical integration was illegal. This was because the Supreme Court found that the 23% acquisition of General Motors foreclosed the sales to General Motors by other suppliers of automotive paints and fabric. This was viewed as being unduly harmful to competition in the marketplace.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In Ford Motor Co. v. United States, Ford Motors wished to acquire a company called Autolite. This business manufactured spark plugs. The action was condemned on the basis that the vertical integration would entrench too much market power in the company and thus discourage other competitors from entering the marketplace. Ford Motors attempted to argue that the acquisition would make Autolite a more effective company but this was dismissed by the Supreme Court, which saw the potentially anti-competitive effects of the vertical integration as a more important concern.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There have been cases where vertical integration has been used to fix prices for price maintenance. Resale price maintenance definitely causes legal obstacles as it is an explicit violation of antitrust laws. The legal penalties for price maintenance are severe. In 1989, Panasonic had to repay $16 million to consumers who paid 5-10% more than they ought to have paid because of price fixing. </p></div>

[Vertical integration](https://www.investopedia.com/terms/v/verticalintegration.asp) through internal expansion is not vulnerable to legal challenges. However, if the vertical integration is achieved through a [merger](https://www.investopedia.com/terms/m/mergersandacquisitions.asp), it may, from the outset, be vulnerable to a challenge under the confines of antitrust laws. Vertical integration through a merger is subject to the provisions laid out in the [Clayton Antitrust Act](https://www.investopedia.com/terms/c/clayton-antitrust-act.asp) of 1914, which governs transactions that fall under the umbrella of antitrust law. The Act provides substance and clarification to the Sherman Antitrust Act of 1890. With the Clayton Antitrust Act, if a legal challenge is made, the courts make a decision on the legality of the merger on the basis of whether the vertical integration unduly harms competition in the marketplace. The courts reach this decision by weighing the pro-competitive and anti-competitive factors associated with the vertical integration on an individual case-by-case basis. Factors considered are the likelihood of changes in the patterns of industry behavior caused by the vertical integration. Some examples of these changes are if a supplier is likely to lose a market for its goods, if retail outlets are refused certain supplies or if competitors find their avenues to supplies or resources blocked. Vertical integrations may also be considered uncompetitive if they grant one company such entrenched market power that it discourages new competitors from entering that particular marketplace. The Supreme Court has made three decisions on the topic of vertical integration. In the first case, United States v. E. I. du Pont de Nemours & Co, the judges ruled that the vertical integration was illegal. This was because the Supreme Court found that the 23% acquisition of General Motors foreclosed the sales to General Motors by other suppliers of automotive paints and fabric. This was viewed as being unduly harmful to competition in the marketplace. In Ford Motor Co. v. United States, Ford Motors wished to acquire a company called Autolite. This business manufactured spark plugs. The action was condemned on the basis that the vertical integration would entrench too much market power in the company and thus discourage other competitors from entering the marketplace. Ford Motors attempted to argue that the acquisition would make Autolite a more effective company but this was dismissed by the Supreme Court, which saw the potentially anti-competitive effects of the vertical integration as a more important concern. There have been cases where vertical integration has been used to fix prices for price maintenance. Resale price maintenance definitely causes legal obstacles as it is an explicit violation of antitrust laws. The legal penalties for price maintenance are severe. In 1989, Panasonic had to repay $16 million to consumers who paid 5-10% more than they ought to have paid because of price fixing.

Vertical integration through internal expansion is not vulnerable to legal challenges. However, if the vertical integration is achieved through a merger, it may, from the outset, be vulnerable to a challenge under the confines of antitrust laws. Vertical integration through a merger is subject to the provisions laid out in the Clayton Antitrust Act of 1914, which governs transactions that fall under the umbrella of antitrust law. The Act provides substance and clarification to the Sherman Antitrust Act of 1890. With the Clayton Antitrust Act, if a legal challenge is made, the courts make a decision on the legality of the merger on the basis of whether the vertical integration unduly harms competition in the marketplace. The courts reach this decision by weighing the pro-competitive and anti-competitive factors associated with the vertical integration on an individual case-by-case basis. Factors considered are the likelihood of changes in the patterns of industry behavior caused by the vertical integration. Some examples of these changes are if a supplier is likely to lose a market for its goods, if retail outlets are refused certain supplies or if competitors find their avenues to supplies or resources blocked. Vertical integrations may also be considered uncompetitive if they grant one company such entrenched market power that it discourages new competitors from entering that particular marketplace. The Supreme Court has made three decisions on the topic of vertical integration. In the first case, United States v. E. I. du Pont de Nemours & Co, the judges ruled that the vertical integration was illegal. This was because the Supreme Court found that the 23% acquisition of General Motors foreclosed the sales to General Motors by other suppliers of automotive paints and fabric. This was viewed as being unduly harmful to competition in the marketplace. In Ford Motor Co. v. United States, Ford Motors wished to acquire a company called Autolite. This business manufactured spark plugs. The action was condemned on the basis that the vertical integration would entrench too much market power in the company and thus discourage other competitors from entering the marketplace. Ford Motors attempted to argue that the acquisition would make Autolite a more effective company but this was dismissed by the Supreme Court, which saw the potentially anti-competitive effects of the vertical integration as a more important concern. There have been cases where vertical integration has been used to fix prices for price maintenance. Resale price maintenance definitely causes legal obstacles as it is an explicit violation of antitrust laws. The legal penalties for price maintenance are severe. In 1989, Panasonic had to repay $16 million to consumers who paid 5-10% more than they ought to have paid because of price fixing.

https://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp

3 Types of Indexing for ETF Success

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Indexing is a strategy used in various investment products, including exchange-traded funds (ETFs). Three weighting methods are used for index ETFs: market-cap-weighted, equal-weighted, and fundamental indexes. Each indexing strategy has advantages and disadvantages while catering to different investment and risk management goals. Market-cap-weighted index ETFs are ordinarily more stable but focus on a few large companies. Equal-weighted and fundamental index ETFs are more diversified and have a greater potential for outperformance but typically have higher management fees and greater volatility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Index ETFs use distinct weighting methods that are best for specific investment goals.</li><li>In a market-cap-weighted index ETF, each constituent security is weighed according to market capitalization.</li><li>In an equal-weighted index ETF, each constituent security is given the same weight, whatever its market capitalization or other financial metrics.</li><li>A fundamental index ETF uses basic metrics such as dividends, earnings, or revenues to weigh the constituent securities, not market capitalization.</li></ul></div></div></div> <span class="heading-toc" id="toc-market-cap-weighted-indexing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Market-Cap-Weighted Indexing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wamc.asp">Market-cap-weighted</a> index ETFs, like those that track the S&amp;P 500, weigh companies according to their market capitalization, giving greater influence to larger firms. While this approach is reflective of broader market conditions, it can be disproportionately affected by a few large companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-subheading__text"> How Does Market-Cap-Weighted Indexing Work? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A market-capitalization-weighted index weighs its component assets based on market capitalization. In simplest terms, the larger a company's market cap, the more its sway on the index's performance. Market capitalization is calculated by multiplying a company's stock price by the total number of outstanding shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Suppose we have a fictional index consisting of three companies: Company X with a market cap of $600 billion, Company Y with $400 billion, and Company Z with $200 billion. The total market cap of this index would be $1.2 trillion. Company X would comprise 50% of the index, Company Y 33.33%, and Company Z 16.67%. Hence, any price changes in Company X's stock would significantly impact the index more than for Company Y and Company Z. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Investors ordinarily favor market-cap-weighted index ETFs for their stability and lower management fees. These index ETFs also provide a reliable reflection of market trends, given the influence of established, high-value companies. Nevertheless, these index ETFs can be too concentrated in certain sectors and lack diversification.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> The Advantages and Disadvantages of Market-Cap-Weighted Index ETFs </span> </h3> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_17-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Advantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Market Representation</p></li> <li><p>Lower Turnover</p></li> <li><p>Liquidity</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Disadvantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Concentration Risk</p></li> <li><p>Underrepresentation</p></li> <li><p>Potential for Market Distortion</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Market-cap-weighted index ETFs have benefits and limitations: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <strong>Benefits:</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li><strong>Market representation</strong>: This type of index ETF better reflects market conditions, as larger companies naturally have a greater market impact.</li><li><strong>Lower turnover</strong>: The need for rebalancing is less frequent than for other index ETF types, which can reduce transaction costs.</li><li><strong>Liquidity</strong>: Larger companies are generally more liquid, making buying or selling index ETFs based on market-cap-weighted indexes easier.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <strong>Limitations:</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li><strong>Concentration risk</strong>: These index ETFs can be heavily influenced by a few large companies, which can introduce volatility and risk when firms face difficulties.</li><li><strong>Underrepresentation</strong>: Smaller companies are given only a slight role in these ETFs, which might mean missing out on the growth opportunities they can provide.</li><li><strong>Potential for market distortion</strong>: Overvalued companies could become even more overvalued in bull markets as their rising value increases their weight in these index ETFs.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Examples of Market-Cap-Weighted Index ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Here are some market-cap-weighted indexes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li><strong>SPDR S&amp;P 500 ETF (SPY)</strong>: This ETF represents the top 500 large-cap U.S. stocks.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="21"></span></li><li><strong>MSCI ACWI (ACWI)</strong>: This ETF covers developed and emerging markets around the world.<span class="ql-inline-citation" data-cite="23"></span></li><li><strong>EURO STOXX 50 (SX5E)</strong>: This ETF comprises 50 stocks from 8 countries within the Eurozone.<span class="ql-inline-citation" data-cite="24"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-equal-weighted-indexing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Equal-Weighted Indexing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#:~:text=market%2Dcap%20weighted%2C-,equal%2Dweighted,-%2C%20and%20fundamental.">equal-weighted index</a> gives each constituent the same weight, whatever its market capitalization or other financial metrics. This approach delivers a balanced exposure to all companies in the index, making it less susceptible to the influence of a few large-cap securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> How Do Equal-Weighted Indexes Work? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> An equal-weighted index provides an equivalent weight to each component, regardless of market capitalization or other characteristics. Thus, each asset equally influences the index's overall performance. For example, suppose we have 100 companies in an equal-weighted index. Each would have a 1% weight, despite potentially having vastly different market caps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> To preserve this balance, equal-weighted indexes undergo periodic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/index-rebalancing-7972596">rebalancing</a>, ordinarily quarterly or semiannual. During rebalancing, the portfolio is adjusted by selling assets that have gone up in value and buying those that have declined, ensuring that the components have equal weights. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-subheading__text"> The Advantages and Disadvantages of an Equal-Weighted Index ETFs </span> </h3> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_43-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_44-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Advantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Diversification</p></li> <li><p>Reduced Concentration Risk</p></li> <li><p>Potential for Higher Returns</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Disadvantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Higher Costs</p></li> <li><p>Volatility</p></li> <li><p>Sector Imbalance</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> An equal-weighted index ETF offers advantages and disadvantages that cater to specific investment needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <strong>Benefits</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <li><strong>Diversification</strong>: By giving equal weight to each stock, this type of index ETF offers balance across various sectors and company sizes. This avoids focusing on a few large-cap stocks, allowing the potential for outperformance from smaller stocks.</li><li><strong>Reduced concentration risk</strong>: Unlike market-cap-weighted indexes, equal-weighted indexes are less susceptible to volatility from a few large companies.</li><li><strong>Potential for higher returns</strong>: Smaller companies, which might be unable to have an impact in market-cap-weighted index ETFs, could offer higher growth potential.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <strong>Limitations</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li><strong>Higher costs</strong>: Habitual rebalancing is required to maintain equal weights, leading to higher transaction costs. Additionally, these index ETFs typically have more active management, which could result in higher fees.</li><li><strong>Volatility</strong>: These index ETFs can be more volatile as smaller companies tend to have higher market risk.</li><li><strong>Sector imbalance</strong>: If smaller companies dominate a particular sector, an equal-weighted index ETF may unintentionally overweigh that sector.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Examples of Equal-Weighted Index ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Here are examples of equal-weighted index ETFs: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> <li><strong>Invesco S&amp;P 500 Equal Weight (RSP)</strong>: This is an equal-weighted ETF version of the S&amp;P 500.<span class="ql-inline-citation" data-cite="28"></span></li><li><strong>Invesco Russell 1000 Equal Weight Index (EQAL):</strong> This index ETF covers the largest 1,000 U.S. companies with equal weighting.<span class="ql-inline-citation" data-cite="29"></span></li><li><strong>First Trust Nasdaq-100 Equal Weighted Index (QQEW)</strong>: This is an equal-weighted ETF version of the Nasdaq 100 Index.<span class="ql-inline-citation" data-cite="30"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-fundamental-indexing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Fundamental Indexing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentally_weighted_index.asp">fundamental index </a>uses dividends, earnings, revenues, and other basic measures to weigh the constituent stocks rather than market capitalization. This approach focuses on a company's intrinsic value and financial stability. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-subheading__text"> How Do Fundamental Indexes Work? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> A fundamental index weighs the constituent securities based on fundamental metrics rather than market capitalization. These metrics could include earnings, dividends, revenue, or book value. The idea is to focus on the intrinsic value of a company rather than its market value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> For example, an index could focus on a combination of dividends, earnings per share, and revenue to determine how to weigh each stock. Thus, if Company X is stronger in these fundamentals than Company Y, Company X will have a greater influence on the index. Periodic rebalancing is needed to keep the index aligned with its chosen metrics. This is usually done quarterly, semiannually, or annually, so the index reflects the most recent data. During rebalancing, stocks that have improved their fundamentals may be given greater weight, while those whose fundamentals have declined may have their weight reduced. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-subheading__text"> The Advantages and Disadvantages of Fundamental Index ETFs </span> </h3> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_70-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_71-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Advantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Focus on Intrinsic Value</p></li> <li><p>Reduced Volatility</p></li> <li><p>Value Orientation</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Disadvantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Potential Underperformance in Bull Markets</p></li> <li><p>Complexity</p></li> <li><p>Higher Costs</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> A fundamental index ETF offers unique advantages and challenges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> <strong>Benefits</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> <li><strong>Focus on intrinsic value</strong>: By weighing stocks based on fundamental metrics, these index ETFs aim to profit from the intrinsic value of companies, potentially delivering more stable returns.</li><li><strong>Reduced volatility</strong>: These index ETFs may deliver less volatility than market-cap-weighted index ETFs since they are less influenced by market sentiment.</li><li><strong>Value orientation</strong>: These index ETFs are typically tilted toward value stocks, which can offer an advantageous ratio between risks and rewards.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> <strong>Limitations</strong>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> <li><strong>Potential underperformance in bull markets</strong>: These index ETFs could lag behind market-cap-weighted index ETFs during strong markets. Like any other index ETF, there is no guarantee that simply focusing on fundamentals will yield better returns, especially during periods when growth stocks outperform value stocks.</li><li><strong>Complexity</strong>: Using several fundamental metrics can make these index ETFs more difficult to understand and analyze.</li><li><strong>Higher costs</strong>: Frequent rebalancing to update fundamental data could lead to higher transaction costs and management fees.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-subheading__text"> Examples of Fundamental Indexes ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Here are some examples of fundamental index ETFs: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> <li><strong>Pimco RAFI ESG U.S. ETF (RAFE)</strong>: Developed by Pimco, this index ETF uses a combination of social responsibility metrics and a smart beta strategy to match the performance of the RAFI ESG U.S. Index.<br/><span class="ql-inline-citation" data-cite="44"></span></li><li><strong>Schwab Fundamental U.S. Large Company Index (FNDX)</strong>: This ETF uses adjusted sales, retained operating cash flow, and dividends plus buybacks for weighting.<span class="ql-inline-citation" data-cite="16"></span></li><li><strong>Invesco FTSE RAFI US 1000</strong> <strong>(PRF)</strong>: This ETF uses four fundamental factors: dividends, cash flow, sales, and book value.<span class="ql-inline-citation" data-cite="34"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <span class="heading-toc" id="toc-evaluating-etf-performance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-heading__text"> Evaluating ETF Performance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> ETF performance is usually assessed according to metrics like capital gains, dividends, expense ratios, and overall net asset value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> Investors need to examine an ETF's historical and current performance, composition, and risk-adjusted returns to make an informed investment decision. You should also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/020916/etfs-can-be-safe-investments-if-used-correctly.asp">evaluate its tracking error</a>, which measures how closely the fund reflects its benchmark index. A lower tracking error can signal a better alignment with the index and, thus, better performance. In addition, expense ratios can greatly affect net returns and should be reviewed closely before investing in an ETF. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> We can see some of these measures below. The table lists the general characteristics of the three types of index ETFs mentioned above: SPY (Market Capitalized), RSP (Equal Weighted), and FNDX (Fundamental Index). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_95-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Characteristics of SPY, RSP, and FNDX as of November 2023 </th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Item</td> <td>SPY<span data-cite="35"></span> </td> <td>RSP<span data-cite="28"></span> </td> <td>FNDX<span data-cite="37"></span> </td> </tr> <tr> <td>Expense Ratio (%)</td> <td>0.09</td> <td>0.20 </td> <td>0.25</td> </tr> <tr> <td>P/E Ratio</td> <td>20.36</td> <td>15.98 </td> <td>14.62</td> </tr> <tr> <td>P/B Ratio</td> <td>4.03</td> <td>2.81</td> <td>2.16</td> </tr> <tr> <td>Distribution Yield (%)</td> <td>1.43</td> <td>1.74</td> <td>2.04</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> This table looks at the same ETFs by listing their top-10 holdings.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_99-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 168px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Top-10 Holdings of SPY, RSP, and FNDX as of November 2023</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> Item</td> <td> SPY<span data-cite="38"></span></td> <td> RSP<span data-cite="39"></span></td> <td>FNDX<span data-cite="40"></span> </td> </tr> <tr> <td> 1</td> <td>Microsoft (7.35%)</td> <td>Allstate Corp. (0.26%)</td> <td>Apple Inc. (4.65%)</td> </tr> <tr> <td> 2</td> <td>Apple (7.29%)</td> <td>Expedia Group Inc. (0.25%)</td> <td>Microsoft Corp. (3.04%)</td> </tr> <tr> <td> 3</td> <td>Amazon.com Inc. (3.51%)</td> <td>Gartner Inc. (0.25%)</td> <td>Berkshire Hathaway Inc. Class B (2.33%)</td> </tr> <tr> <td> 4</td> <td>NVIDIA Corporation (3.11%)</td> <td>Assurant Inc. (0.25%)</td> <td>Meta Platforms Inc. Class A (2.17%)</td> </tr> <tr> <td> 5</td> <td>Alphabet Inc. Class A (2.12%)</td> <td>Progressive Corp. (0.24%)</td> <td>JPMorgan Chase &amp; Co. (1.91%)</td> </tr> <tr> <td> 6</td> <td>Meta Platforms Inc. Class A (1.94%)</td> <td>Willis Towers Watson PLC (0.24%)</td> <td>Intel Corp. (1.84%)</td> </tr> <tr> <td> 7</td> <td>Alphabet Inc. Class C (1.82%)</td> <td>QUALCOMM Inc. (0.24%)</td> <td>Exxon Mobil Corp. (1.75%)</td> </tr> <tr> <td> 8</td> <td>Berkshire Hathaway Inc. Class B (1.72%)</td> <td>Fair Isaac Corp. (0.24%)</td> <td>Amazon.com Inc. (1.48%)</td> </tr> <tr> <td> 9</td> <td>Tesla, Inc. (1.70%) </td> <td>Cardinal Health Inc. (0.24%)</td> <td>Verizon Communications Inc. (1.32%)</td> </tr> <tr> <td> 10</td> <td>UnitedHealth Group Incorporated (1.32%)</td> <td>Seagate Technology Holdings PLC (0.24%)</td> <td>Alphabet Incorporated Class A (1.31%)</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> This table lists the one-year, three-year, five-year, and 10-year annualized returns of SPY, RSP, and FNDX.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_103-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">SPY, RSP, and FNDX Performance as of October 2023</th> </tr> <tr> <th><b>Index</b></th> <th><b>1 Year (%)</b></th> <th><b>3 Years Annualized (%)</b></th> <th><b>5 Years Annualized (%)</b></th> <th><b>10 Years Annualized (%)</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>SPY<span data-cite="41"></span></td> <td>21.50</td> <td>10.06</td> <td>9.77</td> <td>11.77</td> </tr> <tr> <td>RSP<span data-cite="42"></span></td> <td>13.14</td> <td>11.20</td> <td>7.77</td> <td>9.91</td> </tr> <tr> <td>FNDX<span data-cite="43"></span></td> <td>19.57</td> <td>15.28</td> <td>9.53</td> <td>10.79</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_105-0"><span class="heading-toc" id="toc-what-is-an-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An ETF is an investment fund that trades on exchanges like individual stocks. ETFs hold assets such as stocks, bonds, or commodities and aim to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-proxy.asp">replicate the performance of a specific index or sector</a>.</p><p><br/></p><p>ETFs offer the diversification of mutual funds while having the liquidity and real-time prices of individual stocks. ETFs are generally more cost-effective and tax-efficient than mutual funds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_107-0"><span class="heading-toc" id="toc-what-are-the-main-differences-between-passive-and-active-investing-for-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Differences Between Passive and Active Investing for ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While passive ETFs offer cost efficiency and transparency, active ETFs provide the potential for higher returns balanced against higher fees and less predictability.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_109-0"><span class="heading-toc" id="toc-what-is-a-price-weighted-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Price-Weighted Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/priceweightedindex.asp">price-weighted index</a> is an index where each stock is weighed according to its price. Higher-priced securities have a greater influence on this kind of index's value. The Dow Jones Industrial Average is a classic example of a price-weighted index.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_111-0"><span class="heading-toc" id="toc-how-do-investors-use-indexes"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Investors Use Indexes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Indexes are essential tools for investor analysis and investment strategies. They offer a benchmark for evaluating the performance of individual assets or portfolios. Commonly used as the basis for index funds and ETFs, investors look to them to gain broad market exposure in a single investment. In addition, indexes indicate market sentiment and economic health for the sectors represented and are ordinarily cited in financial news and reports.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_113-0"><span class="heading-toc" id="toc-what-is-the-most-popular-type-of-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Most Popular Type of Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Arguably, the most popular type of index is the market-cap-weighted index, characterized by the S&amp;P 500. This index is widely regarded as the best indicator of the U.S. stock market and is used as a benchmark for various investment products.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_115-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> The choice among market-cap-weighted, equal-weighted, and fundamental index ETFs depends on your strategy and risk tolerance. Market-cap-weighted index ETFs like the S&amp;P 500 reflect market sentiment but can be skewed by large companies. Alternatively, equal-weighted index ETFs provide a balanced exposure to all companies in the index, albeit at the cost of higher transaction fees because of frequent rebalancing. Fundamental index ETFs focus on measures of intrinsic value such as dividends, revenue, and earnings, offering the potential for more stable performance. These index ETFs, however, may underperform in strong bull markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_118-0"> Understanding the nuances of these indexes is crucial for portfolio construction and investment success. While market-cap-weighted index ETFs are popular for their broad market representation, equal-weighted and fundamental index ETFs offer alternative approaches based on balanced exposure and intrinsic value, respectively. Each serves different investment goals. </p></div>

Indexing is a strategy used in various investment products, including exchange-traded funds (ETFs). Three weighting methods are used for index ETFs: market-cap-weighted, equal-weighted, and fundamental indexes. Each indexing strategy has advantages and disadvantages while catering to different investment and risk management goals. Market-cap-weighted index ETFs are ordinarily more stable but focus on a few large companies. Equal-weighted and fundamental index ETFs are more diversified and have a greater potential for outperformance but typically have higher management fees and greater volatility. ### Key Takeaways * Index ETFs use distinct weighting methods that are best for specific investment goals. * In a market-cap-weighted index ETF, each constituent security is weighed according to market capitalization. * In an equal-weighted index ETF, each constituent security is given the same weight, whatever its market capitalization or other financial metrics. * A fundamental index ETF uses basic metrics such as dividends, earnings, or revenues to weigh the constituent securities, not market capitalization. ## Market-Cap-Weighted Indexing [Market-cap-weighted](https://www.investopedia.com/terms/w/wamc.asp) index ETFs, like those that track the S&P 500, weigh companies according to their market capitalization, giving greater influence to larger firms. While this approach is reflective of broader market conditions, it can be disproportionately affected by a few large companies. ### How Does Market-Cap-Weighted Indexing Work? A market-capitalization-weighted index weighs its component assets based on market capitalization. In simplest terms, the larger a company's market cap, the more its sway on the index's performance. Market capitalization is calculated by multiplying a company's stock price by the total number of outstanding shares. Suppose we have a fictional index consisting of three companies: Company X with a market cap of $600 billion, Company Y with $400 billion, and Company Z with $200 billion. The total market cap of this index would be $1.2 trillion. Company X would comprise 50% of the index, Company Y 33.33%, and Company Z 16.67%. Hence, any price changes in Company X's stock would significantly impact the index more than for Company Y and Company Z. Investors ordinarily favor market-cap-weighted index ETFs for their stability and lower management fees. These index ETFs also provide a reliable reflection of market trends, given the influence of established, high-value companies. Nevertheless, these index ETFs can be too concentrated in certain sectors and lack diversification. ### The Advantages and Disadvantages of Market-Cap-Weighted Index ETFs Advantages * Market Representation * Lower Turnover * Liquidity Disadvantages * Concentration Risk * Underrepresentation * Potential for Market Distortion Market-cap-weighted index ETFs have benefits and limitations: **Benefits:** * **Market representation**: This type of index ETF better reflects market conditions, as larger companies naturally have a greater market impact. * **Lower turnover**: The need for rebalancing is less frequent than for other index ETF types, which can reduce transaction costs. * **Liquidity**: Larger companies are generally more liquid, making buying or selling index ETFs based on market-cap-weighted indexes easier. **Limitations:** * **Concentration risk**: These index ETFs can be heavily influenced by a few large companies, which can introduce volatility and risk when firms face difficulties. * **Underrepresentation**: Smaller companies are given only a slight role in these ETFs, which might mean missing out on the growth opportunities they can provide. * **Potential for market distortion**: Overvalued companies could become even more overvalued in bull markets as their rising value increases their weight in these index ETFs. ### Examples of Market-Cap-Weighted Index ETFs Here are some market-cap-weighted indexes: * **SPDR S&P 500 ETF (SPY)**: This ETF represents the top 500 large-cap U.S. stocks. * **MSCI ACWI (ACWI)**: This ETF covers developed and emerging markets around the world. * **EURO STOXX 50 (SX5E)**: This ETF comprises 50 stocks from 8 countries within the Eurozone. ## Equal-Weighted Indexing An [equal-weighted index](https://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#:~:text=market%2Dcap%20weighted%2C-,equal%2Dweighted,-%2C%20and%20fundamental.) gives each constituent the same weight, whatever its market capitalization or other financial metrics. This approach delivers a balanced exposure to all companies in the index, making it less susceptible to the influence of a few large-cap securities. ### How Do Equal-Weighted Indexes Work? An equal-weighted index provides an equivalent weight to each component, regardless of market capitalization or other characteristics. Thus, each asset equally influences the index's overall performance. For example, suppose we have 100 companies in an equal-weighted index. Each would have a 1% weight, despite potentially having vastly different market caps. To preserve this balance, equal-weighted indexes undergo periodic [rebalancing](https://www.investopedia.com/index-rebalancing-7972596), ordinarily quarterly or semiannual. During rebalancing, the portfolio is adjusted by selling assets that have gone up in value and buying those that have declined, ensuring that the components have equal weights. ### The Advantages and Disadvantages of an Equal-Weighted Index ETFs Advantages * Diversification * Reduced Concentration Risk * Potential for Higher Returns Disadvantages * Higher Costs * Volatility * Sector Imbalance An equal-weighted index ETF offers advantages and disadvantages that cater to specific investment needs. **Benefits**: * **Diversification**: By giving equal weight to each stock, this type of index ETF offers balance across various sectors and company sizes. This avoids focusing on a few large-cap stocks, allowing the potential for outperformance from smaller stocks. * **Reduced concentration risk**: Unlike market-cap-weighted indexes, equal-weighted indexes are less susceptible to volatility from a few large companies. * **Potential for higher returns**: Smaller companies, which might be unable to have an impact in market-cap-weighted index ETFs, could offer higher growth potential. **Limitations**: * **Higher costs**: Habitual rebalancing is required to maintain equal weights, leading to higher transaction costs. Additionally, these index ETFs typically have more active management, which could result in higher fees. * **Volatility**: These index ETFs can be more volatile as smaller companies tend to have higher market risk. * **Sector imbalance**: If smaller companies dominate a particular sector, an equal-weighted index ETF may unintentionally overweigh that sector. ### Examples of Equal-Weighted Index ETFs Here are examples of equal-weighted index ETFs: * **Invesco S&P 500 Equal Weight (RSP)**: This is an equal-weighted ETF version of the S&P 500. * **Invesco Russell 1000 Equal Weight Index (EQAL):** This index ETF covers the largest 1,000 U.S. companies with equal weighting. * **First Trust Nasdaq-100 Equal Weighted Index (QQEW)**: This is an equal-weighted ETF version of the Nasdaq 100 Index. ## Fundamental Indexing A [fundamental index](https://www.investopedia.com/terms/f/fundamentally_weighted_index.asp) uses dividends, earnings, revenues, and other basic measures to weigh the constituent stocks rather than market capitalization. This approach focuses on a company's intrinsic value and financial stability. ### How Do Fundamental Indexes Work? A fundamental index weighs the constituent securities based on fundamental metrics rather than market capitalization. These metrics could include earnings, dividends, revenue, or book value. The idea is to focus on the intrinsic value of a company rather than its market value. For example, an index could focus on a combination of dividends, earnings per share, and revenue to determine how to weigh each stock. Thus, if Company X is stronger in these fundamentals than Company Y, Company X will have a greater influence on the index. Periodic rebalancing is needed to keep the index aligned with its chosen metrics. This is usually done quarterly, semiannually, or annually, so the index reflects the most recent data. During rebalancing, stocks that have improved their fundamentals may be given greater weight, while those whose fundamentals have declined may have their weight reduced. ### The Advantages and Disadvantages of Fundamental Index ETFs Advantages * Focus on Intrinsic Value * Reduced Volatility * Value Orientation Disadvantages * Potential Underperformance in Bull Markets * Complexity * Higher Costs A fundamental index ETF offers unique advantages and challenges. **Benefits**: * **Focus on intrinsic value**: By weighing stocks based on fundamental metrics, these index ETFs aim to profit from the intrinsic value of companies, potentially delivering more stable returns. * **Reduced volatility**: These index ETFs may deliver less volatility than market-cap-weighted index ETFs since they are less influenced by market sentiment. * **Value orientation**: These index ETFs are typically tilted toward value stocks, which can offer an advantageous ratio between risks and rewards. **Limitations**: * **Potential underperformance in bull markets**: These index ETFs could lag behind market-cap-weighted index ETFs during strong markets. Like any other index ETF, there is no guarantee that simply focusing on fundamentals will yield better returns, especially during periods when growth stocks outperform value stocks. * **Complexity**: Using several fundamental metrics can make these index ETFs more difficult to understand and analyze. * **Higher costs**: Frequent rebalancing to update fundamental data could lead to higher transaction costs and management fees. ### Examples of Fundamental Indexes ETFs Here are some examples of fundamental index ETFs: * **Pimco RAFI ESG U.S. ETF (RAFE)**: Developed by Pimco, this index ETF uses a combination of social responsibility metrics and a smart beta strategy to match the performance of the RAFI ESG U.S. Index. * **Schwab Fundamental U.S. Large Company Index (FNDX)**: This ETF uses adjusted sales, retained operating cash flow, and dividends plus buybacks for weighting. * **Invesco FTSE RAFI US 1000** **(PRF)**: This ETF uses four fundamental factors: dividends, cash flow, sales, and book value. ## Evaluating ETF Performance ETF performance is usually assessed according to metrics like capital gains, dividends, expense ratios, and overall net asset value. Investors need to examine an ETF's historical and current performance, composition, and risk-adjusted returns to make an informed investment decision. You should also [evaluate its tracking error](https://www.investopedia.com/articles/investing/020916/etfs-can-be-safe-investments-if-used-correctly.asp), which measures how closely the fund reflects its benchmark index. A lower tracking error can signal a better alignment with the index and, thus, better performance. In addition, expense ratios can greatly affect net returns and should be reviewed closely before investing in an ETF. We can see some of these measures below. The table lists the general characteristics of the three types of index ETFs mentioned above: SPY (Market Capitalized), RSP (Equal Weighted), and FNDX (Fundamental Index). | Characteristics of SPY, RSP, and FNDX as of November 2023 | | | | | --- | --- | --- | --- | | Item | SPY | RSP | FNDX | | Expense Ratio (%) | 0.09 | 0.20 | 0.25 | | P/E Ratio | 20.36 | 15.98 | 14.62 | | P/B Ratio | 4.03 | 2.81 | 2.16 | | Distribution Yield (%) | 1.43 | 1.74 | 2.04 | This table looks at the same ETFs by listing their top-10 holdings. | Top-10 Holdings of SPY, RSP, and FNDX as of November 2023 | | | | | --- | --- | --- | --- | | Item | SPY | RSP | FNDX | | 1 | Microsoft (7.35%) | Allstate Corp. (0.26%) | Apple Inc. (4.65%) | | 2 | Apple (7.29%) | Expedia Group Inc. (0.25%) | Microsoft Corp. (3.04%) | | 3 | Amazon.com Inc. (3.51%) | Gartner Inc. (0.25%) | Berkshire Hathaway Inc. Class B (2.33%) | | 4 | NVIDIA Corporation (3.11%) | Assurant Inc. (0.25%) | Meta Platforms Inc. Class A (2.17%) | | 5 | Alphabet Inc. Class A (2.12%) | Progressive Corp. (0.24%) | JPMorgan Chase & Co. (1.91%) | | 6 | Meta Platforms Inc. Class A (1.94%) | Willis Towers Watson PLC (0.24%) | Intel Corp. (1.84%) | | 7 | Alphabet Inc. Class C (1.82%) | QUALCOMM Inc. (0.24%) | Exxon Mobil Corp. (1.75%) | | 8 | Berkshire Hathaway Inc. Class B (1.72%) | Fair Isaac Corp. (0.24%) | Amazon.com Inc. (1.48%) | | 9 | Tesla, Inc. (1.70%) | Cardinal Health Inc. (0.24%) | Verizon Communications Inc. (1.32%) | | 10 | UnitedHealth Group Incorporated (1.32%) | Seagate Technology Holdings PLC (0.24%) | Alphabet Incorporated Class A (1.31%) | This table lists the one-year, three-year, five-year, and 10-year annualized returns of SPY, RSP, and FNDX. | SPY, RSP, and FNDX Performance as of October 2023 | | | | | | --- | --- | --- | --- | --- | | **Index** | **1 Year (%)** | **3 Years Annualized (%)** | **5 Years Annualized (%)** | **10 Years Annualized (%)** | | SPY | 21.50 | 10.06 | 9.77 | 11.77 | | RSP | 13.14 | 11.20 | 7.77 | 9.91 | | FNDX | 19.57 | 15.28 | 9.53 | 10.79 | ## What Is an ETF? An ETF is an investment fund that trades on exchanges like individual stocks. ETFs hold assets such as stocks, bonds, or commodities and aim to [replicate the performance of a specific index or sector](https://www.investopedia.com/terms/m/market-proxy.asp). ETFs offer the diversification of mutual funds while having the liquidity and real-time prices of individual stocks. ETFs are generally more cost-effective and tax-efficient than mutual funds. ## What Are the Main Differences Between Passive and Active Investing for ETFs? While passive ETFs offer cost efficiency and transparency, active ETFs provide the potential for higher returns balanced against higher fees and less predictability. ## What Is a Price-Weighted Index? A [price-weighted index](https://www.investopedia.com/terms/p/priceweightedindex.asp) is an index where each stock is weighed according to its price. Higher-priced securities have a greater influence on this kind of index's value. The Dow Jones Industrial Average is a classic example of a price-weighted index. ## How Do Investors Use Indexes? Indexes are essential tools for investor analysis and investment strategies. They offer a benchmark for evaluating the performance of individual assets or portfolios. Commonly used as the basis for index funds and ETFs, investors look to them to gain broad market exposure in a single investment. In addition, indexes indicate market sentiment and economic health for the sectors represented and are ordinarily cited in financial news and reports. ## What Is the Most Popular Type of Index? Arguably, the most popular type of index is the market-cap-weighted index, characterized by the S&P 500. This index is widely regarded as the best indicator of the U.S. stock market and is used as a benchmark for various investment products. ## The Bottom Line The choice among market-cap-weighted, equal-weighted, and fundamental index ETFs depends on your strategy and risk tolerance. Market-cap-weighted index ETFs like the S&P 500 reflect market sentiment but can be skewed by large companies. Alternatively, equal-weighted index ETFs provide a balanced exposure to all companies in the index, albeit at the cost of higher transaction fees because of frequent rebalancing. Fundamental index ETFs focus on measures of intrinsic value such as dividends, revenue, and earnings, offering the potential for more stable performance. These index ETFs, however, may underperform in strong bull markets. Understanding the nuances of these indexes is crucial for portfolio construction and investment success. While market-cap-weighted index ETFs are popular for their broad market representation, equal-weighted and fundamental index ETFs offer alternative approaches based on balanced exposure and intrinsic value, respectively. Each serves different investment goals.

Indexing is a strategy used in various investment products, including exchange-traded funds (ETFs). Three weighting methods are used for index ETFs: market-cap-weighted, equal-weighted, and fundamental indexes. Each indexing strategy has advantages and disadvantages while catering to different investment and risk management goals. Market-cap-weighted index ETFs are ordinarily more stable but focus on a few large companies. Equal-weighted and fundamental index ETFs are more diversified and have a greater potential for outperformance but typically have higher management fees and greater volatility. Key Takeaways Index ETFs use distinct weighting methods that are best for specific investment goals.In a market-cap-weighted index ETF, each constituent security is weighed according to market capitalization.In an equal-weighted index ETF, each constituent security is given the same weight, whatever its market capitalization or other financial metrics.A fundamental index ETF uses basic metrics such as dividends, earnings, or revenues to weigh the constituent securities, not market capitalization. Market-Cap-Weighted Indexing Market-cap-weighted index ETFs, like those that track the S&P 500, weigh companies according to their market capitalization, giving greater influence to larger firms. While this approach is reflective of broader market conditions, it can be disproportionately affected by a few large companies. How Does Market-Cap-Weighted Indexing Work? A market-capitalization-weighted index weighs its component assets based on market capitalization. In simplest terms, the larger a company's market cap, the more its sway on the index's performance. Market capitalization is calculated by multiplying a company's stock price by the total number of outstanding shares. Suppose we have a fictional index consisting of three companies: Company X with a market cap of $600 billion, Company Y with $400 billion, and Company Z with $200 billion. The total market cap of this index would be $1.2 trillion. Company X would comprise 50% of the index, Company Y 33.33%, and Company Z 16.67%. Hence, any price changes in Company X's stock would significantly impact the index more than for Company Y and Company Z. Investors ordinarily favor market-cap-weighted index ETFs for their stability and lower management fees. These index ETFs also provide a reliable reflection of market trends, given the influence of established, high-value companies. Nevertheless, these index ETFs can be too concentrated in certain sectors and lack diversification. The Advantages and Disadvantages of Market-Cap-Weighted Index ETFs Advantages Market Representation Lower Turnover Liquidity Disadvantages Concentration Risk Underrepresentation Potential for Market Distortion Market-cap-weighted index ETFs have benefits and limitations: Benefits: Market representation: This type of index ETF better reflects market conditions, as larger companies naturally have a greater market impact.Lower turnover: The need for rebalancing is less frequent than for other index ETF types, which can reduce transaction costs.Liquidity: Larger companies are generally more liquid, making buying or selling index ETFs based on market-cap-weighted indexes easier. Limitations: Concentration risk: These index ETFs can be heavily influenced by a few large companies, which can introduce volatility and risk when firms face difficulties.Underrepresentation: Smaller companies are given only a slight role in these ETFs, which might mean missing out on the growth opportunities they can provide.Potential for market distortion: Overvalued companies could become even more overvalued in bull markets as their rising value increases their weight in these index ETFs. Examples of Market-Cap-Weighted Index ETFs Here are some market-cap-weighted indexes: SPDR S&P 500 ETF (SPY): This ETF represents the top 500 large-cap U.S. stocks.MSCI ACWI (ACWI): This ETF covers developed and emerging markets around the world.EURO STOXX 50 (SX5E): This ETF comprises 50 stocks from 8 countries within the Eurozone. Equal-Weighted Indexing An equal-weighted index gives each constituent the same weight, whatever its market capitalization or other financial metrics. This approach delivers a balanced exposure to all companies in the index, making it less susceptible to the influence of a few large-cap securities. How Do Equal-Weighted Indexes Work? An equal-weighted index provides an equivalent weight to each component, regardless of market capitalization or other characteristics. Thus, each asset equally influences the index's overall performance. For example, suppose we have 100 companies in an equal-weighted index. Each would have a 1% weight, despite potentially having vastly different market caps. To preserve this balance, equal-weighted indexes undergo periodic rebalancing, ordinarily quarterly or semiannual. During rebalancing, the portfolio is adjusted by selling assets that have gone up in value and buying those that have declined, ensuring that the components have equal weights. The Advantages and Disadvantages of an Equal-Weighted Index ETFs Advantages Diversification Reduced Concentration Risk Potential for Higher Returns Disadvantages Higher Costs Volatility Sector Imbalance An equal-weighted index ETF offers advantages and disadvantages that cater to specific investment needs. Benefits: Diversification: By giving equal weight to each stock, this type of index ETF offers balance across various sectors and company sizes. This avoids focusing on a few large-cap stocks, allowing the potential for outperformance from smaller stocks.Reduced concentration risk: Unlike market-cap-weighted indexes, equal-weighted indexes are less susceptible to volatility from a few large companies.Potential for higher returns: Smaller companies, which might be unable to have an impact in market-cap-weighted index ETFs, could offer higher growth potential. Limitations: Higher costs: Habitual rebalancing is required to maintain equal weights, leading to higher transaction costs. Additionally, these index ETFs typically have more active management, which could result in higher fees.Volatility: These index ETFs can be more volatile as smaller companies tend to have higher market risk.Sector imbalance: If smaller companies dominate a particular sector, an equal-weighted index ETF may unintentionally overweigh that sector. Examples of Equal-Weighted Index ETFs Here are examples of equal-weighted index ETFs: Invesco S&P 500 Equal Weight (RSP): This is an equal-weighted ETF version of the S&P 500.Invesco Russell 1000 Equal Weight Index (EQAL): This index ETF covers the largest 1,000 U.S. companies with equal weighting.First Trust Nasdaq-100 Equal Weighted Index (QQEW): This is an equal-weighted ETF version of the Nasdaq 100 Index. Fundamental Indexing A fundamental index uses dividends, earnings, revenues, and other basic measures to weigh the constituent stocks rather than market capitalization. This approach focuses on a company's intrinsic value and financial stability. How Do Fundamental Indexes Work? A fundamental index weighs the constituent securities based on fundamental metrics rather than market capitalization. These metrics could include earnings, dividends, revenue, or book value. The idea is to focus on the intrinsic value of a company rather than its market value. For example, an index could focus on a combination of dividends, earnings per share, and revenue to determine how to weigh each stock. Thus, if Company X is stronger in these fundamentals than Company Y, Company X will have a greater influence on the index. Periodic rebalancing is needed to keep the index aligned with its chosen metrics. This is usually done quarterly, semiannually, or annually, so the index reflects the most recent data. During rebalancing, stocks that have improved their fundamentals may be given greater weight, while those whose fundamentals have declined may have their weight reduced. The Advantages and Disadvantages of Fundamental Index ETFs Advantages Focus on Intrinsic Value Reduced Volatility Value Orientation Disadvantages Potential Underperformance in Bull Markets Complexity Higher Costs A fundamental index ETF offers unique advantages and challenges. Benefits: Focus on intrinsic value: By weighing stocks based on fundamental metrics, these index ETFs aim to profit from the intrinsic value of companies, potentially delivering more stable returns.Reduced volatility: These index ETFs may deliver less volatility than market-cap-weighted index ETFs since they are less influenced by market sentiment.Value orientation: These index ETFs are typically tilted toward value stocks, which can offer an advantageous ratio between risks and rewards. Limitations: Potential underperformance in bull markets: These index ETFs could lag behind market-cap-weighted index ETFs during strong markets. Like any other index ETF, there is no guarantee that simply focusing on fundamentals will yield better returns, especially during periods when growth stocks outperform value stocks.Complexity: Using several fundamental metrics can make these index ETFs more difficult to understand and analyze.Higher costs: Frequent rebalancing to update fundamental data could lead to higher transaction costs and management fees. Examples of Fundamental Indexes ETFs Here are some examples of fundamental index ETFs: Pimco RAFI ESG U.S. ETF (RAFE): Developed by Pimco, this index ETF uses a combination of social responsibility metrics and a smart beta strategy to match the performance of the RAFI ESG U.S. Index.Schwab Fundamental U.S. Large Company Index (FNDX): This ETF uses adjusted sales, retained operating cash flow, and dividends plus buybacks for weighting.Invesco FTSE RAFI US 1000 (PRF): This ETF uses four fundamental factors: dividends, cash flow, sales, and book value. Evaluating ETF Performance ETF performance is usually assessed according to metrics like capital gains, dividends, expense ratios, and overall net asset value. Investors need to examine an ETF's historical and current performance, composition, and risk-adjusted returns to make an informed investment decision. You should also evaluate its tracking error, which measures how closely the fund reflects its benchmark index. A lower tracking error can signal a better alignment with the index and, thus, better performance. In addition, expense ratios can greatly affect net returns and should be reviewed closely before investing in an ETF. We can see some of these measures below. The table lists the general characteristics of the three types of index ETFs mentioned above: SPY (Market Capitalized), RSP (Equal Weighted), and FNDX (Fundamental Index). Characteristics of SPY, RSP, and FNDX as of November 2023 Item SPY  RSP  FNDX  Expense Ratio (%) 0.09 0.20  0.25 P/E Ratio 20.36 15.98  14.62 P/B Ratio 4.03 2.81 2.16 Distribution Yield (%) 1.43 1.74 2.04 This table looks at the same ETFs by listing their top-10 holdings. Top-10 Holdings of SPY, RSP, and FNDX as of November 2023  Item  SPY  RSP FNDX   1 Microsoft (7.35%) Allstate Corp. (0.26%) Apple Inc. (4.65%)  2 Apple (7.29%) Expedia Group Inc. (0.25%) Microsoft Corp. (3.04%)  3 Amazon.com Inc. (3.51%) Gartner Inc. (0.25%) Berkshire Hathaway Inc. Class B (2.33%)  4 NVIDIA Corporation (3.11%) Assurant Inc. (0.25%) Meta Platforms Inc. Class A (2.17%)  5 Alphabet Inc. Class A (2.12%) Progressive Corp. (0.24%) JPMorgan Chase & Co. (1.91%)  6 Meta Platforms Inc. Class A (1.94%) Willis Towers Watson PLC (0.24%) Intel Corp. (1.84%)  7 Alphabet Inc. Class C (1.82%) QUALCOMM Inc. (0.24%) Exxon Mobil Corp. (1.75%)  8 Berkshire Hathaway Inc. Class B (1.72%) Fair Isaac Corp. (0.24%) Amazon.com Inc. (1.48%)  9 Tesla, Inc. (1.70%)  Cardinal Health Inc. (0.24%) Verizon Communications Inc. (1.32%)  10 UnitedHealth Group Incorporated (1.32%) Seagate Technology Holdings PLC (0.24%) Alphabet Incorporated Class A (1.31%) This table lists the one-year, three-year, five-year, and 10-year annualized returns of SPY, RSP, and FNDX. SPY, RSP, and FNDX Performance as of October 2023 Index 1 Year (%) 3 Years Annualized (%) 5 Years Annualized (%) 10 Years Annualized (%) SPY 21.50 10.06 9.77 11.77 RSP 13.14 11.20 7.77 9.91 FNDX 19.57 15.28 9.53 10.79 What Is an ETF? An ETF is an investment fund that trades on exchanges like individual stocks. ETFs hold assets such as stocks, bonds, or commodities and aim to replicate the performance of a specific index or sector.ETFs offer the diversification of mutual funds while having the liquidity and real-time prices of individual stocks. ETFs are generally more cost-effective and tax-efficient than mutual funds. What Are the Main Differences Between Passive and Active Investing for ETFs? While passive ETFs offer cost efficiency and transparency, active ETFs provide the potential for higher returns balanced against higher fees and less predictability. What Is a Price-Weighted Index? A price-weighted index is an index where each stock is weighed according to its price. Higher-priced securities have a greater influence on this kind of index's value. The Dow Jones Industrial Average is a classic example of a price-weighted index. How Do Investors Use Indexes? Indexes are essential tools for investor analysis and investment strategies. They offer a benchmark for evaluating the performance of individual assets or portfolios. Commonly used as the basis for index funds and ETFs, investors look to them to gain broad market exposure in a single investment. In addition, indexes indicate market sentiment and economic health for the sectors represented and are ordinarily cited in financial news and reports. What Is the Most Popular Type of Index? Arguably, the most popular type of index is the market-cap-weighted index, characterized by the S&P 500. This index is widely regarded as the best indicator of the U.S. stock market and is used as a benchmark for various investment products. The Bottom Line The choice among market-cap-weighted, equal-weighted, and fundamental index ETFs depends on your strategy and risk tolerance. Market-cap-weighted index ETFs like the S&P 500 reflect market sentiment but can be skewed by large companies. Alternatively, equal-weighted index ETFs provide a balanced exposure to all companies in the index, albeit at the cost of higher transaction fees because of frequent rebalancing. Fundamental index ETFs focus on measures of intrinsic value such as dividends, revenue, and earnings, offering the potential for more stable performance. These index ETFs, however, may underperform in strong bull markets. Understanding the nuances of these indexes is crucial for portfolio construction and investment success. While market-cap-weighted index ETFs are popular for their broad market representation, equal-weighted and fundamental index ETFs offer alternative approaches based on balanced exposure and intrinsic value, respectively. Each serves different investment goals.

https://www.investopedia.com/discover-savings-account-interest-rates-7500041

Discover Savings Account Interest Rates: May 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-discover-savings-account-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Discover Savings Account Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Discover offers a high-yield savings account that comes with an annual percentage yield (APY) that's much higher than the national average.<span class="ql-inline-citation" data-cite="1"></span> The interest rate applies regardless of your balance, so you don't have to worry about complicated APY tiers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Discover Savings Accounts</th> </tr> <tr> <th><b>Account Name</b></th> <th><b>Minimum Deposit</b></th> <th><b>APY</b></th> <th><b>Monthly Fee</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Discover Online Savings Account</td> <td>$0</td> <td>4.25% APY</td> <td>$0<span data-cite="2"></span></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings account rates</a> today before choosing the savings account that is best for you.</p></div></div></div> <span class="heading-toc" id="toc-discover-savings-accounts-key-features"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Discover Savings Accounts: Key Features </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_9-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Discover Online Savings Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY </b></th> <td>4.25%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>$0</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>6 per statement cycle</td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$0<span data-cite="2"></span></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The Discover Online Savings account is easy to open, with no minimum deposit or balance requirement. You'll also earn the same APY regardless of your balance. Interest is compounded daily and paid monthly. Although the bank's APY is high compared to the national average (0.47%, as of Jan. 16, 2024), it’s low compared to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> on the market.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Discover doesn't charge any account fees, though, so you don't have to worry about extra costs.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Like many other savings accounts, this one has a limit of six withdrawals per statement cycle, and while Discover won't charge you a fee for excessive withdrawals beyond that threshold, it may refuse to complete the transaction. If you exceed the withdrawal limit regularly, the bank may close your account.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_17-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/GuX8B/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Capital One Announces Agreement to Acquire Discover Financial Services"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-about-discover-other-savings-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> About Discover: Other Savings Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/discover-bank-review-5069129">Discover</a> offers savings accounts nationwide, but the online bank has no physical locations. It also offers a rewards checking account, a money market account, and certificates of deposit, among <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/020515/discover-credit-cards-advantages-disadvantages.asp">other banking services</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The bank has a reputation for good customer service, receiving top marks in J.D. Power's 2022 U.S. Direct Banking Satisfaction Study.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Savings account interest rates can fluctuate regularly, so while one bank may offer the best APY at the moment, there's no guarantee it will stay that way as banks compete for consumers' business. While a high APY is important, consider all account features to determine the best fit for you.</p></div></div></div> <span class="heading-toc" id="toc-compare-savings-account-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Compare Savings Account Rates </span> </h2> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_27-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">In the News</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p><strong>In the News: </strong>Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">held rates steady</a> for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="18"></span></p> <p>Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut.</p></div></div></div> <span class="heading-toc" id="toc-pros-and-cons-of-discover-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Pros and Cons of Discover Savings Account </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_33-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>APY is usually high compared to the national average</p></li> <li><p>No minimum deposit requirement</p></li> <li><p>No tiered APY</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>APY is low compared to the top high-yield savings accounts</p></li> <li><p>No physical branch locations</p></li> <li><p>Monthly withdrawal limit</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Pros Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li><strong>APY is usually high compared to the national average:</strong> If you have a savings account with a traditional bank, you may earn next to nothing on your balance. Discover’s savings account interest rates are typically much higher than the national average savings interest rate.<span class="ql-inline-citation" data-cite="1"></span> <strong><br/></strong></li><li><strong>No minimum deposit requirement:</strong> You don't need to make a minimum deposit to open an account or maintain a minimum balance to earn interest, making it relatively accessible compared to accounts with minimum requirements of several hundred or thousand dollars.<span class="ql-inline-citation" data-cite="2"></span><br/></li><li><strong>No tiered APY:</strong> Some savings accounts reserve their highest interest rates for higher balances. With Discover, you'll earn the same rate regardless of your balance.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Cons Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li><strong>APY is low compared to the top high-yield savings accounts:</strong> While Discover Bank’s savings account interest rates are high compared to the national average, you can get a higher yield with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a>.<strong><br/></strong></li> <li><strong>No physical branch locations:</strong> Discover doesn't have any physical locations, and there's no ATM access if you don't also have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/discover-bank-review-5069129#toc-what-does-discover-online-banking-offer">Discover checking account</a>. If you want more flexibility with how you can access your cash, consider other options.<strong><br/></strong></li> <li><strong>Monthly withdrawal limit:</strong> The Federal Reserve no longer requires banks to limit savings account withdrawals to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/faq-what-are-the-withdrawal-limits-for-savings-accounts-4589981">six per month</a>, but Discover maintains that limit.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="13"></span> </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-alternatives-to-discover-savings-account-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Discover Savings Account Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Unless you already bank with Discover, it might be worth checking out other alternatives to ensure you get the right account for your financial situation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> Higher-Yield Savings Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If you want to maximize the interest you earn on your savings, you'll find higher interest rates with other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings accounts</a>. These accounts are typically offered by other online banks, though you may also find them with some traditional banks and credit unions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> Money Market Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you want better access to your funds but don't want to open both a checking and savings account, you may consider a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. These accounts can offer high yields, but they may also provide you with a debit card and check-writing privileges. That said, they may have higher deposit requirements and may charge monthly fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_50-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_51-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Like savings accounts, money market accounts can also come with a limit of six withdrawals per month, which can impact your ability to use your account in the way you want.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Interest rates on savings and money market accounts fluctuate regularly. If you want to lock in a high interest rate on your savings, consider a certificate of deposit (CD). These accounts typically offer higher yields in exchange for locking up your funds for a certain period of time, which can range from a few months to several years. If you withdraw your money before the account matures, though, you may face early withdrawal penalties. See our picks for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> to see how much you could earn. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-subheading__text"> I Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seriesibond.asp">I Bonds</a> are issued by the U.S. government and are designed to provide protection against inflation—in many cases, high-yield savings interest rates don't provide inflation protection. These bonds have maturities of up to 30 years, but you can cash them in early. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_59-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>You cannot redeem I Bonds in the first year, and if you cash them in during the first five years, you'll forfeit the previous three months' worth of interest.<span class="ql-inline-citation" data-cite="15"></span> </p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> U.S. Treasuries </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Treasury Bills, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">T-Bills</a>, are issued by the U.S. government and have maturities of one year or less. Because they're fully backed by the federal government, they're considered to be essentially risk-free.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-is-discover-good-for-savings"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Discover Good for Savings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Discover offers a high yield on its savings account, but if you're looking to maximize your return on your short-term savings needs (like for an emergency fund or home down payment), you can find better APYs elsewhere. Take a look at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> to see the highest rates on the market today.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-whats-the-minimum-balance-for-a-discover-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Minimum Balance for a Discover Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Discover doesn't have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum-balance.asp">minimum balance requirement</a> to open a savings account or to earn interest. With some other banks, you may need to make a minimum deposit to get started or maintain a certain balance to earn the account's highest interest rate, which makes Discover relatively accessible.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_67-0"><span class="heading-toc" id="toc-how-do-you-withdraw-money-from-a-discover-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Withdraw Money From a Discover Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can withdraw money from your Discover Online Savings account through a bank transfer (either to a Discover checking account or to an external account), a wire transfer, or a bank check. The account doesn't come with an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-card.asp">ATM or bank card</a>, so there's no way to withdraw cash. </p><p>Remember that there's a limit of six withdrawals per statement cycle. If you make more than that, the bank may decline your request.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_69-0"><span class="heading-toc" id="toc-are-discover-savings-accounts-fdic-insured"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Discover Savings Accounts FDIC-Insured?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, Discover offers FDIC insurance up to the maximum limit of $250,000 per account category, per owner. In other words, you're insured up to $250,000 on your own or $500,000 with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jointaccount.asp">joint account owner</a>.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_71-0"><span class="heading-toc" id="toc-does-discover-savings-pay-interest-monthly"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Discover Savings Pay Interest Monthly?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, Discover compounds the interest you earn on a daily basis and pays it out monthly.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-is-discovers-savings-account-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Discover’s Savings Account Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, Discover's savings account is a safe place to put your money. Your deposits are insured by the FDIC up to the maximum coverage limit of $250,000.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-how-does-discovers-savings-account-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Discover’s Savings Account Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Discover's savings account is an online savings account. You can make deposits via bank transfers, mobile check deposits, mailed checks, and direct deposit, and you can withdraw money through bank transfers, wire transfers, or an official bank check. </p><p>However, you cannot access your money at a bank branch, and there's also no ATM access unless you have a Discover checking account—and you'd need to transfer money from savings to checking before your ATM withdrawal.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_77-0"><span class="heading-toc" id="toc-how-much-do-i-need-to-keep-in-my-discover-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do I Need to Keep in My Discover Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Discover doesn't have a minimum balance requirement. To determine how much to save, think about your goals and what you want to accomplish with your short-term savings, and look at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp">how much you can expect to earn</a> at different rates and deposit amounts.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-your-guide-to-savings-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-heading__text"> Your Guide to Savings Accounts </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">What Is a Savings Account and How Does It Work?</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">What Is a High-Yield Savings Account?</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631">How to Open a High-Yield Savings Account</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-close-a-savings-account-7500880">How to Close a Savings Account</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp">Besides a Savings Account, Where Is the Safest Place to Keep My Money?</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519">How Many Savings Accounts Should I Have?</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp">How Savings Account Interest Rates Are Determined</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp">How Interest Works on Savings Accounts</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp">How Is a Savings Account Taxed?</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp">Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-savings-accounts-5270287">Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?</a></li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp">4 Savings Accounts for Investors</a></li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">Best High-Yield Savings Accounts</a></li> <li><a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-savings-accounts-5191103">Best Free Savings Accounts</a></li> <li><a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">Best Savings Accounts for Kids and Teens</a></li> </ul></div>

## Discover Savings Account Interest Rates Discover offers a high-yield savings account that comes with an annual percentage yield (APY) that's much higher than the national average. The interest rate applies regardless of your balance, so you don't have to worry about complicated APY tiers. | Discover Savings Accounts | | | | | --- | --- | --- | --- | | **Account Name** | **Minimum Deposit** | **APY** | **Monthly Fee** | | Discover Online Savings Account | $0 | 4.25% APY | $0 | ### See the [best high-yield savings account rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) today before choosing the savings account that is best for you. ## Discover Savings Accounts: Key Features | Discover Online Savings Key Features | | | --- | --- | | **APY** | 4.25% | | **Minimum Balance to Earn Highest APY** | $0 | | **Minimum Deposit** | $0 | | **Withdrawal Limit** | 6 per statement cycle | | **Monthly Service Fee** | $0 | The Discover Online Savings account is easy to open, with no minimum deposit or balance requirement. You'll also earn the same APY regardless of your balance. Interest is compounded daily and paid monthly. Although the bank's APY is high compared to the national average (0.47%, as of Jan. 16, 2024), it’s low compared to the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) on the market. Discover doesn't charge any account fees, though, so you don't have to worry about extra costs.  Like many other savings accounts, this one has a limit of six withdrawals per statement cycle, and while Discover won't charge you a fee for excessive withdrawals beyond that threshold, it may refuse to complete the transaction. If you exceed the withdrawal limit regularly, the bank may close your account. ## About Discover: Other Savings Options [Discover](https://www.investopedia.com/discover-bank-review-5069129) offers savings accounts nationwide, but the online bank has no physical locations. It also offers a rewards checking account, a money market account, and certificates of deposit, among [other banking services](https://www.investopedia.com/articles/personal-finance/020515/discover-credit-cards-advantages-disadvantages.asp). The bank has a reputation for good customer service, receiving top marks in J.D. Power's 2022 U.S. Direct Banking Satisfaction Study. ### Savings account interest rates can fluctuate regularly, so while one bank may offer the best APY at the moment, there's no guarantee it will stay that way as banks compete for consumers' business. While a high APY is important, consider all account features to determine the best fit for you. ## Compare Savings Account Rates ### In the News **In the News:** Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed [held rates steady](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. ## Pros and Cons of Discover Savings Account Pros * APY is usually high compared to the national average * No minimum deposit requirement * No tiered APY Cons * APY is low compared to the top high-yield savings accounts * No physical branch locations * Monthly withdrawal limit ### Pros Explained * **APY is usually high compared to the national average:** If you have a savings account with a traditional bank, you may earn next to nothing on your balance. Discover’s savings account interest rates are typically much higher than the national average savings interest rate. * **No minimum deposit requirement:** You don't need to make a minimum deposit to open an account or maintain a minimum balance to earn interest, making it relatively accessible compared to accounts with minimum requirements of several hundred or thousand dollars. * **No tiered APY:** Some savings accounts reserve their highest interest rates for higher balances. With Discover, you'll earn the same rate regardless of your balance. ### Cons Explained * **APY is low compared to the top high-yield savings accounts:** While Discover Bank’s savings account interest rates are high compared to the national average, you can get a higher yield with the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). * **No physical branch locations:** Discover doesn't have any physical locations, and there's no ATM access if you don't also have a [Discover checking account](https://www.investopedia.com/discover-bank-review-5069129#toc-what-does-discover-online-banking-offer). If you want more flexibility with how you can access your cash, consider other options. * **Monthly withdrawal limit:** The Federal Reserve no longer requires banks to limit savings account withdrawals to [six per month](https://www.investopedia.com/faq-what-are-the-withdrawal-limits-for-savings-accounts-4589981), but Discover maintains that limit. ## Alternatives to Discover Savings Account Interest Rates Unless you already bank with Discover, it might be worth checking out other alternatives to ensure you get the right account for your financial situation. ### Higher-Yield Savings Accounts If you want to maximize the interest you earn on your savings, you'll find higher interest rates with other [high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). These accounts are typically offered by other online banks, though you may also find them with some traditional banks and credit unions. ### Money Market Accounts If you want better access to your funds but don't want to open both a checking and savings account, you may consider a [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). These accounts can offer high yields, but they may also provide you with a debit card and check-writing privileges. That said, they may have higher deposit requirements and may charge monthly fees. ### Like savings accounts, money market accounts can also come with a limit of six withdrawals per month, which can impact your ability to use your account in the way you want. ### Certificates of Deposit Interest rates on savings and money market accounts fluctuate regularly. If you want to lock in a high interest rate on your savings, consider a certificate of deposit (CD). These accounts typically offer higher yields in exchange for locking up your funds for a certain period of time, which can range from a few months to several years. If you withdraw your money before the account matures, though, you may face early withdrawal penalties. See our picks for the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) to see how much you could earn. ### I Bonds [I Bonds](https://www.investopedia.com/terms/s/seriesibond.asp) are issued by the U.S. government and are designed to provide protection against inflation—in many cases, high-yield savings interest rates don't provide inflation protection. These bonds have maturities of up to 30 years, but you can cash them in early. ### You cannot redeem I Bonds in the first year, and if you cash them in during the first five years, you'll forfeit the previous three months' worth of interest.  ### U.S. Treasuries Treasury Bills, or [T-Bills](https://www.investopedia.com/terms/t/treasurybill.asp), are issued by the U.S. government and have maturities of one year or less. Because they're fully backed by the federal government, they're considered to be essentially risk-free.   ## Is Discover Good for Savings? Discover offers a high yield on its savings account, but if you're looking to maximize your return on your short-term savings needs (like for an emergency fund or home down payment), you can find better APYs elsewhere. Take a look at the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) to see the highest rates on the market today. ## What’s the Minimum Balance for a Discover Savings Account? Discover doesn't have a [minimum balance requirement](https://www.investopedia.com/terms/m/minimum-balance.asp) to open a savings account or to earn interest. With some other banks, you may need to make a minimum deposit to get started or maintain a certain balance to earn the account's highest interest rate, which makes Discover relatively accessible. ## How Do You Withdraw Money From a Discover Savings Account? You can withdraw money from your Discover Online Savings account through a bank transfer (either to a Discover checking account or to an external account), a wire transfer, or a bank check. The account doesn't come with an [ATM or bank card](https://www.investopedia.com/terms/b/bank-card.asp), so there's no way to withdraw cash.  Remember that there's a limit of six withdrawals per statement cycle. If you make more than that, the bank may decline your request. ## Are Discover Savings Accounts FDIC-Insured? Yes, Discover offers FDIC insurance up to the maximum limit of $250,000 per account category, per owner. In other words, you're insured up to $250,000 on your own or $500,000 with a [joint account owner](https://www.investopedia.com/terms/j/jointaccount.asp). ## Does Discover Savings Pay Interest Monthly? Yes, Discover compounds the interest you earn on a daily basis and pays it out monthly. ## Is Discover’s Savings Account Safe? Yes, Discover's savings account is a safe place to put your money. Your deposits are insured by the FDIC up to the maximum coverage limit of $250,000. ## How Does Discover’s Savings Account Work? Discover's savings account is an online savings account. You can make deposits via bank transfers, mobile check deposits, mailed checks, and direct deposit, and you can withdraw money through bank transfers, wire transfers, or an official bank check.  However, you cannot access your money at a bank branch, and there's also no ATM access unless you have a Discover checking account—and you'd need to transfer money from savings to checking before your ATM withdrawal. ## How Much Do I Need to Keep in My Discover Savings Account? Discover doesn't have a minimum balance requirement. To determine how much to save, think about your goals and what you want to accomplish with your short-term savings, and look at [how much you can expect to earn](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp) at different rates and deposit amounts. ## Your Guide to Savings Accounts * [What Is a Savings Account and How Does It Work?](https://www.investopedia.com/terms/s/savingsaccount.asp) * [What Is a High-Yield Savings Account?](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) * [How to Open a High-Yield Savings Account](https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631) * [How to Close a Savings Account](https://www.investopedia.com/how-to-close-a-savings-account-7500880) * [Besides a Savings Account, Where Is the Safest Place to Keep My Money?](https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp) * [How Many Savings Accounts Should I Have?](https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519) * [How Savings Account Interest Rates Are Determined](https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp) * [How Interest Works on Savings Accounts](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp) * [How Is a Savings Account Taxed?](https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp) * [Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?](https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp) * [Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?](https://www.investopedia.com/cds-vs-savings-accounts-5270287) * [4 Savings Accounts for Investors](https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp) * [Best High-Yield Savings Accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) * [Best Free Savings Accounts](https://www.investopedia.com/best-free-savings-accounts-5191103) * [Best Savings Accounts for Kids and Teens](https://www.investopedia.com/best-savings-accounts-for-kids-5179494)

Discover Savings Account Interest Rates Discover offers a high-yield savings account that comes with an annual percentage yield (APY) that's much higher than the national average. The interest rate applies regardless of your balance, so you don't have to worry about complicated APY tiers. Discover Savings Accounts Account Name Minimum Deposit APY Monthly Fee Discover Online Savings Account $0 4.25% APY $0 See the best high-yield savings account rates today before choosing the savings account that is best for you. Discover Savings Accounts: Key Features Discover Online Savings Key Features APY  4.25% Minimum Balance to Earn Highest APY $0 Minimum Deposit $0 Withdrawal Limit 6 per statement cycle Monthly Service Fee $0 The Discover Online Savings account is easy to open, with no minimum deposit or balance requirement. You'll also earn the same APY regardless of your balance. Interest is compounded daily and paid monthly. Although the bank's APY is high compared to the national average (0.47%, as of Jan. 16, 2024), it’s low compared to the best high-yield savings accounts on the market. Discover doesn't charge any account fees, though, so you don't have to worry about extra costs.  Like many other savings accounts, this one has a limit of six withdrawals per statement cycle, and while Discover won't charge you a fee for excessive withdrawals beyond that threshold, it may refuse to complete the transaction. If you exceed the withdrawal limit regularly, the bank may close your account. About Discover: Other Savings Options Discover offers savings accounts nationwide, but the online bank has no physical locations. It also offers a rewards checking account, a money market account, and certificates of deposit, among other banking services. The bank has a reputation for good customer service, receiving top marks in J.D. Power's 2022 U.S. Direct Banking Satisfaction Study. Savings account interest rates can fluctuate regularly, so while one bank may offer the best APY at the moment, there's no guarantee it will stay that way as banks compete for consumers' business. While a high APY is important, consider all account features to determine the best fit for you. Compare Savings Account Rates In the News In the News: Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed held rates steady for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. Pros and Cons of Discover Savings Account Pros APY is usually high compared to the national average No minimum deposit requirement No tiered APY Cons APY is low compared to the top high-yield savings accounts No physical branch locations Monthly withdrawal limit Pros Explained APY is usually high compared to the national average: If you have a savings account with a traditional bank, you may earn next to nothing on your balance. Discover’s savings account interest rates are typically much higher than the national average savings interest rate. No minimum deposit requirement: You don't need to make a minimum deposit to open an account or maintain a minimum balance to earn interest, making it relatively accessible compared to accounts with minimum requirements of several hundred or thousand dollars.No tiered APY: Some savings accounts reserve their highest interest rates for higher balances. With Discover, you'll earn the same rate regardless of your balance. Cons Explained APY is low compared to the top high-yield savings accounts: While Discover Bank’s savings account interest rates are high compared to the national average, you can get a higher yield with the best high-yield savings accounts. No physical branch locations: Discover doesn't have any physical locations, and there's no ATM access if you don't also have a Discover checking account. If you want more flexibility with how you can access your cash, consider other options. Monthly withdrawal limit: The Federal Reserve no longer requires banks to limit savings account withdrawals to six per month, but Discover maintains that limit. Alternatives to Discover Savings Account Interest Rates Unless you already bank with Discover, it might be worth checking out other alternatives to ensure you get the right account for your financial situation. Higher-Yield Savings Accounts If you want to maximize the interest you earn on your savings, you'll find higher interest rates with other high-yield savings accounts. These accounts are typically offered by other online banks, though you may also find them with some traditional banks and credit unions. Money Market Accounts If you want better access to your funds but don't want to open both a checking and savings account, you may consider a money market account. These accounts can offer high yields, but they may also provide you with a debit card and check-writing privileges. That said, they may have higher deposit requirements and may charge monthly fees. Like savings accounts, money market accounts can also come with a limit of six withdrawals per month, which can impact your ability to use your account in the way you want. Certificates of Deposit Interest rates on savings and money market accounts fluctuate regularly. If you want to lock in a high interest rate on your savings, consider a certificate of deposit (CD). These accounts typically offer higher yields in exchange for locking up your funds for a certain period of time, which can range from a few months to several years. If you withdraw your money before the account matures, though, you may face early withdrawal penalties. See our picks for the best CD rates to see how much you could earn. I Bonds I Bonds are issued by the U.S. government and are designed to provide protection against inflation—in many cases, high-yield savings interest rates don't provide inflation protection. These bonds have maturities of up to 30 years, but you can cash them in early. You cannot redeem I Bonds in the first year, and if you cash them in during the first five years, you'll forfeit the previous three months' worth of interest.  U.S. Treasuries Treasury Bills, or T-Bills, are issued by the U.S. government and have maturities of one year or less. Because they're fully backed by the federal government, they're considered to be essentially risk-free.   Is Discover Good for Savings? Discover offers a high yield on its savings account, but if you're looking to maximize your return on your short-term savings needs (like for an emergency fund or home down payment), you can find better APYs elsewhere. Take a look at the best high-yield savings accounts to see the highest rates on the market today. What’s the Minimum Balance for a Discover Savings Account? Discover doesn't have a minimum balance requirement to open a savings account or to earn interest. With some other banks, you may need to make a minimum deposit to get started or maintain a certain balance to earn the account's highest interest rate, which makes Discover relatively accessible. How Do You Withdraw Money From a Discover Savings Account? You can withdraw money from your Discover Online Savings account through a bank transfer (either to a Discover checking account or to an external account), a wire transfer, or a bank check. The account doesn't come with an ATM or bank card, so there's no way to withdraw cash. Remember that there's a limit of six withdrawals per statement cycle. If you make more than that, the bank may decline your request. Are Discover Savings Accounts FDIC-Insured? Yes, Discover offers FDIC insurance up to the maximum limit of $250,000 per account category, per owner. In other words, you're insured up to $250,000 on your own or $500,000 with a joint account owner. Does Discover Savings Pay Interest Monthly? Yes, Discover compounds the interest you earn on a daily basis and pays it out monthly. Is Discover’s Savings Account Safe? Yes, Discover's savings account is a safe place to put your money. Your deposits are insured by the FDIC up to the maximum coverage limit of $250,000. How Does Discover’s Savings Account Work? Discover's savings account is an online savings account. You can make deposits via bank transfers, mobile check deposits, mailed checks, and direct deposit, and you can withdraw money through bank transfers, wire transfers, or an official bank check. However, you cannot access your money at a bank branch, and there's also no ATM access unless you have a Discover checking account—and you'd need to transfer money from savings to checking before your ATM withdrawal. How Much Do I Need to Keep in My Discover Savings Account? Discover doesn't have a minimum balance requirement. To determine how much to save, think about your goals and what you want to accomplish with your short-term savings, and look at how much you can expect to earn at different rates and deposit amounts. Your Guide to Savings Accounts What Is a Savings Account and How Does It Work? What Is a High-Yield Savings Account? How to Open a High-Yield Savings Account How to Close a Savings Account Besides a Savings Account, Where Is the Safest Place to Keep My Money? How Many Savings Accounts Should I Have? How Savings Account Interest Rates Are Determined How Interest Works on Savings Accounts How Is a Savings Account Taxed? Money Market Fund vs. MMA vs. Savings Account: What’s the Difference? Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You? 4 Savings Accounts for Investors Best High-Yield Savings Accounts Best Free Savings Accounts Best Savings Accounts for Kids and Teens

https://www.investopedia.com/articles/managing-wealth/042716/10-most-expensive-zip-codes-new-york-state.asp

The 10 Most Expensive ZIP Codes in New York State

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-most-expensive-zip-codes-in-new-york"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Most Expensive Zip Codes in New York </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Many different data points indicate New York is among the most expense states to live in. In this article, we'll take a look at several different sources to see what the top 10 most expensive zip codes are in the state of New York. Generally speaking, Sagaponack is considered not only the most expensive zip code in New York but across the entire United States. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Multiple sources indicate that New York is consistently among the most expensive states to live in.</li><li>According to a 2023 study by RealtyHop, New York is home to 18 of the 100 most expensive zip codes.</li><li>Another study by PropertyShark in 2023 reveals that Sagaponack, New York was among the most expensive zip codes in the nation.</li><li>The General Services Administration provides per diem rates for meals and incidentals, showcasing the highest rates in New York City (daily meals/incidental per diem of $79 and an average lodging per diem of $257).</li><li>The most expensive zip codes in New York includes 11962 (Sagaponack), 11976 (Water Mill), 11932 (Bridgehampton), 10013 (New York), and 11930 (Amagansett).</li></ul></div></div></div> <span class="heading-toc" id="toc-median-listing-price"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Median Listing Price </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A 2023 study by RealtyHop reealed the median listing price across the United States. For the fourth consecutive year, the most expensive zip code in America is 94027 in Atherton, California, with a median price of $7,950,000. California dominates the list with 61 of the most expensive zip codes, and the total number of states represented has decreased to 12.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> According to the study, New York is home to 18 of the 100 most expensive zip codes. Zip code 10013, covering parts of TriBeCa, Chinatown, and NoLita, saw a 9.7% decline in prices year-over-year, while 10012 (encompassing NoHo and SoHo) experienced a 4.86% year-over-year decrease. The sole Brooklyn zip code on the list, 11231, recorded a 3.57% increase in median asking price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Below is a table of the top 10 most expensive New York zip codes according to the study.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_13-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th> 2023 Overall Rank</th> <th>Zip Code</th> <th>City</th> <th> Median Listing Price</th> </tr> </thead> <tbody data-check="0"> <tr> <td>3</td> <td>11962</td> <td>Sagaponack</td> <td>$5,900,000</td> </tr> <tr> <td>5</td> <td>11976</td> <td>Water Mill</td> <td>$4,950,000</td> </tr> <tr> <td>16</td> <td>11932</td> <td>Bridgehampton</td> <td>$3,750,000</td> </tr> <tr> <td>20</td> <td>10013</td> <td>New York</td> <td>$3,607,500</td> </tr> <tr> <td>26</td> <td>11930</td> <td>Amagansett</td> <td>$3,200,000</td> </tr> <tr> <td>30</td> <td>11959</td> <td>Quogue</td> <td>$3,125,000</td> </tr> <tr> <td>31</td> <td>10007</td> <td>New York</td> <td>$3,100,000</td> </tr> <tr> <td>33</td> <td>11765</td> <td>Mill Neck</td> <td>$2,997,500</td> </tr> <tr> <td>39</td> <td>11568</td> <td>Old Westbury</td> <td>$2,900,000</td> </tr> <tr> <td>51</td> <td>11975</td> <td>Wainscott</td> <td>$2,545,000</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-median-price"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Median Price </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Another study was prepared in 2023 by PropertyShark.<span class="ql-inline-citation" data-cite="2"></span> The report was calculated on median sale prices based on "closed home sales, not asking prices". In the study, Atherton, California, and Sagaponack, New York, both surpass $8 million median prices for the first time. Sagaponack experiencing a notable 40% year-over-year increase. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>New York City lead the report with the highest concentrations of expensive zip codes, contributing eight to the country's priciest list just within that city.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The nation's 100 most expensive zip codes are distributed across 11 states, with California hosting 65%. While Manhattan traditionally represented the city in the top 100, this year sees the emergence of two additional zip codes from Brooklyn and Queens. Below is a table from PropertyShark that ranks its top 10 most expensive zip codes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_22-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>2023 Overall Rank</th> <th>Zip Code</th> <th>City</th> <th>County</th> <th>Median Price</th> </tr> </thead> <tbody data-check="0"> <tr> <td>2</td> <td>11962</td> <td>Sagaponack</td> <td>Suffolk County</td> <td>$8,075,000</td> </tr> <tr> <td>6</td> <td>11976</td> <td>Water Mill</td> <td>Suffolk County</td> <td>$4,500,000</td> </tr> <tr> <td>20</td> <td>10282</td> <td>New York City</td> <td>New York County</td> <td>$3,403,000</td> </tr> <tr> <td>24</td> <td>10007</td> <td>New York City</td> <td>New York County</td> <td>$3,087,000</td> </tr> <tr> <td>26</td> <td>11765</td> <td>Mill Neck</td> <td>Nassau County</td> <td>$3,003,000</td> </tr> <tr> <td>27</td> <td>10013</td> <td>New York City</td> <td>New York County</td> <td>$2,973,000</td> </tr> <tr> <td>29</td> <td>11932</td> <td>Bridgehampton</td> <td>Suffolk County</td> <td>$2,900,000</td> </tr> <tr> <td>47</td> <td>11930</td> <td>Amagansett</td> <td>Suffolk County</td> <td>$2,450,000</td> </tr> <tr> <td>49</td> <td>11959</td> <td>Quogue</td> <td>Suffolk County</td> <td>$2,410,000</td> </tr> <tr> <td>57</td> <td>11568</td> <td>Old Westbury</td> <td>Nassau County</td> <td>$2,275,000</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-per-diem"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Per Diem </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The last source we'll take a look at is from the General Services Administration branch of the U.S. Each year, the government issues standard per diem for lodging and meals. This information is rooted in general cost of living by destimation, as per diem varies from city to city.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Though it only reflects a microcosim of what a person may spend when in that specific city, the GSA reports can be used to further rank what parts of New York is most expensive. Note that the GSA does not publish rates by zip code, so the following information is being shown by city. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_29-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Meals and Incidentals Per Diem</th> </tr> <tr> <th>Destination</th> <th>Daily Meals/Incidental Per Diem</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Lake Placid</td> <td>$79</td> </tr> <tr> <td>New York City</td> <td>$79</td> </tr> <tr> <td>Floral Park / Garden City / Great Neck</td> <td>$74</td> </tr> <tr> <td>Ithaca</td> <td>$74</td> </tr> <tr> <td>Tarrytown / White Plains / New Rochelle</td> <td>$74</td> </tr> <tr> <td>Albany</td> <td>$69</td> </tr> <tr> <td>Buffalo</td> <td>$69</td> </tr> <tr> <td>Glens Falls</td> <td>$69</td> </tr> <tr> <td>Kingston</td> <td>$69</td> </tr> <tr> <td>Niagara Falls</td> <td>$69</td> </tr> <tr> <td>Nyack / Palisades</td> <td>$69</td> </tr> <tr> <td>Poughkeepsie</td> <td>$69</td> </tr> <tr> <td>Riverhead / Ronkonkoma / Melville</td> <td>$69</td> </tr> <tr> <td>Rochester</td> <td>$69</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_31-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Lodging Per Diem, New York (Oct 2023 - Sept 2024 Average)</th> </tr> <tr> <th>Destination </th> <th>Average</th> </tr> </thead> <tbody data-check="0"> <tr> <td>New York City</td> <td>$257</td> </tr> <tr> <td>Lake Placid</td> <td>$168</td> </tr> <tr> <td>Floral Park / Garden City / Great Neck</td> <td>$151</td> </tr> <tr> <td>Tarrytown / White Plains / New Rochelle</td> <td>$151</td> </tr> <tr> <td>Riverhead / Ronkonkoma / Melville</td> <td>$150</td> </tr> <tr> <td>Kingston</td> <td>$141</td> </tr> <tr> <td>Ithaca</td> <td>$139</td> </tr> <tr> <td>Saratoga Springs / Schenectady</td> <td>$135</td> </tr> <tr> <td>Glens Falls</td> <td>$132</td> </tr> <tr> <td>Nyack / Palisades</td> <td>$126</td> </tr> <tr> <td>West Point</td> <td>$121</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-why-is-new-york-considered-one-of-the-most-expensive-cities-in-the-world"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is New York Considered One of the Most Expensive Cities in the World?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>New York's global economic significance, high demand for housing, limited space, and elevated living standards contribute to its reputation as one of the most expensive cities. It boasts tremendous opportunity for careers as well as world-class entertainment.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-how-much-do-new-york-residents-pay-for-rent-and-other-housing-costs"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do New York Residents Pay for Rent and Other Housing Costs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>According to the Office of the New York State Comptroller, New York residents spend roughly 40% of their total household expenditures on housing-related costs.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-are-there-any-government-initiatives-or-programs-to-address-the-affordability-issues-in-new-york"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Any Government Initiatives or Programs to Address the Affordability Issues in New York?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>New York City has implemented various government initiatives and affordable housing programs. These include incentives for developers to build affordable units, rent stabilization programs, and initiatives to assist low- and middle-income residents with housing costs.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> New York state has a number of other affluent places to live, but these are the very priciest. Because New York City real estate is expensive, many people who work there are commuters, living a short distance (mileage-wise) from the city. You might be able to get a whole lot more house for your money by buying on the other side of the Hudson River in New Jersey or north of the city in Westchester or Connecticut. </p></div>

## Most Expensive Zip Codes in New York Many different data points indicate New York is among the most expense states to live in. In this article, we'll take a look at several different sources to see what the top 10 most expensive zip codes are in the state of New York. Generally speaking, Sagaponack is considered not only the most expensive zip code in New York but across the entire United States. ### Key Takeaways * Multiple sources indicate that New York is consistently among the most expensive states to live in. * According to a 2023 study by RealtyHop, New York is home to 18 of the 100 most expensive zip codes. * Another study by PropertyShark in 2023 reveals that Sagaponack, New York was among the most expensive zip codes in the nation. * The General Services Administration provides per diem rates for meals and incidentals, showcasing the highest rates in New York City (daily meals/incidental per diem of $79 and an average lodging per diem of $257). * The most expensive zip codes in New York includes 11962 (Sagaponack), 11976 (Water Mill), 11932 (Bridgehampton), 10013 (New York), and 11930 (Amagansett). ## Median Listing Price A 2023 study by RealtyHop reealed the median listing price across the United States. For the fourth consecutive year, the most expensive zip code in America is 94027 in Atherton, California, with a median price of $7,950,000. California dominates the list with 61 of the most expensive zip codes, and the total number of states represented has decreased to 12. According to the study, New York is home to 18 of the 100 most expensive zip codes. Zip code 10013, covering parts of TriBeCa, Chinatown, and NoLita, saw a 9.7% decline in prices year-over-year, while 10012 (encompassing NoHo and SoHo) experienced a 4.86% year-over-year decrease. The sole Brooklyn zip code on the list, 11231, recorded a 3.57% increase in median asking price. Below is a table of the top 10 most expensive New York zip codes according to the study. | 2023 Overall Rank | Zip Code | City | Median Listing Price | | --- | --- | --- | --- | | 3 | 11962 | Sagaponack | $5,900,000 | | 5 | 11976 | Water Mill | $4,950,000 | | 16 | 11932 | Bridgehampton | $3,750,000 | | 20 | 10013 | New York | $3,607,500 | | 26 | 11930 | Amagansett | $3,200,000 | | 30 | 11959 | Quogue | $3,125,000 | | 31 | 10007 | New York | $3,100,000 | | 33 | 11765 | Mill Neck | $2,997,500 | | 39 | 11568 | Old Westbury | $2,900,000 | | 51 | 11975 | Wainscott | $2,545,000 | ## Median Price Another study was prepared in 2023 by PropertyShark. The report was calculated on median sale prices based on "closed home sales, not asking prices". In the study, Atherton, California, and Sagaponack, New York, both surpass $8 million median prices for the first time. Sagaponack experiencing a notable 40% year-over-year increase. ### New York City lead the report with the highest concentrations of expensive zip codes, contributing eight to the country's priciest list just within that city. The nation's 100 most expensive zip codes are distributed across 11 states, with California hosting 65%. While Manhattan traditionally represented the city in the top 100, this year sees the emergence of two additional zip codes from Brooklyn and Queens. Below is a table from PropertyShark that ranks its top 10 most expensive zip codes. | 2023 Overall Rank | Zip Code | City | County | Median Price | | --- | --- | --- | --- | --- | | 2 | 11962 | Sagaponack | Suffolk County | $8,075,000 | | 6 | 11976 | Water Mill | Suffolk County | $4,500,000 | | 20 | 10282 | New York City | New York County | $3,403,000 | | 24 | 10007 | New York City | New York County | $3,087,000 | | 26 | 11765 | Mill Neck | Nassau County | $3,003,000 | | 27 | 10013 | New York City | New York County | $2,973,000 | | 29 | 11932 | Bridgehampton | Suffolk County | $2,900,000 | | 47 | 11930 | Amagansett | Suffolk County | $2,450,000 | | 49 | 11959 | Quogue | Suffolk County | $2,410,000 | | 57 | 11568 | Old Westbury | Nassau County | $2,275,000 | ## Per Diem The last source we'll take a look at is from the General Services Administration branch of the U.S. Each year, the government issues standard per diem for lodging and meals. This information is rooted in general cost of living by destimation, as per diem varies from city to city. Though it only reflects a microcosim of what a person may spend when in that specific city, the GSA reports can be used to further rank what parts of New York is most expensive. Note that the GSA does not publish rates by zip code, so the following information is being shown by city. | Meals and Incidentals Per Diem | | | --- | --- | | Destination | Daily Meals/Incidental Per Diem | | Lake Placid | $79 | | New York City | $79 | | Floral Park / Garden City / Great Neck | $74 | | Ithaca | $74 | | Tarrytown / White Plains / New Rochelle | $74 | | Albany | $69 | | Buffalo | $69 | | Glens Falls | $69 | | Kingston | $69 | | Niagara Falls | $69 | | Nyack / Palisades | $69 | | Poughkeepsie | $69 | | Riverhead / Ronkonkoma / Melville | $69 | | Rochester | $69 | | Lodging Per Diem, New York (Oct 2023 - Sept 2024 Average) | | | --- | --- | | Destination | Average | | New York City | $257 | | Lake Placid | $168 | | Floral Park / Garden City / Great Neck | $151 | | Tarrytown / White Plains / New Rochelle | $151 | | Riverhead / Ronkonkoma / Melville | $150 | | Kingston | $141 | | Ithaca | $139 | | Saratoga Springs / Schenectady | $135 | | Glens Falls | $132 | | Nyack / Palisades | $126 | | West Point | $121 | ## Why Is New York Considered One of the Most Expensive Cities in the World? New York's global economic significance, high demand for housing, limited space, and elevated living standards contribute to its reputation as one of the most expensive cities. It boasts tremendous opportunity for careers as well as world-class entertainment. ## How Much Do New York Residents Pay for Rent and Other Housing Costs? According to the Office of the New York State Comptroller, New York residents spend roughly 40% of their total household expenditures on housing-related costs. ## Are There Any Government Initiatives or Programs to Address the Affordability Issues in New York? New York City has implemented various government initiatives and affordable housing programs. These include incentives for developers to build affordable units, rent stabilization programs, and initiatives to assist low- and middle-income residents with housing costs. ## The Bottom Line New York state has a number of other affluent places to live, but these are the very priciest. Because New York City real estate is expensive, many people who work there are commuters, living a short distance (mileage-wise) from the city. You might be able to get a whole lot more house for your money by buying on the other side of the Hudson River in New Jersey or north of the city in Westchester or Connecticut.

Most Expensive Zip Codes in New York Many different data points indicate New York is among the most expense states to live in. In this article, we'll take a look at several different sources to see what the top 10 most expensive zip codes are in the state of New York. Generally speaking, Sagaponack is considered not only the most expensive zip code in New York but across the entire United States. Key Takeaways Multiple sources indicate that New York is consistently among the most expensive states to live in.According to a 2023 study by RealtyHop, New York is home to 18 of the 100 most expensive zip codes.Another study by PropertyShark in 2023 reveals that Sagaponack, New York was among the most expensive zip codes in the nation.The General Services Administration provides per diem rates for meals and incidentals, showcasing the highest rates in New York City (daily meals/incidental per diem of $79 and an average lodging per diem of $257).The most expensive zip codes in New York includes 11962 (Sagaponack), 11976 (Water Mill), 11932 (Bridgehampton), 10013 (New York), and 11930 (Amagansett). Median Listing Price A 2023 study by RealtyHop reealed the median listing price across the United States. For the fourth consecutive year, the most expensive zip code in America is 94027 in Atherton, California, with a median price of $7,950,000. California dominates the list with 61 of the most expensive zip codes, and the total number of states represented has decreased to 12. According to the study, New York is home to 18 of the 100 most expensive zip codes. Zip code 10013, covering parts of TriBeCa, Chinatown, and NoLita, saw a 9.7% decline in prices year-over-year, while 10012 (encompassing NoHo and SoHo) experienced a 4.86% year-over-year decrease. The sole Brooklyn zip code on the list, 11231, recorded a 3.57% increase in median asking price. Below is a table of the top 10 most expensive New York zip codes according to the study.  2023 Overall Rank Zip Code City  Median Listing Price 3 11962 Sagaponack $5,900,000 5 11976 Water Mill $4,950,000 16 11932 Bridgehampton $3,750,000 20 10013 New York $3,607,500 26 11930 Amagansett $3,200,000 30 11959 Quogue $3,125,000 31 10007 New York $3,100,000 33 11765 Mill Neck $2,997,500 39 11568 Old Westbury $2,900,000 51 11975 Wainscott $2,545,000 Median Price Another study was prepared in 2023 by PropertyShark. The report was calculated on median sale prices based on "closed home sales, not asking prices". In the study, Atherton, California, and Sagaponack, New York, both surpass $8 million median prices for the first time. Sagaponack experiencing a notable 40% year-over-year increase. New York City lead the report with the highest concentrations of expensive zip codes, contributing eight to the country's priciest list just within that city. The nation's 100 most expensive zip codes are distributed across 11 states, with California hosting 65%. While Manhattan traditionally represented the city in the top 100, this year sees the emergence of two additional zip codes from Brooklyn and Queens. Below is a table from PropertyShark that ranks its top 10 most expensive zip codes. 2023 Overall Rank Zip Code City County Median Price 2 11962 Sagaponack Suffolk County $8,075,000 6 11976 Water Mill Suffolk County $4,500,000 20 10282 New York City New York County $3,403,000 24 10007 New York City New York County $3,087,000 26 11765 Mill Neck Nassau County $3,003,000 27 10013 New York City New York County $2,973,000 29 11932 Bridgehampton Suffolk County $2,900,000 47 11930 Amagansett Suffolk County $2,450,000 49 11959 Quogue Suffolk County $2,410,000 57 11568 Old Westbury Nassau County $2,275,000 Per Diem The last source we'll take a look at is from the General Services Administration branch of the U.S. Each year, the government issues standard per diem for lodging and meals. This information is rooted in general cost of living by destimation, as per diem varies from city to city. Though it only reflects a microcosim of what a person may spend when in that specific city, the GSA reports can be used to further rank what parts of New York is most expensive. Note that the GSA does not publish rates by zip code, so the following information is being shown by city. Meals and Incidentals Per Diem Destination Daily Meals/Incidental Per Diem Lake Placid $79 New York City $79 Floral Park / Garden City / Great Neck $74 Ithaca $74 Tarrytown / White Plains / New Rochelle $74 Albany $69 Buffalo $69 Glens Falls $69 Kingston $69 Niagara Falls $69 Nyack / Palisades $69 Poughkeepsie $69 Riverhead / Ronkonkoma / Melville $69 Rochester $69 Lodging Per Diem, New York (Oct 2023 - Sept 2024 Average) Destination  Average New York City $257 Lake Placid $168 Floral Park / Garden City / Great Neck $151 Tarrytown / White Plains / New Rochelle $151 Riverhead / Ronkonkoma / Melville $150 Kingston $141 Ithaca $139 Saratoga Springs / Schenectady $135 Glens Falls $132 Nyack / Palisades $126 West Point $121 Why Is New York Considered One of the Most Expensive Cities in the World? New York's global economic significance, high demand for housing, limited space, and elevated living standards contribute to its reputation as one of the most expensive cities. It boasts tremendous opportunity for careers as well as world-class entertainment. How Much Do New York Residents Pay for Rent and Other Housing Costs? According to the Office of the New York State Comptroller, New York residents spend roughly 40% of their total household expenditures on housing-related costs. Are There Any Government Initiatives or Programs to Address the Affordability Issues in New York? New York City has implemented various government initiatives and affordable housing programs. These include incentives for developers to build affordable units, rent stabilization programs, and initiatives to assist low- and middle-income residents with housing costs. The Bottom Line New York state has a number of other affluent places to live, but these are the very priciest. Because New York City real estate is expensive, many people who work there are commuters, living a short distance (mileage-wise) from the city. You might be able to get a whole lot more house for your money by buying on the other side of the Hudson River in New Jersey or north of the city in Westchester or Connecticut.

https://www.investopedia.com/how-to-open-a-compound-interest-account-7505889

How to Open a Compound Interest Account

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Albert Einstein once described compound interest as the eighth wonder of the world.<span class="ql-inline-citation" data-cite="1"></span> Compound interest is when you earn an interest return on your savings, which you reinvest to grow even more. In other words, you earn interest on your interest. As you build your savings from past interest, you receive a higher return each following year thanks to exponential growth from compounding. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> You don’t have to be a Nobel Prize winner like Einstein to benefit from the power of compounding. Here’s how to open a compound interest account and what you should research before signing up. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_5-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="How to Open a Compound Interest Account" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/oiZxHHCGXfvHeo9iVOL3W0hCGoM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/oiZxHHCGXfvHeo9iVOL3W0hCGoM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png" data-srcset="https://www.investopedia.com/thmb/02eh3X2bcmfj2ZcGSRJ9Y0ZJTKA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="How to Open a Compound Interest Account" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/oiZxHHCGXfvHeo9iVOL3W0hCGoM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png" srcset="https://www.investopedia.com/thmb/02eh3X2bcmfj2ZcGSRJ9Y0ZJTKA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Zoe Hansen</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-to-open-a-compound-interest-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How to Open a Compound Interest Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A compound interest account is any account that lets you earn interest or some other return to grow your savings. You could open a compound interest account with a bank, or you could also open a compound interest account with an investment broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Here’s how it’s done. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-subheading__text"> Steps Required to Open a Compound Interest Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Each company has its specific process for how to open a savings account with compound interest. Here is a general overview of how this works and what you should consider as you compare your options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <strong>Step 1: Determine the type of compound interest account you need.</strong> Start by deciding what type of compound interest account you’d like. Do you want to earn a guaranteed return where you can’t lose money? You may be better off with a bank offering high-yield savings accounts, money market accounts, and certificates of deposit (CDs). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Or would you like to invest for a higher compounding rate, even if there’s a risk of short-term losses? Then you would want a brokerage account to invest in bonds, mutual funds, REITs, and stocks. You may find a company that gives you a combination of both. For example, <a data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1134&amp;type=3&amp;subid=0" rel="sponsored nofollow">Fidelity</a> allows you to invest in the market while also paying a guaranteed interest rate on your uninvested cash.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <strong>Step 2: Compare costs, fees, and incentives.</strong> Each compound interest account has its own set of costs and fees. Some fees you could run into include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li><strong>Annual account fees</strong>: A compound interest account could charge a flat fee annually.<span class="ql-inline-citation" data-cite="3"></span></li> <li><strong>Minimum account balance fees: </strong>Financial institutions often charge a monthly fee if your balance isn’t large enough. For example, you need at least $500 in your account, or you owe this fee.<span class="ql-inline-citation" data-cite="4"></span></li> <li><strong>Trading commissions: </strong>Investment brokers could charge a commission every time you buy and sell assets for your compound interest account.</li> <li><strong>Expense ratios: </strong>If you’re investing in funds managed by a professional, the fund could charge an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp">expense ratio</a> as a percentage of your investment. </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The more you pay in fees, the less you earn overall. The best compound interest accounts keep these as low as possible. Companies may also offer incentives when you open a new compound interest account. For example, you receive a $200 bonus <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-account-bonuses-7152450">for opening a savings account</a>. Check for these as well to get a jump start on growth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <strong>Step 3: Compare services.</strong> Not every company offers the same services. Think of what you’d like from your compound interest account in these categories: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li><strong>Product selection</strong>: There are many ways to earn compound interest. Each financial institution provides a different product selection. Consider how you want to save or invest and ensure the option is available.</li> <li><strong>Access to a variety of investment accounts: </strong>You could earn compound interest through a regular bank account or investment account. You could also save through tax-advantaged retirement accounts called individual retirement accounts (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRAs</a>) as well as college savings plans. Consider your financial goals and make sure the right accounts are available.</li> <li><strong>Compound interest calculators and other online resources: </strong>A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator">compound interest calculator</a> shows how much your money could grow over time. Companies may provide other free financial tools to plan your budget or see if you’re on track for retirement. Some provide extensive educational materials.</li> <li><strong>Access to brick-and-mortar branches: </strong>Do you want to get help in person, or are you OK handling everything remotely? Some compound interest accounts offer brick-and-mortar branches, while others do not.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Customer service options: </strong>Companies have different service options like phone, email, and live chat. They also have different service hours. See that a company offers what you want.</li> <li><strong>Support from a financial advisor: </strong>If you’d like support from a professional, some companies offer access to in-house financial advisors. Others leave you to plan on your own.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <strong>Step 4: Sign up for an account.</strong> Once you’ve decided where to open your compound interest account, you can formally sign up. You must provide your personal contact information, employment information, and tax ID number, usually your Social Security number. The institution needs to verify your identity to meet government regulations.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> How long the application process takes depends on the type of account. You could potentially open and qualify for a bank account within an hour.<span class="ql-inline-citation" data-cite="6"></span> Brokerage investment accounts can take as long as several days, as the broker must review your application and financial information.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <strong>Step 5: Fund your account.</strong> Last, link your current bank account to the compound interest account so you can transfer money in. Once you’ve set up the account along with any investments, you’ll start growing your savings with compound interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-best-investment-platforms-for-handling-uninvested-cash"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Best Investment Platforms for Handling Uninvested Cash </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_35-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Platform</b></td> <td>Platform Type</td> <td><b> Account Minimum</b></td> <td><b>Annual Percentage Yield</b></td> <td><b>Monthly Maintenance Fee</b></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://betterment.evyy.net/c/328256/1094598/2299?subid1=4587887&amp;subid2=na356ed2f14734fde91423dab7877545f00&amp;subid1=7486554&amp;subid2=nad2ac500471c47c9be9cf9d1a763480b15" rel="sponsored nofollow">Betterment</a></td> <td>Robo-Advisor</td> <td>$0, $10 minimum to start investing</td> <td>4.35%</td> <td>$0</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow">Interactive Brokers</a></td> <td>Online Broker</td> <td>$0</td> <td>4.33% for IBKR Pro customers with AUM of $100,000, 3.33% for IBKR Lite customers</td> <td>$0</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://wealthfront.4fq8.net/c/328256/1343541/3104?subid1=4587933&amp;subid2=n49a06a7dedd84377a72405efc4aa4f6300&amp;subid1=7486554&amp;subid2=nad2ac500471c47c9be9cf9d1a763480b15" rel="sponsored nofollow">Wealthfront</a></td> <td>Robo-Advisor</td> <td>$500 for the robo-advisor, $1 for stocks</td> <td>4.30%</td> <td>$0</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://personalcapital.sjv.io/c/328256/1287561/13439" rel="noopener noreferrer sponsored nofollow">Empower</a></td> <td>Robo-Advisor</td> <td>$100,000 for wealth management, $0 for individual investment accounts</td> <td>4.25%</td> <td>$0</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1134&amp;type=3&amp;subid=0" rel="sponsored nofollow">Fidelity</a></td> <td>Online Broker</td> <td>$0</td> <td>2.47%</td> <td>$0</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://robinhood.c3me6x.net/c/328256/1149283/10402?subid1=4587919&amp;subid2=nabf130d5a40b4671b53e917fe7d7c49100&amp;subid1=7486554&amp;subid2=nad2ac500471c47c9be9cf9d1a763480b15" rel="sponsored nofollow">Robinhood</a></td> <td>Online Broker</td> <td>$0 </td> <td>4.40% for Gold customers, 1.5% for regular customers</td> <td>$5 for Gold customers, $0 for regular customers</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-what-you-need-to-open-a-compound-interest-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> What You Need to Open a Compound Interest Account  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> You must submit a variety of personal and financial information to open a compound interest account. Financial institutions need this information to report your tax earnings and meet other government regulations (like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aml.asp">anti-money laundering</a>.) So expect to provide the following. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Personal Information </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <li>Name</li><li>Home address (you may need to provide proof, like a utility bill or mortgage statement)</li><li>Contact information, like your phone and email address</li><li>Date of birth</li><li>Social Security number</li><li>Driver’s license, passport, or another form of government ID</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-subheading__text"> Financial and Investment Information </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If you’d like to earn compound interest by investing, you must provide more financial information beyond a basic bank account. The broker needs this information to determine which investment options and strategies are appropriate for you. You may need to provide the following:<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <li>Employment status and occupation</li><li>Annual income</li><li>Net worth</li><li>Risk tolerance for losing money</li><li>Investment goals and objectives</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-understand-the-basics"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Understand the Basics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> If you’d like to start earning compound interest, you need to decide on the type of account. There’s a broad range of  compound interest accounts. You can choose from very safe, basic accounts that take very little research. You could also focus on more complicated, higher-risk accounts with higher possible returns. Here are the more basic, safe compound interest accounts and what they involve. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-subheading__text"> High-Yield Savings Accounts  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> High-yield savings accounts are bank accounts paying a high interest rate. The best high-yield savings accounts pay a highly competitive return with very low fees; most are free. You can’t lose money in a savings account, and savings accounts give you convenient access to your money at any time. If you’d like to learn more about high compound savings interest accounts, see our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">roundup of the best high-yield savings account rates</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-subheading__text"> Money Market Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">Money market accounts</a> are another bank deposit account. They typically have a higher minimum balance requirement than high-yield savings accounts. Otherwise, you owe a monthly fee. In exchange, money market accounts usually pay a higher interest rate. So if you’re willing to deposit more money, you can earn more compound interest using a money market account. These accounts have a guaranteed return and you cannot lose money. You can also withdraw whenever you want. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit (CDs) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> When you sign up for a<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp"> CD</a>, you pick how long it will last (the term). It could range from a month to many years. During this time, you earn a guaranteed compound interest rate. Your balance is also insured, so it won’t drop. However, you will owe a penalty if you want your money back before the end of the agreed term. If you take money out early, you could forfeit interest earnings and even some of your deposit. CDs typically pay a higher interest rate than other bank deposit products in exchange for giving less access to your money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> Bonds and Bond Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> With a bond, you’re lending money to a government, company, or other organization for a set period. During this period, you receive interest, and you get your money back at the end of the bond term.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Bonds have more risk and take more research than bank deposit accounts. First, you must check how safe a bond is by checking the issuer’s credit rating. If a bond issuer runs into financial trouble, it might not pay all the interest or even fail to pay you your deposit back. To stay safe, consider bonds from issuers like the U.S. government or very large, established companies.<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-rating-agencies.asp"> Bond rating agencies</a> give letter grades to show the financial stability of different bond issuers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> If you want your money back before the end of the bond term, you could sell to another investor through your investment platform. However, you might get back less than you paid. This happens if interest rates have increased since you first bought the bond.<span class="ql-inline-citation" data-cite="8"></span> If you don’t want to put in the research and work yourself, another option is to buy a bond fund. A professional investor builds a portfolio of different bonds so you can earn compound interest this way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> Mutual Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">Mutual funds</a> combine the money of many small investors to create a large investment portfolio. A professional investor manages the portfolio to decide on the investments. Each mutual fund has different investment objectives. For example, an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomefund.asp">income mutual fund</a> would focus on bonds and other safer investments, while a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthfund.asp">growth mutual fund</a> would focus on higher-risk but higher-earning investments like stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> There is more risk with mutual funds. The investments may not work out, and your balance could fall. However, mutual funds have higher earning potential than bank accounts. If you’re investing long-term, you could potentially earn more compound interest using mutual funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-types-of-high-risk-compound-interest-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> Types of High-Risk Compound Interest Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> These compound interest investments can earn more than the basic options if you want to push for a higher return. But, be warned, they also require more research and you have a higher risk of losing money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-subheading__text"> REITs  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Real estate investment trusts (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">REITs</a>) are funds that invest in real estate. You pool your money with many other investors. Then, the REIT uses this money to build a portfolio of properties. You earn a share of the profits from rent and property sales. It’s a way to make compound interest from real estate without going through the work and high expense of buying your own properties. Many REITs are publicly traded so you can sell to another investor and cash out at your convenience. However, non-traded REITs lock you in potentially for years.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_78-0"> <span class="mntl-sc-block-subheading__text"> High-Yield Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> With bonds, generally, the riskier the investment, the higher the interest rate. High-yield bonds, or junk bonds, pay a higher face interest rate. As a result, you earn more in compound interest. However, high-yield bonds have an increased risk of default. As a result, you might only get some of the interest payments. If the issuer goes bankrupt, you may also lose your initial investment. High-yield bonds are those with a Standard &amp; Poor’s credit rating of BB+ or worse.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-subheading__text"> Cryptocurrency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">Cryptocurrencies</a>, like Bitcoin and Ethereum, are a type of digital currency. Cryptocurrencies are decentralized and not managed by any government. If you invest in cryptocurrencies, you could make money if the price goes up. Some cryptocurrencies also use a system called staking. If you own the cryptocurrency, you could agree to lock it up temporarily and earn an interest return paid in more cryptocurrency.<span class="ql-inline-citation" data-cite="11"></span> Cryptocurrencies are another very high-risk, potentially high-reward investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-subheading__text"> Dividend Stocks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> Companies issue stock to raise money. When you buy stocks, you become a part owner of a company and could share in future profits. When a company makes money, it can either reinvest to continue growing or pay out earnings to shareholders through a dividend payment. Dividend stocks come from companies paying a higher dividend rate. These are usually larger, more established, profitable companies. Smaller companies and those trying to grow are less likely to pay dividends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> If you want compound interest from dividend stocks, research the past dividend rate of each company. Confirm that a company will remain profitable so it will keep paying. For ideas, check out these<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-dividend-stocks-june-2023-7506795"> top dividend stocks</a>. If you don’t want to do this work yourself, you could look for a mutual fund focused on dividends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-subheading__text"> Alternative Investments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative_investment.asp">Alternative investments</a> are those outside the conventional financial markets. These could include hedge funds, private equity funds, commodities, artwork, and farmland. Alternative investments are higher risk and require more research. Some, like hedge funds, require you to be an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3">accredited investor</a>. In exchange, these investments could also earn high returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <span class="heading-toc" id="toc-best-alternative-investment-platforms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-heading__text"> Best Alternative Investment Platforms </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_93-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Platform</b></th> <th><b>Focus</b></th> <th><b>Minimum Investment</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.fundrise.com " rel="nofollow">Fundrise</a></td> <td>Real Estate Investments</td> <td>$10</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.masterworks.com/" rel="nofollow">Masterworks</a></td> <td>Art Investments</td> <td>$10,000</td> </tr> <tr> <td>Yieldstreet</td> <td>Asset Variety</td> <td>$2,500</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://itrustcapital.com/?utm_source=partner&amp;utm_medium=youtube&amp;utm_campaign=partner42&amp;oid=15&amp;affid=42" rel="sponsored nofollow">iTrustCapital</a></td> <td>Gold and Cryptocurrency</td> <td>$1,000</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <span class="heading-toc" id="toc-factors-that-affect-how-much-interest-you-earn"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_95-0"> <span class="mntl-sc-block-heading__text"> Factors That Affect How Much Interest You Earn </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Predicting your compound interest earnings lets you see whether you’re on track for your goals. Some of the factors that determine how much you’ll earn include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_98-0"> <span class="mntl-sc-block-subheading__text"> Account Balance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> As the saying goes, it takes money to make money. Therefore, the more you deposit into a compound interest account, the more you earn annually. This is the foundation of interest compounding. As you build your savings from the compound interest, you will make more and more per year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_101-0"> <span class="mntl-sc-block-subheading__text"> Interest Rate </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> An account interest rate shows how much you will earn per year on your balance. When researching how to open a compound interest account, look for one offering a competitive rate. You should also keep an eye on market and economic changes. Rates change, which could increase or decrease how much interest you earn per year. You should also check regularly to see if you could get a better deal from another company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_104-0"> <span class="mntl-sc-block-subheading__text"> Compounding Frequency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> Compounding frequency is how soon your account starts earning interest on prior earnings. Accounts could compound annually, quarterly, monthly, and even daily. The more frequent the compounding schedule, the more interest you earn per year. This is because the account starts paying a return on your past earnings sooner. If you’re wondering how to open a daily compound interest account, our review of the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214"> best CD rates</a> identified many that do just that. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_107-0"> <span class="mntl-sc-block-subheading__text"> Account Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> If you owe fees for your compound interest account, they will be deducted from your balance. Therefore, the more you pay out in fees, the less you keep for your annual interest earnings for compounding. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <span class="heading-toc" id="toc-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-heading__text"> FAQs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_111-0"><span class="heading-toc" id="toc-what-is-compound-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Compound Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Compound interest is interest that you earn on past interest/investment earnings. For example, you put $10,000 in a savings account, paying 5% yearly. After one year, you earn $500 and have $10,500 in savings. Your second year of earnings will be $525. You earn more because you’re making a return both on your initial deposit as well as past earnings. Over time, your savings grow, and you earn more and more money through compound interest.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_113-0"><span class="heading-toc" id="toc-how-does-compound-interest-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Compound Interest Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Compound interest works by growing your money through a bank or investment account. You first put your money into a compound interest account. It says how much you will earn per year. Your balance then grows by this compound interest amount. The following year, your balance plus interest earnings will continue to grow by the return. Compound interest works exponentially because you earn more and more as your savings grow.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_115-0"><span class="heading-toc" id="toc-who-benefits-from-compound-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Benefits From Compound Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Savers and investors benefit from compound interest. You need to have extra money to put into a compound interest account. Then, it will generate a return to grow your savings. As you build your account balance, you earn more each year thanks to compounding.</p><p>On the other hand, compound interest hurts people in debt. If you owe interest, the amount gets added to your outstanding balance. So the more you owe, the more you’ll be charged in interest each year, increasing how much you need to pay back.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_117-0"><span class="heading-toc" id="toc-are-compound-interest-accounts-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Compound Interest Accounts Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many compound interest accounts are safe, such as high-yield savings accounts, money market accounts, and CDs. Banks guarantee your return and you do not face market losses in these accounts. Safe compound interest accounts tend to pay a lower interest rate, however.</p><p>If you want to earn more, you could put your money into riskier investments like dividend stocks, mutual funds, and REITs. If the investment does well over time, you earn more yearly with compound interest. However, you also have the risk of losing money.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_119-0"><span class="heading-toc" id="toc-how-is-compound-interest-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Compound Interest Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Compound interest for one year is calculated by multiplying your starting amount by one plus the interest rate. If you have $1,000 and earn 5%, your growth with compound interest equals $1,000 x (1 + 5%) = $1,000 x 1.05 = $1,050. For multiple years, use this formula: starting principal x (1 + interest)^n, where n equals the number of years. In this same example, your $1,000 would turn into $1276.28 over five years.</p><p>This formula works with annual compounding. If you compound more frequently, it gets more complicated. You could use an online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator">compound interest calculator</a> to determine how much you will earn over time.</p></div> </div></div>

Albert Einstein once described compound interest as the eighth wonder of the world. Compound interest is when you earn an interest return on your savings, which you reinvest to grow even more. In other words, you earn interest on your interest. As you build your savings from past interest, you receive a higher return each following year thanks to exponential growth from compounding. You don’t have to be a Nobel Prize winner like Einstein to benefit from the power of compounding. Here’s how to open a compound interest account and what you should research before signing up. ![How to Open a Compound Interest Account]() :max_bytes(150000):strip_icc()/how-to-open-a-compound-interest-account-7505889-final-89fd83cb3497479a93512ecb3c254325.png) Investopedia / Zoe Hansen ## How to Open a Compound Interest Account A compound interest account is any account that lets you earn interest or some other return to grow your savings. You could open a compound interest account with a bank, or you could also open a compound interest account with an investment broker. Here’s how it’s done. ### Steps Required to Open a Compound Interest Account Each company has its specific process for how to open a savings account with compound interest. Here is a general overview of how this works and what you should consider as you compare your options. **Step 1: Determine the type of compound interest account you need.** Start by deciding what type of compound interest account you’d like. Do you want to earn a guaranteed return where you can’t lose money? You may be better off with a bank offering high-yield savings accounts, money market accounts, and certificates of deposit (CDs). Or would you like to invest for a higher compounding rate, even if there’s a risk of short-term losses? Then you would want a brokerage account to invest in bonds, mutual funds, REITs, and stocks. You may find a company that gives you a combination of both. For example, [Fidelity](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1134&type=3&subid=0) allows you to invest in the market while also paying a guaranteed interest rate on your uninvested cash.  **Step 2: Compare costs, fees, and incentives.** Each compound interest account has its own set of costs and fees. Some fees you could run into include: * **Annual account fees**: A compound interest account could charge a flat fee annually. * **Minimum account balance fees:** Financial institutions often charge a monthly fee if your balance isn’t large enough. For example, you need at least $500 in your account, or you owe this fee. * **Trading commissions:** Investment brokers could charge a commission every time you buy and sell assets for your compound interest account. * **Expense ratios:** If you’re investing in funds managed by a professional, the fund could charge an [expense ratio](https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp) as a percentage of your investment. The more you pay in fees, the less you earn overall. The best compound interest accounts keep these as low as possible. Companies may also offer incentives when you open a new compound interest account. For example, you receive a $200 bonus [for opening a savings account](https://www.investopedia.com/best-savings-account-bonuses-7152450). Check for these as well to get a jump start on growth. **Step 3: Compare services.** Not every company offers the same services. Think of what you’d like from your compound interest account in these categories: * **Product selection**: There are many ways to earn compound interest. Each financial institution provides a different product selection. Consider how you want to save or invest and ensure the option is available. * **Access to a variety of investment accounts:** You could earn compound interest through a regular bank account or investment account. You could also save through tax-advantaged retirement accounts called individual retirement accounts ([IRAs](https://www.investopedia.com/terms/i/ira.asp)) as well as college savings plans. Consider your financial goals and make sure the right accounts are available. * **Compound interest calculators and other online resources:** A [compound interest calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator) shows how much your money could grow over time. Companies may provide other free financial tools to plan your budget or see if you’re on track for retirement. Some provide extensive educational materials. * **Access to brick-and-mortar branches:** Do you want to get help in person, or are you OK handling everything remotely? Some compound interest accounts offer brick-and-mortar branches, while others do not. * **Customer service options:** Companies have different service options like phone, email, and live chat. They also have different service hours. See that a company offers what you want. * **Support from a financial advisor:** If you’d like support from a professional, some companies offer access to in-house financial advisors. Others leave you to plan on your own. **Step 4: Sign up for an account.** Once you’ve decided where to open your compound interest account, you can formally sign up. You must provide your personal contact information, employment information, and tax ID number, usually your Social Security number. The institution needs to verify your identity to meet government regulations. How long the application process takes depends on the type of account. You could potentially open and qualify for a bank account within an hour. Brokerage investment accounts can take as long as several days, as the broker must review your application and financial information. **Step 5: Fund your account.** Last, link your current bank account to the compound interest account so you can transfer money in. Once you’ve set up the account along with any investments, you’ll start growing your savings with compound interest. ## Best Investment Platforms for Handling Uninvested Cash | **Platform** | Platform Type | **Account Minimum** | **Annual Percentage Yield** | **Monthly Maintenance Fee** | | --- | --- | --- | --- | --- | | [Betterment](https://betterment.evyy.net/c/328256/1094598/2299?subid1=4587887&subid2=na356ed2f14734fde91423dab7877545f00&subid1=7486554&subid2=nad2ac500471c47c9be9cf9d1a763480b15) | Robo-Advisor | $0, $10 minimum to start investing | 4.35% | $0 | | [Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) | Online Broker | $0 | 4.33% for IBKR Pro customers with AUM of $100,000, 3.33% for IBKR Lite customers | $0 | | [Wealthfront](https://wealthfront.4fq8.net/c/328256/1343541/3104?subid1=4587933&subid2=n49a06a7dedd84377a72405efc4aa4f6300&subid1=7486554&subid2=nad2ac500471c47c9be9cf9d1a763480b15) | Robo-Advisor | $500 for the robo-advisor, $1 for stocks | 4.30% | $0 | | [Empower](https://personalcapital.sjv.io/c/328256/1287561/13439) | Robo-Advisor | $100,000 for wealth management, $0 for individual investment accounts | 4.25% | $0 | | [Fidelity](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1134&type=3&subid=0) | Online Broker | $0 | 2.47% | $0 | | [Robinhood](https://robinhood.c3me6x.net/c/328256/1149283/10402?subid1=4587919&subid2=nabf130d5a40b4671b53e917fe7d7c49100&subid1=7486554&subid2=nad2ac500471c47c9be9cf9d1a763480b15) | Online Broker | $0 | 4.40% for Gold customers, 1.5% for regular customers | $5 for Gold customers, $0 for regular customers | ## What You Need to Open a Compound Interest Account You must submit a variety of personal and financial information to open a compound interest account. Financial institutions need this information to report your tax earnings and meet other government regulations (like [anti-money laundering](https://www.investopedia.com/terms/a/aml.asp).) So expect to provide the following. ### Personal Information * Name * Home address (you may need to provide proof, like a utility bill or mortgage statement) * Contact information, like your phone and email address * Date of birth * Social Security number * Driver’s license, passport, or another form of government ID ### Financial and Investment Information If you’d like to earn compound interest by investing, you must provide more financial information beyond a basic bank account. The broker needs this information to determine which investment options and strategies are appropriate for you. You may need to provide the following: * Employment status and occupation * Annual income * Net worth * Risk tolerance for losing money * Investment goals and objectives ## Understand the Basics If you’d like to start earning compound interest, you need to decide on the type of account. There’s a broad range of  compound interest accounts. You can choose from very safe, basic accounts that take very little research. You could also focus on more complicated, higher-risk accounts with higher possible returns. Here are the more basic, safe compound interest accounts and what they involve. ### High-Yield Savings Accounts High-yield savings accounts are bank accounts paying a high interest rate. The best high-yield savings accounts pay a highly competitive return with very low fees; most are free. You can’t lose money in a savings account, and savings accounts give you convenient access to your money at any time. If you’d like to learn more about high compound savings interest accounts, see our [roundup of the best high-yield savings account rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). ### Money Market Accounts [Money market accounts](https://www.investopedia.com/terms/m/moneymarketaccount.asp) are another bank deposit account. They typically have a higher minimum balance requirement than high-yield savings accounts. Otherwise, you owe a monthly fee. In exchange, money market accounts usually pay a higher interest rate. So if you’re willing to deposit more money, you can earn more compound interest using a money market account. These accounts have a guaranteed return and you cannot lose money. You can also withdraw whenever you want. ### Certificates of Deposit (CDs) When you sign up for a [CD](https://www.investopedia.com/terms/c/certificateofdeposit.asp), you pick how long it will last (the term). It could range from a month to many years. During this time, you earn a guaranteed compound interest rate. Your balance is also insured, so it won’t drop. However, you will owe a penalty if you want your money back before the end of the agreed term. If you take money out early, you could forfeit interest earnings and even some of your deposit. CDs typically pay a higher interest rate than other bank deposit products in exchange for giving less access to your money. ### Bonds and Bond Funds With a bond, you’re lending money to a government, company, or other organization for a set period. During this period, you receive interest, and you get your money back at the end of the bond term.  Bonds have more risk and take more research than bank deposit accounts. First, you must check how safe a bond is by checking the issuer’s credit rating. If a bond issuer runs into financial trouble, it might not pay all the interest or even fail to pay you your deposit back. To stay safe, consider bonds from issuers like the U.S. government or very large, established companies. [Bond rating agencies](https://www.investopedia.com/terms/b/bond-rating-agencies.asp) give letter grades to show the financial stability of different bond issuers. If you want your money back before the end of the bond term, you could sell to another investor through your investment platform. However, you might get back less than you paid. This happens if interest rates have increased since you first bought the bond. If you don’t want to put in the research and work yourself, another option is to buy a bond fund. A professional investor builds a portfolio of different bonds so you can earn compound interest this way. ### Mutual Funds [Mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) combine the money of many small investors to create a large investment portfolio. A professional investor manages the portfolio to decide on the investments. Each mutual fund has different investment objectives. For example, an [income mutual fund](https://www.investopedia.com/terms/i/incomefund.asp) would focus on bonds and other safer investments, while a [growth mutual fund](https://www.investopedia.com/terms/g/growthfund.asp) would focus on higher-risk but higher-earning investments like stocks. There is more risk with mutual funds. The investments may not work out, and your balance could fall. However, mutual funds have higher earning potential than bank accounts. If you’re investing long-term, you could potentially earn more compound interest using mutual funds. ## Types of High-Risk Compound Interest Accounts These compound interest investments can earn more than the basic options if you want to push for a higher return. But, be warned, they also require more research and you have a higher risk of losing money. ### REITs Real estate investment trusts ([REITs](https://www.investopedia.com/terms/r/reit.asp)) are funds that invest in real estate. You pool your money with many other investors. Then, the REIT uses this money to build a portfolio of properties. You earn a share of the profits from rent and property sales. It’s a way to make compound interest from real estate without going through the work and high expense of buying your own properties. Many REITs are publicly traded so you can sell to another investor and cash out at your convenience. However, non-traded REITs lock you in potentially for years. ### High-Yield Bonds With bonds, generally, the riskier the investment, the higher the interest rate. High-yield bonds, or junk bonds, pay a higher face interest rate. As a result, you earn more in compound interest. However, high-yield bonds have an increased risk of default. As a result, you might only get some of the interest payments. If the issuer goes bankrupt, you may also lose your initial investment. High-yield bonds are those with a Standard & Poor’s credit rating of BB+ or worse. ### Cryptocurrency [Cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp), like Bitcoin and Ethereum, are a type of digital currency. Cryptocurrencies are decentralized and not managed by any government. If you invest in cryptocurrencies, you could make money if the price goes up. Some cryptocurrencies also use a system called staking. If you own the cryptocurrency, you could agree to lock it up temporarily and earn an interest return paid in more cryptocurrency. Cryptocurrencies are another very high-risk, potentially high-reward investment. ### Dividend Stocks Companies issue stock to raise money. When you buy stocks, you become a part owner of a company and could share in future profits. When a company makes money, it can either reinvest to continue growing or pay out earnings to shareholders through a dividend payment. Dividend stocks come from companies paying a higher dividend rate. These are usually larger, more established, profitable companies. Smaller companies and those trying to grow are less likely to pay dividends. If you want compound interest from dividend stocks, research the past dividend rate of each company. Confirm that a company will remain profitable so it will keep paying. For ideas, check out these [top dividend stocks](https://www.investopedia.com/top-dividend-stocks-june-2023-7506795). If you don’t want to do this work yourself, you could look for a mutual fund focused on dividends. ### Alternative Investments [Alternative investments](https://www.investopedia.com/terms/a/alternative_investment.asp) are those outside the conventional financial markets. These could include hedge funds, private equity funds, commodities, artwork, and farmland. Alternative investments are higher risk and require more research. Some, like hedge funds, require you to be an [accredited investor](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3). In exchange, these investments could also earn high returns. ## Best Alternative Investment Platforms | **Platform** | **Focus** | **Minimum Investment** | | --- | --- | --- | | [Fundrise](http://www.fundrise.com ) | Real Estate Investments | $10 | | [Masterworks](https://www.masterworks.com/) | Art Investments | $10,000 | | Yieldstreet | Asset Variety | $2,500 | | [iTrustCapital](https://itrustcapital.com/?utm_source=partner&utm_medium=youtube&utm_campaign=partner42&oid=15&affid=42) | Gold and Cryptocurrency | $1,000 | ## Factors That Affect How Much Interest You Earn Predicting your compound interest earnings lets you see whether you’re on track for your goals. Some of the factors that determine how much you’ll earn include: ### Account Balance As the saying goes, it takes money to make money. Therefore, the more you deposit into a compound interest account, the more you earn annually. This is the foundation of interest compounding. As you build your savings from the compound interest, you will make more and more per year. ### Interest Rate An account interest rate shows how much you will earn per year on your balance. When researching how to open a compound interest account, look for one offering a competitive rate. You should also keep an eye on market and economic changes. Rates change, which could increase or decrease how much interest you earn per year. You should also check regularly to see if you could get a better deal from another company. ### Compounding Frequency Compounding frequency is how soon your account starts earning interest on prior earnings. Accounts could compound annually, quarterly, monthly, and even daily. The more frequent the compounding schedule, the more interest you earn per year. This is because the account starts paying a return on your past earnings sooner. If you’re wondering how to open a daily compound interest account, our review of the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) identified many that do just that. ### Account Fees If you owe fees for your compound interest account, they will be deducted from your balance. Therefore, the more you pay out in fees, the less you keep for your annual interest earnings for compounding. ## FAQs ## What Is Compound Interest? Compound interest is interest that you earn on past interest/investment earnings. For example, you put $10,000 in a savings account, paying 5% yearly. After one year, you earn $500 and have $10,500 in savings. Your second year of earnings will be $525. You earn more because you’re making a return both on your initial deposit as well as past earnings. Over time, your savings grow, and you earn more and more money through compound interest. ## How Does Compound Interest Work? Compound interest works by growing your money through a bank or investment account. You first put your money into a compound interest account. It says how much you will earn per year. Your balance then grows by this compound interest amount. The following year, your balance plus interest earnings will continue to grow by the return. Compound interest works exponentially because you earn more and more as your savings grow. ## Who Benefits From Compound Interest? Savers and investors benefit from compound interest. You need to have extra money to put into a compound interest account. Then, it will generate a return to grow your savings. As you build your account balance, you earn more each year thanks to compounding. On the other hand, compound interest hurts people in debt. If you owe interest, the amount gets added to your outstanding balance. So the more you owe, the more you’ll be charged in interest each year, increasing how much you need to pay back. ## Are Compound Interest Accounts Safe? Many compound interest accounts are safe, such as high-yield savings accounts, money market accounts, and CDs. Banks guarantee your return and you do not face market losses in these accounts. Safe compound interest accounts tend to pay a lower interest rate, however. If you want to earn more, you could put your money into riskier investments like dividend stocks, mutual funds, and REITs. If the investment does well over time, you earn more yearly with compound interest. However, you also have the risk of losing money. ## How Is Compound Interest Calculated? Compound interest for one year is calculated by multiplying your starting amount by one plus the interest rate. If you have $1,000 and earn 5%, your growth with compound interest equals $1,000 x (1 + 5%) = $1,000 x 1.05 = $1,050. For multiple years, use this formula: starting principal x (1 + interest)^n, where n equals the number of years. In this same example, your $1,000 would turn into $1276.28 over five years. This formula works with annual compounding. If you compound more frequently, it gets more complicated. You could use an online [compound interest calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator) to determine how much you will earn over time.

Albert Einstein once described compound interest as the eighth wonder of the world. Compound interest is when you earn an interest return on your savings, which you reinvest to grow even more. In other words, you earn interest on your interest. As you build your savings from past interest, you receive a higher return each following year thanks to exponential growth from compounding. You don’t have to be a Nobel Prize winner like Einstein to benefit from the power of compounding. Here’s how to open a compound interest account and what you should research before signing up. Investopedia / Zoe Hansen How to Open a Compound Interest Account A compound interest account is any account that lets you earn interest or some other return to grow your savings. You could open a compound interest account with a bank, or you could also open a compound interest account with an investment broker. Here’s how it’s done. Steps Required to Open a Compound Interest Account Each company has its specific process for how to open a savings account with compound interest. Here is a general overview of how this works and what you should consider as you compare your options. Step 1: Determine the type of compound interest account you need. Start by deciding what type of compound interest account you’d like. Do you want to earn a guaranteed return where you can’t lose money? You may be better off with a bank offering high-yield savings accounts, money market accounts, and certificates of deposit (CDs). Or would you like to invest for a higher compounding rate, even if there’s a risk of short-term losses? Then you would want a brokerage account to invest in bonds, mutual funds, REITs, and stocks. You may find a company that gives you a combination of both. For example, Fidelity allows you to invest in the market while also paying a guaranteed interest rate on your uninvested cash.  Step 2: Compare costs, fees, and incentives. Each compound interest account has its own set of costs and fees. Some fees you could run into include: Annual account fees: A compound interest account could charge a flat fee annually. Minimum account balance fees: Financial institutions often charge a monthly fee if your balance isn’t large enough. For example, you need at least $500 in your account, or you owe this fee. Trading commissions: Investment brokers could charge a commission every time you buy and sell assets for your compound interest account. Expense ratios: If you’re investing in funds managed by a professional, the fund could charge an expense ratio as a percentage of your investment.  The more you pay in fees, the less you earn overall. The best compound interest accounts keep these as low as possible. Companies may also offer incentives when you open a new compound interest account. For example, you receive a $200 bonus for opening a savings account. Check for these as well to get a jump start on growth. Step 3: Compare services. Not every company offers the same services. Think of what you’d like from your compound interest account in these categories: Product selection: There are many ways to earn compound interest. Each financial institution provides a different product selection. Consider how you want to save or invest and ensure the option is available. Access to a variety of investment accounts: You could earn compound interest through a regular bank account or investment account. You could also save through tax-advantaged retirement accounts called individual retirement accounts (IRAs) as well as college savings plans. Consider your financial goals and make sure the right accounts are available. Compound interest calculators and other online resources: A compound interest calculator shows how much your money could grow over time. Companies may provide other free financial tools to plan your budget or see if you’re on track for retirement. Some provide extensive educational materials. Access to brick-and-mortar branches: Do you want to get help in person, or are you OK handling everything remotely? Some compound interest accounts offer brick-and-mortar branches, while others do not. Customer service options: Companies have different service options like phone, email, and live chat. They also have different service hours. See that a company offers what you want. Support from a financial advisor: If you’d like support from a professional, some companies offer access to in-house financial advisors. Others leave you to plan on your own. Step 4: Sign up for an account. Once you’ve decided where to open your compound interest account, you can formally sign up. You must provide your personal contact information, employment information, and tax ID number, usually your Social Security number. The institution needs to verify your identity to meet government regulations. How long the application process takes depends on the type of account. You could potentially open and qualify for a bank account within an hour. Brokerage investment accounts can take as long as several days, as the broker must review your application and financial information. Step 5: Fund your account. Last, link your current bank account to the compound interest account so you can transfer money in. Once you’ve set up the account along with any investments, you’ll start growing your savings with compound interest. Best Investment Platforms for Handling Uninvested Cash Platform Platform Type  Account Minimum Annual Percentage Yield Monthly Maintenance Fee Betterment Robo-Advisor $0, $10 minimum to start investing 4.35% $0 Interactive Brokers Online Broker $0 4.33% for IBKR Pro customers with AUM of $100,000, 3.33% for IBKR Lite customers $0 Wealthfront Robo-Advisor $500 for the robo-advisor, $1 for stocks 4.30% $0 Empower Robo-Advisor $100,000 for wealth management, $0 for individual investment accounts 4.25% $0 Fidelity Online Broker $0 2.47% $0 Robinhood Online Broker $0  4.40% for Gold customers, 1.5% for regular customers $5 for Gold customers, $0 for regular customers What You Need to Open a Compound Interest Account  You must submit a variety of personal and financial information to open a compound interest account. Financial institutions need this information to report your tax earnings and meet other government regulations (like anti-money laundering.) So expect to provide the following. Personal Information NameHome address (you may need to provide proof, like a utility bill or mortgage statement)Contact information, like your phone and email addressDate of birthSocial Security numberDriver’s license, passport, or another form of government ID Financial and Investment Information If you’d like to earn compound interest by investing, you must provide more financial information beyond a basic bank account. The broker needs this information to determine which investment options and strategies are appropriate for you. You may need to provide the following: Employment status and occupationAnnual incomeNet worthRisk tolerance for losing moneyInvestment goals and objectives Understand the Basics If you’d like to start earning compound interest, you need to decide on the type of account. There’s a broad range of  compound interest accounts. You can choose from very safe, basic accounts that take very little research. You could also focus on more complicated, higher-risk accounts with higher possible returns. Here are the more basic, safe compound interest accounts and what they involve. High-Yield Savings Accounts  High-yield savings accounts are bank accounts paying a high interest rate. The best high-yield savings accounts pay a highly competitive return with very low fees; most are free. You can’t lose money in a savings account, and savings accounts give you convenient access to your money at any time. If you’d like to learn more about high compound savings interest accounts, see our roundup of the best high-yield savings account rates. Money Market Accounts Money market accounts are another bank deposit account. They typically have a higher minimum balance requirement than high-yield savings accounts. Otherwise, you owe a monthly fee. In exchange, money market accounts usually pay a higher interest rate. So if you’re willing to deposit more money, you can earn more compound interest using a money market account. These accounts have a guaranteed return and you cannot lose money. You can also withdraw whenever you want. Certificates of Deposit (CDs) When you sign up for a CD, you pick how long it will last (the term). It could range from a month to many years. During this time, you earn a guaranteed compound interest rate. Your balance is also insured, so it won’t drop. However, you will owe a penalty if you want your money back before the end of the agreed term. If you take money out early, you could forfeit interest earnings and even some of your deposit. CDs typically pay a higher interest rate than other bank deposit products in exchange for giving less access to your money. Bonds and Bond Funds With a bond, you’re lending money to a government, company, or other organization for a set period. During this period, you receive interest, and you get your money back at the end of the bond term.  Bonds have more risk and take more research than bank deposit accounts. First, you must check how safe a bond is by checking the issuer’s credit rating. If a bond issuer runs into financial trouble, it might not pay all the interest or even fail to pay you your deposit back. To stay safe, consider bonds from issuers like the U.S. government or very large, established companies. Bond rating agencies give letter grades to show the financial stability of different bond issuers. If you want your money back before the end of the bond term, you could sell to another investor through your investment platform. However, you might get back less than you paid. This happens if interest rates have increased since you first bought the bond. If you don’t want to put in the research and work yourself, another option is to buy a bond fund. A professional investor builds a portfolio of different bonds so you can earn compound interest this way. Mutual Funds Mutual funds combine the money of many small investors to create a large investment portfolio. A professional investor manages the portfolio to decide on the investments. Each mutual fund has different investment objectives. For example, an income mutual fund would focus on bonds and other safer investments, while a growth mutual fund would focus on higher-risk but higher-earning investments like stocks. There is more risk with mutual funds. The investments may not work out, and your balance could fall. However, mutual funds have higher earning potential than bank accounts. If you’re investing long-term, you could potentially earn more compound interest using mutual funds. Types of High-Risk Compound Interest Accounts These compound interest investments can earn more than the basic options if you want to push for a higher return. But, be warned, they also require more research and you have a higher risk of losing money. REITs  Real estate investment trusts (REITs) are funds that invest in real estate. You pool your money with many other investors. Then, the REIT uses this money to build a portfolio of properties. You earn a share of the profits from rent and property sales. It’s a way to make compound interest from real estate without going through the work and high expense of buying your own properties. Many REITs are publicly traded so you can sell to another investor and cash out at your convenience. However, non-traded REITs lock you in potentially for years. High-Yield Bonds With bonds, generally, the riskier the investment, the higher the interest rate. High-yield bonds, or junk bonds, pay a higher face interest rate. As a result, you earn more in compound interest. However, high-yield bonds have an increased risk of default. As a result, you might only get some of the interest payments. If the issuer goes bankrupt, you may also lose your initial investment. High-yield bonds are those with a Standard & Poor’s credit rating of BB+ or worse. Cryptocurrency Cryptocurrencies, like Bitcoin and Ethereum, are a type of digital currency. Cryptocurrencies are decentralized and not managed by any government. If you invest in cryptocurrencies, you could make money if the price goes up. Some cryptocurrencies also use a system called staking. If you own the cryptocurrency, you could agree to lock it up temporarily and earn an interest return paid in more cryptocurrency. Cryptocurrencies are another very high-risk, potentially high-reward investment. Dividend Stocks Companies issue stock to raise money. When you buy stocks, you become a part owner of a company and could share in future profits. When a company makes money, it can either reinvest to continue growing or pay out earnings to shareholders through a dividend payment. Dividend stocks come from companies paying a higher dividend rate. These are usually larger, more established, profitable companies. Smaller companies and those trying to grow are less likely to pay dividends. If you want compound interest from dividend stocks, research the past dividend rate of each company. Confirm that a company will remain profitable so it will keep paying. For ideas, check out these top dividend stocks. If you don’t want to do this work yourself, you could look for a mutual fund focused on dividends. Alternative Investments Alternative investments are those outside the conventional financial markets. These could include hedge funds, private equity funds, commodities, artwork, and farmland. Alternative investments are higher risk and require more research. Some, like hedge funds, require you to be an accredited investor. In exchange, these investments could also earn high returns. Best Alternative Investment Platforms Platform Focus Minimum Investment Fundrise Real Estate Investments $10 Masterworks Art Investments $10,000 Yieldstreet Asset Variety $2,500 iTrustCapital Gold and Cryptocurrency $1,000 Factors That Affect How Much Interest You Earn Predicting your compound interest earnings lets you see whether you’re on track for your goals. Some of the factors that determine how much you’ll earn include: Account Balance As the saying goes, it takes money to make money. Therefore, the more you deposit into a compound interest account, the more you earn annually. This is the foundation of interest compounding. As you build your savings from the compound interest, you will make more and more per year. Interest Rate An account interest rate shows how much you will earn per year on your balance. When researching how to open a compound interest account, look for one offering a competitive rate. You should also keep an eye on market and economic changes. Rates change, which could increase or decrease how much interest you earn per year. You should also check regularly to see if you could get a better deal from another company. Compounding Frequency Compounding frequency is how soon your account starts earning interest on prior earnings. Accounts could compound annually, quarterly, monthly, and even daily. The more frequent the compounding schedule, the more interest you earn per year. This is because the account starts paying a return on your past earnings sooner. If you’re wondering how to open a daily compound interest account, our review of the best CD rates identified many that do just that. Account Fees If you owe fees for your compound interest account, they will be deducted from your balance. Therefore, the more you pay out in fees, the less you keep for your annual interest earnings for compounding. FAQs What Is Compound Interest? Compound interest is interest that you earn on past interest/investment earnings. For example, you put $10,000 in a savings account, paying 5% yearly. After one year, you earn $500 and have $10,500 in savings. Your second year of earnings will be $525. You earn more because you’re making a return both on your initial deposit as well as past earnings. Over time, your savings grow, and you earn more and more money through compound interest. How Does Compound Interest Work? Compound interest works by growing your money through a bank or investment account. You first put your money into a compound interest account. It says how much you will earn per year. Your balance then grows by this compound interest amount. The following year, your balance plus interest earnings will continue to grow by the return. Compound interest works exponentially because you earn more and more as your savings grow. Who Benefits From Compound Interest? Savers and investors benefit from compound interest. You need to have extra money to put into a compound interest account. Then, it will generate a return to grow your savings. As you build your account balance, you earn more each year thanks to compounding.On the other hand, compound interest hurts people in debt. If you owe interest, the amount gets added to your outstanding balance. So the more you owe, the more you’ll be charged in interest each year, increasing how much you need to pay back. Are Compound Interest Accounts Safe? Many compound interest accounts are safe, such as high-yield savings accounts, money market accounts, and CDs. Banks guarantee your return and you do not face market losses in these accounts. Safe compound interest accounts tend to pay a lower interest rate, however.If you want to earn more, you could put your money into riskier investments like dividend stocks, mutual funds, and REITs. If the investment does well over time, you earn more yearly with compound interest. However, you also have the risk of losing money. How Is Compound Interest Calculated? Compound interest for one year is calculated by multiplying your starting amount by one plus the interest rate. If you have $1,000 and earn 5%, your growth with compound interest equals $1,000 x (1 + 5%) = $1,000 x 1.05 = $1,050. For multiple years, use this formula: starting principal x (1 + interest)^n, where n equals the number of years. In this same example, your $1,000 would turn into $1276.28 over five years.This formula works with annual compounding. If you compound more frequently, it gets more complicated. You could use an online compound interest calculator to determine how much you will earn over time.

https://www.investopedia.com/are-online-bank-cds-safe-5248855

Are Online Certificates of Deposit (CDs) Safe?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Certificates of deposit (CDs) are perfectly safe places to stash your cash whether they're purchased online or at a brick-and-mortar bank as long as you follow a few rules. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Make sure the money in your CD is federally insured against losses by either the Federal Deposit Insurance Corp. (FDIC) if it's a bank or by the National Credit Union Administration (NCUA) if it's a credit union. Almost all legitimate financial institutions are insured by one or the other. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Make sure you're dealing with a legitimate institution and not a scam. Granted, scams are more easily pulled off online than off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Read the fine print. Most CDs do not have fees attached but there is a penalty for withdrawing your money early, and the amount of that penalty is up to the bank. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Certificates of deposit are considered very low-risk investments. They offer a guaranteed return on your money and almost all are insured by the federal government.</li><li>Legitimate online banks offer the same protections for your CD as traditional banks, and some pay better interest rates. Just make sure your money is FDIC-insured, and beware of scams.</li><li>It’s important to verify that an online bank is legitimate, but once you’ve done so, you can rest assured that your money is safe in an online bank CD.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Are Online Certificates of Deposit Safe?" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/yvPTqAsLyT9cBasRf5R_0aXSbYM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/yvPTqAsLyT9cBasRf5R_0aXSbYM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png" data-srcset="https://www.investopedia.com/thmb/U1zKpR6HrrEWCagUO__yEWp_LCA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Are Online Certificates of Deposit Safe?" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/yvPTqAsLyT9cBasRf5R_0aXSbYM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png" srcset="https://www.investopedia.com/thmb/U1zKpR6HrrEWCagUO__yEWp_LCA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Joules Garcia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-certificates-of-deposit-cds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Understanding Certificates of Deposit (CDs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Certificates of deposit are popular products for savers looking to put aside some money for the short term in return for a better rate of interest than an ordinary savings account usually gets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If it is FDIC-insured, as almost all banks are, CDs are considered among the safest investments available because the investor can't lose the principal, as is all too possible in the stock market. And the principal is insured even in the event of a financial collapse by the institution that holds the money. CDs are federally insured against losses for up to $250,000 per depositor per institution and a joint CD account is insured for up to $500,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Moreover, the interest rate is fixed and guaranteed. It can't be reduced during the term of the CD if interest rates in the world at large decrease. (It won't be increased if interest rates rise, either.)<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> It's worth noting that the FDIC has been in operation since 1933 and no depositor has since lost a penny from a bank deposit.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-savings-deposits-vs-cds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Savings Deposits vs. CDs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Your money is equally safe in a savings account or a CD. Both types of deposits are federally insured against losses for up to $250,000 per depositor or $500,000 for a joint account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A CD requires that you commit to leaving the money in the account for a set term, which can be anywhere from a few months to 10 years or more. They usually pay a little more in interest than a savings account. Generally, the longer the commitment, the higher the interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> You can get your money out of a CD before it matures but there's a penalty for doing so. The amount of the penalty is up to the institution, but it can eat into the interest you earn if not eliminate it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-where-to-buy-a-cd"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Where to Buy a CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Like savings accounts, CDs are available at almost any bank, online or off. They're also available from credit unions and brokerages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The CDs offered by online banks are just as safe as those offered by their giant corporate peers, as long as their deposits are federally insured. It is very rare for a financial institution, online or off, to not be FDIC insured. A few small banks are state-insured instead. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> You can use the FDIC's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://banks.data.fdic.gov/bankfind-suite/bankfind">BankFindSuite</a> database if you want to make sure that a bank is FDIC insured.<span class="ql-inline-citation" data-cite="10"></span> That said, it always pays to be wary of outright scams.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-cds-at-online-banks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> CDs at Online Banks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> When you open a CD with an FDIC- or NCUA-insured institution, up to $250,000 of your funds on deposit with that institution are protected by the U.S. government if that institution were to fail. The figure is $500,000 for joint accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> If you have more than $250,000 to invest, you can split it between institutions to make sure it’s all protected.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> These guarantees apply to online banks just as they do to traditional brick-and-mortar banks. This means that CDs at online banks are just as safe as those held with Main Street banks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-the-online-banking-advantage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> The Online Banking Advantage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> There is a benefit to investing in a CD online rather than in person. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> It’s now possible to shop for CDs at more than 150 banks that accept customers nationwide. This creates a lot of competition to offer higher interest rates on CDs and greatly expands your choices beyond your own neighborhood. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The lack of significant infrastructure and overhead costs enables online-only banks to pay higher interest rates or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yields (APY)</a> on CDs and other types of savings. The most generous of them offer as much as 1% to 2% more than you'll earn on accounts at a traditional bank. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_49-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_50-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>About 56% of account holders do at least some of their banking via the Internet.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-avoiding-cd-scams"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> Avoiding CD Scams </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> CDs are subject to fraud, just like any other investment product. And it's easier to put up a fake website than it is to put up a fake brick-and-mortar bank.<span class="ql-inline-citation" data-cite="12"></span> You should verify that they are who they say they are if you have any doubts about the legitimacy of a company you're, </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> The U.S. Securities and Exchange Commission (SEC) suggests several ways to do this: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li>If a company’s website or promotional materials says their CDs are FDIC insured, check for the financial institution with the FDIC’s BankFind tool, or call 877-ASKFDIC (877-275-3342). The name of the financial institution should exactly match the FDIC listing.</li> <li>If the website or promotional materials say the CD is offered by a credit union, you can check this using the National Credit Union Administration’s (NCUA) Research a Credit Union tool or call NCUA’s Consumer Assistance Center at 800-755-1030.</li> <li>You can use FINRA’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://brokercheck.finra.org/">BrokerCheck</a> if a company’s website provides a name and the CRD number of a broker-dealer or an employee of a broker-dealer. This tool is used to verify whether the address provided in FINRA’s BrokerCheck matches the address provided by the company offering the CD.<span class="ql-inline-citation" data-cite="13"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Your money should be safe as long as the company offering CDs is registered in this way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-are-cds-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are CDs Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>CDs are among the safest investment products possible. The principal is safe, unlike in many investments. And the interest rate is guaranteed. Just make sure you're getting the CD from a federally-insured institution.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-are-online-banks-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Online Banks Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are many trustworthy and safe online banks. Fifty-six percent of account holders do at least some of their banking on the Internet. Online banks often offer better returns on your money than their Main Street competitors. As always on the Internet, beware of scams.<span class="ql-inline-citation" data-cite="11"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-why-choose-an-online-bank-cd"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Choose an Online Bank CD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You may get a better interest rate from an online bank. For one thing, they have lower overhead costs and can afford to be more generous. Moreover, the Internet gives you access to about 150 banks across the country that allow out-of-state depositors. CD rates vary widely, so it pays to shop around rather than stop by your local bank branch.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> It’s important to verify that an online bank (or, for that matter, a brick-and-mortar bank) is legitimate and that its deposits are federally insured. Once you’ve done so, you can rest assured that your money is safe in an online bank CD. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Certificates of deposit are some of the safest investments available. They offer a guaranteed return on your money with no risk to your principal whether the CD is from a huge financial services institution or a small online provider. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Online banks should offer the same protections for your CD as brick-and-mortar banks and sometimes better interest rates.<br> </br></p></div>

Certificates of deposit (CDs) are perfectly safe places to stash your cash whether they're purchased online or at a brick-and-mortar bank as long as you follow a few rules. Make sure the money in your CD is federally insured against losses by either the Federal Deposit Insurance Corp. (FDIC) if it's a bank or by the National Credit Union Administration (NCUA) if it's a credit union. Almost all legitimate financial institutions are insured by one or the other. Make sure you're dealing with a legitimate institution and not a scam. Granted, scams are more easily pulled off online than off. Read the fine print. Most CDs do not have fees attached but there is a penalty for withdrawing your money early, and the amount of that penalty is up to the bank. ### Key Takeaways * Certificates of deposit are considered very low-risk investments. They offer a guaranteed return on your money and almost all are insured by the federal government. * Legitimate online banks offer the same protections for your CD as traditional banks, and some pay better interest rates. Just make sure your money is FDIC-insured, and beware of scams. * It’s important to verify that an online bank is legitimate, but once you’ve done so, you can rest assured that your money is safe in an online bank CD. ![Are Online Certificates of Deposit Safe?]() :max_bytes(150000):strip_icc()/are-online-bank-cds-safe-5248855-FINAL-1-981d5fb35aeb456bb32c7391b41e06b6.png) Investopedia / Joules Garcia ## Understanding Certificates of Deposit (CDs) Certificates of deposit are popular products for savers looking to put aside some money for the short term in return for a better rate of interest than an ordinary savings account usually gets. If it is FDIC-insured, as almost all banks are, CDs are considered among the safest investments available because the investor can't lose the principal, as is all too possible in the stock market. And the principal is insured even in the event of a financial collapse by the institution that holds the money. CDs are federally insured against losses for up to $250,000 per depositor per institution and a joint CD account is insured for up to $500,000. Moreover, the interest rate is fixed and guaranteed. It can't be reduced during the term of the CD if interest rates in the world at large decrease. (It won't be increased if interest rates rise, either.) It's worth noting that the FDIC has been in operation since 1933 and no depositor has since lost a penny from a bank deposit. ## Savings Deposits vs. CDs Your money is equally safe in a savings account or a CD. Both types of deposits are federally insured against losses for up to $250,000 per depositor or $500,000 for a joint account. A CD requires that you commit to leaving the money in the account for a set term, which can be anywhere from a few months to 10 years or more. They usually pay a little more in interest than a savings account. Generally, the longer the commitment, the higher the interest rate. You can get your money out of a CD before it matures but there's a penalty for doing so. The amount of the penalty is up to the institution, but it can eat into the interest you earn if not eliminate it. ## Where to Buy a CD Like savings accounts, CDs are available at almost any bank, online or off. They're also available from credit unions and brokerages. The CDs offered by online banks are just as safe as those offered by their giant corporate peers, as long as their deposits are federally insured. It is very rare for a financial institution, online or off, to not be FDIC insured. A few small banks are state-insured instead. You can use the FDIC's [BankFindSuite](https://banks.data.fdic.gov/bankfind-suite/bankfind) database if you want to make sure that a bank is FDIC insured. That said, it always pays to be wary of outright scams.  ## CDs at Online Banks When you open a CD with an FDIC- or NCUA-insured institution, up to $250,000 of your funds on deposit with that institution are protected by the U.S. government if that institution were to fail. The figure is $500,000 for joint accounts. If you have more than $250,000 to invest, you can split it between institutions to make sure it’s all protected. These guarantees apply to online banks just as they do to traditional brick-and-mortar banks. This means that CDs at online banks are just as safe as those held with Main Street banks. ## The Online Banking Advantage There is a benefit to investing in a CD online rather than in person. It’s now possible to shop for CDs at more than 150 banks that accept customers nationwide. This creates a lot of competition to offer higher interest rates on CDs and greatly expands your choices beyond your own neighborhood. The lack of significant infrastructure and overhead costs enables online-only banks to pay higher interest rates or [annual percentage yields (APY)](https://www.investopedia.com/terms/a/apy.asp) on CDs and other types of savings. The most generous of them offer as much as 1% to 2% more than you'll earn on accounts at a traditional bank.  ### About 56% of account holders do at least some of their banking via the Internet. ## Avoiding CD Scams CDs are subject to fraud, just like any other investment product. And it's easier to put up a fake website than it is to put up a fake brick-and-mortar bank. You should verify that they are who they say they are if you have any doubts about the legitimacy of a company you're, The U.S. Securities and Exchange Commission (SEC) suggests several ways to do this: * If a company’s website or promotional materials says their CDs are FDIC insured, check for the financial institution with the FDIC’s BankFind tool, or call 877-ASKFDIC (877-275-3342). The name of the financial institution should exactly match the FDIC listing. * If the website or promotional materials say the CD is offered by a credit union, you can check this using the National Credit Union Administration’s (NCUA) Research a Credit Union tool or call NCUA’s Consumer Assistance Center at 800-755-1030. * You can use FINRA’s [BrokerCheck](https://brokercheck.finra.org/) if a company’s website provides a name and the CRD number of a broker-dealer or an employee of a broker-dealer. This tool is used to verify whether the address provided in FINRA’s BrokerCheck matches the address provided by the company offering the CD. Your money should be safe as long as the company offering CDs is registered in this way. ## Are CDs Safe? CDs are among the safest investment products possible. The principal is safe, unlike in many investments. And the interest rate is guaranteed. Just make sure you're getting the CD from a federally-insured institution. ## Are Online Banks Safe? There are many trustworthy and safe online banks. Fifty-six percent of account holders do at least some of their banking on the Internet. Online banks often offer better returns on your money than their Main Street competitors. As always on the Internet, beware of scams. ## Why Choose an Online Bank CD? You may get a better interest rate from an online bank. For one thing, they have lower overhead costs and can afford to be more generous. Moreover, the Internet gives you access to about 150 banks across the country that allow out-of-state depositors. CD rates vary widely, so it pays to shop around rather than stop by your local bank branch. ## The Bottom Line It’s important to verify that an online bank (or, for that matter, a brick-and-mortar bank) is legitimate and that its deposits are federally insured. Once you’ve done so, you can rest assured that your money is safe in an online bank CD. Certificates of deposit are some of the safest investments available. They offer a guaranteed return on your money with no risk to your principal whether the CD is from a huge financial services institution or a small online provider. Online banks should offer the same protections for your CD as brick-and-mortar banks and sometimes better interest rates.

Certificates of deposit (CDs) are perfectly safe places to stash your cash whether they're purchased online or at a brick-and-mortar bank as long as you follow a few rules. Make sure the money in your CD is federally insured against losses by either the Federal Deposit Insurance Corp. (FDIC) if it's a bank or by the National Credit Union Administration (NCUA) if it's a credit union. Almost all legitimate financial institutions are insured by one or the other. Make sure you're dealing with a legitimate institution and not a scam. Granted, scams are more easily pulled off online than off. Read the fine print. Most CDs do not have fees attached but there is a penalty for withdrawing your money early, and the amount of that penalty is up to the bank. Key Takeaways Certificates of deposit are considered very low-risk investments. They offer a guaranteed return on your money and almost all are insured by the federal government.Legitimate online banks offer the same protections for your CD as traditional banks, and some pay better interest rates. Just make sure your money is FDIC-insured, and beware of scams.It’s important to verify that an online bank is legitimate, but once you’ve done so, you can rest assured that your money is safe in an online bank CD. Investopedia / Joules Garcia Understanding Certificates of Deposit (CDs) Certificates of deposit are popular products for savers looking to put aside some money for the short term in return for a better rate of interest than an ordinary savings account usually gets. If it is FDIC-insured, as almost all banks are, CDs are considered among the safest investments available because the investor can't lose the principal, as is all too possible in the stock market. And the principal is insured even in the event of a financial collapse by the institution that holds the money. CDs are federally insured against losses for up to $250,000 per depositor per institution and a joint CD account is insured for up to $500,000. Moreover, the interest rate is fixed and guaranteed. It can't be reduced during the term of the CD if interest rates in the world at large decrease. (It won't be increased if interest rates rise, either.) It's worth noting that the FDIC has been in operation since 1933 and no depositor has since lost a penny from a bank deposit. Savings Deposits vs. CDs Your money is equally safe in a savings account or a CD. Both types of deposits are federally insured against losses for up to $250,000 per depositor or $500,000 for a joint account. A CD requires that you commit to leaving the money in the account for a set term, which can be anywhere from a few months to 10 years or more. They usually pay a little more in interest than a savings account. Generally, the longer the commitment, the higher the interest rate. You can get your money out of a CD before it matures but there's a penalty for doing so. The amount of the penalty is up to the institution, but it can eat into the interest you earn if not eliminate it. Where to Buy a CD Like savings accounts, CDs are available at almost any bank, online or off. They're also available from credit unions and brokerages. The CDs offered by online banks are just as safe as those offered by their giant corporate peers, as long as their deposits are federally insured. It is very rare for a financial institution, online or off, to not be FDIC insured. A few small banks are state-insured instead. You can use the FDIC's BankFindSuite database if you want to make sure that a bank is FDIC insured. That said, it always pays to be wary of outright scams.  CDs at Online Banks When you open a CD with an FDIC- or NCUA-insured institution, up to $250,000 of your funds on deposit with that institution are protected by the U.S. government if that institution were to fail. The figure is $500,000 for joint accounts. If you have more than $250,000 to invest, you can split it between institutions to make sure it’s all protected. These guarantees apply to online banks just as they do to traditional brick-and-mortar banks. This means that CDs at online banks are just as safe as those held with Main Street banks. The Online Banking Advantage There is a benefit to investing in a CD online rather than in person. It’s now possible to shop for CDs at more than 150 banks that accept customers nationwide. This creates a lot of competition to offer higher interest rates on CDs and greatly expands your choices beyond your own neighborhood. The lack of significant infrastructure and overhead costs enables online-only banks to pay higher interest rates or annual percentage yields (APY) on CDs and other types of savings. The most generous of them offer as much as 1% to 2% more than you'll earn on accounts at a traditional bank.  About 56% of account holders do at least some of their banking via the Internet. Avoiding CD Scams CDs are subject to fraud, just like any other investment product. And it's easier to put up a fake website than it is to put up a fake brick-and-mortar bank. You should verify that they are who they say they are if you have any doubts about the legitimacy of a company you're, The U.S. Securities and Exchange Commission (SEC) suggests several ways to do this: If a company’s website or promotional materials says their CDs are FDIC insured, check for the financial institution with the FDIC’s BankFind tool, or call 877-ASKFDIC (877-275-3342). The name of the financial institution should exactly match the FDIC listing. If the website or promotional materials say the CD is offered by a credit union, you can check this using the National Credit Union Administration’s (NCUA) Research a Credit Union tool or call NCUA’s Consumer Assistance Center at 800-755-1030. You can use FINRA’s BrokerCheck if a company’s website provides a name and the CRD number of a broker-dealer or an employee of a broker-dealer. This tool is used to verify whether the address provided in FINRA’s BrokerCheck matches the address provided by the company offering the CD. Your money should be safe as long as the company offering CDs is registered in this way. Are CDs Safe? CDs are among the safest investment products possible. The principal is safe, unlike in many investments. And the interest rate is guaranteed. Just make sure you're getting the CD from a federally-insured institution. Are Online Banks Safe? There are many trustworthy and safe online banks. Fifty-six percent of account holders do at least some of their banking on the Internet. Online banks often offer better returns on your money than their Main Street competitors. As always on the Internet, beware of scams. Why Choose an Online Bank CD? You may get a better interest rate from an online bank. For one thing, they have lower overhead costs and can afford to be more generous. Moreover, the Internet gives you access to about 150 banks across the country that allow out-of-state depositors. CD rates vary widely, so it pays to shop around rather than stop by your local bank branch. The Bottom Line It’s important to verify that an online bank (or, for that matter, a brick-and-mortar bank) is legitimate and that its deposits are federally insured. Once you’ve done so, you can rest assured that your money is safe in an online bank CD. Certificates of deposit are some of the safest investments available. They offer a guaranteed return on your money with no risk to your principal whether the CD is from a huge financial services institution or a small online provider. Online banks should offer the same protections for your CD as brick-and-mortar banks and sometimes better interest rates.

https://www.investopedia.com/terms/p/purchasefund.asp

Purchase Fund: What It is, How It Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-purchase-fund"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Purchase Fund? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price (usually <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par value</a>). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Par value is a term that often describes a bond, but can also apply to a stock. Par value is the face value of a bond. It is the principal amount that the lender, or investor, is lending to the borrower, or issuer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A purchase fund is similar to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sinkingfund.asp">sinking fund</a> provision. A sinking fund is formed by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/sinking-fund-bonds/">periodically putting money aside</a> to eventually pay back a debt or replace an asset that has depreciated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The purchase fund can be an advantage to investors if the fund is trading below par value because the company must pay par to repurchase the bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A purchase fund is used to buy securities when their value has fallen below the original dollar amount assigned by the issuer.</li><li>The fund is similar to a sinking fund provision, in which money is periodically set aside to pay back a debt or replace a failing asset. </li><li>A purchase fund can benefit an investor in that if the fund falls below par value, the company has to pay par value to repurchase the bonds from the investor.</li></ul></div></div></div> <span class="heading-toc" id="toc-purchase-fund-explained"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Purchase Fund Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A purchase fund is a fund that is only used by the issuers to buy stocks or bonds when those securities have fallen below the original dollar amount assigned by the issuer. This type of fund can be beneficial to an investor in that if the fund is trading below par value, the company has to pay par value to repurchase the bonds from the investors. If the prices fall, the fund allows the company to redeem its securities at a discount. This redemption fund cuts the risk that the company will be unable to redeem its bonds at maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A purchase fund is similar to a sinking fund provision, with a few key differences. A sinking fund is a means of repaying funds borrowed through a bond issue. The funds are repaid through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/open-market.asp">open market</a>. Rather than the issuer repaying the entire principal of a bond issue on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a>, another company buys back a portion of the issue annually and usually at fixed par value or at the current market value of the bonds, whichever is less. A sinking fund adds safety to a corporate bond issue. They can be found in preferred stocks, cash or other bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-what-is-par-value"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> What Is Par Value? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Par value is the face value of a security. The par value of bonds is typically higher than that of stocks and can vary based on whether it is a corporate bond, municipal bond, or a federal bond. Typically a corporate bond has a $1,000 face value, while a municipal bond typically has a $5,000 face value and a federal bond has a $10,000 face value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A company might issue $1,000,000 bonds by issuing 1,000 bonds at $1,000. When the bond matures, the borrower will pay back the face value, in this case, $1,000, to the lender. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The par value of stocks is typically small and fairly arbitrary, such as one cent per share. The preferred stock will sometimes have a higher par value because it is used to calculate dividends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-real-world-example"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Real World Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Let's say the trucking company Rev decides to issue $20 million of bonds that are due to mature in 10 years. If Rev has a purchase fund, they might be required to retire a certain amount in bonds each year for 10 years, perhaps $2 million per year. To retire those bonds, Rev must deposit $2 million a year into a purchase fund. That purchase fund has to be separate from Rev's operating funds and used exclusively to retire debt. By using this strategy, Rev can guarantee it will pay off the $20 million in 10 years. </p></div>

## What Is a Purchase Fund? A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price (usually [par value](https://www.investopedia.com/terms/p/parvalue.asp)). Par value is a term that often describes a bond, but can also apply to a stock. Par value is the face value of a bond. It is the principal amount that the lender, or investor, is lending to the borrower, or issuer. A purchase fund is similar to a [sinking fund](https://www.investopedia.com/terms/s/sinkingfund.asp) provision. A sinking fund is formed by [periodically putting money aside](https://www.investopedia.com/ask/answers/sinking-fund-bonds/) to eventually pay back a debt or replace an asset that has depreciated. The purchase fund can be an advantage to investors if the fund is trading below par value because the company must pay par to repurchase the bonds. ### Key Takeaways * A purchase fund is used to buy securities when their value has fallen below the original dollar amount assigned by the issuer. * The fund is similar to a sinking fund provision, in which money is periodically set aside to pay back a debt or replace a failing asset. * A purchase fund can benefit an investor in that if the fund falls below par value, the company has to pay par value to repurchase the bonds from the investor. ## Purchase Fund Explained A purchase fund is a fund that is only used by the issuers to buy stocks or bonds when those securities have fallen below the original dollar amount assigned by the issuer. This type of fund can be beneficial to an investor in that if the fund is trading below par value, the company has to pay par value to repurchase the bonds from the investors. If the prices fall, the fund allows the company to redeem its securities at a discount. This redemption fund cuts the risk that the company will be unable to redeem its bonds at maturity. A purchase fund is similar to a sinking fund provision, with a few key differences. A sinking fund is a means of repaying funds borrowed through a bond issue. The funds are repaid through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the [open market](https://www.investopedia.com/terms/o/open-market.asp). Rather than the issuer repaying the entire principal of a bond issue on the [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp), another company buys back a portion of the issue annually and usually at fixed par value or at the current market value of the bonds, whichever is less. A sinking fund adds safety to a corporate bond issue. They can be found in preferred stocks, cash or other bonds. ## What Is Par Value? Par value is the face value of a security. The par value of bonds is typically higher than that of stocks and can vary based on whether it is a corporate bond, municipal bond, or a federal bond. Typically a corporate bond has a $1,000 face value, while a municipal bond typically has a $5,000 face value and a federal bond has a $10,000 face value. A company might issue $1,000,000 bonds by issuing 1,000 bonds at $1,000. When the bond matures, the borrower will pay back the face value, in this case, $1,000, to the lender. The par value of stocks is typically small and fairly arbitrary, such as one cent per share. The preferred stock will sometimes have a higher par value because it is used to calculate dividends. ## Real World Example Let's say the trucking company Rev decides to issue $20 million of bonds that are due to mature in 10 years. If Rev has a purchase fund, they might be required to retire a certain amount in bonds each year for 10 years, perhaps $2 million per year. To retire those bonds, Rev must deposit $2 million a year into a purchase fund. That purchase fund has to be separate from Rev's operating funds and used exclusively to retire debt. By using this strategy, Rev can guarantee it will pay off the $20 million in 10 years.

What Is a Purchase Fund? A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price (usually par value). Par value is a term that often describes a bond, but can also apply to a stock. Par value is the face value of a bond. It is the principal amount that the lender, or investor, is lending to the borrower, or issuer. A purchase fund is similar to a sinking fund provision. A sinking fund is formed by periodically putting money aside to eventually pay back a debt or replace an asset that has depreciated. The purchase fund can be an advantage to investors if the fund is trading below par value because the company must pay par to repurchase the bonds. Key Takeaways A purchase fund is used to buy securities when their value has fallen below the original dollar amount assigned by the issuer.The fund is similar to a sinking fund provision, in which money is periodically set aside to pay back a debt or replace a failing asset. A purchase fund can benefit an investor in that if the fund falls below par value, the company has to pay par value to repurchase the bonds from the investor. Purchase Fund Explained A purchase fund is a fund that is only used by the issuers to buy stocks or bonds when those securities have fallen below the original dollar amount assigned by the issuer. This type of fund can be beneficial to an investor in that if the fund is trading below par value, the company has to pay par value to repurchase the bonds from the investors. If the prices fall, the fund allows the company to redeem its securities at a discount. This redemption fund cuts the risk that the company will be unable to redeem its bonds at maturity. A purchase fund is similar to a sinking fund provision, with a few key differences. A sinking fund is a means of repaying funds borrowed through a bond issue. The funds are repaid through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. Rather than the issuer repaying the entire principal of a bond issue on the maturity date, another company buys back a portion of the issue annually and usually at fixed par value or at the current market value of the bonds, whichever is less. A sinking fund adds safety to a corporate bond issue. They can be found in preferred stocks, cash or other bonds. What Is Par Value? Par value is the face value of a security. The par value of bonds is typically higher than that of stocks and can vary based on whether it is a corporate bond, municipal bond, or a federal bond. Typically a corporate bond has a $1,000 face value, while a municipal bond typically has a $5,000 face value and a federal bond has a $10,000 face value. A company might issue $1,000,000 bonds by issuing 1,000 bonds at $1,000. When the bond matures, the borrower will pay back the face value, in this case, $1,000, to the lender. The par value of stocks is typically small and fairly arbitrary, such as one cent per share. The preferred stock will sometimes have a higher par value because it is used to calculate dividends. Real World Example Let's say the trucking company Rev decides to issue $20 million of bonds that are due to mature in 10 years. If Rev has a purchase fund, they might be required to retire a certain amount in bonds each year for 10 years, perhaps $2 million per year. To retire those bonds, Rev must deposit $2 million a year into a purchase fund. That purchase fund has to be separate from Rev's operating funds and used exclusively to retire debt. By using this strategy, Rev can guarantee it will pay off the $20 million in 10 years.

https://www.investopedia.com/consumers-credit-union-auto-loan-review-8357871

Consumers Credit Union Auto Loan Review 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-3x2 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Consumers-Credit-Union-logo" class="primary-image__image mntl-primary-image--blurry" height="1000" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/7qYcp4m2GHH9X7KYv5OwYtVCLqw=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPEAACBCeUBAQHS5Rf///ywAAAAADQAFAEEIGAAHCBxIsKDBgwUDBBigcAAAhAUFIGwYEAA7')" width="1500"/> <noscript> <img alt="Consumers-Credit-Union-logo" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1000" src="https://www.investopedia.com/thmb/7qYcp4m2GHH9X7KYv5OwYtVCLqw=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article figure-3x2 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp product-card__rating card-rating--finance product-rating" id="product-card__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia’s Rating </span> <div alt="4.6 out of 5 stars" class="comp star-rating" id="star-rating_1-0"> <span class="star-rating__label">4.6</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#333e8b"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp product-card__rating card-rating--finance product-rating --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-tracking-container="false" href="https://consumer-credit-union.4cna.net/c/328256/1633088/9094" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> Consumers Credit Union offers auto loans of up to $350,000 for qualifying members, and it’s easy to join. The credit union’s rates are fairly competitive and the loans offer several useful features, including a payment skip option and the ability to apply with a co-signer or co-borrower.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-2"> <em>Rates are accurate as of April 18, 2024.</em> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros and Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros and Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-4"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Can apply with a co-signer or co-borrower</p></li> <li><p>Payment skip available</p></li> <li><p>Low minimum loan amounts available</p></li> <li><p>Offers RV and motorcycle loans</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Available to members only</p></li> <li><p>Late payment fees apply</p></li> <li><p>No private party loans or lease buyouts</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-6"> <li>Consumers Credit Union offers new and used auto loans for various vehicles, and borrowers can refinance an existing auto loan. </li><li>The credit union’s flexibility extends to vehicle type, age of vehicle, mileage, and amount you can borrow</li><li>You must join the credit union to apply for a loan, but members can qualify for a 0.25% rate discount on auto loans. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> Headquartered in Lake Forest, Illinois, Consumers Credit Union traces its roots back to the early 1900s. Today, this well-established credit union serves over 201,000 customers in all 50 U.S. states and Washington, D.C. It offers a range of banking and loan products, including deposit accounts, certificates of deposit, personal loans, mortgages, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">auto loans</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-9"> According to its 2022 annual report, the lender made 5,051 new auto loans of about $212 million in 2022. Almost 23,272 used auto loans totaled $620 million. Both of these are much higher than the 2021 amounts, signaling the institution’s interest in lending.<span class="ql-inline-citation" data-cite="1"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-10"> Consumers Credit Union may be a good fit if you hope to use a co-applicant to help you qualify for a loan, if you want to buy a motorcycle or RV, or if you only need to borrow a small amount.    </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-11"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Loan Types Offered</span> <span class="definition-list__item-content definition-list__item-content-0"> New, used, refinance, cash-out refinance, motorcycle, RV </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">States Available</span> <span class="definition-list__item-content definition-list__item-content-1"> All states and D.C. </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">New APR Range</span> <span class="definition-list__item-content definition-list__item-content-2"> 6.34% and up </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used APR Range</span> <span class="definition-list__item-content definition-list__item-content-3"> 6.63% and up </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Refinance APR Range</span> <span class="definition-list__item-content definition-list__item-content-4"> 5.49% and up </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Min. Time to Receive Loan</span> <span class="definition-list__item-content definition-list__item-content-5"> 1 day </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Recommended Min. Credit Score</span> <span class="definition-list__item-content definition-list__item-content-6"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Mileage</span> <span class="definition-list__item-content definition-list__item-content-7"> None </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Age</span> <span class="definition-list__item-content definition-list__item-content-8"> None </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Loan-to-Value Ratio</span> <span class="definition-list__item-content definition-list__item-content-9"> 125% </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Consumers-Credit-Union-logo" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/7zZDlRbbHLabfggcHrU5dlZwxKc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPEAACBCeUBAQHS5Rf///ywAAAAADQAFAEEIGAAHCBxIsKDBgwUDBBigcAAAhAUFIGwYEAA7')" width="1500"/> <noscript> <img alt="Consumers-Credit-Union-logo" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/7zZDlRbbHLabfggcHrU5dlZwxKc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__rating product-rating" id="sticky-toc-widget__rating_1-0"> <span class="product-rating__rating-label noskim"> overall rating </span> <div alt="4.6 out of 5 stars" class="comp star-rating" id="star-rating_1-0-1"> <span class="star-rating__label">4.6</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_1-0-1" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#d17000"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_1-0-1);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp sticky-toc-widget__rating product-rating --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-tracking-container="false" href="https://consumer-credit-union.4cna.net/c/328256/1633088/9094" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Consumers Credit Union Auto Loan Review 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Consumers Credit Union Auto Loan Review 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Types of Auto Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-types-of-auto-loans-offered-by-consumers-credit-union" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Types of Auto Loans</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Time to Receive Funds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-time-to-receive-funds" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Time to Receive Funds</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Borrower Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-borrower-requirements" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Borrower Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Vehicle Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-vehicle-requirements" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Vehicle Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Auto Loan Features" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-consumers-credit-union-auto-loan-features" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Auto Loan Features</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Satisfaction" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-satisfaction" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Customer Satisfaction</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-apply-for-a-consumers-credit-union-auto-loan" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">How to Apply</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-consumers-credit-union" id="mntl-toc__list-item-link_3-0-10" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-12"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-12"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-12" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>See our picks for the best auto loans in a variety of categories:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">Best Auto Loan Rates</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-used-car-loans-7373705">Best Used Car Loans</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">Best Auto Refinance Loans</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-bad-credit-7372351">Best Car Loans for Bad Credit</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579">Best Car Loans for Fair Credit</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461">Best Car Loans for First Time Buyers</a></li> </ul></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-1"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Can apply with a co-signer or co-borrower:</strong> Consumers Credit Union allows borrowers to apply for auto loans using either a co-signer (who won’t share ownership of the vehicle) or a co-borrower (who will share ownership of the vehicle). This sets it apart from many competitors who don’t permit co-signers. </li><li><strong>Payment skip available:</strong> The credit union allows qualifying members to skip loan payments twice a year, while many other lenders do not (interest will still accrue when skipping payments). </li><li><strong>Low minimum loan amounts available:</strong> Car shoppers can borrow as little as $500 for a used or new car. This is one of the lowest minimums among lenders we surveyed and may be necessary if you’re hoping to close a funding gap or buy a much older car.</li><li><strong>Offers RV and motorcycle loans:</strong> Many competitors don’t provide loans for these vehicle types. Consumers Credit Union does, along with loans for classic autos. However, rates are higher for motorcycles, RVs, and much older vehicles. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-3"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-4"> <li><strong>Available to members only:</strong> While joining isn’t onerous, you must pay a one-time, non-refundable $5 Consumers Cooperative Association fee, and deposit and maintain a minimum of $5 in your membership share/savings account. You’ll have to become a member before you know if you’re approved or denied for a loan.</li><li><strong>Late payment fees apply:</strong> Late payment fees aren’t unusual, but Consumers Credit Union’s fees are higher than other lenders we reviewed. However, you get a 10-day grace period before the late fee is charged.</li><li><strong>No private party loans or lease buyouts:</strong> You can’t use Consumer Credit Union loan funds to buy a car from a private seller or buy out your already leased vehicle.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-types-of-auto-loans-offered-by-consumers-credit-union"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-5"> <span class="mntl-sc-block-heading__text"> Types of Auto Loans Offered by Consumers Credit Union </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> Consumers Credit Union offers loans for new and used car purchases, traditional and cash-out <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">auto refinances</a>, and motorcycle and RV loans. Unlike competitors, this lender doesn’t provide lease buyouts or private party loans, so borrowers interested in those options must look elsewhere.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-subheading__text"> New Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> <li><strong>APR:</strong> Starting at 6.54%</li><li><strong>Loan amounts:</strong> $500–$350,000</li><li><strong>Loan terms:</strong> 0–84 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-9"> <span class="mntl-sc-block-subheading__text"> Used Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-10"> <li><strong>APR:</strong> Starting at 6.93%</li><li><strong>Loan amounts:</strong> $500–$350,000</li><li><strong>Loan terms:</strong> 0–84 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-11"> <span class="mntl-sc-block-subheading__text"> Refinance Auto Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> <li><strong>APR:</strong> Starting at 5.64%</li><li><strong>Loan amounts:</strong> $500–$350,000</li><li><strong>Loan terms:</strong> 60–84 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-13"> <span class="mntl-sc-block-subheading__text"> RV Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-14"> <li><strong>APR:</strong> Starting at 7.90%</li><li><strong>Loan amounts:</strong> $500–$350,000</li><li><strong>Loan terms:</strong> 0–180 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-subheading__text"> Motorcycle </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> <li><strong>APR:</strong> Starting at 8.65%</li><li><strong>Loan amounts:</strong> $250 and up</li><li><strong>Loan terms:</strong> 0–60 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-time-to-receive-funds"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-17"> <span class="mntl-sc-block-heading__text"> Time to Receive Funds </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> In some cases, for qualified applicants, Consumers Credit Union may disburse auto loan funds in as little as one business day. This is a reasonably fast funding time compared to other lenders. That said, funding times may vary depending on your situation and when you apply for a loan.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-borrower-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-19"> <span class="mntl-sc-block-heading__text"> Borrower Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li><strong>Minimum recommended credit score: </strong>Not disclosed</li><li><strong>Annual income requirement: </strong>Not disclosed</li><li><strong>Maximum debt-to-income ratio: </strong>Not disclosed</li><li><strong>State availability:</strong> All U.S. states, U.S. territories, and Washington D.C.</li><li><strong>Membership requirements: </strong>You must join Consumers Credit Union by making a $5 donation to Consumers Cooperative Association and a $5 deposit to open a savings account. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-21"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Many auto lenders aren’t forthcoming with their borrower requirements, so consider asking about credit score, income, and debt-to-ratio requirements as you compare options.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-vehicle-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-heading__text"> Vehicle Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> <li><strong>Maximum accepted mileage:</strong> No maximum</li><li><strong>Maximum accepted vehicle age:</strong> No maximum</li><li><strong>Maximum loan-to-value ratio:</strong> 125%</li><li><strong>Vehicle restrictions:</strong> None</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-consumers-credit-union-auto-loan-features"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-heading__text"> Consumers Credit Union Auto Loan Features </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> <li><strong>Origination fee:</strong> Consumers Credit Union doesn’t charge auto loan origination fees. </li><li><strong>Prepayment fee:</strong> There are no prepayment fees.</li><li><strong>Discounts:</strong> Consumers Credit Union offers members a 0.25% car loan rate discount; to be eligible, you must set up automatic loan payments from a CCU account or another institution.</li><li><strong>Pays creditors directly for refinance loans:</strong> When you refinance your auto loan with Consumers Credit Union, the lender can pay off your current car loan directly. </li><li><strong>Can change due date:</strong> Borrowers can change payment due dates. </li><li><strong>Car-buying service:</strong> Consumers Credit Union partners with TrueCar to offer its customers a convenient car-buying service. </li><li><strong>Partner dealerships:</strong> CCU partners with Enterprise Car Sales to provide rental car perks to borrowers.</li><li><strong>Mobile app:</strong> Consumers Credit Union offers a mobile app for iOS and Android users. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-26"> <span class="mntl-sc-block-subheading__text"> Co-Signers and Co-Borrowers </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-27"> As mentioned, Consumers Credit Union permits co-borrowers and co-signers. Many lenders allow you to apply with a co-borrower, but a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/does-co-signer-help-on-auto-loans-7483013">co-signer</a> option is relatively rare. If you have fair or poor credit, consider applying for a Consumers Credit Union auto loan with a co-signer, as it could help you secure a better rate.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-28"> Co-signers are only responsible for paying back the loan if the primary borrower fails to pay as agreed; co-borrowers, however, are equally responsible for paying back the loan and also share equal ownership of the vehicle. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-29"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-30"> CCU offers phone support and a live chat feature for customers with access to online banking.<span class="ql-inline-citation" data-cite="2"></span>   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-31"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Medium</b></th> <th><b>Contact</b></th> <th><b>Availability</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Telephone (Loan Sales)</td> <td>(847) 837-7938</td> <td>Not listed</td> </tr> <tr> <td>Live Chat</td> <td>Log in to online banking</td> <td>Weekdays, 9 a.m. to 5 p.m. CT</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-customer-satisfaction"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-32"> <span class="mntl-sc-block-heading__text"> Customer Satisfaction </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-33"> There is little public information available about customer satisfaction with Consumers Credit Union; the lender is represented on Trustpilot, but only has a few ratings.<span class="ql-inline-citation" data-cite="3"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-34"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>While consumer review sites can provide a helpful snapshot of a prospective lender, they don’t offer the complete picture. Use your judgment when determining which lender is best for your situation, and remember that many satisfied customers don’t leave reviews. </p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-how-to-apply-for-a-consumers-credit-union-auto-loan"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-35"> <span class="mntl-sc-block-heading__text"> How to Apply for a Consumers Credit Union Auto Loan </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-36"> You can apply for a Consumers Credit Union auto loan online. The process takes just a few minutes, and if approved, you could receive funding in as little as one business day. Here’s what to know about the application process: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> <li><strong>Pre-qualify for a loan:</strong> You can pre-qualify for a car loan with Consumers Credit Union, which can offer helpful insight into the rate you may receive and make rate shopping quite a bit easier. You can pre-qualify online after becoming a member (CCU will prompt you to become a member during the application process).</li><li><strong>Formally apply:</strong> Once you decide to move forward, you can submit a formal loan application on the Consumers Credit Union website. You’ll need to provide basic personal information, such as your name, address, email, income, and more; and information about the car you’re financing, including the make, model, year, and other details.</li><li><strong>Await a decision:</strong> Consumers Credit Union doesn’t specify how long it takes to approve or deny loan applications.</li><li><strong>Receive funding:</strong> Approved applicants may receive loan funds in as little as one business day, which is quick compared to many lenders. CCU will send the loan funds directly to the seller, or you can pick up a check at a CCU location.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-consumers-credit-union"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-38"> <span class="mntl-sc-block-heading__text"> Alternatives to Consumers Credit Union </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-39"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=ccu&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">Consumers Credit Union</a></b></th> <th><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.penfed.org/auto/rates?s_cid=NA-1017425" rel="sponsored nofollow">PenFed</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&amp;pub_param_2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&amp;ts=investopedia&amp;p=ftfcu&amp;bwid_id=6385e804ca097c71ee1e23c1" rel="nofollow">First Tech FCU</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Loan Types Offered</b></td> <td>New, used, refinance, cash-out refinance, motorcycle, RV</td> <td>New, used, refinance, cash-out refinance, lease buyout</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780" rel="noopener noreferrer">New, used, refinance, motorcycle, RV</a></td> </tr> <tr> <td><b>States Available</b></td> <td>All states and D.C.</td> <td>All states, D.C., Puerto Rico</td> <td>All states and D.C.</td> </tr> <tr> <td><b>New APR Range</b></td> <td>6.54% and up*</td> <td>5.44%–17.99%*</td> <td>6.20%–18.00%*</td> </tr> <tr> <td><b>Used APR Range</b></td> <td>6.93% and up*</td> <td>6.49%–17.99%*</td> <td>6.34%–18.00%*</td> </tr> <tr> <td><b>Refinance APR Range</b></td> <td>5.64% and up*</td> <td>5.44% and up*</td> <td>6.20%–18.00%*</td> </tr> <tr> <td><b>Min. Time to Receive Loan</b></td> <td>1 day</td> <td>5 days</td> <td>Same day</td> </tr> <tr> <td><b>Recommended Min. Credit Score</b></td> <td>Not disclosed</td> <td>Not disclosed</td> <td>660</td> </tr> <tr> <td><b>Max. Accepted Mileage</b></td> <td>None</td> <td>125,000 miles</td> <td>100,000 miles</td> </tr> <tr> <td><b>Max. Accepted Age</b></td> <td>None</td> <td>None</td> <td>10 years</td> </tr> <tr> <td><b>Max. Accepted Loan-to-Value Ratio</b></td> <td>125%</td> <td>125%</td> <td>120%</td> </tr> </tbody> </table> <figcaption>*Rates are accurate as of April 18, 2024.</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-40"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-3"> <p>Consumers Credit Union has competitive rates and flexible terms, but it has some limitations and membership is a (small) hurdle. See our top lenders for different loan types and credit levels:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">Best Auto Loan Rates</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-used-car-loans-7373705">Best Used Car Loans</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">Best Auto Refinance Loans</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-bad-credit-7372351">Best Car Loans for Bad Credit</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579">Best Car Loans for Fair Credit</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461">Best Car Loans for First Time Buyers</a></li> </ul></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-41"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-42"> Consumers Credit Union offers competitive minimum APRs for qualified borrowers and other perks, like rate discounts and the option to apply with a co-signer. It also provides some of the smallest loans among lenders we reviewed. Overall, it could be a good choice if you have fair credit and/or want to apply with a co-signer, or if you want an RV or motorcycle. However, you’ll first have to go through the process of joining as a member just to apply.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-43"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-retailer-type="other" data-tracking-container="true" href="https://consumer-credit-union.4cna.net/c/328256/1633088/9094" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-44"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-45"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loan-review-methodology-7552736">full auto loan review methodology</a> for more information. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-1"><p>Consumers Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.myconsumers.org/docs/default-source/annual-reports/annualreport_2022.pdf?sfvrsn=3d2e418c_2" rel="nofollow sponsored">Annual Report 2022</a>.”</p></li> <li class="mntl-sources__source" id="citation-2"><p>Consumers Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.myconsumers.org/about/contact-us" rel="nofollow sponsored">Contact Us</a>."</p></li> <li class="mntl-sources__source" id="citation-3"><p>​​Trustpilot. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.trustpilot.com/review/myconsumers.org">Consumers Credit Union</a>."</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8599916" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Private party auto sale" class="lazyload card__img" data-dim-ratio="1.615" data-src="https://www.investopedia.com/thmb/AUotVccJSSYIFvqNE6vP0t8hZtg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg" height="300" width="400"/> <noscript> <img alt="Private party auto sale" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/AUotVccJSSYIFvqNE6vP0t8hZtg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Car Loans"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Private Party Auto Loan: What It Is, How It Works, How to Get One</span></span> <div class="card__byline mntl-card__byline" data-byline="By Sarah Li Cain"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8594587" data-ordinal="2" data-tax-levels="" href="https://www.investopedia.com/reasons-to-avoid-long-term-auto-loans-8594587" id="mntl-card-list-items_2-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Woman getting a car loan" class="lazyload card__img" data-dim-ratio="1.499" data-src="https://www.investopedia.com/thmb/9Xv6CHSJNWWYul99IWu-X4W9xcI=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-77294443-f6903b592dd3459a8c504ae945941ef2.jpg" height="300" width="400"/> <noscript> <img alt="Woman getting a car loan" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/9Xv6CHSJNWWYul99IWu-X4W9xcI=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-77294443-f6903b592dd3459a8c504ae945941ef2.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Car Loans"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Reasons to Avoid Long-Term Auto Loans</span></span> <div class="card__byline mntl-card__byline" data-byline="By Carrie Pallardy"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="7965780" data-ordinal="3" data-tax-levels="" href="https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780" id="mntl-card-list-items_3-0"> <div class="card__media" data-tag="Car Loans"> <img alt="First Tech Federal Credit Union" class="lazyload card__img" data-dim-ratio="1.914" data-src="https://www.investopedia.com/thmb/JC3OcBtDychzncMlMpFAI2VWS94=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/FirstTechFederalCreditUnion-04c7aad9a01242f6bb72e2d82a8eb41c.jpg" height="300" width="400"/> <noscript> <img alt="First Tech Federal Credit Union" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/JC3OcBtDychzncMlMpFAI2VWS94=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/FirstTechFederalCreditUnion-04c7aad9a01242f6bb72e2d82a8eb41c.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Car Loans"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">First Tech FCU Auto Loans Review 2024</span></span> <div class="card__byline mntl-card__byline" data-byline="By Kat Tretina"></div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="4846394" data-ordinal="4" data-tax-levels="" href="https://www.investopedia.com/best-auto-loan-rates-4846394" id="mntl-card-list-items_4-0"> <div class="card__media" data-tag="Car Loans"> <img alt="Compare Best Auto Loan Rates, Lenders, &amp; 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:fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg) :fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg) Investopedia’s Rating 4.6 [Apply Now](https://consumer-credit-union.4cna.net/c/328256/1633088/9094) **Our Take** Consumers Credit Union offers auto loans of up to $350,000 for qualifying members, and it’s easy to join. The credit union’s rates are fairly competitive and the loans offer several useful features, including a payment skip option and the ability to apply with a co-signer or co-borrower.  *Rates are accurate as of April 18, 2024.* * Pros and Cons * Key Takeaways * Company Overview Pros and Cons Pros * Can apply with a co-signer or co-borrower * Payment skip available * Low minimum loan amounts available * Offers RV and motorcycle loans Cons * Available to members only * Late payment fees apply * No private party loans or lease buyouts Key Takeaways * Consumers Credit Union offers new and used auto loans for various vehicles, and borrowers can refinance an existing auto loan. * The credit union’s flexibility extends to vehicle type, age of vehicle, mileage, and amount you can borrow * You must join the credit union to apply for a loan, but members can qualify for a 0.25% rate discount on auto loans. Company Overview Headquartered in Lake Forest, Illinois, Consumers Credit Union traces its roots back to the early 1900s. Today, this well-established credit union serves over 201,000 customers in all 50 U.S. states and Washington, D.C. It offers a range of banking and loan products, including deposit accounts, certificates of deposit, personal loans, mortgages, and [auto loans](https://www.investopedia.com/best-auto-loan-rates-4846394). According to its 2022 annual report, the lender made 5,051 new auto loans of about $212 million in 2022. Almost 23,272 used auto loans totaled $620 million. Both of these are much higher than the 2021 amounts, signaling the institution’s interest in lending. Consumers Credit Union may be a good fit if you hope to use a co-applicant to help you qualify for a loan, if you want to buy a motorcycle or RV, or if you only need to borrow a small amount.    * Loan Types Offered New, used, refinance, cash-out refinance, motorcycle, RV * States Available All states and D.C. * New APR Range 6.34% and up * Used APR Range 6.63% and up * Refinance APR Range 5.49% and up * Min. Time to Receive Loan 1 day * Recommended Min. Credit Score Not disclosed * Max. Accepted Mileage None * Max. Accepted Age None * Max. Accepted Loan-to-Value Ratio 125% :fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg) :fill(white):max_bytes(150000):strip_icc()/consumers-credit-union-logo-ffb7633baac644dd984bb8b66cb3a13f.jpeg) overall rating 4.6 [Apply Now](https://consumer-credit-union.4cna.net/c/328256/1633088/9094) Table of Contents View All Consumers Credit Union Auto Loan Review 2024 * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Types of Auto Loans](#toc-types-of-auto-loans-offered-by-consumers-credit-union) * [Time to Receive Funds](#toc-time-to-receive-funds) * [Borrower Requirements](#toc-borrower-requirements) * [Vehicle Requirements](#toc-vehicle-requirements) * [Auto Loan Features](#toc-consumers-credit-union-auto-loan-features) * [Customer Service](#toc-customer-service) * [Customer Satisfaction](#toc-customer-satisfaction) * [How to Apply](#toc-how-to-apply-for-a-consumers-credit-union-auto-loan) * [Alternatives](#toc-alternatives-to-consumers-credit-union) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) See our picks for the best auto loans in a variety of categories: * [Best Auto Loan Rates](https://www.investopedia.com/best-auto-loan-rates-4846394) * [Best Used Car Loans](https://www.investopedia.com/best-used-car-loans-7373705) * [Best Auto Refinance Loans](https://www.investopedia.com/best-auto-refinance-loans-5069118) * [Best Car Loans for Bad Credit](https://www.investopedia.com/best-car-loans-for-bad-credit-7372351) * [Best Car Loans for Fair Credit](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) * [Best Car Loans for First Time Buyers](https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461) ## Pros Explained * **Can apply with a co-signer or co-borrower:** Consumers Credit Union allows borrowers to apply for auto loans using either a co-signer (who won’t share ownership of the vehicle) or a co-borrower (who will share ownership of the vehicle). This sets it apart from many competitors who don’t permit co-signers. * **Payment skip available:** The credit union allows qualifying members to skip loan payments twice a year, while many other lenders do not (interest will still accrue when skipping payments). * **Low minimum loan amounts available:** Car shoppers can borrow as little as $500 for a used or new car. This is one of the lowest minimums among lenders we surveyed and may be necessary if you’re hoping to close a funding gap or buy a much older car. * **Offers RV and motorcycle loans:** Many competitors don’t provide loans for these vehicle types. Consumers Credit Union does, along with loans for classic autos. However, rates are higher for motorcycles, RVs, and much older vehicles. ## Cons Explained * **Available to members only:** While joining isn’t onerous, you must pay a one-time, non-refundable $5 Consumers Cooperative Association fee, and deposit and maintain a minimum of $5 in your membership share/savings account. You’ll have to become a member before you know if you’re approved or denied for a loan. * **Late payment fees apply:** Late payment fees aren’t unusual, but Consumers Credit Union’s fees are higher than other lenders we reviewed. However, you get a 10-day grace period before the late fee is charged. * **No private party loans or lease buyouts:** You can’t use Consumer Credit Union loan funds to buy a car from a private seller or buy out your already leased vehicle. ## Types of Auto Loans Offered by Consumers Credit Union Consumers Credit Union offers loans for new and used car purchases, traditional and cash-out [auto refinances](https://www.investopedia.com/best-auto-refinance-loans-5069118), and motorcycle and RV loans. Unlike competitors, this lender doesn’t provide lease buyouts or private party loans, so borrowers interested in those options must look elsewhere.  ### New Auto Loans * **APR:** Starting at 6.54% * **Loan amounts:** $500–$350,000 * **Loan terms:** 0–84 months ### Used Auto Loans * **APR:** Starting at 6.93% * **Loan amounts:** $500–$350,000 * **Loan terms:** 0–84 months ### Refinance Auto Loans * **APR:** Starting at 5.64% * **Loan amounts:** $500–$350,000 * **Loan terms:** 60–84 months ### RV Loans * **APR:** Starting at 7.90% * **Loan amounts:** $500–$350,000 * **Loan terms:** 0–180 months ### Motorcycle * **APR:** Starting at 8.65% * **Loan amounts:** $250 and up * **Loan terms:** 0–60 months ## Time to Receive Funds In some cases, for qualified applicants, Consumers Credit Union may disburse auto loan funds in as little as one business day. This is a reasonably fast funding time compared to other lenders. That said, funding times may vary depending on your situation and when you apply for a loan.  ## Borrower Requirements * **Minimum recommended credit score:** Not disclosed * **Annual income requirement:** Not disclosed * **Maximum debt-to-income ratio:** Not disclosed * **State availability:** All U.S. states, U.S. territories, and Washington D.C. * **Membership requirements:** You must join Consumers Credit Union by making a $5 donation to Consumers Cooperative Association and a $5 deposit to open a savings account. Many auto lenders aren’t forthcoming with their borrower requirements, so consider asking about credit score, income, and debt-to-ratio requirements as you compare options. ## Vehicle Requirements * **Maximum accepted mileage:** No maximum * **Maximum accepted vehicle age:** No maximum * **Maximum loan-to-value ratio:** 125% * **Vehicle restrictions:** None ## Consumers Credit Union Auto Loan Features * **Origination fee:** Consumers Credit Union doesn’t charge auto loan origination fees. * **Prepayment fee:** There are no prepayment fees. * **Discounts:** Consumers Credit Union offers members a 0.25% car loan rate discount; to be eligible, you must set up automatic loan payments from a CCU account or another institution. * **Pays creditors directly for refinance loans:** When you refinance your auto loan with Consumers Credit Union, the lender can pay off your current car loan directly. * **Can change due date:** Borrowers can change payment due dates. * **Car-buying service:** Consumers Credit Union partners with TrueCar to offer its customers a convenient car-buying service. * **Partner dealerships:** CCU partners with Enterprise Car Sales to provide rental car perks to borrowers. * **Mobile app:** Consumers Credit Union offers a mobile app for iOS and Android users. ### Co-Signers and Co-Borrowers As mentioned, Consumers Credit Union permits co-borrowers and co-signers. Many lenders allow you to apply with a co-borrower, but a [co-signer](https://www.investopedia.com/does-co-signer-help-on-auto-loans-7483013) option is relatively rare. If you have fair or poor credit, consider applying for a Consumers Credit Union auto loan with a co-signer, as it could help you secure a better rate.  Co-signers are only responsible for paying back the loan if the primary borrower fails to pay as agreed; co-borrowers, however, are equally responsible for paying back the loan and also share equal ownership of the vehicle. ## Customer Service CCU offers phone support and a live chat feature for customers with access to online banking.   | **Medium** | **Contact** | **Availability** | | --- | --- | --- | | Telephone (Loan Sales) | (847) 837-7938 | Not listed | | Live Chat | Log in to online banking | Weekdays, 9 a.m. to 5 p.m. CT | ## Customer Satisfaction There is little public information available about customer satisfaction with Consumers Credit Union; the lender is represented on Trustpilot, but only has a few ratings.  While consumer review sites can provide a helpful snapshot of a prospective lender, they don’t offer the complete picture. Use your judgment when determining which lender is best for your situation, and remember that many satisfied customers don’t leave reviews.  ## How to Apply for a Consumers Credit Union Auto Loan You can apply for a Consumers Credit Union auto loan online. The process takes just a few minutes, and if approved, you could receive funding in as little as one business day. Here’s what to know about the application process: 1. **Pre-qualify for a loan:** You can pre-qualify for a car loan with Consumers Credit Union, which can offer helpful insight into the rate you may receive and make rate shopping quite a bit easier. You can pre-qualify online after becoming a member (CCU will prompt you to become a member during the application process). 2. **Formally apply:** Once you decide to move forward, you can submit a formal loan application on the Consumers Credit Union website. You’ll need to provide basic personal information, such as your name, address, email, income, and more; and information about the car you’re financing, including the make, model, year, and other details. 3. **Await a decision:** Consumers Credit Union doesn’t specify how long it takes to approve or deny loan applications. 4. **Receive funding:** Approved applicants may receive loan funds in as little as one business day, which is quick compared to many lenders. CCU will send the loan funds directly to the seller, or you can pick up a check at a CCU location. ## Alternatives to Consumers Credit Union | | **[Consumers Credit Union](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=ccu&bwid_id=6385e804ca097c71ee1e23c1)** | **[PenFed](https://www.penfed.org/auto/rates?s_cid=NA-1017425)** | **[First Tech FCU](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=ftfcu&bwid_id=6385e804ca097c71ee1e23c1)** | | --- | --- | --- | --- | | **Loan Types Offered** | New, used, refinance, cash-out refinance, motorcycle, RV | New, used, refinance, cash-out refinance, lease buyout | [New, used, refinance, motorcycle, RV](https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780) | | **States Available** | All states and D.C. | All states, D.C., Puerto Rico | All states and D.C. | | **New APR Range** | 6.54% and up\* | 5.44%–17.99%\* | 6.20%–18.00%\* | | **Used APR Range** | 6.93% and up\* | 6.49%–17.99%\* | 6.34%–18.00%\* | | **Refinance APR Range** | 5.64% and up\* | 5.44% and up\* | 6.20%–18.00%\* | | **Min. Time to Receive Loan** | 1 day | 5 days | Same day | | **Recommended Min. Credit Score** | Not disclosed | Not disclosed | 660 | | **Max. Accepted Mileage** | None | 125,000 miles | 100,000 miles | | **Max. Accepted Age** | None | None | 10 years | | **Max. Accepted Loan-to-Value Ratio** | 125% | 125% | 120% | \*Rates are accurate as of April 18, 2024. Consumers Credit Union has competitive rates and flexible terms, but it has some limitations and membership is a (small) hurdle. See our top lenders for different loan types and credit levels: * [Best Auto Loan Rates](https://www.investopedia.com/best-auto-loan-rates-4846394) * [Best Used Car Loans](https://www.investopedia.com/best-used-car-loans-7373705) * [Best Auto Refinance Loans](https://www.investopedia.com/best-auto-refinance-loans-5069118) * [Best Car Loans for Bad Credit](https://www.investopedia.com/best-car-loans-for-bad-credit-7372351) * [Best Car Loans for Fair Credit](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) * [Best Car Loans for First Time Buyers](https://www.investopedia.com/best-car-loans-for-first-time-buyers-7373461) ## Final Verdict Consumers Credit Union offers competitive minimum APRs for qualified borrowers and other perks, like rate discounts and the option to apply with a co-signer. It also provides some of the smallest loans among lenders we reviewed. Overall, it could be a good choice if you have fair credit and/or want to apply with a co-signer, or if you want an RV or motorcycle. However, you’ll first have to go through the process of joining as a member just to apply.  [Apply Now](https://consumer-credit-union.4cna.net/c/328256/1633088/9094) ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our [full auto loan review methodology](https://www.investopedia.com/auto-loan-review-methodology-7552736) for more information. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. Consumers Credit Union. "[Annual Report 2022](https://www.myconsumers.org/docs/default-source/annual-reports/annualreport_2022.pdf?sfvrsn=3d2e418c_2).” 2. Consumers Credit Union. "[Contact Us](https://www.myconsumers.org/about/contact-us)." 3. ​​Trustpilot. "[Consumers Credit Union](https://www.trustpilot.com/review/myconsumers.org)." 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Investopedia’s Rating 4.6 Apply Now Our Take Consumers Credit Union offers auto loans of up to $350,000 for qualifying members, and it’s easy to join. The credit union’s rates are fairly competitive and the loans offer several useful features, including a payment skip option and the ability to apply with a co-signer or co-borrower.  Rates are accurate as of April 18, 2024. Pros and Cons Key Takeaways Company Overview Pros and Cons Pros Can apply with a co-signer or co-borrower Payment skip available Low minimum loan amounts available Offers RV and motorcycle loans Cons Available to members only Late payment fees apply No private party loans or lease buyouts Key Takeaways Consumers Credit Union offers new and used auto loans for various vehicles, and borrowers can refinance an existing auto loan. The credit union’s flexibility extends to vehicle type, age of vehicle, mileage, and amount you can borrowYou must join the credit union to apply for a loan, but members can qualify for a 0.25% rate discount on auto loans.  Company Overview Headquartered in Lake Forest, Illinois, Consumers Credit Union traces its roots back to the early 1900s. Today, this well-established credit union serves over 201,000 customers in all 50 U.S. states and Washington, D.C. It offers a range of banking and loan products, including deposit accounts, certificates of deposit, personal loans, mortgages, and auto loans. According to its 2022 annual report, the lender made 5,051 new auto loans of about $212 million in 2022. Almost 23,272 used auto loans totaled $620 million. Both of these are much higher than the 2021 amounts, signaling the institution’s interest in lending. Consumers Credit Union may be a good fit if you hope to use a co-applicant to help you qualify for a loan, if you want to buy a motorcycle or RV, or if you only need to borrow a small amount.    Loan Types Offered New, used, refinance, cash-out refinance, motorcycle, RV States Available All states and D.C. New APR Range 6.34% and up Used APR Range 6.63% and up Refinance APR Range 5.49% and up Min. Time to Receive Loan 1 day Recommended Min. Credit Score Not disclosed Max. Accepted Mileage None Max. Accepted Age None Max. Accepted Loan-to-Value Ratio 125% overall rating 4.6 Apply Now Table of Contents View All Consumers Credit Union Auto Loan Review 2024 Pros Explained Cons Explained Types of Auto Loans Time to Receive Funds Borrower Requirements Vehicle Requirements Auto Loan Features Customer Service Customer Satisfaction How to Apply Alternatives Final Verdict Methodology See our picks for the best auto loans in a variety of categories: Best Auto Loan Rates Best Used Car Loans Best Auto Refinance Loans Best Car Loans for Bad Credit Best Car Loans for Fair Credit Best Car Loans for First Time Buyers Pros Explained Can apply with a co-signer or co-borrower: Consumers Credit Union allows borrowers to apply for auto loans using either a co-signer (who won’t share ownership of the vehicle) or a co-borrower (who will share ownership of the vehicle). This sets it apart from many competitors who don’t permit co-signers. Payment skip available: The credit union allows qualifying members to skip loan payments twice a year, while many other lenders do not (interest will still accrue when skipping payments). Low minimum loan amounts available: Car shoppers can borrow as little as $500 for a used or new car. This is one of the lowest minimums among lenders we surveyed and may be necessary if you’re hoping to close a funding gap or buy a much older car.Offers RV and motorcycle loans: Many competitors don’t provide loans for these vehicle types. Consumers Credit Union does, along with loans for classic autos. However, rates are higher for motorcycles, RVs, and much older vehicles.  Cons Explained Available to members only: While joining isn’t onerous, you must pay a one-time, non-refundable $5 Consumers Cooperative Association fee, and deposit and maintain a minimum of $5 in your membership share/savings account. You’ll have to become a member before you know if you’re approved or denied for a loan.Late payment fees apply: Late payment fees aren’t unusual, but Consumers Credit Union’s fees are higher than other lenders we reviewed. However, you get a 10-day grace period before the late fee is charged.No private party loans or lease buyouts: You can’t use Consumer Credit Union loan funds to buy a car from a private seller or buy out your already leased vehicle. Types of Auto Loans Offered by Consumers Credit Union Consumers Credit Union offers loans for new and used car purchases, traditional and cash-out auto refinances, and motorcycle and RV loans. Unlike competitors, this lender doesn’t provide lease buyouts or private party loans, so borrowers interested in those options must look elsewhere.  New Auto Loans APR: Starting at 6.54%Loan amounts: $500–$350,000Loan terms: 0–84 months Used Auto Loans APR: Starting at 6.93%Loan amounts: $500–$350,000Loan terms: 0–84 months Refinance Auto Loans APR: Starting at 5.64%Loan amounts: $500–$350,000Loan terms: 60–84 months RV Loans APR: Starting at 7.90%Loan amounts: $500–$350,000Loan terms: 0–180 months Motorcycle APR: Starting at 8.65%Loan amounts: $250 and upLoan terms: 0–60 months Time to Receive Funds In some cases, for qualified applicants, Consumers Credit Union may disburse auto loan funds in as little as one business day. This is a reasonably fast funding time compared to other lenders. That said, funding times may vary depending on your situation and when you apply for a loan.  Borrower Requirements Minimum recommended credit score: Not disclosedAnnual income requirement: Not disclosedMaximum debt-to-income ratio: Not disclosedState availability: All U.S. states, U.S. territories, and Washington D.C.Membership requirements: You must join Consumers Credit Union by making a $5 donation to Consumers Cooperative Association and a $5 deposit to open a savings account.  Many auto lenders aren’t forthcoming with their borrower requirements, so consider asking about credit score, income, and debt-to-ratio requirements as you compare options. Vehicle Requirements Maximum accepted mileage: No maximumMaximum accepted vehicle age: No maximumMaximum loan-to-value ratio: 125%Vehicle restrictions: None Consumers Credit Union Auto Loan Features Origination fee: Consumers Credit Union doesn’t charge auto loan origination fees. Prepayment fee: There are no prepayment fees.Discounts: Consumers Credit Union offers members a 0.25% car loan rate discount; to be eligible, you must set up automatic loan payments from a CCU account or another institution.Pays creditors directly for refinance loans: When you refinance your auto loan with Consumers Credit Union, the lender can pay off your current car loan directly. Can change due date: Borrowers can change payment due dates. Car-buying service: Consumers Credit Union partners with TrueCar to offer its customers a convenient car-buying service. Partner dealerships: CCU partners with Enterprise Car Sales to provide rental car perks to borrowers.Mobile app: Consumers Credit Union offers a mobile app for iOS and Android users.  Co-Signers and Co-Borrowers As mentioned, Consumers Credit Union permits co-borrowers and co-signers. Many lenders allow you to apply with a co-borrower, but a co-signer option is relatively rare. If you have fair or poor credit, consider applying for a Consumers Credit Union auto loan with a co-signer, as it could help you secure a better rate.  Co-signers are only responsible for paying back the loan if the primary borrower fails to pay as agreed; co-borrowers, however, are equally responsible for paying back the loan and also share equal ownership of the vehicle. Customer Service CCU offers phone support and a live chat feature for customers with access to online banking.   Medium Contact Availability Telephone (Loan Sales) (847) 837-7938 Not listed Live Chat Log in to online banking Weekdays, 9 a.m. to 5 p.m. CT Customer Satisfaction There is little public information available about customer satisfaction with Consumers Credit Union; the lender is represented on Trustpilot, but only has a few ratings.  While consumer review sites can provide a helpful snapshot of a prospective lender, they don’t offer the complete picture. Use your judgment when determining which lender is best for your situation, and remember that many satisfied customers don’t leave reviews.  How to Apply for a Consumers Credit Union Auto Loan You can apply for a Consumers Credit Union auto loan online. The process takes just a few minutes, and if approved, you could receive funding in as little as one business day. Here’s what to know about the application process: Pre-qualify for a loan: You can pre-qualify for a car loan with Consumers Credit Union, which can offer helpful insight into the rate you may receive and make rate shopping quite a bit easier. You can pre-qualify online after becoming a member (CCU will prompt you to become a member during the application process).Formally apply: Once you decide to move forward, you can submit a formal loan application on the Consumers Credit Union website. You’ll need to provide basic personal information, such as your name, address, email, income, and more; and information about the car you’re financing, including the make, model, year, and other details.Await a decision: Consumers Credit Union doesn’t specify how long it takes to approve or deny loan applications.Receive funding: Approved applicants may receive loan funds in as little as one business day, which is quick compared to many lenders. CCU will send the loan funds directly to the seller, or you can pick up a check at a CCU location. Alternatives to Consumers Credit Union Consumers Credit Union PenFed First Tech FCU Loan Types Offered New, used, refinance, cash-out refinance, motorcycle, RV New, used, refinance, cash-out refinance, lease buyout New, used, refinance, motorcycle, RV States Available All states and D.C. All states, D.C., Puerto Rico All states and D.C. New APR Range 6.54% and up* 5.44%–17.99%* 6.20%–18.00%* Used APR Range 6.93% and up* 6.49%–17.99%* 6.34%–18.00%* Refinance APR Range 5.64% and up* 5.44% and up* 6.20%–18.00%* Min. Time to Receive Loan 1 day 5 days Same day Recommended Min. Credit Score Not disclosed Not disclosed 660 Max. Accepted Mileage None 125,000 miles 100,000 miles Max. Accepted Age None None 10 years Max. Accepted Loan-to-Value Ratio 125% 125% 120% *Rates are accurate as of April 18, 2024. Consumers Credit Union has competitive rates and flexible terms, but it has some limitations and membership is a (small) hurdle. See our top lenders for different loan types and credit levels: Best Auto Loan Rates Best Used Car Loans Best Auto Refinance Loans Best Car Loans for Bad Credit Best Car Loans for Fair Credit Best Car Loans for First Time Buyers Final Verdict Consumers Credit Union offers competitive minimum APRs for qualified borrowers and other perks, like rate discounts and the option to apply with a co-signer. It also provides some of the smallest loans among lenders we reviewed. Overall, it could be a good choice if you have fair credit and/or want to apply with a co-signer, or if you want an RV or motorcycle. However, you’ll first have to go through the process of joining as a member just to apply.  Apply Now Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. See our full auto loan review methodology for more information. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Consumers Credit Union. "Annual Report 2022.” Consumers Credit Union. "Contact Us." ​​Trustpilot. "Consumers Credit Union." Related Articles Private Party Auto Loan: What It Is, How It Works, How to Get One Reasons to Avoid Long-Term Auto Loans First Tech FCU Auto Loans Review 2024 Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99% Best Used Car Loans for 2024 What Is an Auto Loan? A Comprehensive Guide to Vehicle Financing

https://www.investopedia.com/terms/c/caf.asp

Currency Adjustment Factor (CAF): How it Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-currency-adjustment-factor-caf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Currency Adjustment Factor (CAF)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The currency adjustment factor (CAF) is an additional cost on trades between the United States and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pacific-rim.asp">Pacific Rim</a> countries. The levy is imposed by shippers in that region to cover currency fluctuations while goods are in transit and to account for a declining value of the U.S. dollar over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The currency adjustment factor (CAF) is a surcharge levied in addition to freight and customs charges on imports from certain Asian countries.</li><li>The CAF is intended to compensate for currency fluctuations between those nations' currencies and the U.S. dollar that may affect shipping rates.</li><li>The CAF was added by foreign shippers to adjust for a declining value of the U.S. dollar over time.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-understanding-currency-adjustment-factors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Currency Adjustment Factors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a> adjustment factor is applied in addition to the freight costs incurred during trades between these countries. It was enacted in response to the additional costs that shipping companies were incurring when they were dealing with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/h/historical-currency-exchange-rates.asp">exchange rates</a> between the different currencies. The CAF is a percentage that is applied to fees, in addition to the base exchange rate. It is calculated based on the average of the exchange rate over the prior three months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The currency adjustment factor increases in direct response to the United States dollar dropping in value.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Due to this charge, many carriers seek to enter into all-inclusive contracts that will include all possible charges that can be incurred to offset the impact of the exchange rate on profits. These issues most commonly occur on sea freight traveling between the U.S. and the Pacific Rim countries, but they can also be seen in other forms of shipments and with other countries outside of the U.S. and the Pacific Rim. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-example-of-a-caf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Example of a CAF  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Consider an example of the currency adjustment factor being applied on a shipment between U.S.-based Onyx Technologies and Japan-based Nikita Corporation. Nikita has shipped Onyx a large shipment of silicon chips for Onyx to install into their digital cameras. Nikita is sending this delivery by steamer ship, and the name of the carrier service that runs these ships is Dermont Shipping. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Dermont Shipping specializes in these types of deliveries, and they are aware that the exchange rate between the U.S. dollar and the Japanese yen can be quite volatile. Not wanting to get caught in the middle of a devaluation of either currency, Dermont asks for the shipping contract to be all-inclusive, which means that there will be an adjustment built in to cover any drop in value. It works out in Dermont’s favor because, at the time of delivery, the adjusted fee would have included a 51% increase on top of what they were already paying, which means that half of their profits would have gone towards paying for the loss in currency value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> If Dermont had not requested an all-inclusive contract, either because they were not accustomed to shipping between these countries or because they wished to levy their own CAF against both parties, they would have needed to calculate their estimated fees in advance and written them into the contract. Otherwise, they would have had to pay those fees out of pocket. </p></div>

## What Is the Currency Adjustment Factor (CAF)? The currency adjustment factor (CAF) is an additional cost on trades between the United States and [Pacific Rim](https://www.investopedia.com/terms/p/pacific-rim.asp) countries. The levy is imposed by shippers in that region to cover currency fluctuations while goods are in transit and to account for a declining value of the U.S. dollar over time. ### Key Takeaways * The currency adjustment factor (CAF) is a surcharge levied in addition to freight and customs charges on imports from certain Asian countries. * The CAF is intended to compensate for currency fluctuations between those nations' currencies and the U.S. dollar that may affect shipping rates. * The CAF was added by foreign shippers to adjust for a declining value of the U.S. dollar over time. ## Understanding Currency Adjustment Factors The [currency](https://www.investopedia.com/terms/c/currency.asp) adjustment factor is applied in addition to the freight costs incurred during trades between these countries. It was enacted in response to the additional costs that shipping companies were incurring when they were dealing with [exchange rates](https://www.investopedia.com/terms/forex/h/historical-currency-exchange-rates.asp) between the different currencies. The CAF is a percentage that is applied to fees, in addition to the base exchange rate. It is calculated based on the average of the exchange rate over the prior three months. ### The currency adjustment factor increases in direct response to the United States dollar dropping in value. Due to this charge, many carriers seek to enter into all-inclusive contracts that will include all possible charges that can be incurred to offset the impact of the exchange rate on profits. These issues most commonly occur on sea freight traveling between the U.S. and the Pacific Rim countries, but they can also be seen in other forms of shipments and with other countries outside of the U.S. and the Pacific Rim. ## Example of a CAF Consider an example of the currency adjustment factor being applied on a shipment between U.S.-based Onyx Technologies and Japan-based Nikita Corporation. Nikita has shipped Onyx a large shipment of silicon chips for Onyx to install into their digital cameras. Nikita is sending this delivery by steamer ship, and the name of the carrier service that runs these ships is Dermont Shipping. Dermont Shipping specializes in these types of deliveries, and they are aware that the exchange rate between the U.S. dollar and the Japanese yen can be quite volatile. Not wanting to get caught in the middle of a devaluation of either currency, Dermont asks for the shipping contract to be all-inclusive, which means that there will be an adjustment built in to cover any drop in value. It works out in Dermont’s favor because, at the time of delivery, the adjusted fee would have included a 51% increase on top of what they were already paying, which means that half of their profits would have gone towards paying for the loss in currency value. If Dermont had not requested an all-inclusive contract, either because they were not accustomed to shipping between these countries or because they wished to levy their own CAF against both parties, they would have needed to calculate their estimated fees in advance and written them into the contract. Otherwise, they would have had to pay those fees out of pocket.

What Is the Currency Adjustment Factor (CAF)? The currency adjustment factor (CAF) is an additional cost on trades between the United States and Pacific Rim countries. The levy is imposed by shippers in that region to cover currency fluctuations while goods are in transit and to account for a declining value of the U.S. dollar over time. Key Takeaways The currency adjustment factor (CAF) is a surcharge levied in addition to freight and customs charges on imports from certain Asian countries.The CAF is intended to compensate for currency fluctuations between those nations' currencies and the U.S. dollar that may affect shipping rates.The CAF was added by foreign shippers to adjust for a declining value of the U.S. dollar over time. Understanding Currency Adjustment Factors The currency adjustment factor is applied in addition to the freight costs incurred during trades between these countries. It was enacted in response to the additional costs that shipping companies were incurring when they were dealing with exchange rates between the different currencies. The CAF is a percentage that is applied to fees, in addition to the base exchange rate. It is calculated based on the average of the exchange rate over the prior three months. The currency adjustment factor increases in direct response to the United States dollar dropping in value. Due to this charge, many carriers seek to enter into all-inclusive contracts that will include all possible charges that can be incurred to offset the impact of the exchange rate on profits. These issues most commonly occur on sea freight traveling between the U.S. and the Pacific Rim countries, but they can also be seen in other forms of shipments and with other countries outside of the U.S. and the Pacific Rim. Example of a CAF  Consider an example of the currency adjustment factor being applied on a shipment between U.S.-based Onyx Technologies and Japan-based Nikita Corporation. Nikita has shipped Onyx a large shipment of silicon chips for Onyx to install into their digital cameras. Nikita is sending this delivery by steamer ship, and the name of the carrier service that runs these ships is Dermont Shipping. Dermont Shipping specializes in these types of deliveries, and they are aware that the exchange rate between the U.S. dollar and the Japanese yen can be quite volatile. Not wanting to get caught in the middle of a devaluation of either currency, Dermont asks for the shipping contract to be all-inclusive, which means that there will be an adjustment built in to cover any drop in value. It works out in Dermont’s favor because, at the time of delivery, the adjusted fee would have included a 51% increase on top of what they were already paying, which means that half of their profits would have gone towards paying for the loss in currency value. If Dermont had not requested an all-inclusive contract, either because they were not accustomed to shipping between these countries or because they wished to levy their own CAF against both parties, they would have needed to calculate their estimated fees in advance and written them into the contract. Otherwise, they would have had to pay those fees out of pocket.

https://www.investopedia.com/30-year-mortgage-rates-head-higher-8628973

30-Year Mortgage Rates Head Higher

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> After dipping three days in a row, 30-year new purchase loan rates moved higher Monday, starting the week at a 7.30% average. The majority of other new purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage rates</a> also climbed, with a few holding steady. No new purchase or refi averages dropped Monday.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 9, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/1O7dvxAuySyhcbQ0FMqOM2RGuME=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/1O7dvxAuySyhcbQ0FMqOM2RGuME=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png" data-srcset="https://www.investopedia.com/thmb/lYjs_onUyJ_0aNoc4T0UIYZb5mM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 9, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/1O7dvxAuySyhcbQ0FMqOM2RGuME=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png" srcset="https://www.investopedia.com/thmb/lYjs_onUyJ_0aNoc4T0UIYZb5mM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png 750w" width="2480"/> </noscript> </div> </div> </figure> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Mortgage Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.30%</td> <td>7.54%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.24%</td> <td>7.44%</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>7.07%</td> <td>7.08%</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.73%</td> <td>6.90%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.84%</td> <td>7.91%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Since rates vary widely across lenders, it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly no matter the type of home loan you seek. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_8-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_11-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - May 21, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Rates on 30-year new purchase mortgages climbed 8 basis points Monday, raising the flagship average to 7.30%. That's now almost two-tenths of a percentage point above the March low of 7.11%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is still considerably cheaper than October's historic 23-year peak of 8.45%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/VS7uc/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="30-Year Mortgage Rates Since June 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> New purchase 15-year mortgages meanwhile shot up 16 basis points, pushing the average to 6.73%—its highest level in three weeks. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Jumbo 30-year loans also saw a notable increase Monday. With a climb of 12 basis points, the jumbo 30-year average returns to the 7.07% peak it reached last week, its most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Aside from three averages that held steady Monday, rates moved higher for every other new purchase mortgage type. Along with 15-year rates, the biggest gains were seen for 10-year and FHA 30-year loans, whose averages rose 15 and 16 basis points, respectively. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.30%</td> <td>+0.08</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.24%</td> <td>+0.16</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>6.81%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>7.07%</td> <td>+0.12</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.10%</td> <td>+0.09</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.73%</td> <td>+0.16</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.88%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.58%</td> <td>+0.15</td> </tr> <tr> <td>10/6 ARM</td> <td>7.74%</td> <td>+0.06</td> </tr> <tr> <td>7/6 ARM</td> <td>7.70%</td> <td>+0.02</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.70%</td> <td>+0.12</td> </tr> <tr> <td>5/6 ARM</td> <td>7.84%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.80%</td> <td>+0.12</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/O1C3h/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-weekly-freddie-mac-average"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Weekly Freddie Mac Average </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a <em>weekly</em> average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>, while Investopedia’s averages only include zero-point loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Refinancing rates were also largely up Monday. Roughly in line with its new purchase cousin, the 30-year refi average climbed 9 basis points. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile surged 39 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Monday's 15-year refi average tacked on another 8 basis points, while jumbo 30-year refi rates climbed 13 points on average. No refi averages gave up ground Monday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 157px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th>Daily Change</th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.54%</td> <td>+0.09</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.44%</td> <td>+0.09</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.53%</td> <td>+0.39</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>7.08%</td> <td>+0.13</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.40%</td> <td>+0.06</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.90%</td> <td>+0.08</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>7.03%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.80%</td> <td>+0.08</td> </tr> <tr> <td>10/6 ARM</td> <td>7.85%</td> <td>+0.03</td> </tr> <tr> <td>7/6 ARM</td> <td>7.88%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.80%</td> <td>+0.12</td> </tr> <tr> <td>5/6 ARM</td> <td>7.91%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.80%</td> <td>+0.12</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_46-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Hawaii, Louisiana, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Idaho, Oregon, and Washington. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_53-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/ExbhU/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Mortgage Rates by State"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve's</a> current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Between that time and July 2023, the Fed aggressively raised the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20.<span class="ql-inline-citation" data-cite="5"></span> Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-how-we-track-mortgage-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> How We Track Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p></div>

After dipping three days in a row, 30-year new purchase loan rates moved higher Monday, starting the week at a 7.30% average. The majority of other new purchase [mortgage rates](https://www.investopedia.com/mortgage-rates-5094943) also climbed, with a few holding steady. No new purchase or refi averages dropped Monday. ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 9, 2024]() :max_bytes(150000):strip_icc()/4-9-3090945c78d0465e9083d9d294806efb.png) | National Averages of Lenders' Best Mortgage Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.30% | 7.54% | | FHA 30-Year Fixed | 7.24% | 7.44% | | Jumbo 30-Year Fixed | 7.07% | 7.08% | | 15-Year Fixed | 6.73% | 6.90% | | 5/6 ARM | 7.84% | 7.91% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Since rates vary widely across lenders, it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly no matter the type of home loan you seek. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages climbed 8 basis points Monday, raising the flagship average to 7.30%. That's now almost two-tenths of a percentage point above the March low of 7.11%. Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is still considerably cheaper than October's historic 23-year peak of 8.45%. New purchase 15-year mortgages meanwhile shot up 16 basis points, pushing the average to 6.73%—its highest level in three weeks. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year loans also saw a notable increase Monday. With a climb of 12 basis points, the jumbo 30-year average returns to the 7.07% peak it reached last week, its most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. Aside from three averages that held steady Monday, rates moved higher for every other new purchase mortgage type. Along with 15-year rates, the biggest gains were seen for 10-year and FHA 30-year loans, whose averages rose 15 and 16 basis points, respectively. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.30% | +0.08 | | FHA 30-Year Fixed | 7.24% | +0.16 | | VA 30-Year Fixed | 6.81% | No Change | | Jumbo 30-Year Fixed | 7.07% | +0.12 | | 20-Year Fixed | 7.10% | +0.09 | | 15-Year Fixed | 6.73% | +0.16 | | FHA 15-Year Fixed | 6.88% | +0.05 | | Jumbo 15-Year Fixed | 6.91% | No Change | | 10-Year Fixed | 6.58% | +0.15 | | 10/6 ARM | 7.74% | +0.06 | | 7/6 ARM | 7.70% | +0.02 | | Jumbo 7/6 ARM | 6.70% | +0.12 | | 5/6 ARM | 7.84% | No Change | | Jumbo 5/6 ARM | 6.80% | +0.12 | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a *weekly* average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), while Investopedia’s averages only include zero-point loans. ## Today's Mortgage Rate Averages: Refinancing Refinancing rates were also largely up Monday. Roughly in line with its new purchase cousin, the 30-year refi average climbed 9 basis points. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile surged 39 basis points. Monday's 15-year refi average tacked on another 8 basis points, while jumbo 30-year refi rates climbed 13 points on average. No refi averages gave up ground Monday. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.54% | +0.09 | | FHA 30-Year Fixed | 7.44% | +0.09 | | VA 30-Year Fixed | 7.53% | +0.39 | | Jumbo 30-Year Fixed | 7.08% | +0.13 | | 20-Year Fixed | 7.40% | +0.06 | | 15-Year Fixed | 6.90% | +0.08 | | FHA 15-Year Fixed | 7.03% | +0.03 | | Jumbo 15-Year Fixed | 6.91% | No Change | | 10-Year Fixed | 6.80% | +0.08 | | 10/6 ARM | 7.85% | +0.03 | | 7/6 ARM | 7.88% | No Change | | Jumbo 7/6 ARM | 6.80% | +0.12 | | 5/6 ARM | 7.91% | +0.05 | | Jumbo 5/6 ARM | 6.80% | +0.12 | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. ## Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Hawaii, Louisiana, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Idaho, Oregon, and Washington. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The [Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "[dot plot](https://www.investopedia.com/dot-plot-4581755)" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. ## How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

After dipping three days in a row, 30-year new purchase loan rates moved higher Monday, starting the week at a 7.30% average. The majority of other new purchase mortgage rates also climbed, with a few holding steady. No new purchase or refi averages dropped Monday. National Averages of Lenders' Best Mortgage Rates Loan Type New Purchase Refinance 30-Year Fixed 7.30% 7.54% FHA 30-Year Fixed 7.24% 7.44% Jumbo 30-Year Fixed 7.07% 7.08% 15-Year Fixed 6.73% 6.90% 5/6 ARM 7.84% 7.91% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Since rates vary widely across lenders, it's always smart to shop around for your best mortgage option and compare rates regularly no matter the type of home loan you seek. Compare the Best Mortgage Rates Today - May 21, 2024 Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages climbed 8 basis points Monday, raising the flagship average to 7.30%. That's now almost two-tenths of a percentage point above the March low of 7.11%. Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is still considerably cheaper than October's historic 23-year peak of 8.45%. New purchase 15-year mortgages meanwhile shot up 16 basis points, pushing the average to 6.73%—its highest level in three weeks. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year loans also saw a notable increase Monday. With a climb of 12 basis points, the jumbo 30-year average returns to the 7.07% peak it reached last week, its most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. Aside from three averages that held steady Monday, rates moved higher for every other new purchase mortgage type. Along with 15-year rates, the biggest gains were seen for 10-year and FHA 30-year loans, whose averages rose 15 and 16 basis points, respectively. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.30% +0.08 FHA 30-Year Fixed 7.24% +0.16 VA 30-Year Fixed 6.81% No Change Jumbo 30-Year Fixed 7.07% +0.12 20-Year Fixed 7.10% +0.09 15-Year Fixed 6.73% +0.16 FHA 15-Year Fixed 6.88% +0.05 Jumbo 15-Year Fixed 6.91% No Change 10-Year Fixed 6.58% +0.15 10/6 ARM 7.74% +0.06 7/6 ARM 7.70% +0.02 Jumbo 7/6 ARM 6.70% +0.12 5/6 ARM 7.84% No Change Jumbo 5/6 ARM 6.80% +0.12 The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a weekly average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with discount points, while Investopedia’s averages only include zero-point loans. Today's Mortgage Rate Averages: Refinancing Refinancing rates were also largely up Monday. Roughly in line with its new purchase cousin, the 30-year refi average climbed 9 basis points. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile surged 39 basis points. Monday's 15-year refi average tacked on another 8 basis points, while jumbo 30-year refi rates climbed 13 points on average. No refi averages gave up ground Monday. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.54% +0.09 FHA 30-Year Fixed 7.44% +0.09 VA 30-Year Fixed 7.53% +0.39 Jumbo 30-Year Fixed 7.08% +0.13 20-Year Fixed 7.40% +0.06 15-Year Fixed 6.90% +0.08 FHA 15-Year Fixed 7.03% +0.03 Jumbo 15-Year Fixed 6.91% No Change 10-Year Fixed 6.80% +0.08 10/6 ARM 7.85% +0.03 7/6 ARM 7.88% No Change Jumbo 7/6 ARM 6.80% +0.12 5/6 ARM 7.91% +0.05 Jumbo 5/6 ARM 6.80% +0.12 Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Hawaii, Louisiana, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Idaho, Oregon, and Washington. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "dot plot" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

https://www.investopedia.com/the-express-podcast-episode-176-8600559

What the Non-Consensus View Is Telling Us About Capital Markets Today

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE3657678447" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="What the Non-Consensus View is Telling us About Capital Markets Today"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Jim Bianco, the president and macro strategist at Bianco Research, tells us why Wall Street might be very wrong about rate cuts, inflation, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/understanding-cryptocurrency-etfs/">crypto ETFs</a> and the bond market. Plus, he compares the rise of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-invest-in-ai-7504987">A.I. stocks</a> and crypto with other frothy periods in history and explains how these usually play out. Plus, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-nvidia-q4-fy2024-earnings-call-8598375">meteoric rise of Nvidia</a> and other chip stocks has brought out the options army in full force. They are calling for much higher prices. Will they be 'in the money'? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <strong>Link for Show Notes:</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/berkshire-hathaway-fy2023-earnings-key-takeaways-8599175">https://www.investopedia.com/berkshire-hathaway-fy2023-earnings-key-takeaways-8599175</a><br/><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/average-daily-float.asp">https://www.investopedia.com/terms/a/average-daily-float.asp</a><br/><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8599318">https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8599318</a><br/><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.biancoresearch.com/visitor-home/" rel="nofollow">https://www.biancoresearch.com/visitor-home/</a><br/><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://twitter.com/biancoresearch">https://twitter.com/biancoresearch</a><br/><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="externalLink" href="https://www.berkshirehathaway.com/2023ar/2023ar.pdf">https://www.berkshirehathaway.com/2023ar/2023ar.pdf</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <strong>Do you have a news tip for Investopedia reporters?</strong> Please email us at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="mailto:tips@investopedia.com">tips@investopedia.com</a> </p></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) Jim Bianco, the president and macro strategist at Bianco Research, tells us why Wall Street might be very wrong about rate cuts, inflation, [crypto ETFs](https://www.investopedia.com/investing/understanding-cryptocurrency-etfs/) and the bond market. Plus, he compares the rise of [A.I. stocks](https://www.investopedia.com/how-to-invest-in-ai-7504987) and crypto with other frothy periods in history and explains how these usually play out. Plus, the [meteoric rise of Nvidia](https://www.investopedia.com/4-key-takeaways-from-nvidia-q4-fy2024-earnings-call-8598375) and other chip stocks has brought out the options army in full force. They are calling for much higher prices. Will they be 'in the money'? **Link for Show Notes:** <https://www.investopedia.com/berkshire-hathaway-fy2023-earnings-key-takeaways-8599175> <https://www.investopedia.com/terms/a/average-daily-float.asp> <https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8599318> <https://www.biancoresearch.com/visitor-home/> <https://twitter.com/biancoresearch> <https://www.berkshirehathaway.com/2023ar/2023ar.pdf> **Do you have a news tip for Investopedia reporters?** Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Jim Bianco, the president and macro strategist at Bianco Research, tells us why Wall Street might be very wrong about rate cuts, inflation, crypto ETFs and the bond market. Plus, he compares the rise of A.I. stocks and crypto with other frothy periods in history and explains how these usually play out. Plus, the meteoric rise of Nvidia and other chip stocks has brought out the options army in full force. They are calling for much higher prices. Will they be 'in the money'? Link for Show Notes: https://www.investopedia.com/berkshire-hathaway-fy2023-earnings-key-takeaways-8599175https://www.investopedia.com/terms/a/average-daily-float.asphttps://www.investopedia.com/what-to-expect-in-the-markets-this-week-8599318https://www.biancoresearch.com/visitor-home/https://twitter.com/biancoresearchhttps://www.berkshirehathaway.com/2023ar/2023ar.pdf Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/ask/answers/102814/what-credit-card-fees-are-tax-deductible.asp

Which Credit Card Fees Are Tax-Deductible?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Both individuals and businesses have the potential opportunity to deduct expenses from their gross income to lower the amount of money they pay in annual taxes to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a>. The provisions and deduction procedures for individuals and businesses are different so it is important to understand which ones apply. In general, pretty much anything pertaining to a credit card is not tax-deductible as a personal itemized deduction but is tax-deductible for a business. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Credit card fees are not deductible for individuals and are deductible for businesses.</li><li>Businesses can deduct all credit card fees as well as finance charges.</li><li>Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.</li></ul></div></div></div> <span class="heading-toc" id="toc-are-credit-card-fees-tax-deductible"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Are Credit Card Fees Tax-Deductible? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The short answer is, it depends. It largely depends on whether any credit card fees are incurred for business purposes or if the card was for personal use. Below are details for each type of situation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-subheading__text"> Individual Deductions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/">Tax Cuts and Jobs Act (TCJA)</a> was signed into law by former President Trump in December 2017 (with the majority of its clauses taking effect in 2018). The TCJA was the biggest overhaul of the tax rules in 30 years. For individuals, it wiped out many of the miscellaneous itemized deductions taxpayers had used in previous years. Some of the most prevalent changes eliminated expenses taken by individuals for business involvement, such as vehicular costs.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Individuals looking to take advantage of itemized deductions do so on Schedule A. For Schedule A itemized deductions to be worthwhile, they must exceed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeduction.asp">standard deduction</a> given to all taxpayers. Due to the TCJA standard deductions for U.S. taxpayers increased substantially.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For the tax year 2022, those deduction amounts are:<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>$12,950: single taxpayer (increasing to $13,850 for 2023)</li><li>$12,950: married taxpayer filing separately ($13,850 for 2023)</li><li>$19,400: head of household ($20,800 for 2023)</li><li>$25,900: married taxpayer filing jointly ($27,700 for 2023)</li><li>$25,900: qualifying widow(er) ($27,700 for 2023)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> With these standard deductions, the need for itemized deductions became obsolete for most taxpayers. Regardless, finance charges and annual fees for credit cards were never eligible for itemized deductions. Prior to 2018, taxpayers could deduct transaction costs for credit and debit card payments made to the IRS. After the TCJA these deductions were also no longer allowed.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Business Deductions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Tax deductions for businesses are another story. Nearly any business credit card fee or credit card company charge incurred by a business through the use of a credit card has been and still is eligible to be deducted as a business expense.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Depending on the type of business, a company will either file <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/081314/whos-required-fill-out-schedule-c-irs-form.asp">Schedule C</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.irs.gov/forms-pubs/about-form-1120">Form 1120</a>. Corporations file Form 1120 while all other businesses use Schedule C.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Allowable deductions for businesses are detailed in IRS Publication 535. Businesses have the opportunity to deduct nearly any expense involved with their business throughout the year when they are determining their bottom line for annual taxes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> When it comes to credit card usage, businesses can deduct finance charges, annual fees, monthly fees, late fees, and more. The catch is, charges must be associated with the business. For example, this alleviates an annual fee on a personal credit card but could include finance charges on purchases made with the card. Businesses can also deduct any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-accept-credit-card-payments-5078027">credit or debit card processing expenses</a> involved with paying their taxes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Moreover, businesses can also deduct the expenses they pay to accept <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit cards</a> as a merchant. These fees can be complex. Card network processors may charge merchants a flat fee for the privilege of acceptance. Merchants also pay a card processing transaction fee on each card transaction to the card issuer. These fees and any others incurred by a merchant are reported as business expenses and allowed as tax deductions.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

Both individuals and businesses have the potential opportunity to deduct expenses from their gross income to lower the amount of money they pay in annual taxes to the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp). The provisions and deduction procedures for individuals and businesses are different so it is important to understand which ones apply. In general, pretty much anything pertaining to a credit card is not tax-deductible as a personal itemized deduction but is tax-deductible for a business. ### Key Takeaways * Credit card fees are not deductible for individuals and are deductible for businesses. * Businesses can deduct all credit card fees as well as finance charges. * Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not. ## Are Credit Card Fees Tax-Deductible? The short answer is, it depends. It largely depends on whether any credit card fees are incurred for business purposes or if the card was for personal use. Below are details for each type of situation. ### Individual Deductions The [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/) was signed into law by former President Trump in December 2017 (with the majority of its clauses taking effect in 2018). The TCJA was the biggest overhaul of the tax rules in 30 years. For individuals, it wiped out many of the miscellaneous itemized deductions taxpayers had used in previous years. Some of the most prevalent changes eliminated expenses taken by individuals for business involvement, such as vehicular costs. Individuals looking to take advantage of itemized deductions do so on Schedule A. For Schedule A itemized deductions to be worthwhile, they must exceed the [standard deduction](https://www.investopedia.com/terms/s/standarddeduction.asp) given to all taxpayers. Due to the TCJA standard deductions for U.S. taxpayers increased substantially. For the tax year 2022, those deduction amounts are: * $12,950: single taxpayer (increasing to $13,850 for 2023) * $12,950: married taxpayer filing separately ($13,850 for 2023) * $19,400: head of household ($20,800 for 2023) * $25,900: married taxpayer filing jointly ($27,700 for 2023) * $25,900: qualifying widow(er) ($27,700 for 2023) With these standard deductions, the need for itemized deductions became obsolete for most taxpayers. Regardless, finance charges and annual fees for credit cards were never eligible for itemized deductions. Prior to 2018, taxpayers could deduct transaction costs for credit and debit card payments made to the IRS. After the TCJA these deductions were also no longer allowed. ### Business Deductions Tax deductions for businesses are another story. Nearly any business credit card fee or credit card company charge incurred by a business through the use of a credit card has been and still is eligible to be deducted as a business expense. Depending on the type of business, a company will either file [Schedule C](https://www.investopedia.com/ask/answers/081314/whos-required-fill-out-schedule-c-irs-form.asp) or [Form 1120](https://www.irs.gov/forms-pubs/about-form-1120). Corporations file Form 1120 while all other businesses use Schedule C. Allowable deductions for businesses are detailed in IRS Publication 535. Businesses have the opportunity to deduct nearly any expense involved with their business throughout the year when they are determining their bottom line for annual taxes. When it comes to credit card usage, businesses can deduct finance charges, annual fees, monthly fees, late fees, and more. The catch is, charges must be associated with the business. For example, this alleviates an annual fee on a personal credit card but could include finance charges on purchases made with the card. Businesses can also deduct any [credit or debit card processing expenses](https://www.investopedia.com/how-to-accept-credit-card-payments-5078027) involved with paying their taxes. Moreover, businesses can also deduct the expenses they pay to accept [credit cards](https://www.investopedia.com/terms/c/creditcard.asp) as a merchant. These fees can be complex. Card network processors may charge merchants a flat fee for the privilege of acceptance. Merchants also pay a card processing transaction fee on each card transaction to the card issuer. These fees and any others incurred by a merchant are reported as business expenses and allowed as tax deductions.

Both individuals and businesses have the potential opportunity to deduct expenses from their gross income to lower the amount of money they pay in annual taxes to the Internal Revenue Service (IRS). The provisions and deduction procedures for individuals and businesses are different so it is important to understand which ones apply. In general, pretty much anything pertaining to a credit card is not tax-deductible as a personal itemized deduction but is tax-deductible for a business. Key Takeaways Credit card fees are not deductible for individuals and are deductible for businesses.Businesses can deduct all credit card fees as well as finance charges.Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not. Are Credit Card Fees Tax-Deductible? The short answer is, it depends. It largely depends on whether any credit card fees are incurred for business purposes or if the card was for personal use. Below are details for each type of situation. Individual Deductions The Tax Cuts and Jobs Act (TCJA) was signed into law by former President Trump in December 2017 (with the majority of its clauses taking effect in 2018). The TCJA was the biggest overhaul of the tax rules in 30 years. For individuals, it wiped out many of the miscellaneous itemized deductions taxpayers had used in previous years. Some of the most prevalent changes eliminated expenses taken by individuals for business involvement, such as vehicular costs. Individuals looking to take advantage of itemized deductions do so on Schedule A. For Schedule A itemized deductions to be worthwhile, they must exceed the standard deduction given to all taxpayers. Due to the TCJA standard deductions for U.S. taxpayers increased substantially. For the tax year 2022, those deduction amounts are: $12,950: single taxpayer (increasing to $13,850 for 2023)$12,950: married taxpayer filing separately ($13,850 for 2023)$19,400: head of household ($20,800 for 2023)$25,900: married taxpayer filing jointly ($27,700 for 2023)$25,900: qualifying widow(er) ($27,700 for 2023) With these standard deductions, the need for itemized deductions became obsolete for most taxpayers. Regardless, finance charges and annual fees for credit cards were never eligible for itemized deductions. Prior to 2018, taxpayers could deduct transaction costs for credit and debit card payments made to the IRS. After the TCJA these deductions were also no longer allowed. Business Deductions Tax deductions for businesses are another story. Nearly any business credit card fee or credit card company charge incurred by a business through the use of a credit card has been and still is eligible to be deducted as a business expense. Depending on the type of business, a company will either file Schedule C or Form 1120. Corporations file Form 1120 while all other businesses use Schedule C. Allowable deductions for businesses are detailed in IRS Publication 535. Businesses have the opportunity to deduct nearly any expense involved with their business throughout the year when they are determining their bottom line for annual taxes. When it comes to credit card usage, businesses can deduct finance charges, annual fees, monthly fees, late fees, and more. The catch is, charges must be associated with the business. For example, this alleviates an annual fee on a personal credit card but could include finance charges on purchases made with the card. Businesses can also deduct any credit or debit card processing expenses involved with paying their taxes. Moreover, businesses can also deduct the expenses they pay to accept credit cards as a merchant. These fees can be complex. Card network processors may charge merchants a flat fee for the privilege of acceptance. Merchants also pay a card processing transaction fee on each card transaction to the card issuer. These fees and any others incurred by a merchant are reported as business expenses and allowed as tax deductions.

https://www.investopedia.com/how-to-achieve-financial-independence-8647093

How To Achieve Financial Independence

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A growing number of women say that achieving financial independence is their No. 1 financial goal, according to a Fidelity Investments Survey. Fifty-eight percent of women surveyed said that they wanted to feel secure and not worry about money.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> However, only 36% of respondents to REAL SIMPLE and Investopedia's 2024 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/her-money-mindset-survey-8647284">Her Money Mindset survey</a> said that they held a retirement account, while only 71% said they held a savings account. And 54% said that they struggled to pay at least one major expense.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Whether you're hoping to go full FIRE (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp">financial independence, retire early</a>) or just want to feel more on top of your expenses and planning, this guide will offer practical steps to get you where you want to go.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>There are a variety of definitions for financial independence, and it’s important to find which feels right for you.</li><li>Financial independence is the key to achieving long-term financial security and freedom.</li><li>Assessing your current financial situation is crucial for identifying areas of improvement and potential savings.</li><li>Creating a budget and a savings plan fosters independence.</li><li>Investing wisely can accelerate your path toward financial freedom.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-financial-independence"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Is Financial Independence? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> “Financial independence means different things to different people,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://russellandcompany.com/" rel="nofollow">Walter Russell</a>, an Ohio-based financial planner. “Some see it as (being) free from needing a regular job because they have money from other sources. Others think of it as not owing money to anyone, which makes them feel secure and in control.”  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Russell continues, “For some, it's about being prepared for retirement and knowing they'll be okay financially when they stop working. It can also mean having the freedom to start businesses or live wherever they want. It's all about feeling confident and in charge of your money and future.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> No matter your definition of financial independence, your end goal probably looks like freedom and autonomy. Your path to that destination will vary depending on your values, resources, and preferences. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-subheading__text"> Financial Self-Sufficiency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> At a basic level, financial independence means having sufficient income and savings to cover living expenses. If you're financially self-sufficient, you have the resources to fund cost of living.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> For Brock and Becky Waterman, better known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://firetravelfamily.com/about-us/" rel="nofollow">the FIRE Family</a>, financial independence meant pulling off a wedding on a shoestring budget, selling their home, and leveraging geographic arbitrage to live on less—even with three kids in tow.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> “[During COVID] I ran the numbers to see where we were, and we figured out if we sold our house and most of our [possessions]<strong> </strong>and our vehicles...we could go ahead and be financially independent and not have to work," says Brock Waterman.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> After cutting health care costs (almost $2,000 per month because the Watermans owned their own business), child care costs (almost $15,000 per year), and property taxes and insurance, the Watermans had reduced their expenses by more than half.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Originally from Wisconsin, Waterman says that living in an RV and homeschooling their kids is an unconventional choice for his family. But they were motivated to spend more time with their kids; financial self-sufficiency helped them achieve their goal.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> While some people aim for financial independence by working for many years to amass significant savings, the Watermans chose to do the opposite and cut expenses in order to enjoy life now. Dividend-paying stocks, some savings, and a few <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-a-cd-account-work-5235792">certificates of deposit</a> have sustained the family thus far, making their decision to travel the world with their kids a no-brainer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Freedom From Employment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Many associate financial independence with not needing traditional full-time employment or a paycheck. Passive income and dividend assets can help power financial independence plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> “Investing 10-15% of gross income for retirement and putting another 20% of your after-tax income toward investing or other financial goals is a fantastic, back-of-the-envelope calculation for most people,” says Anna N’Jie-Konte, a certified financial planner and president of Re-Envision Wealth, when asked what steps she advises people to take to achieve financial independence.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> While some people can live on savings alone, most have to consider ways they could access cash fast if their circumstances change. Being self-employed or willing to work in a high-demand field as needs arise can make financial independence more accessible even without amassing much savings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-subheading__text"> Autonomy Over Amounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Most people think that financial independence requires a high net worth or large windfall. Konte says financial independence is achievable at lower income levels, too. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> “Many financial planning studies show that in some respects it's actually easier to reach financial independence when you are middle-income because Social Security makes up a greater percentage of your retirement income need, therefore you need to save less of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nestegg.asp">nest egg</a> on your own,” she says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Brock Waterman agrees. He encourages people aiming for financial independence not to focus on a target savings or investing number. “When we worked for ourselves, we were paying a little over $2,000 a month, so $24,000 a year, for health care,” he says.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> After Becky Waterman closed her massage business and he stopped working, they were able to access subsidized health care because they make less annual income. Brock Waterman estimates that they paid $3,000 or $4,000 for premiums the first year. This year, he says, the family paid only a few hundred dollars on health care.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Three years into financial independence, he encourages people to take the leap if they really want it, rather than waiting to hit a specific set number goal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> Building Long-Term Security </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Whether it is fear of an emergency or ambitions to send kids and grandkids to college, long-term security can keep people locked into income-generating jobs that they don’t love. But financial security is just as much about what you want to spend your money on as it is about what you don’t. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> For example, the Watermans decided against saving for four-year college educations for their kids. Instead, their long-term vision includes setting aside $10,000 to $15,000 per kid to invest in their vocational training, skills building, or launching their own business.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> “They'll have the money for community college, and if they decide they want to go to a four-year college, that's going to be something they're going to have to make a decision for themselves,” Waterman explains.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Russell adds that discipline in saving, investing, and living below one's means plays a more significant role regardless of income level.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> “Focus on increasing the savings rate and maximizing investment returns through strategic allocation,” he advises. “High-income earners should avoid lifestyle inflation and prioritize long-term wealth accumulation through prudent financial management and investment strategies.”  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Those building blocks of financial discipline ensure financial independence for the long haul. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-why-women-can-benefit-greatly-from-financial-independence"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> Why Women Can Benefit Greatly From Financial Independence </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> While financial independence serves everyone, research shows it holds special significance for women, who typically earn less than men, live longer, and have greater caregiving responsibilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> According to 2022 data from the U.S. Census Bureau, women employed full-time and year-round had median earnings of $52,360, while the median earnings for men employed full-time and year-round were $62,350.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_66-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>REAL SIMPLE and Investopedia's survey data shows a gender wage gap within marriages, too: 60% percent of women respondents with a male partner said that they earned less than their significant other. <br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> While progress has been made over time in closing this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wage-gaps-by-gender-5082675">gender wage gap</a>, the disparities between the earnings of men and women persist.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-subheading__text"> Women Live Longer  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The latest data from The World Bank shows that in 2021,  life expectancy at birth was 79 years for women<span class="ql-inline-citation" data-cite="9"></span> in the United States and 74 years for men.<span class="ql-inline-citation" data-cite="10"></span> This represents a 5-year difference, with women having a higher life expectancy compared to men. Yet lower wages and long stints without income due to child rearing and caregiving put women at risk of having less cash during their golden years.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> According to estimates from Fidelity Investments, the average 65-year-old woman can expect to spend about $157,500 more on medical bills throughout retirement than the average 65-year-old man.<span class="ql-inline-citation" data-cite="4"></span> Longer female life expectancies correlate with a need for larger retirement savings and income to cover additional years of living expenses and health care costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-subheading__text"> Navigating Caregiving Duties </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> “With added responsibility comes additional costs and cash flow pressure,” Konte adds. Women disproportionately shoulder unpaid caregiving duties for children and adult dependents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> A 2023 MetLife study found that most caregivers are women, and women providing care to a parent lose as much as $120,000 in lifetime wages due to working fewer hours. If a woman leaves the workforce entirely to provide care, the study found the lost wages rise to around $142,000.<span class="ql-inline-citation" data-cite="5"></span> Caregiving for kids, spouses, and parents contributes to career impediments, lower savings, and higher out-of-pocket care expenses for women than men. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> Research from AARP shows that Latinx and Black caregivers spend higher percentages of their income on care expenses than white caregivers.<span class="ql-inline-citation" data-cite="6"></span> So, whether it's earning power, longevity, or caregiving norms, women encounter unique financial challenges that make financial independence difficult to achieve but even more meaningful for disrupting cycles of inequality.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <span class="heading-toc" id="toc-10-steps-to-financial-independence"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-heading__text"> 10 Steps to Financial Independence </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Achieving financial freedom rests on embracing an intentional money mindset, goal-focused strategies, and smart financial behaviors over time. It's a lifestyle shift rather than a quick fix. Here are 10 key steps that are an important part of any financial independence journey. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-subheading__text"> Step 1: Define Your "Why" </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> Defining your "why" gives meaning and motivation to stay disciplined while working toward your unique vision of financial freedom. Whatever your answer, revisit this when you need inspiration to stick to the path. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_87-0"> <span class="mntl-sc-block-subheading__text"> Step 2: Assess Your Finances </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Gaining clarity around your current financial situation identifies opportunities for improvement and savings needed to reach independence. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> To assess your current financial situation:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> <li>Start by tallying your monthly income from all sources, including your salary, side hustles, and any passive income streams. </li><li>Next, list out your monthly expenses, making sure to account for both fixed costs like rent or mortgage payments, as well as variable expenses such as groceries and entertainment. </li><li>Don't forget to factor in one-off annual bills, such as insurance premiums or property taxes, as these can significantly impact your overall financial picture.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> Once you have a clear understanding of your income and expenses, it's time to calculate your assets and liabilities. Your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> include any savings accounts, investment portfolios, and property values. On the other hand, your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a> encompass all forms of debt, such as credit card balances, student loans, and mortgages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> To calculate your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp">net worth</a>, subtract total liabilities from total assets. This formula provides a snapshot of your current financial health and can serve as a baseline for setting future financial goals. Understanding your tax scenarios is also crucial, as this can influence your investment strategies and overall financial planning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Doing a thorough assessment may uncover excess spending that could be saved or invested to reach financial independence sooner. This intelligence becomes the baseline to set goals against and track progress over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_100-0"> <span class="mntl-sc-block-subheading__text"> Step 3: Craft Your Financial Independence (FI) Number </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> Although the Watermans discourage it, many people start their financial independence journey by coming up with a number—an ideal savings, investing, or net worth number that would make them feel that full-time work was truly optional. Quantifying your number motivates saving and investing decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> To determine this: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> <li>Estimate your annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-costs-you-may-not-have-thought-of-5090426">retirement living expenses</a></li> <li>Factor one-time goals like buying property</li> <li>Increase for expected inflation over time</li> <li>Calculate investable assets needed to generate that income</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> Although the future remains unpredictable, having an estimate keeps your financial behaviors aligned with your target. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_109-0"> <span class="mntl-sc-block-subheading__text"> Step 4: Automate Saving and Investing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> “For individuals aspiring to achieve financial independence through investing, several fundamental principles can guide their journey,” says Russell. Starting early and investing consistently harnesses the power of compounding returns over time.”  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> Diversify investments across different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetclasses.asp">asset classes</a> to mitigate risk and improve long-term growth. “Rebalancing the portfolio periodically ensures alignment with financial goals and risk tolerance. Continual education about investing strategies and market dynamics empowers individuals to make informed decisions and adapt to changing circumstances on their path to financial independence,” he adds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> He says investing may require the help of a team—a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp">financial advisor</a>, a tax strategist, and an attorney—whose expertise can help you achieve financial independence even sooner. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_116-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_117-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Alternatively, DIY apps like Acorns, Betterment, Ellevest, and Wealthfront, among many others, offer set-it-and-forget-it retirement investing convenience.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_118-0"> <span class="mntl-sc-block-subheading__text"> Step 5: Create a Debt Repayment Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_119-0"> Some definitions of financial independence entail being completely debt-free. But, for some people, debt doesn’t derail the dream.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_121-0"> “Achieving financial independence while maintaining debt is possible but requires strategic management and prudent decision-making,” says Russell. He says it's essential to differentiate between “good” debt, such as mortgages or student loans, and "bad" debt, like high-interest credit card debt.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_122-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> Russell says, “Prioritizing the repayment of high-interest debt while leveraging low-interest debt strategically can be a viable approach. However, minimizing debt levels or achieving debt-free status can enhance financial security and accelerate the journey to independence.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_125-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_126-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Minimizing debt levels or achieving debt-free status can help with financial independence.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> To create a repayment strategy, there are two popular options: the debt snowball and the debt avalanche methods: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_129-0"> <strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/snowball.asp">Debt Snowball</a>:</strong> Pay minimums on all debt while putting any extra funds toward the smallest balance first. Once the first debt is cleared, roll its minimum toward the next smallest, and so on until all are repaid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> Momentum builds as small wins pile up. This mental boost keeps you tackling larger debts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_133-0"> <strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-avalanche.asp">Debt Avalanche</a>:</strong> With this method, arrange debts by interest rate instead of size. Make minimum payments on all while targeting extra funds at the debt with the highest interest rate first. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_135-0"> Paying down high rates saves money on expensive financing charges over time. However, it may take longer to see progress. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_137-0"> Choose the approach that best fits your financial personality and needs. The main thing is sticking to the repayment plan until you're debt-free. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_139-0"> <span class="mntl-sc-block-subheading__text"> Step 6: Keep a Realistic Emergency Savings Fund </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> Life happens. You never know when you'll be hit with unexpected home repairs, job losses, or health issues. Having accessible cash reserves prevents resorting to high-interest debt when surprises hit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_142-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_143-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Most experts advise stockpiling enough emergency savings to cover three to six months' worth of living expenses.<span class="ql-inline-citation" data-cite="7"></span> And whenever funds are low or living expenses increase, the savings target should shift to replenishment. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_144-0"> Set up automatic monthly transfers to hit the target amount in an Federal Deposit Insurance Corporation (FDIC)-insured account, preferably a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a> that you can easily tap.<span class="ql-inline-citation" data-cite="8"></span> Once you meet your emergency savings target, redirect automated flows toward investing instead.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_145-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_146-0"> <span class="mntl-sc-block-subheading__text"> Step 7: Maximize Your Human Capital </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_147-0"> Your most valuable financial asset remains <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/humancapital.asp">human capital</a>. Your ability to earn over your working years through high-income skills can make financial independence even easier to achieve. Pursue education (even financial and investing education), as well as consulting or freelancing opportunities that allow you to boost your income on your terms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_148-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_149-0"> Carving out time for professional development keeps your skillset marketable, even if you never choose to work again.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_150-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_151-0"> <span class="mntl-sc-block-subheading__text"> Step 8: Build Multiple Income Streams </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_152-0"> As you expand skills and connections, create diversified income channels versus relying solely on salaries and wages: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_153-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_154-0"> <li><strong>Side hustles:</strong> Start a weekend freelancing business doing what you love. Drive for a rideshare service in your spare time. Monetize a hobby or talent.</li> <li><strong>Online businesses:</strong> Launch a digital product, YouTube channel, affiliate marketing blog, or dropshipping store. Multiple streams leveraging the internet scale easily.</li> <li><strong>Real estate:</strong> Invest in a rental property you can hire a manager to oversee. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp">Real estate investment trusts (REITs)</a> provide more passive real estate investing exposure too.</li> <li><strong>Equity investments:</strong> Build a diversified portfolio of stocks, bonds, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>, etc. over time. Dividends and appreciation compound as the principal grows.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_155-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_156-0"> Mixing multiple income sources protects against disruption and risk while compounding overall cash flow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_157-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_158-0"> <span class="mntl-sc-block-subheading__text"> Step 9: Manage Costs and Practice Intentional Spending </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_159-0"> Big wins also come from the cost side of your cash flow equation. Small cost savings add up. The Watermans believe in frugality, not because they’re penny pinchers but because they are intentional about what they pay for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_160-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_161-0"> “You can be very ruthless … don't spend money if it's not important to you,” says Brock Waterman. Ask yourself if every expenditure moves you toward independence goals and greater life satisfaction. Does buying another pair of shoes bring lasting value? Or does a trip create deeper connections?  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_162-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_163-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_164-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_6-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>It's helpful to ask yourself, "What will this purchase contribute to my life?" before buying.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_165-0"> For the Watermans, traveling isn’t a luxury. It’s part of their financial independence plan. Traveling to low-cost-of-living areas means they spend money on memorable adventures while world-schooling their kids. Intentional spending aligns with the deeper “why” and prevents lifestyle creep from diluting bigger life plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_166-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_167-0"> <span class="mntl-sc-block-subheading__text"> Step 10: Continuously Educate Yourself </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_168-0"> Reaching financial independence requires lifelong learning and growth. Mastering money mechanics, investing nuances, and tax optimization strategies greatly accelerate your outcomes over decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_169-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_170-0"> Read personal finance books, listen to financial independence podcasts, attend investment seminars, and join money-minded online communities. Surround yourself with like-minded people who will teach you new, useful skillsets, rather than discourage you from reaching for your goals.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_171-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_172-0"> Also, work with a financial advisor—a fiduciary who crafts a holistic plan for you. Their expertise navigates optimized outcomes not possible alone. Investment pros protect wealth too —steering you away from emotional decision pitfalls novice investors succumb to. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_173-0"></div> <span class="heading-toc" id="toc-frequently-asked-questions-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_174-0"> <span class="mntl-sc-block-heading__text"> Frequently Asked Questions (FAQs) </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_175-0"><span class="heading-toc" id="toc-how-long-does-it-take-to-achieve-financial-independence"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take to Achieve Financial Independence?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Timelines vary substantially based on factors like income, frugality, market returns, inheritance windfalls, etc. However, truly achieving FI generally takes decades for the average person.</p><p>The key is avoiding short-term scorekeeping and instead focusing on the right money mindsets and behaviors consistency over long time horizons. Marathon mentality perseveres.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_176-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_177-0"><span class="heading-toc" id="toc-can-you-still-become-financially-independent-with-kids"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Still Become Financially Independent With Kids?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Absolutely! Children do reduce the free cash flow available to invest and delay retirement timelines. However, by sticking to financial independence principles and adjusting savings rates accordingly, parenthood and financial freedom can thrive together.</p><p>The key is balancing enjoying special moments with kids today while also sacrificing to fund their futures responsibly. Delayed life milestones like buying a bigger home may be needed but compound investing makes larger catch-up contributions later possible too.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_178-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_179-0"><span class="heading-toc" id="toc-what-if-your-significant-other-isnt-on-board"></span> <h2 class="mntl-sc-block-questionandanswer__question">What if Your Significant Other Isn’t on Board?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Pursuing financial independence often requires trade-offs and sacrifices that partners may not embrace or understand initially. Try framing benefits in terms of how achieving FI together unlocks greater family time and potential.</p><p>Start where you agree—identify shared dreams, areas of financial stress, and lifestyle upgrades you both want. Pursue small joint money wins together first before tackling bigger mindset shifts. Leading by example also influences over time.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_180-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_181-0"><span class="heading-toc" id="toc-can-unexpected-events-derail-your-progress"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Unexpected Events Derail Your Progress?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Job loss, health care issues, and market downturns happen. Life's hiccups test financial discipline and scrappy resilience. Having emergency savings, insurance protections and diverse income streams helps weather storms without surrendering long-term financial independence aims.</p><p>Remember, obstacles are inevitable. Progress over perfect financial steps moves you forward despite setbacks.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_182-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_183-0"><span class="heading-toc" id="toc-how-do-taxes-impact-financial-independence"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Taxes Impact Financial Independence?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It's wise to take taxes into account but avoiding investing simply due to tax considerations means leaving substantial wealth unrealized. Focus first on maximizing returns through prudent investing based on risk, fees, diversification, etc.</p><p>Once assets grow, work with a financial advisor to legally minimize taxes where possible—contributing to retirement accounts, realizing losses, gifting appreciated assets, etc. Reducing taxes sustains more compound capital working toward your financial independence.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_184-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_185-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_186-0"> The first step to achieving financial independence is defining what it means for you. True independence requires a shift to intentional money mindsets and habits over time. There’s more than one way to do this. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_187-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_188-0"> “I think it's important for folks to work toward multiple financial goals at once,” advises Konte. “In my opinion, retirement investing should be a nonnegotiable that we are always working toward regardless of our other financial goals. The amount will vary depending on your cash flow needs, but we should always try to do both.”  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_189-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_190-0"> Russell reiterates that “while a high income can expedite financial independence, it's not a prerequisite.” Smart and consistent money management, even with the assistance of a skilled team of advisors, can unlock financial independence for some families. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_191-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_192-0"> Each money milestone compounds into greater agency to determine how you spend your time. Financial independence tends to deliver time and geographic independence too, which offers value well beyond dollars and cents.<br/> </p></div>

A growing number of women say that achieving financial independence is their No. 1 financial goal, according to a Fidelity Investments Survey. Fifty-eight percent of women surveyed said that they wanted to feel secure and not worry about money. However, only 36% of respondents to REAL SIMPLE and Investopedia's 2024 [Her Money Mindset survey](https://www.investopedia.com/her-money-mindset-survey-8647284) said that they held a retirement account, while only 71% said they held a savings account. And 54% said that they struggled to pay at least one major expense.  Whether you're hoping to go full FIRE ([financial independence, retire early](https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp)) or just want to feel more on top of your expenses and planning, this guide will offer practical steps to get you where you want to go.  ### Key Takeaways * There are a variety of definitions for financial independence, and it’s important to find which feels right for you. * Financial independence is the key to achieving long-term financial security and freedom. * Assessing your current financial situation is crucial for identifying areas of improvement and potential savings. * Creating a budget and a savings plan fosters independence. * Investing wisely can accelerate your path toward financial freedom. ## What Is Financial Independence? “Financial independence means different things to different people,” says [Walter Russell](https://russellandcompany.com/), an Ohio-based financial planner. “Some see it as (being) free from needing a regular job because they have money from other sources. Others think of it as not owing money to anyone, which makes them feel secure and in control.”  Russell continues, “For some, it's about being prepared for retirement and knowing they'll be okay financially when they stop working. It can also mean having the freedom to start businesses or live wherever they want. It's all about feeling confident and in charge of your money and future.” No matter your definition of financial independence, your end goal probably looks like freedom and autonomy. Your path to that destination will vary depending on your values, resources, and preferences. ### Financial Self-Sufficiency At a basic level, financial independence means having sufficient income and savings to cover living expenses. If you're financially self-sufficient, you have the resources to fund cost of living.  For Brock and Becky Waterman, better known as [the FIRE Family](https://firetravelfamily.com/about-us/), financial independence meant pulling off a wedding on a shoestring budget, selling their home, and leveraging geographic arbitrage to live on less—even with three kids in tow.  “[During COVID] I ran the numbers to see where we were, and we figured out if we sold our house and most of our [possessions]and our vehicles...we could go ahead and be financially independent and not have to work," says Brock Waterman.  After cutting health care costs (almost $2,000 per month because the Watermans owned their own business), child care costs (almost $15,000 per year), and property taxes and insurance, the Watermans had reduced their expenses by more than half.  Originally from Wisconsin, Waterman says that living in an RV and homeschooling their kids is an unconventional choice for his family. But they were motivated to spend more time with their kids; financial self-sufficiency helped them achieve their goal.  While some people aim for financial independence by working for many years to amass significant savings, the Watermans chose to do the opposite and cut expenses in order to enjoy life now. Dividend-paying stocks, some savings, and a few [certificates of deposit](https://www.investopedia.com/how-does-a-cd-account-work-5235792) have sustained the family thus far, making their decision to travel the world with their kids a no-brainer. ### Freedom From Employment Many associate financial independence with not needing traditional full-time employment or a paycheck. Passive income and dividend assets can help power financial independence plans. “Investing 10-15% of gross income for retirement and putting another 20% of your after-tax income toward investing or other financial goals is a fantastic, back-of-the-envelope calculation for most people,” says Anna N’Jie-Konte, a certified financial planner and president of Re-Envision Wealth, when asked what steps she advises people to take to achieve financial independence.   While some people can live on savings alone, most have to consider ways they could access cash fast if their circumstances change. Being self-employed or willing to work in a high-demand field as needs arise can make financial independence more accessible even without amassing much savings. ### Autonomy Over Amounts Most people think that financial independence requires a high net worth or large windfall. Konte says financial independence is achievable at lower income levels, too. “Many financial planning studies show that in some respects it's actually easier to reach financial independence when you are middle-income because Social Security makes up a greater percentage of your retirement income need, therefore you need to save less of a [nest egg](https://www.investopedia.com/terms/n/nestegg.asp) on your own,” she says. Brock Waterman agrees. He encourages people aiming for financial independence not to focus on a target savings or investing number. “When we worked for ourselves, we were paying a little over $2,000 a month, so $24,000 a year, for health care,” he says.  After Becky Waterman closed her massage business and he stopped working, they were able to access subsidized health care because they make less annual income. Brock Waterman estimates that they paid $3,000 or $4,000 for premiums the first year. This year, he says, the family paid only a few hundred dollars on health care.   Three years into financial independence, he encourages people to take the leap if they really want it, rather than waiting to hit a specific set number goal. ### Building Long-Term Security Whether it is fear of an emergency or ambitions to send kids and grandkids to college, long-term security can keep people locked into income-generating jobs that they don’t love. But financial security is just as much about what you want to spend your money on as it is about what you don’t. For example, the Watermans decided against saving for four-year college educations for their kids. Instead, their long-term vision includes setting aside $10,000 to $15,000 per kid to invest in their vocational training, skills building, or launching their own business.  “They'll have the money for community college, and if they decide they want to go to a four-year college, that's going to be something they're going to have to make a decision for themselves,” Waterman explains.  Russell adds that discipline in saving, investing, and living below one's means plays a more significant role regardless of income level.  “Focus on increasing the savings rate and maximizing investment returns through strategic allocation,” he advises. “High-income earners should avoid lifestyle inflation and prioritize long-term wealth accumulation through prudent financial management and investment strategies.”  Those building blocks of financial discipline ensure financial independence for the long haul. ## Why Women Can Benefit Greatly From Financial Independence While financial independence serves everyone, research shows it holds special significance for women, who typically earn less than men, live longer, and have greater caregiving responsibilities. According to 2022 data from the U.S. Census Bureau, women employed full-time and year-round had median earnings of $52,360, while the median earnings for men employed full-time and year-round were $62,350. ### REAL SIMPLE and Investopedia's survey data shows a gender wage gap within marriages, too: 60% percent of women respondents with a male partner said that they earned less than their significant other.  While progress has been made over time in closing this [gender wage gap](https://www.investopedia.com/wage-gaps-by-gender-5082675), the disparities between the earnings of men and women persist.  ### Women Live Longer The latest data from The World Bank shows that in 2021,  life expectancy at birth was 79 years for women in the United States and 74 years for men. This represents a 5-year difference, with women having a higher life expectancy compared to men. Yet lower wages and long stints without income due to child rearing and caregiving put women at risk of having less cash during their golden years.  According to estimates from Fidelity Investments, the average 65-year-old woman can expect to spend about $157,500 more on medical bills throughout retirement than the average 65-year-old man. Longer female life expectancies correlate with a need for larger retirement savings and income to cover additional years of living expenses and health care costs. ### Navigating Caregiving Duties “With added responsibility comes additional costs and cash flow pressure,” Konte adds. Women disproportionately shoulder unpaid caregiving duties for children and adult dependents. A 2023 MetLife study found that most caregivers are women, and women providing care to a parent lose as much as $120,000 in lifetime wages due to working fewer hours. If a woman leaves the workforce entirely to provide care, the study found the lost wages rise to around $142,000. Caregiving for kids, spouses, and parents contributes to career impediments, lower savings, and higher out-of-pocket care expenses for women than men. Research from AARP shows that Latinx and Black caregivers spend higher percentages of their income on care expenses than white caregivers. So, whether it's earning power, longevity, or caregiving norms, women encounter unique financial challenges that make financial independence difficult to achieve but even more meaningful for disrupting cycles of inequality.  ## 10 Steps to Financial Independence Achieving financial freedom rests on embracing an intentional money mindset, goal-focused strategies, and smart financial behaviors over time. It's a lifestyle shift rather than a quick fix. Here are 10 key steps that are an important part of any financial independence journey. ### Step 1: Define Your "Why" Defining your "why" gives meaning and motivation to stay disciplined while working toward your unique vision of financial freedom. Whatever your answer, revisit this when you need inspiration to stick to the path. ### Step 2: Assess Your Finances Gaining clarity around your current financial situation identifies opportunities for improvement and savings needed to reach independence. To assess your current financial situation:  * Start by tallying your monthly income from all sources, including your salary, side hustles, and any passive income streams. * Next, list out your monthly expenses, making sure to account for both fixed costs like rent or mortgage payments, as well as variable expenses such as groceries and entertainment. * Don't forget to factor in one-off annual bills, such as insurance premiums or property taxes, as these can significantly impact your overall financial picture. Once you have a clear understanding of your income and expenses, it's time to calculate your assets and liabilities. Your [assets](https://www.investopedia.com/terms/a/asset.asp) include any savings accounts, investment portfolios, and property values. On the other hand, your [liabilities](https://www.investopedia.com/terms/l/liability.asp) encompass all forms of debt, such as credit card balances, student loans, and mortgages. To calculate your [net worth](https://www.investopedia.com/terms/n/networth.asp), subtract total liabilities from total assets. This formula provides a snapshot of your current financial health and can serve as a baseline for setting future financial goals. Understanding your tax scenarios is also crucial, as this can influence your investment strategies and overall financial planning. Doing a thorough assessment may uncover excess spending that could be saved or invested to reach financial independence sooner. This intelligence becomes the baseline to set goals against and track progress over time. ### Step 3: Craft Your Financial Independence (FI) Number Although the Watermans discourage it, many people start their financial independence journey by coming up with a number—an ideal savings, investing, or net worth number that would make them feel that full-time work was truly optional. Quantifying your number motivates saving and investing decisions. To determine this: 1. Estimate your annual [retirement living expenses](https://www.investopedia.com/retirement-costs-you-may-not-have-thought-of-5090426) 2. Factor one-time goals like buying property 3. Increase for expected inflation over time 4. Calculate investable assets needed to generate that income Although the future remains unpredictable, having an estimate keeps your financial behaviors aligned with your target. ### Step 4: Automate Saving and Investing “For individuals aspiring to achieve financial independence through investing, several fundamental principles can guide their journey,” says Russell. Starting early and investing consistently harnesses the power of compounding returns over time.”  Diversify investments across different [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp) to mitigate risk and improve long-term growth. “Rebalancing the portfolio periodically ensures alignment with financial goals and risk tolerance. Continual education about investing strategies and market dynamics empowers individuals to make informed decisions and adapt to changing circumstances on their path to financial independence,” he adds. He says investing may require the help of a team—a [financial advisor](https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp), a tax strategist, and an attorney—whose expertise can help you achieve financial independence even sooner. ### Tip Alternatively, DIY apps like Acorns, Betterment, Ellevest, and Wealthfront, among many others, offer set-it-and-forget-it retirement investing convenience. ### Step 5: Create a Debt Repayment Plan Some definitions of financial independence entail being completely debt-free. But, for some people, debt doesn’t derail the dream.  “Achieving financial independence while maintaining debt is possible but requires strategic management and prudent decision-making,” says Russell. He says it's essential to differentiate between “good” debt, such as mortgages or student loans, and "bad" debt, like high-interest credit card debt.  Russell says, “Prioritizing the repayment of high-interest debt while leveraging low-interest debt strategically can be a viable approach. However, minimizing debt levels or achieving debt-free status can enhance financial security and accelerate the journey to independence.” ### Tip Minimizing debt levels or achieving debt-free status can help with financial independence. To create a repayment strategy, there are two popular options: the debt snowball and the debt avalanche methods: **[Debt Snowball](https://www.investopedia.com/terms/s/snowball.asp):** Pay minimums on all debt while putting any extra funds toward the smallest balance first. Once the first debt is cleared, roll its minimum toward the next smallest, and so on until all are repaid. Momentum builds as small wins pile up. This mental boost keeps you tackling larger debts. **[Debt Avalanche](https://www.investopedia.com/terms/d/debt-avalanche.asp):** With this method, arrange debts by interest rate instead of size. Make minimum payments on all while targeting extra funds at the debt with the highest interest rate first. Paying down high rates saves money on expensive financing charges over time. However, it may take longer to see progress. Choose the approach that best fits your financial personality and needs. The main thing is sticking to the repayment plan until you're debt-free. ### Step 6: Keep a Realistic Emergency Savings Fund Life happens. You never know when you'll be hit with unexpected home repairs, job losses, or health issues. Having accessible cash reserves prevents resorting to high-interest debt when surprises hit. ### Tip Most experts advise stockpiling enough emergency savings to cover three to six months' worth of living expenses. And whenever funds are low or living expenses increase, the savings target should shift to replenishment.  Set up automatic monthly transfers to hit the target amount in an Federal Deposit Insurance Corporation (FDIC)-insured account, preferably a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) that you can easily tap. Once you meet your emergency savings target, redirect automated flows toward investing instead.  ### Step 7: Maximize Your Human Capital Your most valuable financial asset remains [human capital](https://www.investopedia.com/terms/h/humancapital.asp). Your ability to earn over your working years through high-income skills can make financial independence even easier to achieve. Pursue education (even financial and investing education), as well as consulting or freelancing opportunities that allow you to boost your income on your terms. Carving out time for professional development keeps your skillset marketable, even if you never choose to work again.  ### Step 8: Build Multiple Income Streams As you expand skills and connections, create diversified income channels versus relying solely on salaries and wages: * **Side hustles:** Start a weekend freelancing business doing what you love. Drive for a rideshare service in your spare time. Monetize a hobby or talent. * **Online businesses:** Launch a digital product, YouTube channel, affiliate marketing blog, or dropshipping store. Multiple streams leveraging the internet scale easily. * **Real estate:** Invest in a rental property you can hire a manager to oversee. [Real estate investment trusts (REITs)](https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp) provide more passive real estate investing exposure too. * **Equity investments:** Build a diversified portfolio of stocks, bonds, [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), etc. over time. Dividends and appreciation compound as the principal grows. Mixing multiple income sources protects against disruption and risk while compounding overall cash flow. ### Step 9: Manage Costs and Practice Intentional Spending Big wins also come from the cost side of your cash flow equation. Small cost savings add up. The Watermans believe in frugality, not because they’re penny pinchers but because they are intentional about what they pay for. “You can be very ruthless … don't spend money if it's not important to you,” says Brock Waterman. Ask yourself if every expenditure moves you toward independence goals and greater life satisfaction. Does buying another pair of shoes bring lasting value? Or does a trip create deeper connections?  ### Important It's helpful to ask yourself, "What will this purchase contribute to my life?" before buying. For the Watermans, traveling isn’t a luxury. It’s part of their financial independence plan. Traveling to low-cost-of-living areas means they spend money on memorable adventures while world-schooling their kids. Intentional spending aligns with the deeper “why” and prevents lifestyle creep from diluting bigger life plans. ### Step 10: Continuously Educate Yourself Reaching financial independence requires lifelong learning and growth. Mastering money mechanics, investing nuances, and tax optimization strategies greatly accelerate your outcomes over decades. Read personal finance books, listen to financial independence podcasts, attend investment seminars, and join money-minded online communities. Surround yourself with like-minded people who will teach you new, useful skillsets, rather than discourage you from reaching for your goals.  Also, work with a financial advisor—a fiduciary who crafts a holistic plan for you. Their expertise navigates optimized outcomes not possible alone. Investment pros protect wealth too —steering you away from emotional decision pitfalls novice investors succumb to. ## Frequently Asked Questions (FAQs) ## How Long Does It Take to Achieve Financial Independence? Timelines vary substantially based on factors like income, frugality, market returns, inheritance windfalls, etc. However, truly achieving FI generally takes decades for the average person. The key is avoiding short-term scorekeeping and instead focusing on the right money mindsets and behaviors consistency over long time horizons. Marathon mentality perseveres. ## Can You Still Become Financially Independent With Kids? Absolutely! Children do reduce the free cash flow available to invest and delay retirement timelines. However, by sticking to financial independence principles and adjusting savings rates accordingly, parenthood and financial freedom can thrive together. The key is balancing enjoying special moments with kids today while also sacrificing to fund their futures responsibly. Delayed life milestones like buying a bigger home may be needed but compound investing makes larger catch-up contributions later possible too. ## What if Your Significant Other Isn’t on Board? Pursuing financial independence often requires trade-offs and sacrifices that partners may not embrace or understand initially. Try framing benefits in terms of how achieving FI together unlocks greater family time and potential. Start where you agree—identify shared dreams, areas of financial stress, and lifestyle upgrades you both want. Pursue small joint money wins together first before tackling bigger mindset shifts. Leading by example also influences over time. ## Can Unexpected Events Derail Your Progress? Job loss, health care issues, and market downturns happen. Life's hiccups test financial discipline and scrappy resilience. Having emergency savings, insurance protections and diverse income streams helps weather storms without surrendering long-term financial independence aims. Remember, obstacles are inevitable. Progress over perfect financial steps moves you forward despite setbacks. ## How Do Taxes Impact Financial Independence? It's wise to take taxes into account but avoiding investing simply due to tax considerations means leaving substantial wealth unrealized. Focus first on maximizing returns through prudent investing based on risk, fees, diversification, etc. Once assets grow, work with a financial advisor to legally minimize taxes where possible—contributing to retirement accounts, realizing losses, gifting appreciated assets, etc. Reducing taxes sustains more compound capital working toward your financial independence. ## The Bottom Line The first step to achieving financial independence is defining what it means for you. True independence requires a shift to intentional money mindsets and habits over time. There’s more than one way to do this. “I think it's important for folks to work toward multiple financial goals at once,” advises Konte. “In my opinion, retirement investing should be a nonnegotiable that we are always working toward regardless of our other financial goals. The amount will vary depending on your cash flow needs, but we should always try to do both.”  Russell reiterates that “while a high income can expedite financial independence, it's not a prerequisite.” Smart and consistent money management, even with the assistance of a skilled team of advisors, can unlock financial independence for some families. Each money milestone compounds into greater agency to determine how you spend your time. Financial independence tends to deliver time and geographic independence too, which offers value well beyond dollars and cents.

A growing number of women say that achieving financial independence is their No. 1 financial goal, according to a Fidelity Investments Survey. Fifty-eight percent of women surveyed said that they wanted to feel secure and not worry about money. However, only 36% of respondents to REAL SIMPLE and Investopedia's 2024 Her Money Mindset survey said that they held a retirement account, while only 71% said they held a savings account. And 54% said that they struggled to pay at least one major expense.  Whether you're hoping to go full FIRE (financial independence, retire early) or just want to feel more on top of your expenses and planning, this guide will offer practical steps to get you where you want to go.  Key Takeaways There are a variety of definitions for financial independence, and it’s important to find which feels right for you.Financial independence is the key to achieving long-term financial security and freedom.Assessing your current financial situation is crucial for identifying areas of improvement and potential savings.Creating a budget and a savings plan fosters independence.Investing wisely can accelerate your path toward financial freedom. What Is Financial Independence? “Financial independence means different things to different people,” says Walter Russell, an Ohio-based financial planner. “Some see it as (being) free from needing a regular job because they have money from other sources. Others think of it as not owing money to anyone, which makes them feel secure and in control.”  Russell continues, “For some, it's about being prepared for retirement and knowing they'll be okay financially when they stop working. It can also mean having the freedom to start businesses or live wherever they want. It's all about feeling confident and in charge of your money and future.” No matter your definition of financial independence, your end goal probably looks like freedom and autonomy. Your path to that destination will vary depending on your values, resources, and preferences. Financial Self-Sufficiency At a basic level, financial independence means having sufficient income and savings to cover living expenses. If you're financially self-sufficient, you have the resources to fund cost of living.  For Brock and Becky Waterman, better known as the FIRE Family, financial independence meant pulling off a wedding on a shoestring budget, selling their home, and leveraging geographic arbitrage to live on less—even with three kids in tow.  “[During COVID] I ran the numbers to see where we were, and we figured out if we sold our house and most of our [possessions] and our vehicles...we could go ahead and be financially independent and not have to work," says Brock Waterman.  After cutting health care costs (almost $2,000 per month because the Watermans owned their own business), child care costs (almost $15,000 per year), and property taxes and insurance, the Watermans had reduced their expenses by more than half.  Originally from Wisconsin, Waterman says that living in an RV and homeschooling their kids is an unconventional choice for his family. But they were motivated to spend more time with their kids; financial self-sufficiency helped them achieve their goal.  While some people aim for financial independence by working for many years to amass significant savings, the Watermans chose to do the opposite and cut expenses in order to enjoy life now. Dividend-paying stocks, some savings, and a few certificates of deposit have sustained the family thus far, making their decision to travel the world with their kids a no-brainer. Freedom From Employment Many associate financial independence with not needing traditional full-time employment or a paycheck. Passive income and dividend assets can help power financial independence plans. “Investing 10-15% of gross income for retirement and putting another 20% of your after-tax income toward investing or other financial goals is a fantastic, back-of-the-envelope calculation for most people,” says Anna N’Jie-Konte, a certified financial planner and president of Re-Envision Wealth, when asked what steps she advises people to take to achieve financial independence.   While some people can live on savings alone, most have to consider ways they could access cash fast if their circumstances change. Being self-employed or willing to work in a high-demand field as needs arise can make financial independence more accessible even without amassing much savings. Autonomy Over Amounts Most people think that financial independence requires a high net worth or large windfall. Konte says financial independence is achievable at lower income levels, too. “Many financial planning studies show that in some respects it's actually easier to reach financial independence when you are middle-income because Social Security makes up a greater percentage of your retirement income need, therefore you need to save less of a nest egg on your own,” she says. Brock Waterman agrees. He encourages people aiming for financial independence not to focus on a target savings or investing number. “When we worked for ourselves, we were paying a little over $2,000 a month, so $24,000 a year, for health care,” he says.  After Becky Waterman closed her massage business and he stopped working, they were able to access subsidized health care because they make less annual income. Brock Waterman estimates that they paid $3,000 or $4,000 for premiums the first year. This year, he says, the family paid only a few hundred dollars on health care.   Three years into financial independence, he encourages people to take the leap if they really want it, rather than waiting to hit a specific set number goal. Building Long-Term Security Whether it is fear of an emergency or ambitions to send kids and grandkids to college, long-term security can keep people locked into income-generating jobs that they don’t love. But financial security is just as much about what you want to spend your money on as it is about what you don’t. For example, the Watermans decided against saving for four-year college educations for their kids. Instead, their long-term vision includes setting aside $10,000 to $15,000 per kid to invest in their vocational training, skills building, or launching their own business.  “They'll have the money for community college, and if they decide they want to go to a four-year college, that's going to be something they're going to have to make a decision for themselves,” Waterman explains.  Russell adds that discipline in saving, investing, and living below one's means plays a more significant role regardless of income level.  “Focus on increasing the savings rate and maximizing investment returns through strategic allocation,” he advises. “High-income earners should avoid lifestyle inflation and prioritize long-term wealth accumulation through prudent financial management and investment strategies.”  Those building blocks of financial discipline ensure financial independence for the long haul. Why Women Can Benefit Greatly From Financial Independence While financial independence serves everyone, research shows it holds special significance for women, who typically earn less than men, live longer, and have greater caregiving responsibilities. According to 2022 data from the U.S. Census Bureau, women employed full-time and year-round had median earnings of $52,360, while the median earnings for men employed full-time and year-round were $62,350. REAL SIMPLE and Investopedia's survey data shows a gender wage gap within marriages, too: 60% percent of women respondents with a male partner said that they earned less than their significant other.  While progress has been made over time in closing this gender wage gap, the disparities between the earnings of men and women persist.  Women Live Longer  The latest data from The World Bank shows that in 2021,  life expectancy at birth was 79 years for women in the United States and 74 years for men. This represents a 5-year difference, with women having a higher life expectancy compared to men. Yet lower wages and long stints without income due to child rearing and caregiving put women at risk of having less cash during their golden years.  According to estimates from Fidelity Investments, the average 65-year-old woman can expect to spend about $157,500 more on medical bills throughout retirement than the average 65-year-old man. Longer female life expectancies correlate with a need for larger retirement savings and income to cover additional years of living expenses and health care costs. Navigating Caregiving Duties “With added responsibility comes additional costs and cash flow pressure,” Konte adds. Women disproportionately shoulder unpaid caregiving duties for children and adult dependents. A 2023 MetLife study found that most caregivers are women, and women providing care to a parent lose as much as $120,000 in lifetime wages due to working fewer hours. If a woman leaves the workforce entirely to provide care, the study found the lost wages rise to around $142,000. Caregiving for kids, spouses, and parents contributes to career impediments, lower savings, and higher out-of-pocket care expenses for women than men. Research from AARP shows that Latinx and Black caregivers spend higher percentages of their income on care expenses than white caregivers. So, whether it's earning power, longevity, or caregiving norms, women encounter unique financial challenges that make financial independence difficult to achieve but even more meaningful for disrupting cycles of inequality.  10 Steps to Financial Independence Achieving financial freedom rests on embracing an intentional money mindset, goal-focused strategies, and smart financial behaviors over time. It's a lifestyle shift rather than a quick fix. Here are 10 key steps that are an important part of any financial independence journey. Step 1: Define Your "Why" Defining your "why" gives meaning and motivation to stay disciplined while working toward your unique vision of financial freedom. Whatever your answer, revisit this when you need inspiration to stick to the path. Step 2: Assess Your Finances Gaining clarity around your current financial situation identifies opportunities for improvement and savings needed to reach independence. To assess your current financial situation:  Start by tallying your monthly income from all sources, including your salary, side hustles, and any passive income streams. Next, list out your monthly expenses, making sure to account for both fixed costs like rent or mortgage payments, as well as variable expenses such as groceries and entertainment. Don't forget to factor in one-off annual bills, such as insurance premiums or property taxes, as these can significantly impact your overall financial picture. Once you have a clear understanding of your income and expenses, it's time to calculate your assets and liabilities. Your assets include any savings accounts, investment portfolios, and property values. On the other hand, your liabilities encompass all forms of debt, such as credit card balances, student loans, and mortgages. To calculate your net worth, subtract total liabilities from total assets. This formula provides a snapshot of your current financial health and can serve as a baseline for setting future financial goals. Understanding your tax scenarios is also crucial, as this can influence your investment strategies and overall financial planning. Doing a thorough assessment may uncover excess spending that could be saved or invested to reach financial independence sooner. This intelligence becomes the baseline to set goals against and track progress over time. Step 3: Craft Your Financial Independence (FI) Number Although the Watermans discourage it, many people start their financial independence journey by coming up with a number—an ideal savings, investing, or net worth number that would make them feel that full-time work was truly optional. Quantifying your number motivates saving and investing decisions. To determine this: Estimate your annual retirement living expenses Factor one-time goals like buying property Increase for expected inflation over time Calculate investable assets needed to generate that income Although the future remains unpredictable, having an estimate keeps your financial behaviors aligned with your target. Step 4: Automate Saving and Investing “For individuals aspiring to achieve financial independence through investing, several fundamental principles can guide their journey,” says Russell. Starting early and investing consistently harnesses the power of compounding returns over time.”  Diversify investments across different asset classes to mitigate risk and improve long-term growth. “Rebalancing the portfolio periodically ensures alignment with financial goals and risk tolerance. Continual education about investing strategies and market dynamics empowers individuals to make informed decisions and adapt to changing circumstances on their path to financial independence,” he adds. He says investing may require the help of a team—a financial advisor, a tax strategist, and an attorney—whose expertise can help you achieve financial independence even sooner. Tip Alternatively, DIY apps like Acorns, Betterment, Ellevest, and Wealthfront, among many others, offer set-it-and-forget-it retirement investing convenience. Step 5: Create a Debt Repayment Plan Some definitions of financial independence entail being completely debt-free. But, for some people, debt doesn’t derail the dream.  “Achieving financial independence while maintaining debt is possible but requires strategic management and prudent decision-making,” says Russell. He says it's essential to differentiate between “good” debt, such as mortgages or student loans, and "bad" debt, like high-interest credit card debt.  Russell says, “Prioritizing the repayment of high-interest debt while leveraging low-interest debt strategically can be a viable approach. However, minimizing debt levels or achieving debt-free status can enhance financial security and accelerate the journey to independence.” Tip Minimizing debt levels or achieving debt-free status can help with financial independence. To create a repayment strategy, there are two popular options: the debt snowball and the debt avalanche methods: Debt Snowball: Pay minimums on all debt while putting any extra funds toward the smallest balance first. Once the first debt is cleared, roll its minimum toward the next smallest, and so on until all are repaid. Momentum builds as small wins pile up. This mental boost keeps you tackling larger debts. Debt Avalanche: With this method, arrange debts by interest rate instead of size. Make minimum payments on all while targeting extra funds at the debt with the highest interest rate first. Paying down high rates saves money on expensive financing charges over time. However, it may take longer to see progress. Choose the approach that best fits your financial personality and needs. The main thing is sticking to the repayment plan until you're debt-free. Step 6: Keep a Realistic Emergency Savings Fund Life happens. You never know when you'll be hit with unexpected home repairs, job losses, or health issues. Having accessible cash reserves prevents resorting to high-interest debt when surprises hit. Tip Most experts advise stockpiling enough emergency savings to cover three to six months' worth of living expenses. And whenever funds are low or living expenses increase, the savings target should shift to replenishment.  Set up automatic monthly transfers to hit the target amount in an Federal Deposit Insurance Corporation (FDIC)-insured account, preferably a high-yield savings account that you can easily tap. Once you meet your emergency savings target, redirect automated flows toward investing instead.  Step 7: Maximize Your Human Capital Your most valuable financial asset remains human capital. Your ability to earn over your working years through high-income skills can make financial independence even easier to achieve. Pursue education (even financial and investing education), as well as consulting or freelancing opportunities that allow you to boost your income on your terms. Carving out time for professional development keeps your skillset marketable, even if you never choose to work again.  Step 8: Build Multiple Income Streams As you expand skills and connections, create diversified income channels versus relying solely on salaries and wages: Side hustles: Start a weekend freelancing business doing what you love. Drive for a rideshare service in your spare time. Monetize a hobby or talent. Online businesses: Launch a digital product, YouTube channel, affiliate marketing blog, or dropshipping store. Multiple streams leveraging the internet scale easily. Real estate: Invest in a rental property you can hire a manager to oversee. Real estate investment trusts (REITs) provide more passive real estate investing exposure too. Equity investments: Build a diversified portfolio of stocks, bonds, exchange-traded funds (ETFs), etc. over time. Dividends and appreciation compound as the principal grows. Mixing multiple income sources protects against disruption and risk while compounding overall cash flow. Step 9: Manage Costs and Practice Intentional Spending Big wins also come from the cost side of your cash flow equation. Small cost savings add up. The Watermans believe in frugality, not because they’re penny pinchers but because they are intentional about what they pay for. “You can be very ruthless … don't spend money if it's not important to you,” says Brock Waterman. Ask yourself if every expenditure moves you toward independence goals and greater life satisfaction. Does buying another pair of shoes bring lasting value? Or does a trip create deeper connections?  Important It's helpful to ask yourself, "What will this purchase contribute to my life?" before buying. For the Watermans, traveling isn’t a luxury. It’s part of their financial independence plan. Traveling to low-cost-of-living areas means they spend money on memorable adventures while world-schooling their kids. Intentional spending aligns with the deeper “why” and prevents lifestyle creep from diluting bigger life plans. Step 10: Continuously Educate Yourself Reaching financial independence requires lifelong learning and growth. Mastering money mechanics, investing nuances, and tax optimization strategies greatly accelerate your outcomes over decades. Read personal finance books, listen to financial independence podcasts, attend investment seminars, and join money-minded online communities. Surround yourself with like-minded people who will teach you new, useful skillsets, rather than discourage you from reaching for your goals.  Also, work with a financial advisor—a fiduciary who crafts a holistic plan for you. Their expertise navigates optimized outcomes not possible alone. Investment pros protect wealth too —steering you away from emotional decision pitfalls novice investors succumb to. Frequently Asked Questions (FAQs) How Long Does It Take to Achieve Financial Independence? Timelines vary substantially based on factors like income, frugality, market returns, inheritance windfalls, etc. However, truly achieving FI generally takes decades for the average person.The key is avoiding short-term scorekeeping and instead focusing on the right money mindsets and behaviors consistency over long time horizons. Marathon mentality perseveres. Can You Still Become Financially Independent With Kids? Absolutely! Children do reduce the free cash flow available to invest and delay retirement timelines. However, by sticking to financial independence principles and adjusting savings rates accordingly, parenthood and financial freedom can thrive together.The key is balancing enjoying special moments with kids today while also sacrificing to fund their futures responsibly. Delayed life milestones like buying a bigger home may be needed but compound investing makes larger catch-up contributions later possible too. What if Your Significant Other Isn’t on Board? Pursuing financial independence often requires trade-offs and sacrifices that partners may not embrace or understand initially. Try framing benefits in terms of how achieving FI together unlocks greater family time and potential.Start where you agree—identify shared dreams, areas of financial stress, and lifestyle upgrades you both want. Pursue small joint money wins together first before tackling bigger mindset shifts. Leading by example also influences over time. Can Unexpected Events Derail Your Progress? Job loss, health care issues, and market downturns happen. Life's hiccups test financial discipline and scrappy resilience. Having emergency savings, insurance protections and diverse income streams helps weather storms without surrendering long-term financial independence aims.Remember, obstacles are inevitable. Progress over perfect financial steps moves you forward despite setbacks. How Do Taxes Impact Financial Independence? It's wise to take taxes into account but avoiding investing simply due to tax considerations means leaving substantial wealth unrealized. Focus first on maximizing returns through prudent investing based on risk, fees, diversification, etc.Once assets grow, work with a financial advisor to legally minimize taxes where possible—contributing to retirement accounts, realizing losses, gifting appreciated assets, etc. Reducing taxes sustains more compound capital working toward your financial independence. The Bottom Line The first step to achieving financial independence is defining what it means for you. True independence requires a shift to intentional money mindsets and habits over time. There’s more than one way to do this. “I think it's important for folks to work toward multiple financial goals at once,” advises Konte. “In my opinion, retirement investing should be a nonnegotiable that we are always working toward regardless of our other financial goals. The amount will vary depending on your cash flow needs, but we should always try to do both.”  Russell reiterates that “while a high income can expedite financial independence, it's not a prerequisite.” Smart and consistent money management, even with the assistance of a skilled team of advisors, can unlock financial independence for some families. Each money milestone compounds into greater agency to determine how you spend your time. Financial independence tends to deliver time and geographic independence too, which offers value well beyond dollars and cents.

https://www.investopedia.com/the-express-podcast-episode-157-8349158

Facing our Fears in Money and Life

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE1884474282" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Facing our Fears in Money and Life"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://farnoosh.tv/">Farnoosh Torabi</a> joins the show to talk about her new book, <em>A Healthy State of Panic</em>, and how we can use our fears to conquer our biggest challenges in money and life. Plus, investor anxiety is peaking again as long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasury-yield.asp">Treasury yields</a> spike, and the reliability of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybond.asp">Treasury bonds</a> faces a reckoning. Investors have choices, even if we choose to do nothing. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) [Farnoosh Torabi](https://farnoosh.tv/) joins the show to talk about her new book, *A Healthy State of Panic*, and how we can use our fears to conquer our biggest challenges in money and life. Plus, investor anxiety is peaking again as long-term [Treasury yields](https://www.investopedia.com/terms/t/treasury-yield.asp) spike, and the reliability of [Treasury bonds](https://www.investopedia.com/terms/t/treasurybond.asp) faces a reckoning. Investors have choices, even if we choose to do nothing. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Farnoosh Torabi joins the show to talk about her new book, A Healthy State of Panic, and how we can use our fears to conquer our biggest challenges in money and life. Plus, investor anxiety is peaking again as long-term Treasury yields spike, and the reliability of Treasury bonds faces a reckoning. Investors have choices, even if we choose to do nothing. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/unclaimed-retirement-benefits-5443077

How to Find Unclaimed Retirement Benefits

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> With every job change comes a new benefits package. If you’re not meticulous about rolling over your retirement accounts, you can quickly lose track of various employer-sponsored accounts, such as 401(k)s or 403(b)s.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> You’re not alone if you find yourself unsure of where your old retirement accounts may be. Some companies offer a service that tracks down your lost retirement dollars and help you roll them over into an individual retirement account (IRA). While that may seem like the path of least resistance, you can also try to find them on your own. You just need to know where to look. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Changing jobs might mean that you have several retirement accounts.</li><li>Some companies offer a service to find the accounts on your behalf.</li><li>You can find the accounts yourself with a little legwork.</li><li>You can try to ask your former employer and check unclaimed property websites.</li><li>Once you find your accounts, roll them over into stable investments.</li></ul></div></div></div> <span class="heading-toc" id="toc-ask-your-former-employer"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Ask Your Former Employer </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Most forgotten retirement accounts are linked to a former employer. Since accounts like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a> and <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/403bplan.asp">403(b)s</a> are employer-sponsored plans, the company chooses the administrator and keeps records of all of the accounts. The first step is calling your benefits manager at your former company and asking if they have a history of your account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> If they do, you can reach out to the account administrator to direct your funds into a new account via a rollover. Cashing out the account is also an option, but this might trigger early withdrawal penalties and taxes, depending on your age. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> What if your company went under? In this case, you’ll have to go to the plan administrator, such as Fidelity, Vanguard, Charles Schwab, and TD Ameritrade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Suppose you don’t remember your log-in or password. In that case, a customer service representative should be able to verify your identity using other authentication methods, such as your Social Security number (SSN), mother’s maiden name, and/or security questions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> If you don’t remember the name of your plan administrator, check the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dol.asp">Department of Labor (DOL)</a> website. Every company must file a Form 5500 to report the company’s plan administrator, its assets, and participants. You can navigate to the EFAST system through the DOL website, which searches by company, as long as your tenure was after 2010.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Order your copy of the print edition of <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/dp/B0CKKSVGP6" rel="sponsored nofollow">Investopedia's Retirement Guide</a> for more assistance in building the best plan for your retirement.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> To find Form 5500, follow these steps: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Visit the DOL website.<span class="ql-inline-citation" data-cite="5"></span></li><li>Click on "Form 5500 Series Search."</li><li>Type your former company’s name in the search bar. Be as specific as possible.</li><li>Once the list pops up, choose which year you left the company. Hit the download icon.</li><li>A new window will open with the company’s Form 5500. Depending on the year and the filing, you may have to search for the administrator’s name, but it will be there.<span class="ql-inline-citation" data-cite="3"></span></li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-check-unclaimed-property-portals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Check Unclaimed Property Portals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If the DOL can’t point you in the right direction, you may have to try unclaimed funds portals. When money is left in a 401(k) for an extended period after employment ends, the money is sometimes transferred to a state unclaimed property office. These offices hold unclaimed funds until the rightful owner claims them.<br/><br/>The good news is that it’s fairly simple to find your money using one of several database search programs. Sites like MissingMoney.com, Unclaimed.org, and UnclaimedRetirementBenefits.com can help you find old accounts.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you’ve changed your name since leaving a job, try searching by your previous name. Many unclaimed funds portals search by name, rather than by SSN.</p></div></div></div> <span class="heading-toc" id="toc-next-steps"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Next Steps </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Once you’ve found your account, roll it over into a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA</a> so you can keep tabs on it. You can easily roll the account into a traditional or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth IRA</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-what-happens-if-i-never-claim-my-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens If I Never Claim My Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If an account has been turned over to the unclaimed property department, it will stay there until someone claims it. That person must be the original owner or the heir of the original owner.<span class="ql-inline-citation" data-cite="4"></span> If you die and your heir doesn’t claim it, it remains in the unclaimed property account in perpetuity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-how-long-will-my-money-stay-in-my-retirement-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Will My Money Stay in My Retirement Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>This varies by company and account balance, and it depends on what is happening with the plan. If the company is liquidating, you may have to decide what to do with it or risk having it convert to cash very quickly. If your account has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/401k-know-your-rights/">less than $1,000</a>, the firm is allowed to cut you a check for the amount and close your account.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-does-my-money-continue-to-grow-even-after-i-leave"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does My Money Continue to Grow Even After I Leave?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While the money is enrolled in the 401(k), it can continue to grow. However, if the fund converts to cash, it will no longer earn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compound interest</a>. It also won’t be subject to the whims of the market, so its cash status could be good or bad. If your account balance is more than $5,000 and you’re content with how your assets are allocated, you can leave the money where it is.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> While job hopping can help you earn more money over time, you should wrap up loose ends when you leave a position. If you suspect that you have a retirement account wasting away in cyberspace, in most cases, you should do a little legwork to return it to its rightful home: your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>. </p></div>

With every job change comes a new benefits package. If you’re not meticulous about rolling over your retirement accounts, you can quickly lose track of various employer-sponsored accounts, such as 401(k)s or 403(b)s. You’re not alone if you find yourself unsure of where your old retirement accounts may be. Some companies offer a service that tracks down your lost retirement dollars and help you roll them over into an individual retirement account (IRA). While that may seem like the path of least resistance, you can also try to find them on your own. You just need to know where to look. ### Key Takeaways * Changing jobs might mean that you have several retirement accounts. * Some companies offer a service to find the accounts on your behalf. * You can find the accounts yourself with a little legwork. * You can try to ask your former employer and check unclaimed property websites. * Once you find your accounts, roll them over into stable investments. ## Ask Your Former Employer Most forgotten retirement accounts are linked to a former employer. Since accounts like [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp) and [403(b)s](https://www.investopedia.com/terms/1/403bplan.asp) are employer-sponsored plans, the company chooses the administrator and keeps records of all of the accounts. The first step is calling your benefits manager at your former company and asking if they have a history of your account. If they do, you can reach out to the account administrator to direct your funds into a new account via a rollover. Cashing out the account is also an option, but this might trigger early withdrawal penalties and taxes, depending on your age. What if your company went under? In this case, you’ll have to go to the plan administrator, such as Fidelity, Vanguard, Charles Schwab, and TD Ameritrade. Suppose you don’t remember your log-in or password. In that case, a customer service representative should be able to verify your identity using other authentication methods, such as your Social Security number (SSN), mother’s maiden name, and/or security questions. If you don’t remember the name of your plan administrator, check the U.S. [Department of Labor (DOL)](https://www.investopedia.com/terms/d/dol.asp) website. Every company must file a Form 5500 to report the company’s plan administrator, its assets, and participants. You can navigate to the EFAST system through the DOL website, which searches by company, as long as your tenure was after 2010. ### Order your copy of the print edition of [Investopedia's Retirement Guide](https://www.amazon.com/dp/B0CKKSVGP6) for more assistance in building the best plan for your retirement. To find Form 5500, follow these steps: 1. Visit the DOL website. 2. Click on "Form 5500 Series Search." 3. Type your former company’s name in the search bar. Be as specific as possible. 4. Once the list pops up, choose which year you left the company. Hit the download icon. 5. A new window will open with the company’s Form 5500. Depending on the year and the filing, you may have to search for the administrator’s name, but it will be there. ## Check Unclaimed Property Portals If the DOL can’t point you in the right direction, you may have to try unclaimed funds portals. When money is left in a 401(k) for an extended period after employment ends, the money is sometimes transferred to a state unclaimed property office. These offices hold unclaimed funds until the rightful owner claims them. The good news is that it’s fairly simple to find your money using one of several database search programs. Sites like MissingMoney.com, Unclaimed.org, and UnclaimedRetirementBenefits.com can help you find old accounts. ### Tip If you’ve changed your name since leaving a job, try searching by your previous name. Many unclaimed funds portals search by name, rather than by SSN. ## Next Steps Once you’ve found your account, roll it over into a new [IRA](https://www.investopedia.com/terms/i/ira.asp) so you can keep tabs on it. You can easily roll the account into a traditional or [Roth IRA](https://www.investopedia.com/terms/r/rothira.asp). ## What Happens If I Never Claim My Account? If an account has been turned over to the unclaimed property department, it will stay there until someone claims it. That person must be the original owner or the heir of the original owner. If you die and your heir doesn’t claim it, it remains in the unclaimed property account in perpetuity. ## How Long Will My Money Stay in My Retirement Plan? This varies by company and account balance, and it depends on what is happening with the plan. If the company is liquidating, you may have to decide what to do with it or risk having it convert to cash very quickly. If your account has [less than $1,000](https://www.investopedia.com/retirement/401k-know-your-rights/), the firm is allowed to cut you a check for the amount and close your account. ## Does My Money Continue to Grow Even After I Leave? While the money is enrolled in the 401(k), it can continue to grow. However, if the fund converts to cash, it will no longer earn [compound interest](https://www.investopedia.com/terms/c/compoundinterest.asp). It also won’t be subject to the whims of the market, so its cash status could be good or bad. If your account balance is more than $5,000 and you’re content with how your assets are allocated, you can leave the money where it is. ## The Bottom Line While job hopping can help you earn more money over time, you should wrap up loose ends when you leave a position. If you suspect that you have a retirement account wasting away in cyberspace, in most cases, you should do a little legwork to return it to its rightful home: your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp).

With every job change comes a new benefits package. If you’re not meticulous about rolling over your retirement accounts, you can quickly lose track of various employer-sponsored accounts, such as 401(k)s or 403(b)s. You’re not alone if you find yourself unsure of where your old retirement accounts may be. Some companies offer a service that tracks down your lost retirement dollars and help you roll them over into an individual retirement account (IRA). While that may seem like the path of least resistance, you can also try to find them on your own. You just need to know where to look. Key Takeaways Changing jobs might mean that you have several retirement accounts.Some companies offer a service to find the accounts on your behalf.You can find the accounts yourself with a little legwork.You can try to ask your former employer and check unclaimed property websites.Once you find your accounts, roll them over into stable investments. Ask Your Former Employer Most forgotten retirement accounts are linked to a former employer. Since accounts like 401(k)s and 403(b)s are employer-sponsored plans, the company chooses the administrator and keeps records of all of the accounts. The first step is calling your benefits manager at your former company and asking if they have a history of your account. If they do, you can reach out to the account administrator to direct your funds into a new account via a rollover. Cashing out the account is also an option, but this might trigger early withdrawal penalties and taxes, depending on your age. What if your company went under? In this case, you’ll have to go to the plan administrator, such as Fidelity, Vanguard, Charles Schwab, and TD Ameritrade. Suppose you don’t remember your log-in or password. In that case, a customer service representative should be able to verify your identity using other authentication methods, such as your Social Security number (SSN), mother’s maiden name, and/or security questions. If you don’t remember the name of your plan administrator, check the U.S. Department of Labor (DOL) website. Every company must file a Form 5500 to report the company’s plan administrator, its assets, and participants. You can navigate to the EFAST system through the DOL website, which searches by company, as long as your tenure was after 2010. Order your copy of the print edition of Investopedia's Retirement Guide for more assistance in building the best plan for your retirement. To find Form 5500, follow these steps: Visit the DOL website.Click on "Form 5500 Series Search."Type your former company’s name in the search bar. Be as specific as possible.Once the list pops up, choose which year you left the company. Hit the download icon.A new window will open with the company’s Form 5500. Depending on the year and the filing, you may have to search for the administrator’s name, but it will be there. Check Unclaimed Property Portals If the DOL can’t point you in the right direction, you may have to try unclaimed funds portals. When money is left in a 401(k) for an extended period after employment ends, the money is sometimes transferred to a state unclaimed property office. These offices hold unclaimed funds until the rightful owner claims them.The good news is that it’s fairly simple to find your money using one of several database search programs. Sites like MissingMoney.com, Unclaimed.org, and UnclaimedRetirementBenefits.com can help you find old accounts. Tip If you’ve changed your name since leaving a job, try searching by your previous name. Many unclaimed funds portals search by name, rather than by SSN. Next Steps Once you’ve found your account, roll it over into a new IRA so you can keep tabs on it. You can easily roll the account into a traditional or Roth IRA. What Happens If I Never Claim My Account? If an account has been turned over to the unclaimed property department, it will stay there until someone claims it. That person must be the original owner or the heir of the original owner. If you die and your heir doesn’t claim it, it remains in the unclaimed property account in perpetuity. How Long Will My Money Stay in My Retirement Plan? This varies by company and account balance, and it depends on what is happening with the plan. If the company is liquidating, you may have to decide what to do with it or risk having it convert to cash very quickly. If your account has less than $1,000, the firm is allowed to cut you a check for the amount and close your account. Does My Money Continue to Grow Even After I Leave? While the money is enrolled in the 401(k), it can continue to grow. However, if the fund converts to cash, it will no longer earn compound interest. It also won’t be subject to the whims of the market, so its cash status could be good or bad. If your account balance is more than $5,000 and you’re content with how your assets are allocated, you can leave the money where it is. The Bottom Line While job hopping can help you earn more money over time, you should wrap up loose ends when you leave a position. If you suspect that you have a retirement account wasting away in cyberspace, in most cases, you should do a little legwork to return it to its rightful home: your portfolio.

https://www.investopedia.com/how-fees-impact-returns-roth-ira-5219959

How Fees Impact Returns on Your Roth IRA

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Preparing for your eventual retirement by opening a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth individual retirement account (Roth IRA)</a> can be a great way to set some money aside for your golden years. However, just because you’ve contributed money out of pocket doesn’t mean that you’ll get every penny back. Most <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/08/best-plan.asp">retirement plans</a> come with fees attached, and your Roth IRA is no different. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Knowing which <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fee.asp">fees</a> you’ll be responsible for—and how they’ll affect your bottom line—is an important step to take today to ensure that your future is comfortable.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>There are multiple types of fees that can have a major impact on your balance.</li><li>Even small fees can result in a major loss of profit over time.</li><li>Paying these fees out of pocket can protect your account balance.</li></ul></div></div></div> <span class="heading-toc" id="toc-why-roth-ira-fees-affect-your-return-on-investment"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Why Roth IRA Fees Affect Your Return on Investment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Generally speaking, Roth IRAs are a great way to save up for your retirement. Created through the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxpayer-relief-act-of-1997.asp">Taxpayer Relief Act of 1997</a>, this <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/">alternative to traditional IRAs</a> lets you make <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aftertaxcontribution.asp">post-tax contributions</a> today so you can take tax-free withdrawals from your account in the future.<span class="ql-inline-citation" data-cite="8"></span> While a Roth IRA paves the way for easy money later, that doesn’t mean it’s free. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Over time, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-types-of-roth-ira-fees-do-i-pay-4771122">a Roth IRA is subject to a number of fees</a>. Just as your investments can <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compound.asp">compound</a> over time, so too can your costs from fees. That’s because even though the fees levied today may seem tiny, that lost money never gets to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appreciation.asp">appreciate</a> over time. All of that growth vanishes once you pay a fee. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> For example, if you have $150,000 invested with an annual 6% return, the account would have grown to approximately $643,781 over 25 years. Now, let’s say you pay 2% in fees each year, leaving you with a 4% return. Your account would then grow to $399,875. That’s still a nice amount to fall back on, but it represents a nearly $244,000 reduction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The idea is to keep as much money in your Roth IRA for as long as possible before you start dipping into those funds. Even <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092815/how-optimize-your-portfolio-and-reduce-fees.asp">seemingly miniscule fees</a> can siphon your account balance over time and hinder your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestment.asp">return on investment</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> “All fees have the same impact on investment returns,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-100-financial-advisors/carolyn-mcclanahan">Carolyn McClanahan</a>, a certified financial planner and founder of Life Planning Partners. “The higher the fee, the less the return.”<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-how-you-can-manage-your-roth-ira-fees"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> How You Can Manage Your Roth IRA Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> According to a 2023 survey by The American College of Financial Services, the average retirement income literacy score among Americans was 31%.<span class="ql-inline-citation" data-cite="10"></span> A lack of knowledge about saving for retirement can lead to some major financial losses just from fees alone. Though Roth IRA fees are inevitable, you can mitigate their damage by optimizing your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> while investing for your future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Think of your investment portfolio as a living financial account that ebbs and flows along with the market. By paying attention to the market and adjusting your portfolio accordingly, McClanahan explains that you can actively nudge your investments to help reduce your fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> “You can use a portfolio of low-cost investments such as index funds instead of actively managed accounts,” she says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If you would rather have your Roth IRA handled by a broker or investment manager, you’re going to be charged a specific fee called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wrap-fee.asp">wrap fee</a>. These fees are based on a percentage of the total <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a> and pays for any services rendered by those handling your investments for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Thanks to a 2010 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> ruling, these wrap funds can be deducted from your account balance or paid <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofpocket.asp">out of pocket</a>.<span class="ql-inline-citation" data-cite="4"></span> Though it may be easier to just let that fee come out of your total balance, McClanahan says the latter is often the better option, since “paying for fees out of pocket allows more of your Roth to grow tax free for retirement.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Though Roth IRA withdrawals can be made at any time regardless of your age, your earnings are only tax- and penalty-free if you’re at least 59½ years old and have had your Roth IRA open for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp">at least five years</a>.<span class="ql-inline-citation" data-cite="11"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-types-of-roth-ira-fees-to-expect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Types of Roth IRA Fees to Expect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Aside from any fees that a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/roth-ira-fees-5222017">financial institution</a> or account manager may charge, such as an early <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakup-fee.asp">termination fee</a>, a Roth IRA comes with some inherent fees. These are largely unavoidable and common across most Roth IRA offerings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-subheading__text"> Account Maintenance Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Maintaining a Roth IRA can be time consuming for the provider. One way to compensate for the effort is to charge an account maintenance fee. This fee is outlined clearly in the initial account paperwork and can be paid either monthly or annually, though many Roth IRA providers tend to waive this charge. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Transaction Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> One area where you can make your money work for you in a Roth IRA is to invest in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>. Each time you make an investment, you may end up having to pay a transaction fee. Depending on what you’re trading, the costs may vary, so pay special attention to your IRA provider’s terms and conditions before taking this step. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Mutual Fund Expense Ratios and Sales Loads </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Mutual funds can contain a mini-portfolio of securities or stocks, but they can end up costing you twice. First, there’s the expense ratio, which covers the operational costs of maintaining the mutual fund. Meanwhile, a sales load can be described—albeit overly simplistically—as a fee for every transaction of shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-is-the-maximum-annual-contribution-to-your-roth-individual-retirement-account-roth-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the maximum annual contribution to your Roth individual retirement account (Roth IRA)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How much you can contribute annually to your Roth individual retirement account (Roth IRA) depends on your tax bracket. Under current federal law, the maximum that a single person can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp">contribute to a Roth IRA</a> is $6,500 a year. If you’re age 50 or older, you can contribute $7,500.<span class="ql-inline-citation" data-cite="7"></span> Single tax filers must have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/magi.asp">modified adjusted gross income (MAGI)</a> of $144,000 or less, up from $140,000 in 2021.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-is-there-a-fee-to-open-a-roth-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is there a fee to open a Roth IRA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Typically, there’s no cost to open a Roth IRA, though each provider is different. You may be required to make a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/033015/ira-accounts-no-minimum-deposit-2015.asp">minimum deposit when opening a Roth IRA</a>. Be sure to check with your provider.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Roth IRAs are a great way to set yourself up for a great retirement. As well as making consistent contributions and starting as early as possible, you’ll want to keep an eye on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fees-roth-ira-5220092">fees that you pay for the account</a>. Pay careful attention, because even fees that seem small add up to large sums over decades—which cut into your account balance and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-calculate-roth-ira-returns-4771288">impact your returns</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Some strategies include choosing low-cost investments such as index funds instead of actively managed funds; understanding terms such as expense ratio and sales load; and learning as much as you can about fees for maintaining the account or making transactions. </p></div>

Preparing for your eventual retirement by opening a [Roth individual retirement account (Roth IRA)](https://www.investopedia.com/terms/r/rothira.asp) can be a great way to set some money aside for your golden years. However, just because you’ve contributed money out of pocket doesn’t mean that you’ll get every penny back. Most [retirement plans](https://www.investopedia.com/articles/retirement/08/best-plan.asp) come with fees attached, and your Roth IRA is no different. Knowing which [fees](https://www.investopedia.com/terms/f/fee.asp) you’ll be responsible for—and how they’ll affect your bottom line—is an important step to take today to ensure that your future is comfortable. ### Key Takeaways * There are multiple types of fees that can have a major impact on your balance. * Even small fees can result in a major loss of profit over time. * Paying these fees out of pocket can protect your account balance. ## Why Roth IRA Fees Affect Your Return on Investment Generally speaking, Roth IRAs are a great way to save up for your retirement. Created through the [Taxpayer Relief Act of 1997](https://www.investopedia.com/terms/t/taxpayer-relief-act-of-1997.asp), this [alternative to traditional IRAs](https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/) lets you make [post-tax contributions](https://www.investopedia.com/terms/a/aftertaxcontribution.asp) today so you can take tax-free withdrawals from your account in the future. While a Roth IRA paves the way for easy money later, that doesn’t mean it’s free. Over time, [a Roth IRA is subject to a number of fees](https://www.investopedia.com/what-types-of-roth-ira-fees-do-i-pay-4771122). Just as your investments can [compound](https://www.investopedia.com/terms/c/compound.asp) over time, so too can your costs from fees. That’s because even though the fees levied today may seem tiny, that lost money never gets to [appreciate](https://www.investopedia.com/terms/a/appreciation.asp) over time. All of that growth vanishes once you pay a fee. For example, if you have $150,000 invested with an annual 6% return, the account would have grown to approximately $643,781 over 25 years. Now, let’s say you pay 2% in fees each year, leaving you with a 4% return. Your account would then grow to $399,875. That’s still a nice amount to fall back on, but it represents a nearly $244,000 reduction. The idea is to keep as much money in your Roth IRA for as long as possible before you start dipping into those funds. Even [seemingly miniscule fees](https://www.investopedia.com/articles/investing/092815/how-optimize-your-portfolio-and-reduce-fees.asp) can siphon your account balance over time and hinder your [return on investment](https://www.investopedia.com/terms/r/returnoninvestment.asp). “All fees have the same impact on investment returns,” says [Carolyn McClanahan](https://www.investopedia.com/top-100-financial-advisors/carolyn-mcclanahan), a certified financial planner and founder of Life Planning Partners. “The higher the fee, the less the return.” ## How You Can Manage Your Roth IRA Fees According to a 2023 survey by The American College of Financial Services, the average retirement income literacy score among Americans was 31%. A lack of knowledge about saving for retirement can lead to some major financial losses just from fees alone. Though Roth IRA fees are inevitable, you can mitigate their damage by optimizing your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) while investing for your future. Think of your investment portfolio as a living financial account that ebbs and flows along with the market. By paying attention to the market and adjusting your portfolio accordingly, McClanahan explains that you can actively nudge your investments to help reduce your fees. “You can use a portfolio of low-cost investments such as index funds instead of actively managed accounts,” she says. If you would rather have your Roth IRA handled by a broker or investment manager, you’re going to be charged a specific fee called a [wrap fee](https://www.investopedia.com/terms/w/wrap-fee.asp). These fees are based on a percentage of the total [assets under management](https://www.investopedia.com/terms/a/aum.asp) and pays for any services rendered by those handling your investments for you. Thanks to a 2010 [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) ruling, these wrap funds can be deducted from your account balance or paid [out of pocket](https://www.investopedia.com/terms/o/outofpocket.asp). Though it may be easier to just let that fee come out of your total balance, McClanahan says the latter is often the better option, since “paying for fees out of pocket allows more of your Roth to grow tax free for retirement.” ### Important Though Roth IRA withdrawals can be made at any time regardless of your age, your earnings are only tax- and penalty-free if you’re at least 59½ years old and have had your Roth IRA open for [at least five years](https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp). ## Types of Roth IRA Fees to Expect Aside from any fees that a [financial institution](https://www.investopedia.com/roth-ira-fees-5222017) or account manager may charge, such as an early [termination fee](https://www.investopedia.com/terms/b/breakup-fee.asp), a Roth IRA comes with some inherent fees. These are largely unavoidable and common across most Roth IRA offerings. ### Account Maintenance Fees Maintaining a Roth IRA can be time consuming for the provider. One way to compensate for the effort is to charge an account maintenance fee. This fee is outlined clearly in the initial account paperwork and can be paid either monthly or annually, though many Roth IRA providers tend to waive this charge. ### Transaction Fees One area where you can make your money work for you in a Roth IRA is to invest in [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). Each time you make an investment, you may end up having to pay a transaction fee. Depending on what you’re trading, the costs may vary, so pay special attention to your IRA provider’s terms and conditions before taking this step. ### Mutual Fund Expense Ratios and Sales Loads Mutual funds can contain a mini-portfolio of securities or stocks, but they can end up costing you twice. First, there’s the expense ratio, which covers the operational costs of maintaining the mutual fund. Meanwhile, a sales load can be described—albeit overly simplistically—as a fee for every transaction of shares. ## What is the maximum annual contribution to your Roth individual retirement account (Roth IRA)? How much you can contribute annually to your Roth individual retirement account (Roth IRA) depends on your tax bracket. Under current federal law, the maximum that a single person can [contribute to a Roth IRA](https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp) is $6,500 a year. If you’re age 50 or older, you can contribute $7,500. Single tax filers must have a [modified adjusted gross income (MAGI)](https://www.investopedia.com/terms/m/magi.asp) of $144,000 or less, up from $140,000 in 2021. ## Is there a fee to open a Roth IRA? Typically, there’s no cost to open a Roth IRA, though each provider is different. You may be required to make a [minimum deposit when opening a Roth IRA](https://www.investopedia.com/articles/personal-finance/033015/ira-accounts-no-minimum-deposit-2015.asp). Be sure to check with your provider. ## The Bottom Line Roth IRAs are a great way to set yourself up for a great retirement. As well as making consistent contributions and starting as early as possible, you’ll want to keep an eye on the [fees that you pay for the account](https://www.investopedia.com/fees-roth-ira-5220092). Pay careful attention, because even fees that seem small add up to large sums over decades—which cut into your account balance and [impact your returns](https://www.investopedia.com/how-to-calculate-roth-ira-returns-4771288). Some strategies include choosing low-cost investments such as index funds instead of actively managed funds; understanding terms such as expense ratio and sales load; and learning as much as you can about fees for maintaining the account or making transactions.

Preparing for your eventual retirement by opening a Roth individual retirement account (Roth IRA) can be a great way to set some money aside for your golden years. However, just because you’ve contributed money out of pocket doesn’t mean that you’ll get every penny back. Most retirement plans come with fees attached, and your Roth IRA is no different. Knowing which fees you’ll be responsible for—and how they’ll affect your bottom line—is an important step to take today to ensure that your future is comfortable. Key Takeaways There are multiple types of fees that can have a major impact on your balance.Even small fees can result in a major loss of profit over time.Paying these fees out of pocket can protect your account balance. Why Roth IRA Fees Affect Your Return on Investment Generally speaking, Roth IRAs are a great way to save up for your retirement. Created through the Taxpayer Relief Act of 1997, this alternative to traditional IRAs lets you make post-tax contributions today so you can take tax-free withdrawals from your account in the future. While a Roth IRA paves the way for easy money later, that doesn’t mean it’s free. Over time, a Roth IRA is subject to a number of fees. Just as your investments can compound over time, so too can your costs from fees. That’s because even though the fees levied today may seem tiny, that lost money never gets to appreciate over time. All of that growth vanishes once you pay a fee. For example, if you have $150,000 invested with an annual 6% return, the account would have grown to approximately $643,781 over 25 years. Now, let’s say you pay 2% in fees each year, leaving you with a 4% return. Your account would then grow to $399,875. That’s still a nice amount to fall back on, but it represents a nearly $244,000 reduction. The idea is to keep as much money in your Roth IRA for as long as possible before you start dipping into those funds. Even seemingly miniscule fees can siphon your account balance over time and hinder your return on investment. “All fees have the same impact on investment returns,” says Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners. “The higher the fee, the less the return.” How You Can Manage Your Roth IRA Fees According to a 2023 survey by The American College of Financial Services, the average retirement income literacy score among Americans was 31%. A lack of knowledge about saving for retirement can lead to some major financial losses just from fees alone. Though Roth IRA fees are inevitable, you can mitigate their damage by optimizing your portfolio while investing for your future. Think of your investment portfolio as a living financial account that ebbs and flows along with the market. By paying attention to the market and adjusting your portfolio accordingly, McClanahan explains that you can actively nudge your investments to help reduce your fees. “You can use a portfolio of low-cost investments such as index funds instead of actively managed accounts,” she says. If you would rather have your Roth IRA handled by a broker or investment manager, you’re going to be charged a specific fee called a wrap fee. These fees are based on a percentage of the total assets under management and pays for any services rendered by those handling your investments for you. Thanks to a 2010 Internal Revenue Service (IRS) ruling, these wrap funds can be deducted from your account balance or paid out of pocket. Though it may be easier to just let that fee come out of your total balance, McClanahan says the latter is often the better option, since “paying for fees out of pocket allows more of your Roth to grow tax free for retirement.” Important Though Roth IRA withdrawals can be made at any time regardless of your age, your earnings are only tax- and penalty-free if you’re at least 59½ years old and have had your Roth IRA open for at least five years. Types of Roth IRA Fees to Expect Aside from any fees that a financial institution or account manager may charge, such as an early termination fee, a Roth IRA comes with some inherent fees. These are largely unavoidable and common across most Roth IRA offerings. Account Maintenance Fees Maintaining a Roth IRA can be time consuming for the provider. One way to compensate for the effort is to charge an account maintenance fee. This fee is outlined clearly in the initial account paperwork and can be paid either monthly or annually, though many Roth IRA providers tend to waive this charge. Transaction Fees One area where you can make your money work for you in a Roth IRA is to invest in exchange-traded funds (ETFs). Each time you make an investment, you may end up having to pay a transaction fee. Depending on what you’re trading, the costs may vary, so pay special attention to your IRA provider’s terms and conditions before taking this step. Mutual Fund Expense Ratios and Sales Loads Mutual funds can contain a mini-portfolio of securities or stocks, but they can end up costing you twice. First, there’s the expense ratio, which covers the operational costs of maintaining the mutual fund. Meanwhile, a sales load can be described—albeit overly simplistically—as a fee for every transaction of shares. What is the maximum annual contribution to your Roth individual retirement account (Roth IRA)? How much you can contribute annually to your Roth individual retirement account (Roth IRA) depends on your tax bracket. Under current federal law, the maximum that a single person can contribute to a Roth IRA is $6,500 a year. If you’re age 50 or older, you can contribute $7,500. Single tax filers must have a modified adjusted gross income (MAGI) of $144,000 or less, up from $140,000 in 2021. Is there a fee to open a Roth IRA? Typically, there’s no cost to open a Roth IRA, though each provider is different. You may be required to make a minimum deposit when opening a Roth IRA. Be sure to check with your provider. The Bottom Line Roth IRAs are a great way to set yourself up for a great retirement. As well as making consistent contributions and starting as early as possible, you’ll want to keep an eye on the fees that you pay for the account. Pay careful attention, because even fees that seem small add up to large sums over decades—which cut into your account balance and impact your returns. Some strategies include choosing low-cost investments such as index funds instead of actively managed funds; understanding terms such as expense ratio and sales load; and learning as much as you can about fees for maintaining the account or making transactions.

https://www.investopedia.com/terms/s/structured_investment_products.asp

Structured Investment Products (SIPs): Definition and Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-structured-investment-products-sips"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Structured Investment Products (SIPs)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Structured investment products, or SIPs, are types of investments that meet specific investor needs with a customized product mix. SIPs typically include the use of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a>. They are often created by investment banks for hedge funds, organizations, or the retail client mass market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> SIPs are distinct from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systematicinvestmentplan.asp">systematic investment plan (SIP)</a>, in which investors make regular and equal payments into a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a>, trading account, or retirement account in order to benefit from the long-term advantages of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dollarcostaveraging.asp">dollar-cost averaging</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>On Dec. 9, 2020, the Securities and Exchange Commission (SEC) adopted new rules intended to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nms.asp">national market system</a> stocks. Among other adopted rules, the SEC has established a decentralized consolidation model in which competing consolidators, rather than the exclusive SIPs, will be responsible for collecting, consolidating, and disseminating consolidated market data to the public. Read more about these new rules <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.sec.gov/news/press-release/2020-311">here</a>.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-understanding-structured-investment-products-sips"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Structured Investment Products (SIPs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A structured investment can vary in its scope and complexity, often depending on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a> of the investor. SIPs typically involve exposure to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed income</a> markets and derivatives. A structured investment often starts with a traditional security, such as a conventional investment-grade bond or a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a>, and replaces the usual payment features (such as periodic <a class="pseudoStyle" data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp">coupons</a> and final principal) with non-traditional payoffs derived not from the issuer's own <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a>, but from the performance of one or more underlying assets. A <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp">reverse convertible note (RCN)</a> is an example of a structured investment product. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A simple illustration of a structured product is a $1000 CD that expires in three years. It doesn't offer traditional interest payments, but instead, the yearly interest payment is based on the performance of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq100.asp">Nasdaq 100</a> stock index. If the index rises, the investor earns a portion of the gain. If the index falls, the investor still receives their $1000 back after three years. This type of product is a combination of a fixed income CD a long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp">call option</a> on the Nasdaq 100 index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The Securities and Exchange Commission (SEC) began scrutinizing structured notes in 2018 due to widespread criticism over <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/10/structured-notes.asp">their excessive fees and lack of transparency</a>. As an example, in 2018, Wells Fargo Advisors LLC agreed to pay $4 million and return ill-gotten-gains to settle SEC charges after it was found that company representatives actively encouraged people to buy and sell one of their structured products which was supposed to be bought and held till maturity. This churning of trades created big commissions for the bank and reduced investor returns.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><ul><li>Structured products are created by investment banks and often combine two or more assets, and sometimes multiple asset classes, to create a product that pays out based on the performance of those underlying assets. </li><li>Structured products vary in complexity from simple to highly complex.</li><li>Fees are sometimes hidden in the payouts and fine print, which means an investor doesn't always know exactly how much they are paying for the product, and whether they could create it cheaper on their own.</li></ul></div></div></div> <span class="heading-toc" id="toc-sips-and-the-rainbow-note"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> SIPs and the Rainbow Note </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Structured products attract some investors with their ability to customize exposure to different markets. For example, a rainbow note offers exposure to more than one underlying asset. A rainbow note might derive performance value from three relatively low-correlated assets, like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_3000.asp" rel="noopener noreferrer">Russell 3000 Index</a> of U.S. stocks, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/msci.asp" rel="noopener noreferrer">MSCI</a> Pacific Ex-Japan Index, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dj-aigci.asp" rel="noopener noreferrer">Dow-AIG commodity futures index</a>. In addition, attaching a lookback feature to this structured product could further lower volatility by "smoothing" returns over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lookbackoption.asp" rel="noopener noreferrer">lookback instrument</a>, the value of the underlying asset is not based on its final value at expiration, but on an optimal value taken over the note's term (such as monthly or quarterly). In the options world, this also coincides with an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asianoption.asp" rel="noopener noreferrer">Asian option</a> (to distinguish the instrument from European or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/americanoption.asp" rel="noopener noreferrer">American options</a>). Combining these types of features can provide even more attractive <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp" rel="noopener noreferrer">diversification</a> properties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> This shows that structured products can range from the relatively simple CD example mentioned prior, to the more exotic version discussed here. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-pros-and-cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Pros and Cons </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Advantages of SIPs include diversification beyond typical assets. Other benefits depend on the type of structured product, as each one is different. Those advantages may include, principal protection, low volatility, tax efficiency, larger returns than the underlying asset provides (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a>), or positive yields in low yield environments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The disadvantages include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/07/ppn_risks.asp">complexity which can lead to unknown risks</a>. Fees can be quite steep, but are often hidden within the payout structure or in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp">spread</a> the bank charges to enter and exit positions. There is <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrisk.asp">credit risk</a> with the investment bank backing the SIPs. There is usually little or no liquidity for the SIPs, so investors must take the price the investment bank is quoting or may not be able to exit before maturity at all. And while these products may offer some diversification benefits, it isn't always clear why they are needed or under what circumstances they are needed other than to generate sales fees for the investment bank creating them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-real-world-example-of-structured-investment-products-sips"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Real World Example of Structured Investment Products (SIPs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> By way of example, assume that an investor agrees to put $100 into a structured product based on the performance of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp" rel="noopener noreferrer">S&amp;P 500 stock index</a>. The more the S&amp;P 500 goes up, the more the structured product is worth. But if the S&amp;P 500 goes down, the investor still gets their $100 back at maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For this service, the bank takes several fees or generates revenue in a few different ways. It may cap how much the investor can make, and therefore anything the S&amp;P 500 moves above that cap is the profit of the bank, not the investor. The bank may also charge a fee. This may not be apparent, but rather factored into the payouts. For example, the S&amp;P 500 may need to rise 5% in year one in order for the client to receive a 2% payout. If the S&amp;P 500 rises less than that, the payout decreases proportionality. The investor may receive nothing if the S&amp;P 500 rises 3% or less, which is the bank's profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> This product combines a CD or bond with a call option on the S&amp;P 500 index. The bank can take the interest it would have paid and buy call options. This helps protect the initial capital while still providing upside profit potential if the stock index rises. The bank can also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp" rel="noopener noreferrer">hedge</a> any exposure it may generate on more complex structured products, which means they are typically not concerned about which way the market moves. </p></div>

## What Is a Structured Investment Products (SIPs)? Structured investment products, or SIPs, are types of investments that meet specific investor needs with a customized product mix. SIPs typically include the use of [derivatives](https://www.investopedia.com/terms/d/derivative.asp). They are often created by investment banks for hedge funds, organizations, or the retail client mass market. SIPs are distinct from a [systematic investment plan (SIP)](https://www.investopedia.com/terms/s/systematicinvestmentplan.asp), in which investors make regular and equal payments into a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp), trading account, or retirement account in order to benefit from the long-term advantages of [dollar-cost averaging](https://www.investopedia.com/terms/d/dollarcostaveraging.asp). ### Important On Dec. 9, 2020, the Securities and Exchange Commission (SEC) adopted new rules intended to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed [national market system](https://www.investopedia.com/terms/n/nms.asp) stocks. Among other adopted rules, the SEC has established a decentralized consolidation model in which competing consolidators, rather than the exclusive SIPs, will be responsible for collecting, consolidating, and disseminating consolidated market data to the public. Read more about these new rules [here](https://www.sec.gov/news/press-release/2020-311). ## Understanding Structured Investment Products (SIPs) A structured investment can vary in its scope and complexity, often depending on the [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) of the investor. SIPs typically involve exposure to [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp) markets and derivatives. A structured investment often starts with a traditional security, such as a conventional investment-grade bond or a [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp), and replaces the usual payment features (such as periodic [coupons](https://www.investopedia.com/terms/c/coupon.asp) and final principal) with non-traditional payoffs derived not from the issuer's own [cash flow](https://www.investopedia.com/terms/c/cashflow.asp), but from the performance of one or more underlying assets. A [reverse convertible note (RCN)](https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp) is an example of a structured investment product. A simple illustration of a structured product is a $1000 CD that expires in three years. It doesn't offer traditional interest payments, but instead, the yearly interest payment is based on the performance of the [Nasdaq 100](https://www.investopedia.com/terms/n/nasdaq100.asp) stock index. If the index rises, the investor earns a portion of the gain. If the index falls, the investor still receives their $1000 back after three years. This type of product is a combination of a fixed income CD a long-term [call option](https://www.investopedia.com/terms/c/calloption.asp) on the Nasdaq 100 index. The Securities and Exchange Commission (SEC) began scrutinizing structured notes in 2018 due to widespread criticism over [their excessive fees and lack of transparency](https://www.investopedia.com/articles/bonds/10/structured-notes.asp). As an example, in 2018, Wells Fargo Advisors LLC agreed to pay $4 million and return ill-gotten-gains to settle SEC charges after it was found that company representatives actively encouraged people to buy and sell one of their structured products which was supposed to be bought and held till maturity. This churning of trades created big commissions for the bank and reduced investor returns. ### Key Takeaways * Structured products are created by investment banks and often combine two or more assets, and sometimes multiple asset classes, to create a product that pays out based on the performance of those underlying assets. * Structured products vary in complexity from simple to highly complex. * Fees are sometimes hidden in the payouts and fine print, which means an investor doesn't always know exactly how much they are paying for the product, and whether they could create it cheaper on their own. ## SIPs and the Rainbow Note Structured products attract some investors with their ability to customize exposure to different markets. For example, a rainbow note offers exposure to more than one underlying asset. A rainbow note might derive performance value from three relatively low-correlated assets, like the [Russell 3000 Index](https://www.investopedia.com/terms/r/russell_3000.asp) of U.S. stocks, the [MSCI](https://www.investopedia.com/terms/m/msci.asp) Pacific Ex-Japan Index, and the [Dow-AIG commodity futures index](https://www.investopedia.com/terms/d/dj-aigci.asp). In addition, attaching a lookback feature to this structured product could further lower volatility by "smoothing" returns over time. In a [lookback instrument](https://www.investopedia.com/terms/l/lookbackoption.asp), the value of the underlying asset is not based on its final value at expiration, but on an optimal value taken over the note's term (such as monthly or quarterly). In the options world, this also coincides with an [Asian option](https://www.investopedia.com/terms/a/asianoption.asp) (to distinguish the instrument from European or [American options](https://www.investopedia.com/terms/a/americanoption.asp)). Combining these types of features can provide even more attractive [diversification](https://www.investopedia.com/terms/d/diversification.asp) properties. This shows that structured products can range from the relatively simple CD example mentioned prior, to the more exotic version discussed here. ## Pros and Cons Advantages of SIPs include diversification beyond typical assets. Other benefits depend on the type of structured product, as each one is different. Those advantages may include, principal protection, low volatility, tax efficiency, larger returns than the underlying asset provides ([leverage](https://www.investopedia.com/terms/l/leverage.asp)), or positive yields in low yield environments. The disadvantages include [complexity which can lead to unknown risks](https://www.investopedia.com/articles/bonds/07/ppn_risks.asp). Fees can be quite steep, but are often hidden within the payout structure or in the [spread](https://www.investopedia.com/terms/s/spread.asp) the bank charges to enter and exit positions. There is [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp) with the investment bank backing the SIPs. There is usually little or no liquidity for the SIPs, so investors must take the price the investment bank is quoting or may not be able to exit before maturity at all. And while these products may offer some diversification benefits, it isn't always clear why they are needed or under what circumstances they are needed other than to generate sales fees for the investment bank creating them. ## Real World Example of Structured Investment Products (SIPs) By way of example, assume that an investor agrees to put $100 into a structured product based on the performance of the [S&P 500 stock index](https://www.investopedia.com/terms/s/sp500.asp). The more the S&P 500 goes up, the more the structured product is worth. But if the S&P 500 goes down, the investor still gets their $100 back at maturity. For this service, the bank takes several fees or generates revenue in a few different ways. It may cap how much the investor can make, and therefore anything the S&P 500 moves above that cap is the profit of the bank, not the investor. The bank may also charge a fee. This may not be apparent, but rather factored into the payouts. For example, the S&P 500 may need to rise 5% in year one in order for the client to receive a 2% payout. If the S&P 500 rises less than that, the payout decreases proportionality. The investor may receive nothing if the S&P 500 rises 3% or less, which is the bank's profit. This product combines a CD or bond with a call option on the S&P 500 index. The bank can take the interest it would have paid and buy call options. This helps protect the initial capital while still providing upside profit potential if the stock index rises. The bank can also [hedge](https://www.investopedia.com/terms/h/hedge.asp) any exposure it may generate on more complex structured products, which means they are typically not concerned about which way the market moves.

What Is a Structured Investment Products (SIPs)? Structured investment products, or SIPs, are types of investments that meet specific investor needs with a customized product mix. SIPs typically include the use of derivatives. They are often created by investment banks for hedge funds, organizations, or the retail client mass market. SIPs are distinct from a systematic investment plan (SIP), in which investors make regular and equal payments into a mutual fund, trading account, or retirement account in order to benefit from the long-term advantages of dollar-cost averaging. Important On Dec. 9, 2020, the Securities and Exchange Commission (SEC) adopted new rules intended to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed national market system stocks. Among other adopted rules, the SEC has established a decentralized consolidation model in which competing consolidators, rather than the exclusive SIPs, will be responsible for collecting, consolidating, and disseminating consolidated market data to the public. Read more about these new rules here. Understanding Structured Investment Products (SIPs) A structured investment can vary in its scope and complexity, often depending on the risk tolerance of the investor. SIPs typically involve exposure to fixed income markets and derivatives. A structured investment often starts with a traditional security, such as a conventional investment-grade bond or a certificate of deposit (CD), and replaces the usual payment features (such as periodic coupons and final principal) with non-traditional payoffs derived not from the issuer's own cash flow, but from the performance of one or more underlying assets. A reverse convertible note (RCN) is an example of a structured investment product. A simple illustration of a structured product is a $1000 CD that expires in three years. It doesn't offer traditional interest payments, but instead, the yearly interest payment is based on the performance of the Nasdaq 100 stock index. If the index rises, the investor earns a portion of the gain. If the index falls, the investor still receives their $1000 back after three years. This type of product is a combination of a fixed income CD a long-term call option on the Nasdaq 100 index. The Securities and Exchange Commission (SEC) began scrutinizing structured notes in 2018 due to widespread criticism over their excessive fees and lack of transparency. As an example, in 2018, Wells Fargo Advisors LLC agreed to pay $4 million and return ill-gotten-gains to settle SEC charges after it was found that company representatives actively encouraged people to buy and sell one of their structured products which was supposed to be bought and held till maturity. This churning of trades created big commissions for the bank and reduced investor returns. Key Takeaways Structured products are created by investment banks and often combine two or more assets, and sometimes multiple asset classes, to create a product that pays out based on the performance of those underlying assets. Structured products vary in complexity from simple to highly complex.Fees are sometimes hidden in the payouts and fine print, which means an investor doesn't always know exactly how much they are paying for the product, and whether they could create it cheaper on their own. SIPs and the Rainbow Note Structured products attract some investors with their ability to customize exposure to different markets. For example, a rainbow note offers exposure to more than one underlying asset. A rainbow note might derive performance value from three relatively low-correlated assets, like the Russell 3000 Index of U.S. stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG commodity futures index. In addition, attaching a lookback feature to this structured product could further lower volatility by "smoothing" returns over time. In a lookback instrument, the value of the underlying asset is not based on its final value at expiration, but on an optimal value taken over the note's term (such as monthly or quarterly). In the options world, this also coincides with an Asian option (to distinguish the instrument from European or American options). Combining these types of features can provide even more attractive diversification properties. This shows that structured products can range from the relatively simple CD example mentioned prior, to the more exotic version discussed here. Pros and Cons Advantages of SIPs include diversification beyond typical assets. Other benefits depend on the type of structured product, as each one is different. Those advantages may include, principal protection, low volatility, tax efficiency, larger returns than the underlying asset provides (leverage), or positive yields in low yield environments. The disadvantages include complexity which can lead to unknown risks. Fees can be quite steep, but are often hidden within the payout structure or in the spread the bank charges to enter and exit positions. There is credit risk with the investment bank backing the SIPs. There is usually little or no liquidity for the SIPs, so investors must take the price the investment bank is quoting or may not be able to exit before maturity at all. And while these products may offer some diversification benefits, it isn't always clear why they are needed or under what circumstances they are needed other than to generate sales fees for the investment bank creating them. Real World Example of Structured Investment Products (SIPs) By way of example, assume that an investor agrees to put $100 into a structured product based on the performance of the S&P 500 stock index. The more the S&P 500 goes up, the more the structured product is worth. But if the S&P 500 goes down, the investor still gets their $100 back at maturity. For this service, the bank takes several fees or generates revenue in a few different ways. It may cap how much the investor can make, and therefore anything the S&P 500 moves above that cap is the profit of the bank, not the investor. The bank may also charge a fee. This may not be apparent, but rather factored into the payouts. For example, the S&P 500 may need to rise 5% in year one in order for the client to receive a 2% payout. If the S&P 500 rises less than that, the payout decreases proportionality. The investor may receive nothing if the S&P 500 rises 3% or less, which is the bank's profit. This product combines a CD or bond with a call option on the S&P 500 index. The bank can take the interest it would have paid and buy call options. This helps protect the initial capital while still providing upside profit potential if the stock index rises. The bank can also hedge any exposure it may generate on more complex structured products, which means they are typically not concerned about which way the market moves.

https://www.investopedia.com/the-express-podcast-episode-162-8400933

The Driving Forces Pushing Financial Literacy into America's Public Schools

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE6764277183" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="The Driving Forces Pushing Financial Literacy into America's Public Schools"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> While most people agree that teaching financial literacy in high school is the right thing to do, only 23 states require at least one semester of financial education or personal finance curriculum in order to graduate. But progress is being made, and the path is being forged by leaders like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/in/tim-ranzetta-5453a">Tim Ranzetta</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.ngpf.org/about-us/">Next Gen Personal Finance</a>, and public school teachers across the country. Get to know a few of them and how they are delivering personal finance education into their classrooms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Plus, the stock market is doing its "November" thing, again, but only a few stocks are carrying the load. That's been a hallmark of 2023, which has provided us with another critical lesson in why we don't market time. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) While most people agree that teaching financial literacy in high school is the right thing to do, only 23 states require at least one semester of financial education or personal finance curriculum in order to graduate. But progress is being made, and the path is being forged by leaders like [Tim Ranzetta](https://www.linkedin.com/in/tim-ranzetta-5453a) of [Next Gen Personal Finance](https://www.ngpf.org/about-us/), and public school teachers across the country. Get to know a few of them and how they are delivering personal finance education into their classrooms. Plus, the stock market is doing its "November" thing, again, but only a few stocks are carrying the load. That's been a hallmark of 2023, which has provided us with another critical lesson in why we don't market time. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM While most people agree that teaching financial literacy in high school is the right thing to do, only 23 states require at least one semester of financial education or personal finance curriculum in order to graduate. But progress is being made, and the path is being forged by leaders like Tim Ranzetta of Next Gen Personal Finance, and public school teachers across the country. Get to know a few of them and how they are delivering personal finance education into their classrooms. Plus, the stock market is doing its "November" thing, again, but only a few stocks are carrying the load. That's been a hallmark of 2023, which has provided us with another critical lesson in why we don't market time. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/signet-jewelers-buys-back-preferred-shares-before-maturity-and-stock-soars-8624365

Signet Jewelers Buys Back Preferred Shares Before Maturity, and Stock Soars

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Signet Jewelers shares jumped after the jewelry store chain said it was repurchasing 50% of the convertible shares owned by private investor Leonard Green &amp; Partners.</li><li>Signet will pay approximately $414 million for the repurchase.</li><li>The company said because of the buyback, it was boosting its fiscal year profit guidance.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Shares of Signet Jewelers (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SIG">SIG</a>) took off after the jewelry store chain announced it was buying back half of the convertible preferred shares owned by private investment firm Leonard Green &amp; Partners ahead of maturity.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The operator of Kay Jewelers, Zales, and Jared said the preferred shares, set to mature this November, were convertible into about 8.2 million common shares. Signet explained it would be spending approximately $414 million in cash in the buyback. It noted that following the transaction, there would be $328 million worth of the preferred shares remaining, which have a dividend of 5%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The company added that because of the deal, it has increased its 2025 fiscal year earnings per share (EPS) estimate by 9% to 10%, from a range of $9.08 to $10.48 up to $9.90 to $11.52. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The news came two weeks after shares of Signet plunged when the company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/signet-jewelers-stock-plunges-after-retailer-issues-weak-guidance-8611574">reported </a>fourth quarter sales and current quarter EPS and revenue guidance that missed analysts’ estimates.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Signet shares were up 9.3% at $103.89 with about half an hour left in Wednesday's trading session. With today’s gains, the stock has bounced back above where it was before last month’s selloff.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_13-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:52.6%;"> <img alt="SIG" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/u2DAvLTNwYgqCU9yHExYBT-dD3s=/1312x0/filters:no_upscale():max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/rPmRPWoC6wu_pJo819bxvUuFfxM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png" data-srcset="https://www.investopedia.com/thmb/yi6k1C0sYjuvtiIbLgfBtUSRO_Y=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png 750w" data-tracking-container="true" height="691" id="mntl-sc-block-image_1-0" width="1312"/> <noscript> <img alt="SIG" class="img--noscript universal-image__image" height="691" sizes="750px" src="https://www.investopedia.com/thmb/rPmRPWoC6wu_pJo819bxvUuFfxM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png" srcset="https://www.investopedia.com/thmb/yi6k1C0sYjuvtiIbLgfBtUSRO_Y=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png 750w" width="1312"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Mark Kauzlarich/Bloomberg via Getty Images </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * Signet Jewelers shares jumped after the jewelry store chain said it was repurchasing 50% of the convertible shares owned by private investor Leonard Green & Partners. * Signet will pay approximately $414 million for the repurchase. * The company said because of the buyback, it was boosting its fiscal year profit guidance. Shares of Signet Jewelers ([SIG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SIG)) took off after the jewelry store chain announced it was buying back half of the convertible preferred shares owned by private investment firm Leonard Green & Partners ahead of maturity. The operator of Kay Jewelers, Zales, and Jared said the preferred shares, set to mature this November, were convertible into about 8.2 million common shares. Signet explained it would be spending approximately $414 million in cash in the buyback. It noted that following the transaction, there would be $328 million worth of the preferred shares remaining, which have a dividend of 5%. The company added that because of the deal, it has increased its 2025 fiscal year earnings per share (EPS) estimate by 9% to 10%, from a range of $9.08 to $10.48 up to $9.90 to $11.52. The news came two weeks after shares of Signet plunged when the company [reported](https://www.investopedia.com/signet-jewelers-stock-plunges-after-retailer-issues-weak-guidance-8611574) fourth quarter sales and current quarter EPS and revenue guidance that missed analysts’ estimates.  Signet shares were up 9.3% at $103.89 with about half an hour left in Wednesday's trading session. With today’s gains, the stock has bounced back above where it was before last month’s selloff. ![SIG]() :max_bytes(150000):strip_icc()/SIG_2024-04-03_15-29-08-d42bfd07d2ec4ff3af64363841599dbf.png) TradingView Mark Kauzlarich/Bloomberg via Getty Images Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Signet Jewelers shares jumped after the jewelry store chain said it was repurchasing 50% of the convertible shares owned by private investor Leonard Green & Partners.Signet will pay approximately $414 million for the repurchase.The company said because of the buyback, it was boosting its fiscal year profit guidance. Shares of Signet Jewelers (SIG) took off after the jewelry store chain announced it was buying back half of the convertible preferred shares owned by private investment firm Leonard Green & Partners ahead of maturity. The operator of Kay Jewelers, Zales, and Jared said the preferred shares, set to mature this November, were convertible into about 8.2 million common shares. Signet explained it would be spending approximately $414 million in cash in the buyback. It noted that following the transaction, there would be $328 million worth of the preferred shares remaining, which have a dividend of 5%. The company added that because of the deal, it has increased its 2025 fiscal year earnings per share (EPS) estimate by 9% to 10%, from a range of $9.08 to $10.48 up to $9.90 to $11.52. The news came two weeks after shares of Signet plunged when the company reported fourth quarter sales and current quarter EPS and revenue guidance that missed analysts’ estimates.  Signet shares were up 9.3% at $103.89 with about half an hour left in Wednesday's trading session. With today’s gains, the stock has bounced back above where it was before last month’s selloff. TradingView Mark Kauzlarich/Bloomberg via Getty Images Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/chase-extending-doordash-benefits-on-select-credit-cards-5218061

Chase Extending DoorDash Benefits on Select Credit Cards

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Chase has announced an extension of its DoorDash benefits for its Sapphire, Freedom and Slate cardholders through 2024 and also added a monthly credit for customers with the Sapphire Reserve credit card. Benefits will vary, depending on which card you have. The news comes a month after the card issuer quietly extended its Peloton benefits for Sapphire cardholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Chase has announced an extension of DoorDash benefits for Sapphire, Freedom and Slate credit card holders.</li><li>Depending on which card you have, you may get a complimentary or discounted DashPass subscription through 2024. </li><li>The card issuer also recently extended its Peloton credit benefits for the Sapphire Reserve and Sapphire Preferred through June 2022.</li></ul></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-subheading__text"> Chase Cardholders Can Take Advantage of DoorDash Perks for Three More Years </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Chase has updated the terms of its DoorDash benefits for cardholders with one of its flagship credit cards. Here's how the benefits break down by card, as detailed in an email to Investopedia: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-sapphire-reserve-credit-card-review-4796328">Chase Sapphire Reserve</a>: </strong>Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate. Additionally, starting in April 2022, cardholders who are enrolled in the complimentary DashPass membership will receive a $5 monthly in-app credit. Cardholders can roll over up to three months' worth of credits for a total of $15.</li> <li><strong><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-sapphire-preferred-credit-card-review-4795917">Chase Sapphire Preferred</a>: </strong>Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate.</li> <li><strong>Chase Freedom and Slate cards: </strong>If you have the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-freedom-unlimited-credit-card-review-4798757">Chase Freedom Unlimited</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-freedom-flex-review-5078011">Chase Freedom Flex</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-card-4689721">Chase Freedom</a>, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-slate-credit-card-review-4796347">Chase Slate</a> or Chase Slate Edge, and you haven't already used the DoorDash benefit, you'll have until 12/31/24 to enroll for three free months of DashPass membership. After that, you'll be automatically enrolled for an additional nine months with a 50% discount on membership ($4.99 per month), then automatically enrolled for a full-price membership after that. Eligible cardholders can take advantage of this starting in April 2022.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> DoorDash DashPass offers unlimited $0 delivery fees and reduced service fees on restaurant, convenience store and retail deliveries of $12 or more, as well as on grocery deliveries of at least $25. Members also get 5% back in credits on eligible pickup orders, as well as other promotions and perks.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The DoorDash announcement comes on the heels of Chase quietly extending its Peloton benefits for Chase Sapphire Reserve and Preferred cardholders. Through 6/30/22, Chase Sapphire Reserve cardholders can earn 10 points per dollar on Peloton Bike and Peloton Tread purchases, up to 50,000 total points, and can also receive up to $120 in statement credits on Peloton All-Access or Peloton App memberships. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Sapphire Preferred cardholders will earn 5 points per dollar on Peloton Bike and Tread purchases, up to 25,000 points in total, plus up to $60 in credits toward a Peloton membership<span class="ql-inline-citation" data-cite="2"></span>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Before taking advantage of either of these benefits, think about the extra costs associated with each. With DoorDash orders, for instance, that includes higher food costs compared to dining in, service fees (even if they're reduced) and tips. With Peloton, you'll need to pay for the cost of the bike or treadmill and any membership costs beyond the credit benefit. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

Chase has announced an extension of its DoorDash benefits for its Sapphire, Freedom and Slate cardholders through 2024 and also added a monthly credit for customers with the Sapphire Reserve credit card. Benefits will vary, depending on which card you have. The news comes a month after the card issuer quietly extended its Peloton benefits for Sapphire cardholders. ### Key Takeaways * Chase has announced an extension of DoorDash benefits for Sapphire, Freedom and Slate credit card holders. * Depending on which card you have, you may get a complimentary or discounted DashPass subscription through 2024. * The card issuer also recently extended its Peloton credit benefits for the Sapphire Reserve and Sapphire Preferred through June 2022. ### Chase Cardholders Can Take Advantage of DoorDash Perks for Three More Years Chase has updated the terms of its DoorDash benefits for cardholders with one of its flagship credit cards. Here's how the benefits break down by card, as detailed in an email to Investopedia: * **[Chase Sapphire Reserve](https://www.investopedia.com/chase-sapphire-reserve-credit-card-review-4796328):** Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate. Additionally, starting in April 2022, cardholders who are enrolled in the complimentary DashPass membership will receive a $5 monthly in-app credit. Cardholders can roll over up to three months' worth of credits for a total of $15. * **[Chase Sapphire Preferred](https://www.investopedia.com/chase-sapphire-preferred-credit-card-review-4795917):** Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate. * **Chase Freedom and Slate cards:** If you have the [Chase Freedom Unlimited](https://www.investopedia.com/chase-freedom-unlimited-credit-card-review-4798757), [Chase Freedom Flex](https://www.investopedia.com/chase-freedom-flex-review-5078011), [Chase Freedom](https://www.investopedia.com/credit-card-4689721), [Chase Slate](https://www.investopedia.com/chase-slate-credit-card-review-4796347) or Chase Slate Edge, and you haven't already used the DoorDash benefit, you'll have until 12/31/24 to enroll for three free months of DashPass membership. After that, you'll be automatically enrolled for an additional nine months with a 50% discount on membership ($4.99 per month), then automatically enrolled for a full-price membership after that. Eligible cardholders can take advantage of this starting in April 2022. DoorDash DashPass offers unlimited $0 delivery fees and reduced service fees on restaurant, convenience store and retail deliveries of $12 or more, as well as on grocery deliveries of at least $25. Members also get 5% back in credits on eligible pickup orders, as well as other promotions and perks. The DoorDash announcement comes on the heels of Chase quietly extending its Peloton benefits for Chase Sapphire Reserve and Preferred cardholders. Through 6/30/22, Chase Sapphire Reserve cardholders can earn 10 points per dollar on Peloton Bike and Peloton Tread purchases, up to 50,000 total points, and can also receive up to $120 in statement credits on Peloton All-Access or Peloton App memberships. Sapphire Preferred cardholders will earn 5 points per dollar on Peloton Bike and Tread purchases, up to 25,000 points in total, plus up to $60 in credits toward a Peloton membership. Before taking advantage of either of these benefits, think about the extra costs associated with each. With DoorDash orders, for instance, that includes higher food costs compared to dining in, service fees (even if they're reduced) and tips. With Peloton, you'll need to pay for the cost of the bike or treadmill and any membership costs beyond the credit benefit. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Chase has announced an extension of its DoorDash benefits for its Sapphire, Freedom and Slate cardholders through 2024 and also added a monthly credit for customers with the Sapphire Reserve credit card. Benefits will vary, depending on which card you have. The news comes a month after the card issuer quietly extended its Peloton benefits for Sapphire cardholders. Key Takeaways Chase has announced an extension of DoorDash benefits for Sapphire, Freedom and Slate credit card holders.Depending on which card you have, you may get a complimentary or discounted DashPass subscription through 2024. The card issuer also recently extended its Peloton credit benefits for the Sapphire Reserve and Sapphire Preferred through June 2022. Chase Cardholders Can Take Advantage of DoorDash Perks for Three More Years Chase has updated the terms of its DoorDash benefits for cardholders with one of its flagship credit cards. Here's how the benefits break down by card, as detailed in an email to Investopedia: Chase Sapphire Reserve: Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate. Additionally, starting in April 2022, cardholders who are enrolled in the complimentary DashPass membership will receive a $5 monthly in-app credit. Cardholders can roll over up to three months' worth of credits for a total of $15. Chase Sapphire Preferred: Cardholders will get a complimentary DashPass membership through 12/31/24 or for a minimum of 12 months, depending on when they activate. Chase Freedom and Slate cards: If you have the Chase Freedom Unlimited, Chase Freedom Flex, Chase Freedom, Chase Slate or Chase Slate Edge, and you haven't already used the DoorDash benefit, you'll have until 12/31/24 to enroll for three free months of DashPass membership. After that, you'll be automatically enrolled for an additional nine months with a 50% discount on membership ($4.99 per month), then automatically enrolled for a full-price membership after that. Eligible cardholders can take advantage of this starting in April 2022. DoorDash DashPass offers unlimited $0 delivery fees and reduced service fees on restaurant, convenience store and retail deliveries of $12 or more, as well as on grocery deliveries of at least $25. Members also get 5% back in credits on eligible pickup orders, as well as other promotions and perks. The DoorDash announcement comes on the heels of Chase quietly extending its Peloton benefits for Chase Sapphire Reserve and Preferred cardholders. Through 6/30/22, Chase Sapphire Reserve cardholders can earn 10 points per dollar on Peloton Bike and Peloton Tread purchases, up to 50,000 total points, and can also receive up to $120 in statement credits on Peloton All-Access or Peloton App memberships. Sapphire Preferred cardholders will earn 5 points per dollar on Peloton Bike and Tread purchases, up to 25,000 points in total, plus up to $60 in credits toward a Peloton membership. Before taking advantage of either of these benefits, think about the extra costs associated with each. With DoorDash orders, for instance, that includes higher food costs compared to dining in, service fees (even if they're reduced) and tips. With Peloton, you'll need to pay for the cost of the bike or treadmill and any membership costs beyond the credit benefit. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/dow-jones-today-05202024-8650976

Markets News, May 20, 2024: Tech Lifts Nasdaq to Record; JPMorgan Drags Dow Below 40K

<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp liveblog mntl-block" id="liveblog_1-0"><div class="comp mntl-block article-content__description" id="mntl-block_12-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> U.S. stocks were mixed on Monday, with tech stocks climbing and the Dow retreating from 40,000, a milestone it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-dow-hit-40000-heres-how-long-it-took-to-get-there-8649767">reached last week</a> as investors increased bets cooling inflation could prompt cuts in interest rates by the Federal Reserve this year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">Nasdaq Composite</a> advanced 0.7% Monday, while the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> inched up 0.1% and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a> slipped 0.5%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The Dow and S&amp;P 500 were weighed down by shares of JPMorgan Chase (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>), which slid more than 4% after CEO Jamie Dimon hinted he was preparing to retire after nearly 20 years at the helm of America's largest bank. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">Artificial intelligence (AI)</a> darling Nvidia (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) is set to report earnings after markets close on Wednesday, in what could be a highlight of this week's events. The chipmaker is expected to post yet <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-q1-fy-2025-earnings-preview-8643286">another quarter of rapid earnings</a> and revenue growth amid surging AI demand. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The week is light on economic data. The Federal Reserve will dominate the economic calendar, with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191">officials speaking throughout the week</a> and the minutes of the central bank's May meeting slated to be released on Wednesday. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Metals prices held near record highs Monday, with gold (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=gold">GOLD</a>) and copper hitting new records, while silver (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=silver">SILVER</a>) continued to increase after it <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/silver-price-climbs-11-year-high-above-usd30-watch-this-level-8650919">climbed to an 11-year high</a> above the closely watched<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/02/061802.asp"> psychological</a> $30 mark. Investors have piled into metals this year in pursuit of gold and silver's safety and copper's industrial applications. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Treasury yields and the dollar climbed on Monday. Cryptocurrencies also advanced.<br/> </p></div> <div class="comp liveblog__content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-rail-bp="mntl-bp-md" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[1, 3, 6, 9, 12, 15, 18]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="liveblog__content_1-0"><div class="comp finance-liveblog-content mntl-liveblog-content mntl-block" id="finance-liveblog-content_1-0"><div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_1-0"><span class="heading-toc" id="toc-2024-05-20t201325511z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_1-0"><p>Stock Indexes Wrap: Semiconductor, AI Stock Send Nasdaq Higher; JPMorgan Weighs on Dow</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_1-0">May 20, 2024 04:13 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t201325511z" id="mntl-blogpost__copylink_1-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <strong><u>The Dow</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) gained 1.2% after the tech giant unveiled a new line of personal computers equipped with AI chips and the company’s CoPilot AI software.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Tech stocks followed Microsoft higher, with Intel (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC">INTC</a>) gaining 0.9% and Apple (<a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) rising 0.6%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> JPMorgan Chase (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>) fell 4.5% after CEO Jamie Dimon hinted that the company had begun to prepare for his retirement. That overshadowed the firm’s raising its full-year net interest income forecast to $91 billion from $90 billion. <br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <strong><u>The S&amp;P 500</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Norwegian Cruise Line Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCLH">NCLH</a>) jumped 7.6% after it <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/norwegian-cruise-line-stock-jumps-on-raised-guidance-8651136">raised its current-quarter earnings outlook </a>for the second time this month, citing strong demand. Competitors Carnival Corp (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCL">CCL</a>) and Royal Caribbean (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RCL">RCL</a>) gained 7.3% and 4.1%, respectively.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Electronics manufacturer Jabil (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBL">JBL</a>) added 5.3% after announcing several leadership changes, including a new CEO and CFO.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Applied Materials (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT">AMAT</a>) rose 3.7% as several firms raised their price targets on the stock following last week’s earnings report. Peers Lam Research (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LRCX">LRCX</a>) and KLA Corp (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KLA">KLA</a>) each advanced about 3.3%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) gained 2.5% ahead of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investors-expect-the-best-from-nvidia-earnings-what-that-could-mean-for-the-stock-8651022">its quarterly earnings report</a> after markets close on Wednesday.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Johnson Controls (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JCI">JCI</a>) added 2.3% after <em>Bloomberg</em> reported activist investor Elliott Investment Management had taken <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/johnson-controls-stock-rises-as-elliott-reportedly-takes-usd1-billion-plus-stake-8650947">an approximately $1 billion stake</a> in the company. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Discount retailers slipped after advancing last week following <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391">better-than-expected earnings</a> from Walmart (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>). Dollar Tree (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR">DLTR</a>) slid 3.3% Monday, while TJX Companies (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TJX">TJX</a>) fell 2.4%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Target (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT">TGT</a>) shed 2.1% after cutting prices on thousands of items in a bid to draw in cost-conscious consumers. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Lowe’s (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW">LOW</a>) slipped 0.8% ahead of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lowes-q1-fy-2024-earnings-preview-8650047">its earnings report</a> before the opening bell on Tuesday. <br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <strong><u>The Nasdaq 100</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Chip stocks advanced, led by Marvell Technology (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRVL">MRVL</a>), up 3.6%, and Micron (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MU">MU</a>), up 3%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) ticked up 1.9% <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133">before reporting earnings</a> after markets closed.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Tesla (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>) shed 1.5% after Chinese rival Li Auto (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI">LI</a>) reported <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/li-auto-sinks-on-q1-profit-slump-8650961">earnings well below analysts’ estimates</a>, a sign the electric vehicle price war in the world’s largest auto market has taken a toll on carmakers’ profits. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_2-0"><span class="heading-toc" id="toc-2024-05-20t192451029z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_2-0"><p>What You Need To Know Ahead of Palo Alto Networks' Earnings Report Monday</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_2-0">May 20, 2024 03:24 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t192451029z" id="mntl-blogpost__copylink_2-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) is set to report earnings for its fiscal third quarter after the bell on Monday, with investors likely watching sales amid concerns about reduced customer spending. The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity.<span class="ql-inline-citation" data-cite="9"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Analysts project Palo Alto Networks' revenue to be $1.97 billion for the third quarter of 2024, down from the previous quarter but up from $1.72 billion in the same period in 2023, according to estimates compiled by Visible Alpha. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Net income is expected to be $143.3 million, a significant drop from the second quarter but up from $107.8 million in the third quarter of fiscal 2023. Analysts anticipate diluted earnings per share (EPS) of 40 cents, compared with 31 cents in the same period a year earlier. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133">Read more</a> about what to expect from Palo Alto Networks' earnings report. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/naomi-buchanan-7866829">Naomi Buchanan</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_2-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_3-0"><span class="heading-toc" id="toc-2024-05-20t183808227z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_3-0"><p>Gold Price Reaches Record High Amid Expectations of Fed Rate Cuts</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_3-0">May 20, 2024 02:38 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t183808227z" id="mntl-blogpost__copylink_3-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The spot price of gold reached a record high above $2,450 per ounce early Monday morning, before sliding to $2,435.28 in the afternoon as markets continued to digest economic data <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gold-roundup-for-may-17-price-nears-all-time-high-amid-hopes-of-fed-rate-cuts-8650301">from last week</a> that raised hopes the Federal Reserve could move to cut interest rates, though Fed officials cautioned they may need more data on inflation before cutting rates. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191">Scheduled comments</a> this week from several Fed officials could impact the price of gold in the days to come. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Purchases by China's central bank could help sustain gold's rise in price, with the World Gold Council (WGC) recently reporting China's central bank was one of the top buyers of gold in the first quarter compared to other central banks.<span class="ql-inline-citation" data-cite="7"></span> </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_33-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:74.7%;"> <img alt="XAUUSD" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/DyTXlGe_J7toYqgbtTp8SG4zksk=/1372x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/Zrw381biX0EpolgE4EkQed6PXi8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png" data-srcset="https://www.investopedia.com/thmb/aLclmqxGfezxG17EBP2AhMPcdhg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png 750w" data-tracking-container="true" height="1026" id="mntl-sc-block-image_1-0" width="1372"/> <noscript> <img alt="XAUUSD" class="img--noscript universal-image__image" height="1026" sizes="750px" src="https://www.investopedia.com/thmb/Zrw381biX0EpolgE4EkQed6PXi8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png" srcset="https://www.investopedia.com/thmb/aLclmqxGfezxG17EBP2AhMPcdhg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png 750w" width="1372"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Concerns about geopolitical risks in the Middle East and Eastern Europe could also impact the price of gold, raising demand for traditional "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/safe-haven.asp">safe haven</a>" assets. The death of Iranian President Ebrahim Raisi and worries about his death's implications in the Middle East was another factor that drove the price of gold higher Monday, <em>The Wall Street Journal </em>reported.<span class="ql-inline-citation" data-cite="8"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/aaron-mcdade-8603749">Aaron McDade</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_3-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_4-0"><span class="heading-toc" id="toc-2024-05-20t173331110z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_4-0"><p>Hims &amp; Hers Soars on Release of Wegovy Challenger</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_4-0">May 20, 2024 01:33 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t173331110z" id="mntl-blogpost__copylink_4-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Shares of Hims &amp; Hers Health (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIMS">HIMS</a>) surged on Monday after the online pharmacy said it was jumping on the weight-loss bandwagon.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The company said in a press release Monday that it would begin offering GLP-1 injections similar to Novo Nordisk’s (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO">NVO</a>) Wegovy and Eli Lilly’s (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY">LLY</a>) Zepbound. Injections, the company said, would start at $199/month, more than 85% less than Wegovy’s $1,350 monthly price tag.<span class="ql-inline-citation" data-cite="6"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Hims &amp; Hers said its partnership with a US manufacturer of generic drugs would enable patients to access Wegovy and Ozempic’s active ingredient “without navigating the shortages and costs that are currently limiting access to the branded medications.” </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The popularity of GLP-1s has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/novo-nordisk-earnings-beat-estimates-on-surging-demand-for-its-weight-loss-drugs-8642271">turbocharged Novo Nordisk</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/eli-lilly-q1-2024-earnings-stock-jumps-8640894">Eli Lilly's sales</a> in the last year and propelled them into the ranks of the world’s most valuable companies. Novo Nordisk, shares of which have risen more than 50% in the past year, had a market capitalization of about $584 billion Monday afternoon, making it larger than Tesla (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>). Eli Lilly’s market cap of more than $740 billion ranked it eighth among the S&amp;P 500’s largest companies. Its shares have risen more than 75% in the last 12 months. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Hims &amp; Hers shares were up about 30% Monday afternoon, bringing their year-to-date return to 112%. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_4-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_5-0"><span class="heading-toc" id="toc-2024-05-20t163207364z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_5-0"><p>Li Auto Sinks on Q1 Profit Slump</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_5-0">May 20, 2024 12:32 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t163207364z" id="mntl-blogpost__copylink_5-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs)</a> of Li Auto (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI">LI</a>) tumbled in intraday trading Monday after the Chinese electric vehicle manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices.<span class="ql-inline-citation" data-cite="4"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The company said its profit attributable to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion.<span class="ql-inline-citation" data-cite="5"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” the company said in a press release. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Li Auto ADRs were down more than 12% early in the afternoon on Monday. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fatima-attarwala-7511513">Fatima Attarwala</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="5" id="mntl-sc-block-adslot_5-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_6-0"><span class="heading-toc" id="toc-2024-05-20t153439200z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_6-0"><p>Norwegian Cruise Lines Leads S&amp;P 500 on Raised Guidance</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_6-0">May 20, 2024 11:34 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t153439200z" id="mntl-blogpost__copylink_6-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Norwegian Cruise Line Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCLH">NCLH</a>) was the best-performing stock in the S&amp;P 500 Monday morning after the Miami-based cruise operator raised its full-year guidance amid strong demand.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Norwegian on Monday raised its adjusted earnings per share forecast to $1.42 from $1.32. The company also upped its net yield forecast to 7.2% from 6.4%, as well as its forecast for adjusted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ebitda.asp">earnings before interest, taxes, depreciation and amortization (EBITDA)</a>, which was raised to $2.3 billion from $2.25 billion.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Monday's update is the second such increase to Norwegian’s earnings guidance this year. The company raised its outlook for all three of the metrics above when it reported first-quarter earnings at the beginning of the month.<span class="ql-inline-citation" data-cite="3"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> “We have continued to see strong demand and record bookings,” said chief financial officer Mark Kempa in a press release.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Shares of Norwegian were up more than 7% Monday morning. Competitors Royal Caribbean (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RCL">RCL</a>) and Carnival (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCL">CCL</a>) each traded more than 5% higher.   </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="6" id="mntl-sc-block-adslot_6-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_7-0"><span class="heading-toc" id="toc-2024-05-20t141927770z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_7-0"><p>Johnson Controls Stock Rises As Elliott Reportedly Takes $1 Billion-Plus Stake</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_7-0">May 20, 2024 10:19 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t141927770z" id="mntl-blogpost__copylink_7-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Shares in Johnson Controls International (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci">JCI</a>) moved higher in early trading Monday after <em>Bloomberg</em> reported late Sunday that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activist-investor.asp">activist investor</a> Elliott Investment Management has taken a significant stake in the industrial conglomerate.<span class="ql-inline-citation" data-cite="1"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> According to people familiar with the matter, the New York-based <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp">hedge fund</a> has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_54-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:38.1%;"> <img alt="This image depicts the JCI chart." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/h_3kU5Pg5ZTFM_6hvp--B1CKhng=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/h_3kU5Pg5ZTFM_6hvp--B1CKhng=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF" data-srcset="https://www.investopedia.com/thmb/25w1rDzrBIDHW4PeQwpsOUz3PFE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF 750w" data-tracking-container="true" height="677" id="mntl-sc-block-image_2-0" width="1774"/> <noscript> <img alt="This image depicts the JCI chart." class="img--noscript universal-image__image" height="677" sizes="750px" src="https://www.investopedia.com/thmb/h_3kU5Pg5ZTFM_6hvp--B1CKhng=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF" srcset="https://www.investopedia.com/thmb/25w1rDzrBIDHW4PeQwpsOUz3PFE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF 750w" width="1774"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-text">Source: TradingView.com.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Since bottoming out in late October last year, the Johnson Controls share price has trended mostly higher, with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/012815/why-50-simple-moving-average-sma-so-common-traders-and-analysts.asp">50-day moving average</a> (MA) crossing above the 200-day MA in March to form a bullish <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goldencross.asp">golden cross</a> buy signal. More recently, investors promptly stepped in to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-the-dips.asp">buy the dip</a> below the 50-day MA, suggesting underlying strength in the stock.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Following the news that Elliott has taken a significant stake in the company, it’s worth keeping an eye on a key area of chart <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/resistance.asp">resistance</a> around $70 that has been in play since early last year. A convincing close above this technically important area could lead to a retest of the stock’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/051315/how-trade-stocks-hit-alltime-highs.asp">all-time high (ATH)</a> at $81.77 set in December 2021. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Johnson Controls shares were up 2.9% Monday morning, bringing their year-to-date return to 23%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/contributors/54411/">Timothy Smith</a></em><br/> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="7" id="mntl-sc-block-adslot_7-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_8-0"><span class="heading-toc" id="toc-2024-05-20t130314210z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_8-0"><p>Stock Futures Tick Up</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_8-0">May 20, 2024 09:03 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05202024-8650976#toc-2024-05-20t130314210z" id="mntl-blogpost__copylink_8-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Futures contracts connected to the Dow Jones Industrial Average were effectively flat Monday morning. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_60-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Dow futures (May 20, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/D9hEcdO10AjFVN3sXedhQbsug-8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/D9hEcdO10AjFVN3sXedhQbsug-8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png" data-srcset="https://www.investopedia.com/thmb/sJkiijIb1u2vDWOtfj9sKnaUp7M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_3-0" width="2556"/> <noscript> <img alt="Dow futures (May 20, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/D9hEcdO10AjFVN3sXedhQbsug-8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png" srcset="https://www.investopedia.com/thmb/sJkiijIb1u2vDWOtfj9sKnaUp7M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> S&amp;P 500 futures rose 0.1%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_62-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="S&amp;P 500 futures (May 20, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uZmWMjushwL2u4zGvoKp6fRhX94=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uZmWMjushwL2u4zGvoKp6fRhX94=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png" data-srcset="https://www.investopedia.com/thmb/wfSqbU0XHGKjneTXcfd4cfJZ22s=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_4-0" width="2556"/> <noscript> <img alt="S&amp;P 500 futures (May 20, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/uZmWMjushwL2u4zGvoKp6fRhX94=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png" srcset="https://www.investopedia.com/thmb/wfSqbU0XHGKjneTXcfd4cfJZ22s=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Nasdaq 100 futures were up about 0.2%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_64-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Nasdaq 100 futures (May 20, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0XdJtF5ngfL-o5QOQ6ha9qPiE3o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0XdJtF5ngfL-o5QOQ6ha9qPiE3o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png" data-srcset="https://www.investopedia.com/thmb/6yE4fnS9MUrVT86W9UG2OYwuJMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_5-0" width="2556"/> <noscript> <img alt="Nasdaq 100 futures (May 20, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/0XdJtF5ngfL-o5QOQ6ha9qPiE3o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png" srcset="https://www.investopedia.com/thmb/6yE4fnS9MUrVT86W9UG2OYwuJMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png 750w" width="2556"/> </noscript> </div> </div> </figure></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="8" id="mntl-sc-block-adslot_8-0"></div></div></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div> </div>

U.S. stocks were mixed on Monday, with tech stocks climbing and the Dow retreating from 40,000, a milestone it [reached last week](https://www.investopedia.com/the-dow-hit-40000-heres-how-long-it-took-to-get-there-8649767) as investors increased bets cooling inflation could prompt cuts in interest rates by the Federal Reserve this year. The [Nasdaq Composite](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) advanced 0.7% Monday, while the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) inched up 0.1% and the [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp) slipped 0.5%. The Dow and S&P 500 were weighed down by shares of JPMorgan Chase ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)), which slid more than 4% after CEO Jamie Dimon hinted he was preparing to retire after nearly 20 years at the helm of America's largest bank. [Artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) darling Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) is set to report earnings after markets close on Wednesday, in what could be a highlight of this week's events. The chipmaker is expected to post yet [another quarter of rapid earnings](https://www.investopedia.com/nvidia-q1-fy-2025-earnings-preview-8643286) and revenue growth amid surging AI demand. The week is light on economic data. The Federal Reserve will dominate the economic calendar, with [officials speaking throughout the week](https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191) and the minutes of the central bank's May meeting slated to be released on Wednesday. Metals prices held near record highs Monday, with gold ([GOLD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=gold)) and copper hitting new records, while silver ([SILVER](https://www.investopedia.com/markets/quote?tvwidgetsymbol=silver)) continued to increase after it [climbed to an 11-year high](https://www.investopedia.com/silver-price-climbs-11-year-high-above-usd30-watch-this-level-8650919) above the closely watched [psychological](https://www.investopedia.com/articles/technical/02/061802.asp) $30 mark. Investors have piled into metals this year in pursuit of gold and silver's safety and copper's industrial applications. Treasury yields and the dollar climbed on Monday. Cryptocurrencies also advanced. ## Stock Indexes Wrap: Semiconductor, AI Stock Send Nasdaq Higher; JPMorgan Weighs on Dow May 20, 2024 04:13 PM EDT **The Dow** Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) gained 1.2% after the tech giant unveiled a new line of personal computers equipped with AI chips and the company’s CoPilot AI software.  Tech stocks followed Microsoft higher, with Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC)) gaining 0.9% and Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) rising 0.6%.  JPMorgan Chase ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)) fell 4.5% after CEO Jamie Dimon hinted that the company had begun to prepare for his retirement. That overshadowed the firm’s raising its full-year net interest income forecast to $91 billion from $90 billion.  **The S&P 500** Norwegian Cruise Line Holdings ([NCLH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCLH)) jumped 7.6% after it [raised its current-quarter earnings outlook](https://www.investopedia.com/norwegian-cruise-line-stock-jumps-on-raised-guidance-8651136) for the second time this month, citing strong demand. Competitors Carnival Corp ([CCL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCL)) and Royal Caribbean ([RCL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RCL)) gained 7.3% and 4.1%, respectively.  Electronics manufacturer Jabil ([JBL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBL)) added 5.3% after announcing several leadership changes, including a new CEO and CFO.  Applied Materials ([AMAT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT)) rose 3.7% as several firms raised their price targets on the stock following last week’s earnings report. Peers Lam Research ([LRCX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LRCX)) and KLA Corp ([KLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KLA)) each advanced about 3.3%. Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) gained 2.5% ahead of [its quarterly earnings report](https://www.investopedia.com/investors-expect-the-best-from-nvidia-earnings-what-that-could-mean-for-the-stock-8651022) after markets close on Wednesday.  Johnson Controls ([JCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JCI)) added 2.3% after *Bloomberg* reported activist investor Elliott Investment Management had taken [an approximately $1 billion stake](https://www.investopedia.com/johnson-controls-stock-rises-as-elliott-reportedly-takes-usd1-billion-plus-stake-8650947) in the company. Discount retailers slipped after advancing last week following [better-than-expected earnings](https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391) from Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)). Dollar Tree ([DLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR)) slid 3.3% Monday, while TJX Companies ([TJX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TJX)) fell 2.4%.  Target ([TGT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT)) shed 2.1% after cutting prices on thousands of items in a bid to draw in cost-conscious consumers. Lowe’s ([LOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW)) slipped 0.8% ahead of [its earnings report](https://www.investopedia.com/lowes-q1-fy-2024-earnings-preview-8650047) before the opening bell on Tuesday.  **The Nasdaq 100** Chip stocks advanced, led by Marvell Technology ([MRVL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRVL)), up 3.6%, and Micron ([MU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MU)), up 3%.  Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) ticked up 1.9% [before reporting earnings](https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133) after markets closed.  Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)) shed 1.5% after Chinese rival Li Auto ([LI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI)) reported [earnings well below analysts’ estimates](https://www.investopedia.com/li-auto-sinks-on-q1-profit-slump-8650961), a sign the electric vehicle price war in the world’s largest auto market has taken a toll on carmakers’ profits. ## What You Need To Know Ahead of Palo Alto Networks' Earnings Report Monday May 20, 2024 03:24 PM EDT Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) is set to report earnings for its fiscal third quarter after the bell on Monday, with investors likely watching sales amid concerns about reduced customer spending. The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity. Analysts project Palo Alto Networks' revenue to be $1.97 billion for the third quarter of 2024, down from the previous quarter but up from $1.72 billion in the same period in 2023, according to estimates compiled by Visible Alpha. Net income is expected to be $143.3 million, a significant drop from the second quarter but up from $107.8 million in the third quarter of fiscal 2023. Analysts anticipate diluted earnings per share (EPS) of 40 cents, compared with 31 cents in the same period a year earlier. [Read more](https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133) about what to expect from Palo Alto Networks' earnings report. *-[Naomi Buchanan](https://www.investopedia.com/naomi-buchanan-7866829)* ## Gold Price Reaches Record High Amid Expectations of Fed Rate Cuts May 20, 2024 02:38 PM EDT The spot price of gold reached a record high above $2,450 per ounce early Monday morning, before sliding to $2,435.28 in the afternoon as markets continued to digest economic data [from last week](https://www.investopedia.com/gold-roundup-for-may-17-price-nears-all-time-high-amid-hopes-of-fed-rate-cuts-8650301) that raised hopes the Federal Reserve could move to cut interest rates, though Fed officials cautioned they may need more data on inflation before cutting rates. [Scheduled comments](https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191) this week from several Fed officials could impact the price of gold in the days to come. Purchases by China's central bank could help sustain gold's rise in price, with the World Gold Council (WGC) recently reporting China's central bank was one of the top buyers of gold in the first quarter compared to other central banks. ![XAUUSD]() :max_bytes(150000):strip_icc()/XAUUSD_2024-05-20_13-50-07-23b40f72564545bfb0b7aee4db037f4d.png) TradingView Concerns about geopolitical risks in the Middle East and Eastern Europe could also impact the price of gold, raising demand for traditional "[safe haven](https://www.investopedia.com/terms/s/safe-haven.asp)" assets. The death of Iranian President Ebrahim Raisi and worries about his death's implications in the Middle East was another factor that drove the price of gold higher Monday, *The Wall Street Journal* reported. *-[Aaron McDade](https://www.investopedia.com/aaron-mcdade-8603749)* ## Hims & Hers Soars on Release of Wegovy Challenger May 20, 2024 01:33 PM EDT Shares of Hims & Hers Health ([HIMS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HIMS)) surged on Monday after the online pharmacy said it was jumping on the weight-loss bandwagon.  The company said in a press release Monday that it would begin offering GLP-1 injections similar to Novo Nordisk’s ([NVO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO)) Wegovy and Eli Lilly’s ([LLY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY)) Zepbound. Injections, the company said, would start at $199/month, more than 85% less than Wegovy’s $1,350 monthly price tag. Hims & Hers said its partnership with a US manufacturer of generic drugs would enable patients to access Wegovy and Ozempic’s active ingredient “without navigating the shortages and costs that are currently limiting access to the branded medications.” The popularity of GLP-1s has [turbocharged Novo Nordisk](https://www.investopedia.com/novo-nordisk-earnings-beat-estimates-on-surging-demand-for-its-weight-loss-drugs-8642271) and [Eli Lilly's sales](https://www.investopedia.com/eli-lilly-q1-2024-earnings-stock-jumps-8640894) in the last year and propelled them into the ranks of the world’s most valuable companies. Novo Nordisk, shares of which have risen more than 50% in the past year, had a market capitalization of about $584 billion Monday afternoon, making it larger than Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)). Eli Lilly’s market cap of more than $740 billion ranked it eighth among the S&P 500’s largest companies. Its shares have risen more than 75% in the last 12 months. Hims & Hers shares were up about 30% Monday afternoon, bringing their year-to-date return to 112%. ## Li Auto Sinks on Q1 Profit Slump May 20, 2024 12:32 PM EDT [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) of Li Auto ([LI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI)) tumbled in intraday trading Monday after the Chinese electric vehicle manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices. The company said its profit attributable to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion. Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” the company said in a press release. Li Auto ADRs were down more than 12% early in the afternoon on Monday. *-[Fatima Attarwala](https://www.investopedia.com/fatima-attarwala-7511513)* ## Norwegian Cruise Lines Leads S&P 500 on Raised Guidance May 20, 2024 11:34 AM EDT Norwegian Cruise Line Holdings ([NCLH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCLH)) was the best-performing stock in the S&P 500 Monday morning after the Miami-based cruise operator raised its full-year guidance amid strong demand.  Norwegian on Monday raised its adjusted earnings per share forecast to $1.42 from $1.32. The company also upped its net yield forecast to 7.2% from 6.4%, as well as its forecast for adjusted [earnings before interest, taxes, depreciation and amortization (EBITDA)](https://www.investopedia.com/terms/e/ebitda.asp), which was raised to $2.3 billion from $2.25 billion. Monday's update is the second such increase to Norwegian’s earnings guidance this year. The company raised its outlook for all three of the metrics above when it reported first-quarter earnings at the beginning of the month. “We have continued to see strong demand and record bookings,” said chief financial officer Mark Kempa in a press release.  Shares of Norwegian were up more than 7% Monday morning. Competitors Royal Caribbean ([RCL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RCL)) and Carnival ([CCL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CCL)) each traded more than 5% higher.   ## Johnson Controls Stock Rises As Elliott Reportedly Takes $1 Billion-Plus Stake May 20, 2024 10:19 AM EDT Shares in Johnson Controls International ([JCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci)) moved higher in early trading Monday after *Bloomberg* reported late Sunday that [activist investor](https://www.investopedia.com/terms/a/activist-investor.asp) Elliott Investment Management has taken a significant stake in the industrial conglomerate. According to people familiar with the matter, the New York-based [hedge fund](https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp) has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. ![This image depicts the JCI chart.]() :max_bytes(150000):strip_icc()/JCIChart-320fdb62d49d4d14bdabe1ab30746620.GIF) Source: TradingView.com. Since bottoming out in late October last year, the Johnson Controls share price has trended mostly higher, with the [50-day moving average](https://www.investopedia.com/ask/answers/012815/why-50-simple-moving-average-sma-so-common-traders-and-analysts.asp) (MA) crossing above the 200-day MA in March to form a bullish [golden cross](https://www.investopedia.com/terms/g/goldencross.asp) buy signal. More recently, investors promptly stepped in to [buy the dip](https://www.investopedia.com/terms/b/buy-the-dips.asp) below the 50-day MA, suggesting underlying strength in the stock.  Following the news that Elliott has taken a significant stake in the company, it’s worth keeping an eye on a key area of chart [resistance](https://www.investopedia.com/terms/r/resistance.asp) around $70 that has been in play since early last year. A convincing close above this technically important area could lead to a retest of the stock’s [all-time high (ATH)](https://www.investopedia.com/articles/active-trading/051315/how-trade-stocks-hit-alltime-highs.asp) at $81.77 set in December 2021. Johnson Controls shares were up 2.9% Monday morning, bringing their year-to-date return to 23%. *-[Timothy Smith](https://www.investopedia.com/contributors/54411/)* ## Stock Futures Tick Up May 20, 2024 09:03 AM EDT Futures contracts connected to the Dow Jones Industrial Average were effectively flat Monday morning. ![Dow futures (May 20, 2024)]() :max_bytes(150000):strip_icc()/YM1_2024-05-20_08-48-45-1d426871dfb345559ebd8c866ab601f6.png) S&P 500 futures rose 0.1%. ![S&P 500 futures (May 20, 2024)]() :max_bytes(150000):strip_icc()/ES1_2024-05-20_08-49-15-181da3da19554f94a4989cb5425d7f86.png) Nasdaq 100 futures were up about 0.2%. ![Nasdaq 100 futures (May 20, 2024)]() :max_bytes(150000):strip_icc()/NQ1_2024-05-20_08-49-29-80c0b3725ff14d5fb96f1225b0b3ba1f.png)

U.S. stocks were mixed on Monday, with tech stocks climbing and the Dow retreating from 40,000, a milestone it reached last week as investors increased bets cooling inflation could prompt cuts in interest rates by the Federal Reserve this year. The Nasdaq Composite advanced 0.7% Monday, while the S&P 500 inched up 0.1% and the Dow Jones Industrial Average slipped 0.5%. The Dow and S&P 500 were weighed down by shares of JPMorgan Chase (JPM), which slid more than 4% after CEO Jamie Dimon hinted he was preparing to retire after nearly 20 years at the helm of America's largest bank. Artificial intelligence (AI) darling Nvidia (NVDA) is set to report earnings after markets close on Wednesday, in what could be a highlight of this week's events. The chipmaker is expected to post yet another quarter of rapid earnings and revenue growth amid surging AI demand. The week is light on economic data. The Federal Reserve will dominate the economic calendar, with officials speaking throughout the week and the minutes of the central bank's May meeting slated to be released on Wednesday. Metals prices held near record highs Monday, with gold (GOLD) and copper hitting new records, while silver (SILVER) continued to increase after it climbed to an 11-year high above the closely watched psychological $30 mark. Investors have piled into metals this year in pursuit of gold and silver's safety and copper's industrial applications. Treasury yields and the dollar climbed on Monday. Cryptocurrencies also advanced. Stock Indexes Wrap: Semiconductor, AI Stock Send Nasdaq Higher; JPMorgan Weighs on Dow May 20, 2024 04:13 PM EDT The Dow Microsoft (MSFT) gained 1.2% after the tech giant unveiled a new line of personal computers equipped with AI chips and the company’s CoPilot AI software.  Tech stocks followed Microsoft higher, with Intel (INTC) gaining 0.9% and Apple (AAPL) rising 0.6%.  JPMorgan Chase (JPM) fell 4.5% after CEO Jamie Dimon hinted that the company had begun to prepare for his retirement. That overshadowed the firm’s raising its full-year net interest income forecast to $91 billion from $90 billion.  The S&P 500 Norwegian Cruise Line Holdings (NCLH) jumped 7.6% after it raised its current-quarter earnings outlook for the second time this month, citing strong demand. Competitors Carnival Corp (CCL) and Royal Caribbean (RCL) gained 7.3% and 4.1%, respectively.  Electronics manufacturer Jabil (JBL) added 5.3% after announcing several leadership changes, including a new CEO and CFO.  Applied Materials (AMAT) rose 3.7% as several firms raised their price targets on the stock following last week’s earnings report. Peers Lam Research (LRCX) and KLA Corp (KLA) each advanced about 3.3%. Nvidia (NVDA) gained 2.5% ahead of its quarterly earnings report after markets close on Wednesday.  Johnson Controls (JCI) added 2.3% after Bloomberg reported activist investor Elliott Investment Management had taken an approximately $1 billion stake in the company. Discount retailers slipped after advancing last week following better-than-expected earnings from Walmart (WMT). Dollar Tree (DLTR) slid 3.3% Monday, while TJX Companies (TJX) fell 2.4%.  Target (TGT) shed 2.1% after cutting prices on thousands of items in a bid to draw in cost-conscious consumers. Lowe’s (LOW) slipped 0.8% ahead of its earnings report before the opening bell on Tuesday.  The Nasdaq 100 Chip stocks advanced, led by Marvell Technology (MRVL), up 3.6%, and Micron (MU), up 3%.  Palo Alto Networks (PANW) ticked up 1.9% before reporting earnings after markets closed.  Tesla (TSLA) shed 1.5% after Chinese rival Li Auto (LI) reported earnings well below analysts’ estimates, a sign the electric vehicle price war in the world’s largest auto market has taken a toll on carmakers’ profits. What You Need To Know Ahead of Palo Alto Networks' Earnings Report Monday May 20, 2024 03:24 PM EDT Palo Alto Networks (PANW) is set to report earnings for its fiscal third quarter after the bell on Monday, with investors likely watching sales amid concerns about reduced customer spending. The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity. Analysts project Palo Alto Networks' revenue to be $1.97 billion for the third quarter of 2024, down from the previous quarter but up from $1.72 billion in the same period in 2023, according to estimates compiled by Visible Alpha. Net income is expected to be $143.3 million, a significant drop from the second quarter but up from $107.8 million in the third quarter of fiscal 2023. Analysts anticipate diluted earnings per share (EPS) of 40 cents, compared with 31 cents in the same period a year earlier. Read more about what to expect from Palo Alto Networks' earnings report. -Naomi Buchanan Gold Price Reaches Record High Amid Expectations of Fed Rate Cuts May 20, 2024 02:38 PM EDT The spot price of gold reached a record high above $2,450 per ounce early Monday morning, before sliding to $2,435.28 in the afternoon as markets continued to digest economic data from last week that raised hopes the Federal Reserve could move to cut interest rates, though Fed officials cautioned they may need more data on inflation before cutting rates. Scheduled comments this week from several Fed officials could impact the price of gold in the days to come. Purchases by China's central bank could help sustain gold's rise in price, with the World Gold Council (WGC) recently reporting China's central bank was one of the top buyers of gold in the first quarter compared to other central banks. TradingView Concerns about geopolitical risks in the Middle East and Eastern Europe could also impact the price of gold, raising demand for traditional "safe haven" assets. The death of Iranian President Ebrahim Raisi and worries about his death's implications in the Middle East was another factor that drove the price of gold higher Monday, The Wall Street Journal reported. -Aaron McDade Hims & Hers Soars on Release of Wegovy Challenger May 20, 2024 01:33 PM EDT Shares of Hims & Hers Health (HIMS) surged on Monday after the online pharmacy said it was jumping on the weight-loss bandwagon.  The company said in a press release Monday that it would begin offering GLP-1 injections similar to Novo Nordisk’s (NVO) Wegovy and Eli Lilly’s (LLY) Zepbound. Injections, the company said, would start at $199/month, more than 85% less than Wegovy’s $1,350 monthly price tag. Hims & Hers said its partnership with a US manufacturer of generic drugs would enable patients to access Wegovy and Ozempic’s active ingredient “without navigating the shortages and costs that are currently limiting access to the branded medications.” The popularity of GLP-1s has turbocharged Novo Nordisk and Eli Lilly's sales in the last year and propelled them into the ranks of the world’s most valuable companies. Novo Nordisk, shares of which have risen more than 50% in the past year, had a market capitalization of about $584 billion Monday afternoon, making it larger than Tesla (TSLA). Eli Lilly’s market cap of more than $740 billion ranked it eighth among the S&P 500’s largest companies. Its shares have risen more than 75% in the last 12 months. Hims & Hers shares were up about 30% Monday afternoon, bringing their year-to-date return to 112%. Li Auto Sinks on Q1 Profit Slump May 20, 2024 12:32 PM EDT American depositary receipts (ADRs) of Li Auto (LI) tumbled in intraday trading Monday after the Chinese electric vehicle manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices. The company said its profit attributable to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion. Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” the company said in a press release. Li Auto ADRs were down more than 12% early in the afternoon on Monday. -Fatima Attarwala Norwegian Cruise Lines Leads S&P 500 on Raised Guidance May 20, 2024 11:34 AM EDT Norwegian Cruise Line Holdings (NCLH) was the best-performing stock in the S&P 500 Monday morning after the Miami-based cruise operator raised its full-year guidance amid strong demand.  Norwegian on Monday raised its adjusted earnings per share forecast to $1.42 from $1.32. The company also upped its net yield forecast to 7.2% from 6.4%, as well as its forecast for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which was raised to $2.3 billion from $2.25 billion. Monday's update is the second such increase to Norwegian’s earnings guidance this year. The company raised its outlook for all three of the metrics above when it reported first-quarter earnings at the beginning of the month. “We have continued to see strong demand and record bookings,” said chief financial officer Mark Kempa in a press release.  Shares of Norwegian were up more than 7% Monday morning. Competitors Royal Caribbean (RCL) and Carnival (CCL) each traded more than 5% higher.   Johnson Controls Stock Rises As Elliott Reportedly Takes $1 Billion-Plus Stake May 20, 2024 10:19 AM EDT Shares in Johnson Controls International (JCI) moved higher in early trading Monday after Bloomberg reported late Sunday that activist investor Elliott Investment Management has taken a significant stake in the industrial conglomerate. According to people familiar with the matter, the New York-based hedge fund has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. Source: TradingView.com. Since bottoming out in late October last year, the Johnson Controls share price has trended mostly higher, with the 50-day moving average (MA) crossing above the 200-day MA in March to form a bullish golden cross buy signal. More recently, investors promptly stepped in to buy the dip below the 50-day MA, suggesting underlying strength in the stock.  Following the news that Elliott has taken a significant stake in the company, it’s worth keeping an eye on a key area of chart resistance around $70 that has been in play since early last year. A convincing close above this technically important area could lead to a retest of the stock’s all-time high (ATH) at $81.77 set in December 2021. Johnson Controls shares were up 2.9% Monday morning, bringing their year-to-date return to 23%. -Timothy Smith Stock Futures Tick Up May 20, 2024 09:03 AM EDT Futures contracts connected to the Dow Jones Industrial Average were effectively flat Monday morning. S&P 500 futures rose 0.1%. Nasdaq 100 futures were up about 0.2%.

https://www.investopedia.com/best-brokers-for-options-trading-4587876

Best Options Trading Platforms

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="24" data-sc-ad-track-spacing="100" data-sc-breakpoint="50em" data-sc-content-positions="[300,600,900,1200,1500,1800,2100]" data-sc-load-immediate="1" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="60" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The best options trading platforms offer a broad list of features that includes robust research amenities, easy order entry, low pricing, actionable content, strong customizability, and good execution. In addition, given the complexity of this form of derivatives trading, the best platforms for trading options will also offer good educational resources, along with responsive and knowledgeable customer support.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> After hundreds of hours of comprehensive research, data analysis, and live broker platform demos, tastytrade is our best overall online brokerage for trading options because of how it optimizes its pricing, user experience, and content to suit the needs of its options-focused client base. Tastytrade is just one of 26 online brokers that we evaluated based on 89 criteria, including available assets, account services, user experience, and additional features.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-best-options-trading-platforms-of-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Best Options Trading Platforms of 2024 </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <li>Best Overall: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" rel="sponsored nofollow"><strong>tastytrade</strong></a></li> <li>Best for Beginner Options Traders: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="http://www.schwab.com" rel="sponsored nofollow"><strong>Charles Schwab</strong></a></li> <li>Best for Advanced Traders: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow"><strong>Interactive Brokers</strong></a></li> <li>Best for Mobile Options Trading: <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow"><strong>Interactive Brokers</strong></a></li> <li>Best for Low-Cost Options Trading: <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://www.webull.com/activity?source=Investopedia-Per" rel="sponsored nofollow"><strong>Webull</strong></a><br/></li> <li>Best for Casual Options Traders: <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="externalLink" href="https://us.etrade.com/" rel="sponsored nofollow"><strong>E*TRADE</strong></a><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-best-overall-tastytrade"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Best Overall: tastytrade </span> </h2> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_9-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/tastytrade-review-4587986" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/L8ZECxl7jcuDMm1z8B_fgCakK_g=/640x0/filters:no_upscale():max_bytes(150000):strip_icc()/tastytradelogo-454669c3e9e543468182244f6f493b38.png" width="640"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" id="mntl-sc-block-review__entity-link_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account</strong> <strong>Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees &amp; Commissions</strong>: $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/tastytrade-review-4587986" id="mntl-sc-block-review__article-link_1-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" id="mntl-sc-block-review__entity-link_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> We chose tastytrade as the best options broker because of its low pricing for options trading, excellent technology for analyzing and trading options, actionable options-focused educational content, and top-tier customer support. The cost of trading options starts lower than most online brokers, and tastytrade offers caps on these competitive commission rates that allow higher volume traders to gain substantial economies of scale on options trading costs.   <br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_17-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Low costs, especially for higher volume traders</p></li> <li><p>Intuitive and easy-to-use trading platform</p></li> <li><p>Strong research and analytical tools</p></li> <li><p>Excellent educational content</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Fee structure favors more active traders</p></li> <li><p>Limited product offerings</p></li> <li><p>Learning curve for the platform</p></li> <li><p>No interest on cash balances</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Tastytrade, based in Chicago, was developed in 2017 by the founders/developers of TD Ameritrade’s (now owned by Schwab) thinkorswim app, which is one of the best options analysis trading tools.<span class="ql-inline-citation" data-cite="1"></span> Originally called tastyworks until changing its name in 2023, tastytrade has developed an excellent trading platform that offers stocks and ETFs, and an even stronger focus on options and futures trading.<span class="ql-inline-citation" data-cite="33"></span> Tastytrade also offers cryptocurrency trading, but its offerings in fixed income are limited and expensive, and the company does not offer mutual funds. In addition to lower options fees for trading a single option, tastytrade’s fees are significantly lower if you trade multiple contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Like most online brokers today, tastytrade offers commission-free stock and ETF trading. Its fees for options trading are just $1 on the first side of a trade, and there is no charge to close out a position, which averages out to $0.50 per contract per side. Tastytrade’s pricing compares favorably to the $0.65 per contract charge for both entering and exiting an options trade that is common across online brokers today. But more importantly, tastytrade also caps option commissions at just $10 per round trip, plus a $0.10 clearing fee per contract.<span class="ql-inline-citation" data-cite="34"></span> This means that larger-size trades become more economical, especially when looking at multi-leg trades.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> By taking user feedback into account, tastytrade has developed an interface that is highly functional. In addition to offering tools that allow users to look at different probabilities on different trades, the platform also allows users to compare different options against each other in a way that goes beyond displaying an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionchain.asp">options chain</a>. Support for fractional share trading and specialized educational content along the user journey are other key features that help tastytrade stand out above the competition.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> While tastytrade stands out for its options-specific educational content and live programming, simplified order entry, and volume-based trading discounts, less frequent traders with a propensity to hold higher cash levels should note that the platform pays basically nothing on uninvested cash balances.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-best-for-beginner-options-traders-charles-schwab"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Best for Beginner Options Traders: Charles Schwab </span> </h2> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_29-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/charles-schwab-review-4587888" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/p-xwUVi8CfYUF9oWOYPQE1IaHJk=/2939x0/filters:no_upscale():max_bytes(150000):strip_icc()/charles-schwab-productcard-5c742da0c9e77c00010d6c5b.png" width="2939"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.schwab.com/" id="mntl-sc-block-review__entity-link_3-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: $0 for stock/ETF trades, $0.65 per contract for options </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/charles-schwab-review-4587888" id="mntl-sc-block-review__article-link_3-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.schwab.com/" id="mntl-sc-block-review__entity-link_3-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Best for Beginner Options Traders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Adding options trading to one’s financial toolbox is a big step that requires a good deal of learning and experience, and Schwab’s platform provides it. Schwab has an array of educational materials to help new options traders, including guides, live training, actionable options-specific content, and now, following Schwab’s acquisition of TD Ameritrade, the well-regarded thinkorswim platform. Further, Schwab also supports <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/papertrade.asp">paper trading</a> that allows new options traders to practice in a simulated environment before they commit real capital.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_37-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_38-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Platforms for all customer types</p></li> <li><p>Thinkorswim integrated into the platform</p></li> <li><p>Educational materials and guides for beginners</p></li> <li><p>Options screening tools</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Higher margin rates</p></li> <li><p>Low returns on cash balances</p></li> <li><p>Options fees applied on all legs of the trade</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> One of the nation's first <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-low-costs-4587874">discount brokerage</a> companies, Schwab was incorporated in California in 1973 by Charles “Chuck” Schwab in response to the deregulation of brokerage commissions. Over the years, Schwab has become one of the leading online brokers, with more than 34 million accounts and more than $7.3 trillion in client assets.<span class="ql-inline-citation" data-cite="35"></span> Schwab completed its acquisition of TD Ameritrade in 2023, which brought the thinkorswim application to Schwab and allowed the company to expand its operations to include foreign exchange and futures. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Schwab is a huge firm that offers multiple markets, account types, and platforms to its customers. Essentially, the firm is a full-service broker, but with the mindset of a discount broker. Schwab was an early adopter of zero-commission stock trading, and the company has done a lot to help traders of all levels become self-sufficient in managing their own money. As part of this support, Schwab has an extensive amount of educational content and multiple tools to help traders. Schwab has integrated the thinkorswim program that it acquired when it bought TD Ameritrade into its platform. In addition to offering some of the industry’s top options analytics, thinkorswim also gives users the ability to paper trade before committing real capital to the market. Schwab’s options interface allows users to pick a specific options strategy and easily choose the specific contracts for their chosen strategy.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> In addition, Schwab offers options screeners that help users identify promising options strategies. Schwab supports many markets, and its technology and other support structures are strong. However, margin rates, which start at 13.575% on balances up to $25,000, are higher than many competitors.<span class="ql-inline-citation" data-cite="36"></span> For instance, Interactive Brokers’ comparable rate is 7.83%, while Webull’s is 9.74%.<span class="ql-inline-citation" data-cite="42"></span><span class="ql-inline-citation" data-cite="37"></span> Schwab’s options commissions are pretty standard, at $0.65 per contract. This may not be a rate that attracts high-volume options traders, but the costs to trade options at Schwab are reasonable.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-best-for-advanced-options-traders-and-best-for-mobile-options-trading-interactive-brokers"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Best for Advanced Options Traders and Best for Mobile Options Trading: Interactive Brokers </span> </h2> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_48-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/interactive-brokers-review-4587904" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/Jlqwe9PIU2-1CgoUVti1ZBdVI5g=/4200x0/filters:no_upscale():max_bytes(150000):strip_icc()/interactive_brokers_productcard-5c61eec746e0fb0001f25462.png" width="4200"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" id="mntl-sc-block-review__entity-link_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account Minimum:</strong> $0.00 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees: </strong>$0.00 commissions for equities/ETFs available on IBKR’s TWS Lite, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Lite; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures. </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/interactive-brokers-review-4587904" id="mntl-sc-block-review__article-link_5-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" id="mntl-sc-block-review__entity-link_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Best for Advanced Options Traders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Interactive Brokers (IBKR) is a long-time leader in trading technology. When combined, the platform's options-specific research tools, content, order routing capabilities, order types, algorithmic trading capabilities, and industry-leading low margin rates make it the best choice for advanced options traders.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-subheading__text"> Best for Mobile Options Trading </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> IBKR now offers three mobile platforms, with its top-end mobile platform, IBKR Mobile, delivering traders a full range of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/options-strategies/">options strategies</a> and some exciting analytical tools, all on a clean and easy-to-use platform. IBKR Mobile's Options Wizard and Options Analysis features, along with its simple order staging process, are key reasons why IBKR is our choice for best online broker for mobile options trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_59-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_60-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Low commission and margin rates</p></li> <li><p>Excellent trading technology</p></li> <li><p>Widest breadth of products available anywhere</p></li> <li><p>Platforms for professional and less sophisticated traders</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Platforms can be intimidating</p></li> <li><p>Complex commission schedules</p></li> <li><p>Limited access to IPOs and OTC Stocks</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Interactive Brokers (IBKR) was founded in 1977 and is headquartered in Greenwich, Connecticut. IBKR is one of the first companies to utilize technology in financial markets, and the company continues to be an innovator in the industry. IBKR’s roots are in supporting institutional traders and sophisticated high-volume traders. Consistent with this, IBKR has the lowest margin rates of any of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">online brokers</a>, and it also pays a fair interest rate on cash balances greater than $10,000.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Today, IBKR caters to both institutional and retail trading customers and has two plans to choose from: IBKR Lite, which offers commission-free stock and ETF trading, or IBKR Pro. The Pro plan has all the bells and whistles, such as the ability to control order routing, perform analytics, and trade directly from charts, but also has a more complicated commission schedule that is tiered based on monthly trading volume. IBKR offers excellent screeners for bonds, mutual funds, ETFs, equities, and options that can be customized, and news and other third-party services and APIs can also be incorporated into the IBKR platform. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> No broker in the world comes close to IBKR when it comes to the incredible breadth of trading vehicles and global markets available on a single platform, and IBKR has created the apps needed for professional traders to manage their positions when on the go. This sophisticated technology is also available to everyday traders who want full functionality. IBKR's GlobalTrader app is a more streamlined and easy-to-use app that is available for less demanding traders more focused on stocks, ETFs, options, and mutual funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> While most brokers support up to four-leg options strategies, the IBKR Mobile app supports six-leg options strategies. IBKR Mobile’s options functionality includes spread templates to easily compare similar strategies in order to find the best risk/return trades. The mobile platform also provides analytical tools and the ability to analyze probabilities of options trades. IBKR Mobile also has a neat Options Wizard that allows users to express their price opinions on a stock, receive suggested options strategies, and execute with one-tap trading to take advantage of that forecast.<span class="ql-inline-citation" data-cite="38"></span> Options trading on IBKR Mobile does not leave out the desktop functionality, which is our choice for best mobile app for options trading. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <span class="heading-toc" id="toc-best-for-low-cost-options-trading-webull"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-heading__text"> Best for Low-Cost Options Trading: Webull </span> </h2> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_72-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/webull-review-5201033" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/3TFjP_KdPG7nouBdGq9pbVqUVfQ=/971x0/filters:no_upscale():max_bytes(150000):strip_icc()/WebullLogo-0728cf59141c4d76aa3c3e3ae1945d40.jpg" width="971"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.webull.com/activity?source=Investopedia-Per" id="mntl-sc-block-review__entity-link_7-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: $0 commissions for stock, ETF, and options </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/webull-review-5201033" id="mntl-sc-block-review__article-link_7-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.webull.com/activity?source=Investopedia-Per" id="mntl-sc-block-review__entity-link_7-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-subheading__text"> Best for Low-Cost Options Trading </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Webull is our choice for the best low-cost options trading platform because it allows users to trade U.S. exchange-listed options for free, using an impressive array of trading and analytical features.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_80-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_81-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Commission-free stock, ETF, and options trading</p></li> <li><p>Easy-to-use platform</p></li> <li><p>Competitive interest rate paid on idle cash</p></li> <li><p>Supports futures trading</p></li> <li><p>Powerful charting features</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Not a full-service broker</p></li> <li><p>Limited portfolio management tools</p></li> <li><p>No fixed income or mutual funds</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Webull, which only launched as a broker-dealer in 2018, is a low-cost trading platform that is appealing to beginner and intermediate traders because of its powerful and highly customizable platforms, commission-free stock and ETF trading, $0 account minimums, and outstanding user experience. While it has become pretty standard for online brokers to offer zero-commission stock and ETF trading, Webull’s zero commissions for U.S. Exchange listed options is uncommon, and has traders looking to join the platform for the low-cost options trading.<span class="ql-inline-citation" data-cite="39"></span> In addition, Webull fully extended trading hours to its customers, along with offering some of the most competitive APYs on uninvested cash in the industry.<span class="ql-inline-citation" data-cite="40"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Webull’s platform is more for traders than investors, as it has very little in the way of tools for portfolio analysis and portfolio creation. Webull does, however, offer some educational content on its website, and the company has also added futures trading to its platform.<span class="ql-inline-citation" data-cite="41"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Similar to several of its top competitors, such as Robinhhod and eToro, Webull receives <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paymentoforderflow.asp">payment for order flow</a> for stock, ETF, and options trading as a way to offer commission-free trading, but this may impact the quality of order execution. That said, placing orders through Webull’s platforms is very easy.<span class="ql-inline-citation" data-cite="42"></span> Webull has the lowest options rates because it does not charge commissions for options trades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <span class="heading-toc" id="toc-best-for-casual-options-traders-etrade"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_90-0"> <span class="mntl-sc-block-heading__text"> Best for Casual Options Traders: E*TRADE </span> </h2> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_91-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/e-trade-review-4587893" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/3eDrUHCx4Y2-qsHI5J-Qfd6r6OA=/1741x0/filters:no_upscale():max_bytes(150000):strip_icc()/Etrade2022-22aa6950945a4c6c9b263e56e4263fba.jpg" width="1741"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://us.etrade.com/" id="mntl-sc-block-review__entity-link_9-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account</strong> <strong>Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/e-trade-review-4587893" id="mntl-sc-block-review__article-link_9-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://us.etrade.com/" id="mntl-sc-block-review__entity-link_9-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_94-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_95-0"> <span class="mntl-sc-block-subheading__text"> Best for Casual Options Traders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> While some options traders want all the functionality offered by their trading platform, others are more casual in their trading approach, and seek a balance between functionality and ease of use. E*TRADE offers platforms for both types of traders, and with its sleek and powerful app, E*TRADE Mobile is our choice for the best platform for casual options traders.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_98-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_99-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_100-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Industry-best mobile apps for investors and traders</p></li> <li><p>Excellent educational content</p></li> <li><p>Top-tier research amenities and resources</p></li> <li><p>Strong portfolio analytics</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Low interest rates on uninvested cash</p></li> <li><p>No fractional share trading outside of robo-investing</p></li> <li><p>No access to international exchanges</p></li> <li><p>No direct access to cryptocurrencies</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_102-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> E*TRADE was established in 1982 in California and was purchased by New York City-based Morgan Stanley in 2020.<span class="ql-inline-citation" data-cite="44"></span><span class="ql-inline-citation" data-cite="43"></span> It was one of the earliest online brokers and took advantage of the introduction of the internet era to expand its business. E*TRADE offers a large range of investment and trading options that includes all major U.S. markets, as well as mutual funds, stocks and ETFs, options, bonds, and futures.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> E*TRADE has millions of accounts with trillions of dollars in client assets.<span class="ql-inline-citation" data-cite="44"></span> Its various platforms are designed to work for the company’s diverse customer base. E*TRADE Mobile is a more straightforward platform for traders and investors who do not need every bell and whistle. The company’s Power E*TRADE mobile platform, on the other hand, is designed for day traders and other sophisticated traders. In addition to the available mobile apps, E*TRADE also offers a website interface and desktop platforms that mirror the functionality of the mobile apps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> As you would expect from a large brokerage company with a broad range of client types, E*TRADE offers a lot of helpful educational content, as well as tools to help analyze and research trading ideas. The company has good screeners and analytical tools and even offers pre-built portfolio builder options for passive and beginner investors.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> The E*TRADE Mobile app is best for traders and investors who do not want an overly complex platform; the company designed it with the idea of creating a good balance of function and simplicity. Options trading on E*TRADE Mobile is easy and intuitive for those looking to enter options positions in a more casual way. E*TRADE’s options commissions are pretty standard, at $0.65 per contract, but the broker does offer a discount of $0.50 per contract if you make more than 30 options trades in a quarter.<span class="ql-inline-citation" data-cite="45"></span> These costs are not the lowest, which very active options seekers may want, but they are reasonable for the more casual trader who wants to have the flexibility that E*TRADE offers for multiple products.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> Options trading has become an increasingly popular form of trading, and multiple online brokers have platforms to support traders along their journey. Some online brokers, including IBKR and E*TRADE, have multiple platforms to appeal to different options traders—one platform that provides the ability to do in-depth options analysis and trading, and a second platform for less technical traders that is less intimidating. E*TRADE is an excellent choice for more casual traders because of E*TRADE Mobile’s easy-to-use interface, while Interactive Brokers remains our top choice for the most demanding traders and for the best mobile app for options trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> Schwab is our top choice for those looking to start trading options because of its educational content and training guides, as well as the ability to paper trade before committing capital. Webull may not be a great choice for those looking for assistance in building a portfolio, but is an easy-to-use platform that offers zero-commission options trading. Ultimately, tastytrade is our top overall choice for options trading because of its options-friendly fees and commissions, powerful trading platform, excellent trading technology and analytics, and industry-leading options-specific content, which is critical to helping traders learn how to master this complicated form of derivatives trading.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <span class="heading-toc" id="toc-compare-the-best-options-trading-platforms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_116-0"> <span class="mntl-sc-block-heading__text"> Compare the Best Options Trading Platforms </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_117-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>Company</th> <th>Account Minimum</th> <th>Fee &amp; Commissions</th> <th>Legs</th> </tr> </thead> <tbody data-check="0"> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" rel="noopener noreferrer sponsored nofollow">tastytrade </a></b></td> <td>$0<span data-cite="46"></span></td> <td>$1 per contract opened with a $10 cap, plus a $0.10 clearing fee per contract</td> <td>4</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.schwab.com" rel="noopener noreferrer sponsored nofollow">Charles Schwab</a></b></td> <td>$0<span data-cite="47"></span></td> <td>$0.65 per contract<span data-cite="48"></span></td> <td>4</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="noopener noreferrer sponsored nofollow">Interactive Brokers</a></b></td> <td>$0<span data-cite="49"></span></td> <td>$0.65 for IBKR Lite Platform; IBKR Pro has tiered commissions based on volume that range from $0.65 per contract to as low as $0.15 per contract<span data-cite="50"></span></td> <td>6</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.webull.com/activity?source=Investopedia-Per" rel="noopener noreferrer sponsored nofollow">Webull</a></b></td> <td>$0<span data-cite="52"></span></td> <td>$0.55 per contract<span data-cite="52"></span></td> <td>4</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://us.etrade.com/" rel="noopener noreferrer sponsored nofollow">E*TRADE</a></b></td> <td>$0<span data-cite="53"></span></td> <td>$0.65 per contract if there are less than 30 trades per quarter; discounted to $0.50 per contract if 30 or more trades are made per quarter<span data-cite="54"></span></td> <td>4</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block has-details inline-video" id="mntl-sc-block_119-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/pizsSJMQ/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0">Everything You Need to Know About Brokerage Accounts</h4> <div class="comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block" id="mntl-sc-block-inlinevideo__feature-link-wrapper_1-0"><span class="comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link" id="mntl-sc-block-inlinevideo__feature-link_1-0"></span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <span class="heading-toc" id="toc-guide-to-choosing-an-options-trading-platform"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_121-0"> <span class="mntl-sc-block-heading__text"> Guide to Choosing an Options Trading Platform </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/options-basics-tutorial-4583012">options contract</a> gives the holder the right—but not the obligation—to buy or sell the underlying asset at a set “strike” price on or before a certain expiration date. The purchase price of the option is called the premium. A call option gives the owner the right to <em>buy </em>a stock at a set price and by a certain time, while a put option gives the owner the right to <em>sell </em>a stock at a set price by a certain time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_123-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_124-0"> Options, which can be used to hedge or speculate, are called derivatives because their value is derived by the price movement of the underlying stock or ETF. Since stocks and ETFs usually have multiple call and put option contracts spanning different expiration dates and strike prices, different combinations of options can be used to create specific strategies for expectations of price movement or stability while controlling risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_125-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_126-0"> The basic options for price expectations are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_127-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_128-0"> <li>If you expect the stock price to rise: Buy a call option or sell a put option.</li><li>If you expect the stock price to fall: Buy a put option or sell a call option.</li><li>If you expect the stock price to remain stable: Sell a call option and/or sell a put option with the strike price near the current price for either or both options.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_129-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_130-0"> <span class="mntl-sc-block-subheading__text"> Leverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> One important feature of options to understand is that the risk for the buyer of a put or call option is limited to the amount of premium they pay for the option, while the seller of the option would have theoretically unlimited risk on a call (because the price can keep going up indefinitely). For the seller of puts, the option has risk limited to the stock price going to zero. Therefore, sellers of options, unless hedged, are usually exposed to significantly higher risk than the premium they received for the options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_133-0"> Another important concept with options is the leverage they afford. An exchange-traded options contract on a listed stock or ETF represents a contract for 100 shares of the underlying stock. Therefore, the out-of-pocket cost for a stock option is 100 times the price it is trading at because the contract is for 100 shares. Buying an option allows a trader to have control of 100 shares of stock by only laying out a small portion of the underlying value of the stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_135-0"> For example, if a stock is trading at $100, to purchase one hundred shares would cost $10,000 ($100 x 100 shares). But, an option may only cost a few dollars per contract to control a large number of shares. A call option trading at $5 would cost just $500 (100 shares x $5 option premium) to control 100 shares of stock worth $10,000. So, there is a good deal of leverage associated with using options to speculate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_137-0"> <span class="mntl-sc-block-subheading__text"> How to Start </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_138-0"> Investors need to open an account with a brokerage firm that supports options trading, and those with existing accounts at brokers that support options will need the broker’s approval to trade options. Your application will be approved or denied after providing details about your investment objectives, trading experience, and financial situation (e.g., annual income, employment details, net worth, and total net worth). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_139-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> If approved, your broker will let you know which options level you're approved to trade; this determines the types of options strategies you are permitted to use. Depending on your broker and options strategy, you may also need approval for margin privileges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_142-0"> The type of options you are approved to trade and the broker’s policies will help determine the minimum investment amount required for options trading. In general, $1,000 is the minimum required deposit for level 1 (entry-level) options trading, but the minimum deposit can be at least $10,000 for level 2 or level 3 options trading. Even if the required minimum is low, it's always a good idea to have at least $5,000 to $10,000 to start trading options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_143-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_144-0"> Once approved for options trading, the next step is determining if you want to use options to hedge or speculate, and then which options strategies are best for you. This is best accomplished by using an option chain or matrix that lists all the expirations and strike prices for a stock to help you choose the right option for your market expectations. Expiration dates can range from days to months to years, depending on the liquidity of the underlying stock. Generally, the shorter the timeframe for an option, the riskier the option is because options are a decaying asset due to their having an expiration date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_145-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_146-0"> <span class="mntl-sc-block-subheading__text"> What to Consider </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_147-0"> The first and most important piece of information to consider before selecting an options trading account is what kind of trader you are. What is your trading style and risk appetite? Which options strategies do you want to employ? Do you want to hedge or use income strategies against a stock or ETF holding, or to speculate? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_148-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_149-0"> Generally, the prices of most options are fair, meaning the option you choose to speculate with is a personal choice. Some traders prefer to enter into options strategies with a high probability of making a small amount of money, while others prefer to be right less often but for larger payouts when they are correct. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_150-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_151-0"> The quality of the education offered by a broker can be very helpful for those just getting started with options trading. Frequent traders and those who trade a large number of contracts will be more sensitive to commissions and fees, so check out your prospective broker's charges and make sure you understand them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_152-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_153-0"> While costs are one consideration when choosing an options broker and trading platform, there are other factors to weigh. If you are a new trader, it will be helpful to have a broker that offers substantial educational offerings, such as articles, videos, and webinars. Intermediate and advanced traders will want a robust trading platform and a full suite of options-specific trading tools and resources. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_154-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_155-0"> <span class="mntl-sc-block-subheading__text"> Common Strategies </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_156-0"> Using options against a current stock or ETF holding is a common options strategy used by investors, and can be done in two basic ways. One is a strategy to increase income by selling covered calls against a stock or ETF holding; the option is said to be "covered" because the worst that can happen to the option seller is using the stock you own to make delivery on the exercised call option you sold, which limits your upside on your stock holding. The upside is the option not being exercised, so the seller of the covered call keeps their stock and the premium they sold the covered call option for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_157-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_158-0"> Another common option strategy against a stock holding is to hedge the stock or ETF holding by purchasing puts against their holding. If, for example, the owner of a stock wants to keep a long-term stock holding, but thinks the stock may move lower in the short term, they can purchase a put on the stock. This way, if the stock moves lower, the put option will go up in value to hedge the losses to the actual stock holding. The downside is that the option expires worthless if the stock price stays above the strike price, but the position was protected if the stock moved lower. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_159-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_160-0"> Again, remember the risk associated with purchasing the option or selling it to ensure you have the right exposure to price changes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_161-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_162-0"><span class="heading-toc" id="toc-what-is-options-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Options Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Options trading is the purchase or sale of financial contracts that allow the owner the right, but not the obligation, to buy (a call option) or sell (a put option) a specific stock, ETF, futures contract, currency, or other underlying asset for a specific price (strike price) by a certain maturity date. Unlike owning a stock, however, options expire worthless if the price of the stock does not make it economically worthwhile to exercise the option by its maturity date. Options purchasers limit their risk to the cost of the option, while option sellers are exposed to potentially unlimited risk. Options can be used to hedge, or speculate with greater leverage than purchasing the underlying stock.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_163-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_164-0"><span class="heading-toc" id="toc-is-options-trading-worth-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Options Trading Worth It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Options are a tool that can be used to hedge or speculate. Generally, a common option on a liquid stock will provide a fair value relative to the stock’s price and past price movements. However, that does not mean options trading is right for you. With options, you can be right but still lose money if your timing is poor, and options can be quite volatile. But the owner of a stock can use puts to offset a stock’s losses if its price moves lower, or could sell covered calls against their stock position to generate additional income with limited risk. So, financial options are a powerful tool that is worth using if it meets your objectives and risk tolerances.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_165-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_166-0"><span class="heading-toc" id="toc-is-trading-options-gambling"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Trading Options Gambling?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>With any form of speculation, whether it be investing in popular assets like real estate or stocks, positive returns are not guaranteed. Options traders use this form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/070815/what-are-main-risks-associated-trading-derivatives.asp">derivatives trading</a> to take calculated risks. Some people want higher-risk growth stocks, and others want quiet companies that pay a consistent dividend. They each have their positive and negative attributes, depending on your investment objectives. Yes, options can be used to speculate with a great deal of risk, but they can also be used to reduce risk, lock in profits, or take very specific positions based on timing and price expectations. Again, options are a very valuable tool for speculators and hedgers alike.  </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_167-0"></div> <span class="heading-toc" id="toc-how-we-picked-the-best-online-brokers-and-trading-platforms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_168-0"> <span class="mntl-sc-block-heading__text"> How We Picked the Best Online Brokers and Trading Platforms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_169-0"> Providing readers with unbiased, comprehensive reviews of online brokers and trading platforms is a top priority for Investopedia. We combined our industry research, subject matter expertise, and investor survey data to guide the research and weightings for our 2024 online broker awards. To collect the data, we sent a digital survey with 110 questions to each of the 26 companies we included in our rubric. Additionally, our team of researchers verified the survey responses and collected any missing data points through online research and conversations with each company directly. The data collection process spanned from Feb. 19 to March 19, 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_170-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_171-0"> We then developed a proprietary model that scored each company to rate its performance across 11 major categories and 89 criteria to find the best online brokers and trading platforms. The score for each company’s overall star rating is a weighted average of the criteria in the following categories:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_172-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_173-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/hVT26/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Online Broker Evaluation Categories "></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_174-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_175-0"> Additionally, during our 2024 research, many of the companies we reviewed gave us live demonstrations of their platforms and services via video conferencing methods and also granted our team of expert writers and editors access to live accounts so they could perform hands-on testing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_176-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_177-0"> Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top online brokers and trading platforms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_178-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_179-0"> Learn more about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/broker-ranking-methodology-4587135">how we review online brokers</a>. </p> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div></div>

The best options trading platforms offer a broad list of features that includes robust research amenities, easy order entry, low pricing, actionable content, strong customizability, and good execution. In addition, given the complexity of this form of derivatives trading, the best platforms for trading options will also offer good educational resources, along with responsive and knowledgeable customer support.   After hundreds of hours of comprehensive research, data analysis, and live broker platform demos, tastytrade is our best overall online brokerage for trading options because of how it optimizes its pricing, user experience, and content to suit the needs of its options-focused client base. Tastytrade is just one of 26 online brokers that we evaluated based on 89 criteria, including available assets, account services, user experience, and additional features. ## Best Options Trading Platforms of 2024 * Best Overall: [**tastytrade**](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1) * Best for Beginner Options Traders: [**Charles Schwab**](http://www.schwab.com) * Best for Advanced Traders: [**Interactive Brokers**](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) * Best for Mobile Options Trading: [**Interactive Brokers**](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) * Best for Low-Cost Options Trading: [**Webull**](https://www.webull.com/activity?source=Investopedia-Per) * Best for Casual Options Traders: [**E\*TRADE**](https://us.etrade.com/) ## Best Overall: tastytrade [:max_bytes(150000):strip_icc()/tastytradelogo-454669c3e9e543468182244f6f493b38.png)](https://www.investopedia.com/tastytrade-review-4587986) [Open an Account](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1) * **Account** **Minimum**: $0 * **Fees & Commissions**: $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close [Read full review](https://www.investopedia.com/tastytrade-review-4587986) [Open an Account](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1) ## Why We Chose It We chose tastytrade as the best options broker because of its low pricing for options trading, excellent technology for analyzing and trading options, actionable options-focused educational content, and top-tier customer support. The cost of trading options starts lower than most online brokers, and tastytrade offers caps on these competitive commission rates that allow higher volume traders to gain substantial economies of scale on options trading costs.    ## Pros & Cons Pros * Low costs, especially for higher volume traders * Intuitive and easy-to-use trading platform * Strong research and analytical tools * Excellent educational content Cons * Fee structure favors more active traders * Limited product offerings * Learning curve for the platform * No interest on cash balances ## Overview Tastytrade, based in Chicago, was developed in 2017 by the founders/developers of TD Ameritrade’s (now owned by Schwab) thinkorswim app, which is one of the best options analysis trading tools. Originally called tastyworks until changing its name in 2023, tastytrade has developed an excellent trading platform that offers stocks and ETFs, and an even stronger focus on options and futures trading. Tastytrade also offers cryptocurrency trading, but its offerings in fixed income are limited and expensive, and the company does not offer mutual funds. In addition to lower options fees for trading a single option, tastytrade’s fees are significantly lower if you trade multiple contracts. Like most online brokers today, tastytrade offers commission-free stock and ETF trading. Its fees for options trading are just $1 on the first side of a trade, and there is no charge to close out a position, which averages out to $0.50 per contract per side. Tastytrade’s pricing compares favorably to the $0.65 per contract charge for both entering and exiting an options trade that is common across online brokers today. But more importantly, tastytrade also caps option commissions at just $10 per round trip, plus a $0.10 clearing fee per contract. This means that larger-size trades become more economical, especially when looking at multi-leg trades.  By taking user feedback into account, tastytrade has developed an interface that is highly functional. In addition to offering tools that allow users to look at different probabilities on different trades, the platform also allows users to compare different options against each other in a way that goes beyond displaying an [options chain](https://www.investopedia.com/terms/o/optionchain.asp). Support for fractional share trading and specialized educational content along the user journey are other key features that help tastytrade stand out above the competition.  While tastytrade stands out for its options-specific educational content and live programming, simplified order entry, and volume-based trading discounts, less frequent traders with a propensity to hold higher cash levels should note that the platform pays basically nothing on uninvested cash balances.  ## Best for Beginner Options Traders: Charles Schwab [:max_bytes(150000):strip_icc()/charles-schwab-productcard-5c742da0c9e77c00010d6c5b.png)](https://www.investopedia.com/charles-schwab-review-4587888) [Open an Account](https://www.schwab.com/) * **Account Minimum**: $0 * **Fees**: $0 for stock/ETF trades, $0.65 per contract for options [Read full review](https://www.investopedia.com/charles-schwab-review-4587888) [Open an Account](https://www.schwab.com/) ## Why We Chose It ### Best for Beginner Options Traders Adding options trading to one’s financial toolbox is a big step that requires a good deal of learning and experience, and Schwab’s platform provides it. Schwab has an array of educational materials to help new options traders, including guides, live training, actionable options-specific content, and now, following Schwab’s acquisition of TD Ameritrade, the well-regarded thinkorswim platform. Further, Schwab also supports [paper trading](https://www.investopedia.com/terms/p/papertrade.asp) that allows new options traders to practice in a simulated environment before they commit real capital.  ## Pros & Cons Pros * Platforms for all customer types * Thinkorswim integrated into the platform * Educational materials and guides for beginners * Options screening tools Cons * Higher margin rates * Low returns on cash balances * Options fees applied on all legs of the trade ## Overview One of the nation's first [discount brokerage](https://www.investopedia.com/best-brokers-for-low-costs-4587874) companies, Schwab was incorporated in California in 1973 by Charles “Chuck” Schwab in response to the deregulation of brokerage commissions. Over the years, Schwab has become one of the leading online brokers, with more than 34 million accounts and more than $7.3 trillion in client assets. Schwab completed its acquisition of TD Ameritrade in 2023, which brought the thinkorswim application to Schwab and allowed the company to expand its operations to include foreign exchange and futures. Schwab is a huge firm that offers multiple markets, account types, and platforms to its customers. Essentially, the firm is a full-service broker, but with the mindset of a discount broker. Schwab was an early adopter of zero-commission stock trading, and the company has done a lot to help traders of all levels become self-sufficient in managing their own money. As part of this support, Schwab has an extensive amount of educational content and multiple tools to help traders. Schwab has integrated the thinkorswim program that it acquired when it bought TD Ameritrade into its platform. In addition to offering some of the industry’s top options analytics, thinkorswim also gives users the ability to paper trade before committing real capital to the market. Schwab’s options interface allows users to pick a specific options strategy and easily choose the specific contracts for their chosen strategy.  In addition, Schwab offers options screeners that help users identify promising options strategies. Schwab supports many markets, and its technology and other support structures are strong. However, margin rates, which start at 13.575% on balances up to $25,000, are higher than many competitors. For instance, Interactive Brokers’ comparable rate is 7.83%, while Webull’s is 9.74%. Schwab’s options commissions are pretty standard, at $0.65 per contract. This may not be a rate that attracts high-volume options traders, but the costs to trade options at Schwab are reasonable.  ## Best for Advanced Options Traders and Best for Mobile Options Trading: Interactive Brokers [:max_bytes(150000):strip_icc()/interactive_brokers_productcard-5c61eec746e0fb0001f25462.png)](https://www.investopedia.com/interactive-brokers-review-4587904) [Open an Account](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) * **Account Minimum:** $0.00 * **Fees:**$0.00 commissions for equities/ETFs available on IBKR’s TWS Lite, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Lite; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures. [Read full review](https://www.investopedia.com/interactive-brokers-review-4587904) [Open an Account](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) ## Why We Chose It ### Best for Advanced Options Traders Interactive Brokers (IBKR) is a long-time leader in trading technology. When combined, the platform's options-specific research tools, content, order routing capabilities, order types, algorithmic trading capabilities, and industry-leading low margin rates make it the best choice for advanced options traders. ### Best for Mobile Options Trading IBKR now offers three mobile platforms, with its top-end mobile platform, IBKR Mobile, delivering traders a full range of [options strategies](https://www.investopedia.com/trading/options-strategies/) and some exciting analytical tools, all on a clean and easy-to-use platform. IBKR Mobile's Options Wizard and Options Analysis features, along with its simple order staging process, are key reasons why IBKR is our choice for best online broker for mobile options trading. ## Pros & Cons Pros * Low commission and margin rates * Excellent trading technology * Widest breadth of products available anywhere * Platforms for professional and less sophisticated traders Cons * Platforms can be intimidating * Complex commission schedules * Limited access to IPOs and OTC Stocks ## Overview Interactive Brokers (IBKR) was founded in 1977 and is headquartered in Greenwich, Connecticut. IBKR is one of the first companies to utilize technology in financial markets, and the company continues to be an innovator in the industry. IBKR’s roots are in supporting institutional traders and sophisticated high-volume traders. Consistent with this, IBKR has the lowest margin rates of any of the [online brokers](https://www.investopedia.com/best-online-brokers-4587872), and it also pays a fair interest rate on cash balances greater than $10,000.  Today, IBKR caters to both institutional and retail trading customers and has two plans to choose from: IBKR Lite, which offers commission-free stock and ETF trading, or IBKR Pro. The Pro plan has all the bells and whistles, such as the ability to control order routing, perform analytics, and trade directly from charts, but also has a more complicated commission schedule that is tiered based on monthly trading volume. IBKR offers excellent screeners for bonds, mutual funds, ETFs, equities, and options that can be customized, and news and other third-party services and APIs can also be incorporated into the IBKR platform. No broker in the world comes close to IBKR when it comes to the incredible breadth of trading vehicles and global markets available on a single platform, and IBKR has created the apps needed for professional traders to manage their positions when on the go. This sophisticated technology is also available to everyday traders who want full functionality. IBKR's GlobalTrader app is a more streamlined and easy-to-use app that is available for less demanding traders more focused on stocks, ETFs, options, and mutual funds. While most brokers support up to four-leg options strategies, the IBKR Mobile app supports six-leg options strategies. IBKR Mobile’s options functionality includes spread templates to easily compare similar strategies in order to find the best risk/return trades. The mobile platform also provides analytical tools and the ability to analyze probabilities of options trades. IBKR Mobile also has a neat Options Wizard that allows users to express their price opinions on a stock, receive suggested options strategies, and execute with one-tap trading to take advantage of that forecast. Options trading on IBKR Mobile does not leave out the desktop functionality, which is our choice for best mobile app for options trading.  ## Best for Low-Cost Options Trading: Webull [:max_bytes(150000):strip_icc()/WebullLogo-0728cf59141c4d76aa3c3e3ae1945d40.jpg)](https://www.investopedia.com/webull-review-5201033) [Open an Account](https://www.webull.com/activity?source=Investopedia-Per) * **Account Minimum**: $0 * **Fees**: $0 commissions for stock, ETF, and options [Read full review](https://www.investopedia.com/webull-review-5201033) [Open an Account](https://www.webull.com/activity?source=Investopedia-Per) ## Why We Chose It ### Best for Low-Cost Options Trading Webull is our choice for the best low-cost options trading platform because it allows users to trade U.S. exchange-listed options for free, using an impressive array of trading and analytical features.  ## Pros & Cons Pros * Commission-free stock, ETF, and options trading * Easy-to-use platform * Competitive interest rate paid on idle cash * Supports futures trading * Powerful charting features Cons * Not a full-service broker * Limited portfolio management tools * No fixed income or mutual funds ## Overview Webull, which only launched as a broker-dealer in 2018, is a low-cost trading platform that is appealing to beginner and intermediate traders because of its powerful and highly customizable platforms, commission-free stock and ETF trading, $0 account minimums, and outstanding user experience. While it has become pretty standard for online brokers to offer zero-commission stock and ETF trading, Webull’s zero commissions for U.S. Exchange listed options is uncommon, and has traders looking to join the platform for the low-cost options trading. In addition, Webull fully extended trading hours to its customers, along with offering some of the most competitive APYs on uninvested cash in the industry.  Webull’s platform is more for traders than investors, as it has very little in the way of tools for portfolio analysis and portfolio creation. Webull does, however, offer some educational content on its website, and the company has also added futures trading to its platform.  Similar to several of its top competitors, such as Robinhhod and eToro, Webull receives [payment for order flow](https://www.investopedia.com/terms/p/paymentoforderflow.asp) for stock, ETF, and options trading as a way to offer commission-free trading, but this may impact the quality of order execution. That said, placing orders through Webull’s platforms is very easy. Webull has the lowest options rates because it does not charge commissions for options trades. ## Best for Casual Options Traders: E\*TRADE [:max_bytes(150000):strip_icc()/Etrade2022-22aa6950945a4c6c9b263e56e4263fba.jpg)](https://www.investopedia.com/e-trade-review-4587893) [Open an Account](https://us.etrade.com/) * **Account** **Minimum**: $0 * **Fees**: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. [Read full review](https://www.investopedia.com/e-trade-review-4587893) [Open an Account](https://us.etrade.com/) ## Why We Chose It ### Best for Casual Options Traders While some options traders want all the functionality offered by their trading platform, others are more casual in their trading approach, and seek a balance between functionality and ease of use. E\*TRADE offers platforms for both types of traders, and with its sleek and powerful app, E\*TRADE Mobile is our choice for the best platform for casual options traders.  ## Pros & Cons Pros * Industry-best mobile apps for investors and traders * Excellent educational content * Top-tier research amenities and resources * Strong portfolio analytics Cons * Low interest rates on uninvested cash * No fractional share trading outside of robo-investing * No access to international exchanges * No direct access to cryptocurrencies ## Overview E\*TRADE was established in 1982 in California and was purchased by New York City-based Morgan Stanley in 2020. It was one of the earliest online brokers and took advantage of the introduction of the internet era to expand its business. E\*TRADE offers a large range of investment and trading options that includes all major U.S. markets, as well as mutual funds, stocks and ETFs, options, bonds, and futures.  E\*TRADE has millions of accounts with trillions of dollars in client assets. Its various platforms are designed to work for the company’s diverse customer base. E\*TRADE Mobile is a more straightforward platform for traders and investors who do not need every bell and whistle. The company’s Power E\*TRADE mobile platform, on the other hand, is designed for day traders and other sophisticated traders. In addition to the available mobile apps, E\*TRADE also offers a website interface and desktop platforms that mirror the functionality of the mobile apps. As you would expect from a large brokerage company with a broad range of client types, E\*TRADE offers a lot of helpful educational content, as well as tools to help analyze and research trading ideas. The company has good screeners and analytical tools and even offers pre-built portfolio builder options for passive and beginner investors.  The E\*TRADE Mobile app is best for traders and investors who do not want an overly complex platform; the company designed it with the idea of creating a good balance of function and simplicity. Options trading on E\*TRADE Mobile is easy and intuitive for those looking to enter options positions in a more casual way. E\*TRADE’s options commissions are pretty standard, at $0.65 per contract, but the broker does offer a discount of $0.50 per contract if you make more than 30 options trades in a quarter. These costs are not the lowest, which very active options seekers may want, but they are reasonable for the more casual trader who wants to have the flexibility that E\*TRADE offers for multiple products.  ## The Bottom Line Options trading has become an increasingly popular form of trading, and multiple online brokers have platforms to support traders along their journey. Some online brokers, including IBKR and E\*TRADE, have multiple platforms to appeal to different options traders—one platform that provides the ability to do in-depth options analysis and trading, and a second platform for less technical traders that is less intimidating. E\*TRADE is an excellent choice for more casual traders because of E\*TRADE Mobile’s easy-to-use interface, while Interactive Brokers remains our top choice for the most demanding traders and for the best mobile app for options trading. Schwab is our top choice for those looking to start trading options because of its educational content and training guides, as well as the ability to paper trade before committing capital. Webull may not be a great choice for those looking for assistance in building a portfolio, but is an easy-to-use platform that offers zero-commission options trading. Ultimately, tastytrade is our top overall choice for options trading because of its options-friendly fees and commissions, powerful trading platform, excellent trading technology and analytics, and industry-leading options-specific content, which is critical to helping traders learn how to master this complicated form of derivatives trading.  ## Compare the Best Options Trading Platforms | Company | Account Minimum | Fee & Commissions | Legs | | --- | --- | --- | --- | | **[tastytrade](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1)** | $0 | $1 per contract opened with a $10 cap, plus a $0.10 clearing fee per contract | 4 | | **[Charles Schwab](http://www.schwab.com)** | $0 | $0.65 per contract | 4 | | **[Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php)** | $0 | $0.65 for IBKR Lite Platform; IBKR Pro has tiered commissions based on volume that range from $0.65 per contract to as low as $0.15 per contract | 6 | | **[Webull](https://www.webull.com/activity?source=Investopedia-Per)** | $0 | $0.55 per contract | 4 | | **[E\*TRADE](https://us.etrade.com/)** | $0 | $0.65 per contract if there are less than 30 trades per quarter; discounted to $0.50 per contract if 30 or more trades are made per quarter | 4 | #### Everything You Need to Know About Brokerage Accounts ## Guide to Choosing an Options Trading Platform An [options contract](https://www.investopedia.com/options-basics-tutorial-4583012) gives the holder the right—but not the obligation—to buy or sell the underlying asset at a set “strike” price on or before a certain expiration date. The purchase price of the option is called the premium. A call option gives the owner the right to *buy* a stock at a set price and by a certain time, while a put option gives the owner the right to *sell* a stock at a set price by a certain time. Options, which can be used to hedge or speculate, are called derivatives because their value is derived by the price movement of the underlying stock or ETF. Since stocks and ETFs usually have multiple call and put option contracts spanning different expiration dates and strike prices, different combinations of options can be used to create specific strategies for expectations of price movement or stability while controlling risk. The basic options for price expectations are: * If you expect the stock price to rise: Buy a call option or sell a put option. * If you expect the stock price to fall: Buy a put option or sell a call option. * If you expect the stock price to remain stable: Sell a call option and/or sell a put option with the strike price near the current price for either or both options. ### Leverage One important feature of options to understand is that the risk for the buyer of a put or call option is limited to the amount of premium they pay for the option, while the seller of the option would have theoretically unlimited risk on a call (because the price can keep going up indefinitely). For the seller of puts, the option has risk limited to the stock price going to zero. Therefore, sellers of options, unless hedged, are usually exposed to significantly higher risk than the premium they received for the options. Another important concept with options is the leverage they afford. An exchange-traded options contract on a listed stock or ETF represents a contract for 100 shares of the underlying stock. Therefore, the out-of-pocket cost for a stock option is 100 times the price it is trading at because the contract is for 100 shares. Buying an option allows a trader to have control of 100 shares of stock by only laying out a small portion of the underlying value of the stock. For example, if a stock is trading at $100, to purchase one hundred shares would cost $10,000 ($100 x 100 shares). But, an option may only cost a few dollars per contract to control a large number of shares. A call option trading at $5 would cost just $500 (100 shares x $5 option premium) to control 100 shares of stock worth $10,000. So, there is a good deal of leverage associated with using options to speculate. ### How to Start Investors need to open an account with a brokerage firm that supports options trading, and those with existing accounts at brokers that support options will need the broker’s approval to trade options. Your application will be approved or denied after providing details about your investment objectives, trading experience, and financial situation (e.g., annual income, employment details, net worth, and total net worth). If approved, your broker will let you know which options level you're approved to trade; this determines the types of options strategies you are permitted to use. Depending on your broker and options strategy, you may also need approval for margin privileges. The type of options you are approved to trade and the broker’s policies will help determine the minimum investment amount required for options trading. In general, $1,000 is the minimum required deposit for level 1 (entry-level) options trading, but the minimum deposit can be at least $10,000 for level 2 or level 3 options trading. Even if the required minimum is low, it's always a good idea to have at least $5,000 to $10,000 to start trading options. Once approved for options trading, the next step is determining if you want to use options to hedge or speculate, and then which options strategies are best for you. This is best accomplished by using an option chain or matrix that lists all the expirations and strike prices for a stock to help you choose the right option for your market expectations. Expiration dates can range from days to months to years, depending on the liquidity of the underlying stock. Generally, the shorter the timeframe for an option, the riskier the option is because options are a decaying asset due to their having an expiration date. ### What to Consider The first and most important piece of information to consider before selecting an options trading account is what kind of trader you are. What is your trading style and risk appetite? Which options strategies do you want to employ? Do you want to hedge or use income strategies against a stock or ETF holding, or to speculate? Generally, the prices of most options are fair, meaning the option you choose to speculate with is a personal choice. Some traders prefer to enter into options strategies with a high probability of making a small amount of money, while others prefer to be right less often but for larger payouts when they are correct. The quality of the education offered by a broker can be very helpful for those just getting started with options trading. Frequent traders and those who trade a large number of contracts will be more sensitive to commissions and fees, so check out your prospective broker's charges and make sure you understand them. While costs are one consideration when choosing an options broker and trading platform, there are other factors to weigh. If you are a new trader, it will be helpful to have a broker that offers substantial educational offerings, such as articles, videos, and webinars. Intermediate and advanced traders will want a robust trading platform and a full suite of options-specific trading tools and resources. ### Common Strategies Using options against a current stock or ETF holding is a common options strategy used by investors, and can be done in two basic ways. One is a strategy to increase income by selling covered calls against a stock or ETF holding; the option is said to be "covered" because the worst that can happen to the option seller is using the stock you own to make delivery on the exercised call option you sold, which limits your upside on your stock holding. The upside is the option not being exercised, so the seller of the covered call keeps their stock and the premium they sold the covered call option for. Another common option strategy against a stock holding is to hedge the stock or ETF holding by purchasing puts against their holding. If, for example, the owner of a stock wants to keep a long-term stock holding, but thinks the stock may move lower in the short term, they can purchase a put on the stock. This way, if the stock moves lower, the put option will go up in value to hedge the losses to the actual stock holding. The downside is that the option expires worthless if the stock price stays above the strike price, but the position was protected if the stock moved lower. Again, remember the risk associated with purchasing the option or selling it to ensure you have the right exposure to price changes. ## What Is Options Trading? Options trading is the purchase or sale of financial contracts that allow the owner the right, but not the obligation, to buy (a call option) or sell (a put option) a specific stock, ETF, futures contract, currency, or other underlying asset for a specific price (strike price) by a certain maturity date. Unlike owning a stock, however, options expire worthless if the price of the stock does not make it economically worthwhile to exercise the option by its maturity date. Options purchasers limit their risk to the cost of the option, while option sellers are exposed to potentially unlimited risk. Options can be used to hedge, or speculate with greater leverage than purchasing the underlying stock. ## Is Options Trading Worth It? Options are a tool that can be used to hedge or speculate. Generally, a common option on a liquid stock will provide a fair value relative to the stock’s price and past price movements. However, that does not mean options trading is right for you. With options, you can be right but still lose money if your timing is poor, and options can be quite volatile. But the owner of a stock can use puts to offset a stock’s losses if its price moves lower, or could sell covered calls against their stock position to generate additional income with limited risk. So, financial options are a powerful tool that is worth using if it meets your objectives and risk tolerances. ## Is Trading Options Gambling? With any form of speculation, whether it be investing in popular assets like real estate or stocks, positive returns are not guaranteed. Options traders use this form of [derivatives trading](https://www.investopedia.com/ask/answers/070815/what-are-main-risks-associated-trading-derivatives.asp) to take calculated risks. Some people want higher-risk growth stocks, and others want quiet companies that pay a consistent dividend. They each have their positive and negative attributes, depending on your investment objectives. Yes, options can be used to speculate with a great deal of risk, but they can also be used to reduce risk, lock in profits, or take very specific positions based on timing and price expectations. Again, options are a very valuable tool for speculators and hedgers alike.   ## How We Picked the Best Online Brokers and Trading Platforms Providing readers with unbiased, comprehensive reviews of online brokers and trading platforms is a top priority for Investopedia. We combined our industry research, subject matter expertise, and investor survey data to guide the research and weightings for our 2024 online broker awards. To collect the data, we sent a digital survey with 110 questions to each of the 26 companies we included in our rubric. Additionally, our team of researchers verified the survey responses and collected any missing data points through online research and conversations with each company directly. The data collection process spanned from Feb. 19 to March 19, 2024. We then developed a proprietary model that scored each company to rate its performance across 11 major categories and 89 criteria to find the best online brokers and trading platforms. The score for each company’s overall star rating is a weighted average of the criteria in the following categories: Additionally, during our 2024 research, many of the companies we reviewed gave us live demonstrations of their platforms and services via video conferencing methods and also granted our team of expert writers and editors access to live accounts so they could perform hands-on testing. Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top online brokers and trading platforms. Learn more about [how we review online brokers](https://www.investopedia.com/broker-ranking-methodology-4587135).

The best options trading platforms offer a broad list of features that includes robust research amenities, easy order entry, low pricing, actionable content, strong customizability, and good execution. In addition, given the complexity of this form of derivatives trading, the best platforms for trading options will also offer good educational resources, along with responsive and knowledgeable customer support.   After hundreds of hours of comprehensive research, data analysis, and live broker platform demos, tastytrade is our best overall online brokerage for trading options because of how it optimizes its pricing, user experience, and content to suit the needs of its options-focused client base. Tastytrade is just one of 26 online brokers that we evaluated based on 89 criteria, including available assets, account services, user experience, and additional features. Best Options Trading Platforms of 2024 Best Overall: tastytrade Best for Beginner Options Traders: Charles Schwab Best for Advanced Traders: Interactive Brokers Best for Mobile Options Trading: Interactive Brokers Best for Low-Cost Options Trading: Webull Best for Casual Options Traders: E*TRADE Best Overall: tastytrade Open an Account Account Minimum: $0 Fees & Commissions: $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close Read full review Open an Account Why We Chose It We chose tastytrade as the best options broker because of its low pricing for options trading, excellent technology for analyzing and trading options, actionable options-focused educational content, and top-tier customer support. The cost of trading options starts lower than most online brokers, and tastytrade offers caps on these competitive commission rates that allow higher volume traders to gain substantial economies of scale on options trading costs.    Pros & Cons Pros Low costs, especially for higher volume traders Intuitive and easy-to-use trading platform Strong research and analytical tools Excellent educational content Cons Fee structure favors more active traders Limited product offerings Learning curve for the platform No interest on cash balances Overview Tastytrade, based in Chicago, was developed in 2017 by the founders/developers of TD Ameritrade’s (now owned by Schwab) thinkorswim app, which is one of the best options analysis trading tools. Originally called tastyworks until changing its name in 2023, tastytrade has developed an excellent trading platform that offers stocks and ETFs, and an even stronger focus on options and futures trading. Tastytrade also offers cryptocurrency trading, but its offerings in fixed income are limited and expensive, and the company does not offer mutual funds. In addition to lower options fees for trading a single option, tastytrade’s fees are significantly lower if you trade multiple contracts. Like most online brokers today, tastytrade offers commission-free stock and ETF trading. Its fees for options trading are just $1 on the first side of a trade, and there is no charge to close out a position, which averages out to $0.50 per contract per side. Tastytrade’s pricing compares favorably to the $0.65 per contract charge for both entering and exiting an options trade that is common across online brokers today. But more importantly, tastytrade also caps option commissions at just $10 per round trip, plus a $0.10 clearing fee per contract. This means that larger-size trades become more economical, especially when looking at multi-leg trades.  By taking user feedback into account, tastytrade has developed an interface that is highly functional. In addition to offering tools that allow users to look at different probabilities on different trades, the platform also allows users to compare different options against each other in a way that goes beyond displaying an options chain. Support for fractional share trading and specialized educational content along the user journey are other key features that help tastytrade stand out above the competition.  While tastytrade stands out for its options-specific educational content and live programming, simplified order entry, and volume-based trading discounts, less frequent traders with a propensity to hold higher cash levels should note that the platform pays basically nothing on uninvested cash balances.  Best for Beginner Options Traders: Charles Schwab Open an Account Account Minimum: $0 Fees: $0 for stock/ETF trades, $0.65 per contract for options Read full review Open an Account Why We Chose It Best for Beginner Options Traders Adding options trading to one’s financial toolbox is a big step that requires a good deal of learning and experience, and Schwab’s platform provides it. Schwab has an array of educational materials to help new options traders, including guides, live training, actionable options-specific content, and now, following Schwab’s acquisition of TD Ameritrade, the well-regarded thinkorswim platform. Further, Schwab also supports paper trading that allows new options traders to practice in a simulated environment before they commit real capital.  Pros & Cons Pros Platforms for all customer types Thinkorswim integrated into the platform Educational materials and guides for beginners Options screening tools Cons Higher margin rates Low returns on cash balances Options fees applied on all legs of the trade Overview One of the nation's first discount brokerage companies, Schwab was incorporated in California in 1973 by Charles “Chuck” Schwab in response to the deregulation of brokerage commissions. Over the years, Schwab has become one of the leading online brokers, with more than 34 million accounts and more than $7.3 trillion in client assets. Schwab completed its acquisition of TD Ameritrade in 2023, which brought the thinkorswim application to Schwab and allowed the company to expand its operations to include foreign exchange and futures. Schwab is a huge firm that offers multiple markets, account types, and platforms to its customers. Essentially, the firm is a full-service broker, but with the mindset of a discount broker. Schwab was an early adopter of zero-commission stock trading, and the company has done a lot to help traders of all levels become self-sufficient in managing their own money. As part of this support, Schwab has an extensive amount of educational content and multiple tools to help traders. Schwab has integrated the thinkorswim program that it acquired when it bought TD Ameritrade into its platform. In addition to offering some of the industry’s top options analytics, thinkorswim also gives users the ability to paper trade before committing real capital to the market. Schwab’s options interface allows users to pick a specific options strategy and easily choose the specific contracts for their chosen strategy.  In addition, Schwab offers options screeners that help users identify promising options strategies. Schwab supports many markets, and its technology and other support structures are strong. However, margin rates, which start at 13.575% on balances up to $25,000, are higher than many competitors. For instance, Interactive Brokers’ comparable rate is 7.83%, while Webull’s is 9.74%. Schwab’s options commissions are pretty standard, at $0.65 per contract. This may not be a rate that attracts high-volume options traders, but the costs to trade options at Schwab are reasonable.  Best for Advanced Options Traders and Best for Mobile Options Trading: Interactive Brokers Open an Account Account Minimum: $0.00 Fees: $0.00 commissions for equities/ETFs available on IBKR’s TWS Lite, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Lite; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures. Read full review Open an Account Why We Chose It Best for Advanced Options Traders Interactive Brokers (IBKR) is a long-time leader in trading technology. When combined, the platform's options-specific research tools, content, order routing capabilities, order types, algorithmic trading capabilities, and industry-leading low margin rates make it the best choice for advanced options traders. Best for Mobile Options Trading IBKR now offers three mobile platforms, with its top-end mobile platform, IBKR Mobile, delivering traders a full range of options strategies and some exciting analytical tools, all on a clean and easy-to-use platform. IBKR Mobile's Options Wizard and Options Analysis features, along with its simple order staging process, are key reasons why IBKR is our choice for best online broker for mobile options trading. Pros & Cons Pros Low commission and margin rates Excellent trading technology Widest breadth of products available anywhere Platforms for professional and less sophisticated traders Cons Platforms can be intimidating Complex commission schedules Limited access to IPOs and OTC Stocks Overview Interactive Brokers (IBKR) was founded in 1977 and is headquartered in Greenwich, Connecticut. IBKR is one of the first companies to utilize technology in financial markets, and the company continues to be an innovator in the industry. IBKR’s roots are in supporting institutional traders and sophisticated high-volume traders. Consistent with this, IBKR has the lowest margin rates of any of the online brokers, and it also pays a fair interest rate on cash balances greater than $10,000.  Today, IBKR caters to both institutional and retail trading customers and has two plans to choose from: IBKR Lite, which offers commission-free stock and ETF trading, or IBKR Pro. The Pro plan has all the bells and whistles, such as the ability to control order routing, perform analytics, and trade directly from charts, but also has a more complicated commission schedule that is tiered based on monthly trading volume. IBKR offers excellent screeners for bonds, mutual funds, ETFs, equities, and options that can be customized, and news and other third-party services and APIs can also be incorporated into the IBKR platform. No broker in the world comes close to IBKR when it comes to the incredible breadth of trading vehicles and global markets available on a single platform, and IBKR has created the apps needed for professional traders to manage their positions when on the go. This sophisticated technology is also available to everyday traders who want full functionality. IBKR's GlobalTrader app is a more streamlined and easy-to-use app that is available for less demanding traders more focused on stocks, ETFs, options, and mutual funds. While most brokers support up to four-leg options strategies, the IBKR Mobile app supports six-leg options strategies. IBKR Mobile’s options functionality includes spread templates to easily compare similar strategies in order to find the best risk/return trades. The mobile platform also provides analytical tools and the ability to analyze probabilities of options trades. IBKR Mobile also has a neat Options Wizard that allows users to express their price opinions on a stock, receive suggested options strategies, and execute with one-tap trading to take advantage of that forecast. Options trading on IBKR Mobile does not leave out the desktop functionality, which is our choice for best mobile app for options trading.  Best for Low-Cost Options Trading: Webull Open an Account Account Minimum: $0 Fees: $0 commissions for stock, ETF, and options Read full review Open an Account Why We Chose It Best for Low-Cost Options Trading Webull is our choice for the best low-cost options trading platform because it allows users to trade U.S. exchange-listed options for free, using an impressive array of trading and analytical features.  Pros & Cons Pros Commission-free stock, ETF, and options trading Easy-to-use platform Competitive interest rate paid on idle cash Supports futures trading Powerful charting features Cons Not a full-service broker Limited portfolio management tools No fixed income or mutual funds Overview Webull, which only launched as a broker-dealer in 2018, is a low-cost trading platform that is appealing to beginner and intermediate traders because of its powerful and highly customizable platforms, commission-free stock and ETF trading, $0 account minimums, and outstanding user experience. While it has become pretty standard for online brokers to offer zero-commission stock and ETF trading, Webull’s zero commissions for U.S. Exchange listed options is uncommon, and has traders looking to join the platform for the low-cost options trading. In addition, Webull fully extended trading hours to its customers, along with offering some of the most competitive APYs on uninvested cash in the industry.  Webull’s platform is more for traders than investors, as it has very little in the way of tools for portfolio analysis and portfolio creation. Webull does, however, offer some educational content on its website, and the company has also added futures trading to its platform.  Similar to several of its top competitors, such as Robinhhod and eToro, Webull receives payment for order flow for stock, ETF, and options trading as a way to offer commission-free trading, but this may impact the quality of order execution. That said, placing orders through Webull’s platforms is very easy. Webull has the lowest options rates because it does not charge commissions for options trades. Best for Casual Options Traders: E*TRADE Open an Account Account Minimum: $0 Fees: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. Read full review Open an Account Why We Chose It Best for Casual Options Traders While some options traders want all the functionality offered by their trading platform, others are more casual in their trading approach, and seek a balance between functionality and ease of use. E*TRADE offers platforms for both types of traders, and with its sleek and powerful app, E*TRADE Mobile is our choice for the best platform for casual options traders.  Pros & Cons Pros Industry-best mobile apps for investors and traders Excellent educational content Top-tier research amenities and resources Strong portfolio analytics Cons Low interest rates on uninvested cash No fractional share trading outside of robo-investing No access to international exchanges No direct access to cryptocurrencies Overview E*TRADE was established in 1982 in California and was purchased by New York City-based Morgan Stanley in 2020. It was one of the earliest online brokers and took advantage of the introduction of the internet era to expand its business. E*TRADE offers a large range of investment and trading options that includes all major U.S. markets, as well as mutual funds, stocks and ETFs, options, bonds, and futures.  E*TRADE has millions of accounts with trillions of dollars in client assets. Its various platforms are designed to work for the company’s diverse customer base. E*TRADE Mobile is a more straightforward platform for traders and investors who do not need every bell and whistle. The company’s Power E*TRADE mobile platform, on the other hand, is designed for day traders and other sophisticated traders. In addition to the available mobile apps, E*TRADE also offers a website interface and desktop platforms that mirror the functionality of the mobile apps. As you would expect from a large brokerage company with a broad range of client types, E*TRADE offers a lot of helpful educational content, as well as tools to help analyze and research trading ideas. The company has good screeners and analytical tools and even offers pre-built portfolio builder options for passive and beginner investors.  The E*TRADE Mobile app is best for traders and investors who do not want an overly complex platform; the company designed it with the idea of creating a good balance of function and simplicity. Options trading on E*TRADE Mobile is easy and intuitive for those looking to enter options positions in a more casual way. E*TRADE’s options commissions are pretty standard, at $0.65 per contract, but the broker does offer a discount of $0.50 per contract if you make more than 30 options trades in a quarter. These costs are not the lowest, which very active options seekers may want, but they are reasonable for the more casual trader who wants to have the flexibility that E*TRADE offers for multiple products.  The Bottom Line Options trading has become an increasingly popular form of trading, and multiple online brokers have platforms to support traders along their journey. Some online brokers, including IBKR and E*TRADE, have multiple platforms to appeal to different options traders—one platform that provides the ability to do in-depth options analysis and trading, and a second platform for less technical traders that is less intimidating. E*TRADE is an excellent choice for more casual traders because of E*TRADE Mobile’s easy-to-use interface, while Interactive Brokers remains our top choice for the most demanding traders and for the best mobile app for options trading. Schwab is our top choice for those looking to start trading options because of its educational content and training guides, as well as the ability to paper trade before committing capital. Webull may not be a great choice for those looking for assistance in building a portfolio, but is an easy-to-use platform that offers zero-commission options trading. Ultimately, tastytrade is our top overall choice for options trading because of its options-friendly fees and commissions, powerful trading platform, excellent trading technology and analytics, and industry-leading options-specific content, which is critical to helping traders learn how to master this complicated form of derivatives trading.  Compare the Best Options Trading Platforms Company Account Minimum Fee & Commissions Legs tastytrade  $0 $1 per contract opened with a $10 cap, plus a $0.10 clearing fee per contract 4 Charles Schwab $0 $0.65 per contract 4 Interactive Brokers $0 $0.65 for IBKR Lite Platform; IBKR Pro has tiered commissions based on volume that range from $0.65 per contract to as low as $0.15 per contract 6 Webull $0 $0.55 per contract 4 E*TRADE $0 $0.65 per contract if there are less than 30 trades per quarter; discounted to $0.50 per contract if 30 or more trades are made per quarter 4 Everything You Need to Know About Brokerage Accounts Guide to Choosing an Options Trading Platform An options contract gives the holder the right—but not the obligation—to buy or sell the underlying asset at a set “strike” price on or before a certain expiration date. The purchase price of the option is called the premium. A call option gives the owner the right to buy a stock at a set price and by a certain time, while a put option gives the owner the right to sell a stock at a set price by a certain time. Options, which can be used to hedge or speculate, are called derivatives because their value is derived by the price movement of the underlying stock or ETF. Since stocks and ETFs usually have multiple call and put option contracts spanning different expiration dates and strike prices, different combinations of options can be used to create specific strategies for expectations of price movement or stability while controlling risk. The basic options for price expectations are: If you expect the stock price to rise: Buy a call option or sell a put option.If you expect the stock price to fall: Buy a put option or sell a call option.If you expect the stock price to remain stable: Sell a call option and/or sell a put option with the strike price near the current price for either or both options. Leverage One important feature of options to understand is that the risk for the buyer of a put or call option is limited to the amount of premium they pay for the option, while the seller of the option would have theoretically unlimited risk on a call (because the price can keep going up indefinitely). For the seller of puts, the option has risk limited to the stock price going to zero. Therefore, sellers of options, unless hedged, are usually exposed to significantly higher risk than the premium they received for the options. Another important concept with options is the leverage they afford. An exchange-traded options contract on a listed stock or ETF represents a contract for 100 shares of the underlying stock. Therefore, the out-of-pocket cost for a stock option is 100 times the price it is trading at because the contract is for 100 shares. Buying an option allows a trader to have control of 100 shares of stock by only laying out a small portion of the underlying value of the stock. For example, if a stock is trading at $100, to purchase one hundred shares would cost $10,000 ($100 x 100 shares). But, an option may only cost a few dollars per contract to control a large number of shares. A call option trading at $5 would cost just $500 (100 shares x $5 option premium) to control 100 shares of stock worth $10,000. So, there is a good deal of leverage associated with using options to speculate. How to Start Investors need to open an account with a brokerage firm that supports options trading, and those with existing accounts at brokers that support options will need the broker’s approval to trade options. Your application will be approved or denied after providing details about your investment objectives, trading experience, and financial situation (e.g., annual income, employment details, net worth, and total net worth). If approved, your broker will let you know which options level you're approved to trade; this determines the types of options strategies you are permitted to use. Depending on your broker and options strategy, you may also need approval for margin privileges. The type of options you are approved to trade and the broker’s policies will help determine the minimum investment amount required for options trading. In general, $1,000 is the minimum required deposit for level 1 (entry-level) options trading, but the minimum deposit can be at least $10,000 for level 2 or level 3 options trading. Even if the required minimum is low, it's always a good idea to have at least $5,000 to $10,000 to start trading options. Once approved for options trading, the next step is determining if you want to use options to hedge or speculate, and then which options strategies are best for you. This is best accomplished by using an option chain or matrix that lists all the expirations and strike prices for a stock to help you choose the right option for your market expectations. Expiration dates can range from days to months to years, depending on the liquidity of the underlying stock. Generally, the shorter the timeframe for an option, the riskier the option is because options are a decaying asset due to their having an expiration date. What to Consider The first and most important piece of information to consider before selecting an options trading account is what kind of trader you are. What is your trading style and risk appetite? Which options strategies do you want to employ? Do you want to hedge or use income strategies against a stock or ETF holding, or to speculate? Generally, the prices of most options are fair, meaning the option you choose to speculate with is a personal choice. Some traders prefer to enter into options strategies with a high probability of making a small amount of money, while others prefer to be right less often but for larger payouts when they are correct. The quality of the education offered by a broker can be very helpful for those just getting started with options trading. Frequent traders and those who trade a large number of contracts will be more sensitive to commissions and fees, so check out your prospective broker's charges and make sure you understand them. While costs are one consideration when choosing an options broker and trading platform, there are other factors to weigh. If you are a new trader, it will be helpful to have a broker that offers substantial educational offerings, such as articles, videos, and webinars. Intermediate and advanced traders will want a robust trading platform and a full suite of options-specific trading tools and resources. Common Strategies Using options against a current stock or ETF holding is a common options strategy used by investors, and can be done in two basic ways. One is a strategy to increase income by selling covered calls against a stock or ETF holding; the option is said to be "covered" because the worst that can happen to the option seller is using the stock you own to make delivery on the exercised call option you sold, which limits your upside on your stock holding. The upside is the option not being exercised, so the seller of the covered call keeps their stock and the premium they sold the covered call option for. Another common option strategy against a stock holding is to hedge the stock or ETF holding by purchasing puts against their holding. If, for example, the owner of a stock wants to keep a long-term stock holding, but thinks the stock may move lower in the short term, they can purchase a put on the stock. This way, if the stock moves lower, the put option will go up in value to hedge the losses to the actual stock holding. The downside is that the option expires worthless if the stock price stays above the strike price, but the position was protected if the stock moved lower. Again, remember the risk associated with purchasing the option or selling it to ensure you have the right exposure to price changes. What Is Options Trading? Options trading is the purchase or sale of financial contracts that allow the owner the right, but not the obligation, to buy (a call option) or sell (a put option) a specific stock, ETF, futures contract, currency, or other underlying asset for a specific price (strike price) by a certain maturity date. Unlike owning a stock, however, options expire worthless if the price of the stock does not make it economically worthwhile to exercise the option by its maturity date. Options purchasers limit their risk to the cost of the option, while option sellers are exposed to potentially unlimited risk. Options can be used to hedge, or speculate with greater leverage than purchasing the underlying stock. Is Options Trading Worth It? Options are a tool that can be used to hedge or speculate. Generally, a common option on a liquid stock will provide a fair value relative to the stock’s price and past price movements. However, that does not mean options trading is right for you. With options, you can be right but still lose money if your timing is poor, and options can be quite volatile. But the owner of a stock can use puts to offset a stock’s losses if its price moves lower, or could sell covered calls against their stock position to generate additional income with limited risk. So, financial options are a powerful tool that is worth using if it meets your objectives and risk tolerances. Is Trading Options Gambling? With any form of speculation, whether it be investing in popular assets like real estate or stocks, positive returns are not guaranteed. Options traders use this form of derivatives trading to take calculated risks. Some people want higher-risk growth stocks, and others want quiet companies that pay a consistent dividend. They each have their positive and negative attributes, depending on your investment objectives. Yes, options can be used to speculate with a great deal of risk, but they can also be used to reduce risk, lock in profits, or take very specific positions based on timing and price expectations. Again, options are a very valuable tool for speculators and hedgers alike.   How We Picked the Best Online Brokers and Trading Platforms Providing readers with unbiased, comprehensive reviews of online brokers and trading platforms is a top priority for Investopedia. We combined our industry research, subject matter expertise, and investor survey data to guide the research and weightings for our 2024 online broker awards. To collect the data, we sent a digital survey with 110 questions to each of the 26 companies we included in our rubric. Additionally, our team of researchers verified the survey responses and collected any missing data points through online research and conversations with each company directly. The data collection process spanned from Feb. 19 to March 19, 2024. We then developed a proprietary model that scored each company to rate its performance across 11 major categories and 89 criteria to find the best online brokers and trading platforms. The score for each company’s overall star rating is a weighted average of the criteria in the following categories: Additionally, during our 2024 research, many of the companies we reviewed gave us live demonstrations of their platforms and services via video conferencing methods and also granted our team of expert writers and editors access to live accounts so they could perform hands-on testing. Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top online brokers and trading platforms. Learn more about how we review online brokers.

https://www.investopedia.com/income-driven-repayment-plans-7562851

Income-Driven Repayment Plans: Everything You Need to Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Income-driven repayment (IDR) plans are federal student loan repayment plans that are based around what you can afford to pay and your income. If you’re trying to lower your federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/education-loan.asp">student loan</a> payments, you may want to explore different income-driven repayment plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Income-driven repayment (IDR) plans tailor your monthly student loan payment based on a percentage of your discretionary income.</li><li>All repayment plans require borrowers to update their income every year or whenever their salary changes—even if they lose their job.</li><li>The Biden administration has introduced a new income-driven repayment plan called the SAVE plan.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-income-driven-repayment-plans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Are Income-Driven Repayment Plans? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Income-driven repayment plans, or IDR plans, allow federal student loan borrowers to make payments based on their family size and a percentage of their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryincome.asp">discretionary income</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Borrowers are automatically enrolled in the Standard Repayment Plan following a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/happy-graduation-your-student-loan-grace-period-six-months-5187147">six-month grace period</a> after leaving school. However, you can request a different repayment program at any time, including one of the four IDR plans.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-how-income-driven-repayment-plans-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> How Income-Driven Repayment Plans Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Each income-driven repayment plan requires you to make <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayments</a> that range from 5% to 20% of your discretionary income, depending on the plan you choose. Discretionary income is based on family size and must be updated annually. If your income is low enough, your monthly payment under the Saving on a Valuable Education (SAVE) plan could be $0. You won't be obligated to make payments and it won’t impact your repayment timeline or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> After 20 or 25 years, any remaining balance on your loan is forgiven. For smaller balances under the SAVE plan, forgiveness could be granted in as little as 10 years.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-types-of-income-driven-repayment-plans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Types of Income-Driven Repayment Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The government offers four income-driven repayment plans.<span class="ql-inline-citation" data-cite="5"></span> They are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li>Saving on a Valuable Education (SAVE) Plan</li><li>Pay As You Earn Repayment (PAYE) Plan</li><li>Income-Based Repayment (IBR) Plan</li><li>Income-Contingent Repayment (ICR) Plan</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In August 2023, the Biden administration launched the Saving on a Valuable Education (SAVE) plan. Borrowers previously enrolled in the Revised Pay As You Earn Repayment (REPAYE) plan have been automatically switched over to this newer plan. There are some big differences in how the SAVE plan works compared to other IDR plans. For example: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>For undergraduate borrowers, monthly payments will be reduced from 10% of discretionary income to 5%. Those who have both undergrad and graduate loans will have a monthly payment of about 5%-10% of discretionary income.</li><li>The plan also changes how discretionary income is calculated. This means if you’re a single borrower making $15 an hour, you won’t have any discretionary income available to cover student loan payments and therefore your monthly obligation is $0. The U.S. Department of Education believes an estimated 1 million borrowers will qualify for $0 monthly student loan payments.</li><li>Some student borrowers have chipped away at their student loans for years without making a dent. This is due to the capitalization of interest charges. The SAVE plan puts an end to this. As long as you keep current with your monthly payments, the U.S. Department of Education will not assess unpaid interest to your student loan balance.<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-income-driven-repayment-plans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Income-Driven Repayment Plans </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Advantages </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li><strong>Path to forgiveness</strong>:<strong> </strong>All IDR plans will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-loan-forgiveness.asp">forgive</a> the remaining balance of your student loans after 20 or 25 years of making payments, depending on your loans and plan. For the SAVE plan, this could be as little as 10 years of making payments for borrowers with low balances.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>Pay what you can</strong>: Income-driven repayment plans calculate monthly payments based on what you can comfortably afford. Even if you’re hit with a financial emergency, such as losing your job, you can adjust your payments accordingly.</li> <li><strong>Can update as needed</strong>:<strong> </strong>While it’s required to recertify your IDR plan at least every year, you can update it whenever changes are necessary. That means if you get a new job or your family expands, you should recertify. It also means that if you lose your job and don’t currently have a source of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>, you should recertify so that your payments can get reduced accordingly.<span class="ql-inline-citation" data-cite="5"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Disadvantages </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li><strong>Recertification required</strong>:<strong> </strong>Unless you’re enrolled in the new SAVE plan’s automatic recertification, you’ll need to recertify your plan every year. This can be time consuming, and it could result in a low monthly payment increasing, assuming a borrower’s discretionary income also increases over time.</li> <li><strong>Defaulted loans ineligible</strong>:<strong> </strong>If you’re currently in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> on your federal student loans, you’re not eligible for IDR plans. This hurts borrowers who are already having a hard time making payments and may not have a way out without becoming current on their loans.</li> <li><strong>Not all interest is covered</strong>:<strong> </strong>Because payments are based on income, not all payments will cover the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> that accrues. That unpaid interest is added to the unpaid principal balance, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizedinterest.asp">capitalized</a>, and increases the total amount owed. All plans (aside from the new SAVE plan) capitalize interest, causing balances to balloon to a much larger amount than what was originally borrowed.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-qualifications-for-income-driven-repayment-plans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Qualifications for Income-Driven Repayment Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> To qualify for IDR plans, you’ll need to be current on your loans. Each individual IDR plan has its own set of further eligibility requirements that you’ll need to meet to qualify for that specific plan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li><strong>SAVE</strong>:<strong> </strong>Any borrower with qualifying student loans is eligible for this IDR plan. </li> <li><strong>PAYE and IBR</strong>:<strong> </strong>The estimated payment you make for either of these plans has to be less than what you would pay on the Standard Repayment Plan within a 10-year period. For PAYE, only loans disbursed after Oct. 1, 2011, are eligible.</li> <li><strong>ICR</strong>:<strong> </strong>Like SAVE, any federal student loan borrower is eligible for this plan. But ICR is the only income-driven repayment plan that accepts <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plus-loan.asp">PLUS (Parent Loan for Undergraduate Students) loans</a> made to students. Keep in mind that no repayment plan accepts PLUS loans made to parents (including ICR), but you can consolidate your PLUS loans with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/direct-consolidation-loan.asp">direct consolidation loan</a> and then apply for ICR.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-what-is-the-income-requirement-for-income-driven-repayment-idr-plans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Income Requirement for Income-Driven Repayment (IDR) Plans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Income amounts vary based on the IDR plan that you’re interested in. For instance, IBR and PAYE plans require your payments—which are based on your income—to be less than the Standard Repayment Plan if you were to repay your loans within 10 years.<span class="ql-inline-citation" data-cite="6"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-will-income-based-repayment-hurt-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Income-Based Repayment Hurt My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Completing an application for income-driven repayment does not trigger a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard credit check</a> and won’t cause your credit score to drop. If you miss payments or are late on your student loans—through IDR or otherwise—then your credit score could decrease.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-how-long-does-income-driven-repayment-last"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does Income-Driven Repayment Last?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Income-driven repayment lasts up to 20 or 25 years, depending on which IDR plan you’re on. After that, the remaining balance is forgiven.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> With federal student loans, you have a lot of different repayment options, both based on your income and otherwise. Making payments based on your income and family size through an IDR plan means you pay what you can, not necessarily what your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> decides is appropriate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If you’re thinking about enrolling in an IDR plan, visit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/idr/">StudentAid.gov</a> and see which ones you’re eligible for. If you’re unsure what you might qualify for, use the estimator and input your loan and income details to see different payment options. Make sure to review all your payment options to see which plan could be right for you. </p></div>

Income-driven repayment (IDR) plans are federal student loan repayment plans that are based around what you can afford to pay and your income. If you’re trying to lower your federal [student loan](https://www.investopedia.com/terms/e/education-loan.asp) payments, you may want to explore different income-driven repayment plans. ### Key Takeaways * Income-driven repayment (IDR) plans tailor your monthly student loan payment based on a percentage of your discretionary income. * All repayment plans require borrowers to update their income every year or whenever their salary changes—even if they lose their job. * The Biden administration has introduced a new income-driven repayment plan called the SAVE plan. ## What Are Income-Driven Repayment Plans? Income-driven repayment plans, or IDR plans, allow federal student loan borrowers to make payments based on their family size and a percentage of their [discretionary income](https://www.investopedia.com/terms/d/discretionaryincome.asp). Borrowers are automatically enrolled in the Standard Repayment Plan following a [six-month grace period](https://www.investopedia.com/happy-graduation-your-student-loan-grace-period-six-months-5187147) after leaving school. However, you can request a different repayment program at any time, including one of the four IDR plans. ## How Income-Driven Repayment Plans Work Each income-driven repayment plan requires you to make [repayments](https://www.investopedia.com/terms/r/repayment.asp) that range from 5% to 20% of your discretionary income, depending on the plan you choose. Discretionary income is based on family size and must be updated annually. If your income is low enough, your monthly payment under the Saving on a Valuable Education (SAVE) plan could be $0. You won't be obligated to make payments and it won’t impact your repayment timeline or [credit score](https://www.investopedia.com/terms/c/credit_score.asp). After 20 or 25 years, any remaining balance on your loan is forgiven. For smaller balances under the SAVE plan, forgiveness could be granted in as little as 10 years. ## Types of Income-Driven Repayment Plans The government offers four income-driven repayment plans. They are: * Saving on a Valuable Education (SAVE) Plan * Pay As You Earn Repayment (PAYE) Plan * Income-Based Repayment (IBR) Plan * Income-Contingent Repayment (ICR) Plan In August 2023, the Biden administration launched the Saving on a Valuable Education (SAVE) plan. Borrowers previously enrolled in the Revised Pay As You Earn Repayment (REPAYE) plan have been automatically switched over to this newer plan. There are some big differences in how the SAVE plan works compared to other IDR plans. For example: * For undergraduate borrowers, monthly payments will be reduced from 10% of discretionary income to 5%. Those who have both undergrad and graduate loans will have a monthly payment of about 5%-10% of discretionary income. * The plan also changes how discretionary income is calculated. This means if you’re a single borrower making $15 an hour, you won’t have any discretionary income available to cover student loan payments and therefore your monthly obligation is $0. The U.S. Department of Education believes an estimated 1 million borrowers will qualify for $0 monthly student loan payments. * Some student borrowers have chipped away at their student loans for years without making a dent. This is due to the capitalization of interest charges. The SAVE plan puts an end to this. As long as you keep current with your monthly payments, the U.S. Department of Education will not assess unpaid interest to your student loan balance. ## Advantages and Disadvantages of Income-Driven Repayment Plans ### Advantages * **Path to forgiveness**:All IDR plans will [forgive](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp) the remaining balance of your student loans after 20 or 25 years of making payments, depending on your loans and plan. For the SAVE plan, this could be as little as 10 years of making payments for borrowers with low balances. * **Pay what you can**: Income-driven repayment plans calculate monthly payments based on what you can comfortably afford. Even if you’re hit with a financial emergency, such as losing your job, you can adjust your payments accordingly. * **Can update as needed**:While it’s required to recertify your IDR plan at least every year, you can update it whenever changes are necessary. That means if you get a new job or your family expands, you should recertify. It also means that if you lose your job and don’t currently have a source of [income](https://www.investopedia.com/terms/i/income.asp), you should recertify so that your payments can get reduced accordingly. ### Disadvantages * **Recertification required**:Unless you’re enrolled in the new SAVE plan’s automatic recertification, you’ll need to recertify your plan every year. This can be time consuming, and it could result in a low monthly payment increasing, assuming a borrower’s discretionary income also increases over time. * **Defaulted loans ineligible**:If you’re currently in [default](https://www.investopedia.com/terms/d/default2.asp) on your federal student loans, you’re not eligible for IDR plans. This hurts borrowers who are already having a hard time making payments and may not have a way out without becoming current on their loans. * **Not all interest is covered**:Because payments are based on income, not all payments will cover the [interest](https://www.investopedia.com/terms/i/interest.asp) that accrues. That unpaid interest is added to the unpaid principal balance, or [capitalized](https://www.investopedia.com/terms/c/capitalizedinterest.asp), and increases the total amount owed. All plans (aside from the new SAVE plan) capitalize interest, causing balances to balloon to a much larger amount than what was originally borrowed. ## Qualifications for Income-Driven Repayment Plans To qualify for IDR plans, you’ll need to be current on your loans. Each individual IDR plan has its own set of further eligibility requirements that you’ll need to meet to qualify for that specific plan. * **SAVE**:Any borrower with qualifying student loans is eligible for this IDR plan. * **PAYE and IBR**:The estimated payment you make for either of these plans has to be less than what you would pay on the Standard Repayment Plan within a 10-year period. For PAYE, only loans disbursed after Oct. 1, 2011, are eligible. * **ICR**:Like SAVE, any federal student loan borrower is eligible for this plan. But ICR is the only income-driven repayment plan that accepts [PLUS (Parent Loan for Undergraduate Students) loans](https://www.investopedia.com/terms/p/plus-loan.asp) made to students. Keep in mind that no repayment plan accepts PLUS loans made to parents (including ICR), but you can consolidate your PLUS loans with a [direct consolidation loan](https://www.investopedia.com/terms/d/direct-consolidation-loan.asp) and then apply for ICR. ## What Is the Income Requirement for Income-Driven Repayment (IDR) Plans? Income amounts vary based on the IDR plan that you’re interested in. For instance, IBR and PAYE plans require your payments—which are based on your income—to be less than the Standard Repayment Plan if you were to repay your loans within 10 years. ## Will Income-Based Repayment Hurt My Credit Score? Completing an application for income-driven repayment does not trigger a [hard credit check](https://www.investopedia.com/terms/h/hard-inquiry.asp) and won’t cause your credit score to drop. If you miss payments or are late on your student loans—through IDR or otherwise—then your credit score could decrease. ## How Long Does Income-Driven Repayment Last? Income-driven repayment lasts up to 20 or 25 years, depending on which IDR plan you’re on. After that, the remaining balance is forgiven. ## The Bottom Line With federal student loans, you have a lot of different repayment options, both based on your income and otherwise. Making payments based on your income and family size through an IDR plan means you pay what you can, not necessarily what your [lender](https://www.investopedia.com/terms/l/lender.asp) decides is appropriate. If you’re thinking about enrolling in an IDR plan, visit [StudentAid.gov](https://studentaid.gov/idr/) and see which ones you’re eligible for. If you’re unsure what you might qualify for, use the estimator and input your loan and income details to see different payment options. Make sure to review all your payment options to see which plan could be right for you.

Income-driven repayment (IDR) plans are federal student loan repayment plans that are based around what you can afford to pay and your income. If you’re trying to lower your federal student loan payments, you may want to explore different income-driven repayment plans. Key Takeaways Income-driven repayment (IDR) plans tailor your monthly student loan payment based on a percentage of your discretionary income.All repayment plans require borrowers to update their income every year or whenever their salary changes—even if they lose their job.The Biden administration has introduced a new income-driven repayment plan called the SAVE plan. What Are Income-Driven Repayment Plans? Income-driven repayment plans, or IDR plans, allow federal student loan borrowers to make payments based on their family size and a percentage of their discretionary income. Borrowers are automatically enrolled in the Standard Repayment Plan following a six-month grace period after leaving school. However, you can request a different repayment program at any time, including one of the four IDR plans. How Income-Driven Repayment Plans Work Each income-driven repayment plan requires you to make repayments that range from 5% to 20% of your discretionary income, depending on the plan you choose. Discretionary income is based on family size and must be updated annually. If your income is low enough, your monthly payment under the Saving on a Valuable Education (SAVE) plan could be $0. You won't be obligated to make payments and it won’t impact your repayment timeline or credit score. After 20 or 25 years, any remaining balance on your loan is forgiven. For smaller balances under the SAVE plan, forgiveness could be granted in as little as 10 years. Types of Income-Driven Repayment Plans The government offers four income-driven repayment plans. They are: Saving on a Valuable Education (SAVE) PlanPay As You Earn Repayment (PAYE) PlanIncome-Based Repayment (IBR) PlanIncome-Contingent Repayment (ICR) Plan In August 2023, the Biden administration launched the Saving on a Valuable Education (SAVE) plan. Borrowers previously enrolled in the Revised Pay As You Earn Repayment (REPAYE) plan have been automatically switched over to this newer plan. There are some big differences in how the SAVE plan works compared to other IDR plans. For example: For undergraduate borrowers, monthly payments will be reduced from 10% of discretionary income to 5%. Those who have both undergrad and graduate loans will have a monthly payment of about 5%-10% of discretionary income.The plan also changes how discretionary income is calculated. This means if you’re a single borrower making $15 an hour, you won’t have any discretionary income available to cover student loan payments and therefore your monthly obligation is $0. The U.S. Department of Education believes an estimated 1 million borrowers will qualify for $0 monthly student loan payments.Some student borrowers have chipped away at their student loans for years without making a dent. This is due to the capitalization of interest charges. The SAVE plan puts an end to this. As long as you keep current with your monthly payments, the U.S. Department of Education will not assess unpaid interest to your student loan balance. Advantages and Disadvantages of Income-Driven Repayment Plans Advantages Path to forgiveness: All IDR plans will forgive the remaining balance of your student loans after 20 or 25 years of making payments, depending on your loans and plan. For the SAVE plan, this could be as little as 10 years of making payments for borrowers with low balances. Pay what you can: Income-driven repayment plans calculate monthly payments based on what you can comfortably afford. Even if you’re hit with a financial emergency, such as losing your job, you can adjust your payments accordingly. Can update as needed: While it’s required to recertify your IDR plan at least every year, you can update it whenever changes are necessary. That means if you get a new job or your family expands, you should recertify. It also means that if you lose your job and don’t currently have a source of income, you should recertify so that your payments can get reduced accordingly. Disadvantages Recertification required: Unless you’re enrolled in the new SAVE plan’s automatic recertification, you’ll need to recertify your plan every year. This can be time consuming, and it could result in a low monthly payment increasing, assuming a borrower’s discretionary income also increases over time. Defaulted loans ineligible: If you’re currently in default on your federal student loans, you’re not eligible for IDR plans. This hurts borrowers who are already having a hard time making payments and may not have a way out without becoming current on their loans. Not all interest is covered: Because payments are based on income, not all payments will cover the interest that accrues. That unpaid interest is added to the unpaid principal balance, or capitalized, and increases the total amount owed. All plans (aside from the new SAVE plan) capitalize interest, causing balances to balloon to a much larger amount than what was originally borrowed. Qualifications for Income-Driven Repayment Plans To qualify for IDR plans, you’ll need to be current on your loans. Each individual IDR plan has its own set of further eligibility requirements that you’ll need to meet to qualify for that specific plan. SAVE: Any borrower with qualifying student loans is eligible for this IDR plan.  PAYE and IBR: The estimated payment you make for either of these plans has to be less than what you would pay on the Standard Repayment Plan within a 10-year period. For PAYE, only loans disbursed after Oct. 1, 2011, are eligible. ICR: Like SAVE, any federal student loan borrower is eligible for this plan. But ICR is the only income-driven repayment plan that accepts PLUS (Parent Loan for Undergraduate Students) loans made to students. Keep in mind that no repayment plan accepts PLUS loans made to parents (including ICR), but you can consolidate your PLUS loans with a direct consolidation loan and then apply for ICR. What Is the Income Requirement for Income-Driven Repayment (IDR) Plans? Income amounts vary based on the IDR plan that you’re interested in. For instance, IBR and PAYE plans require your payments—which are based on your income—to be less than the Standard Repayment Plan if you were to repay your loans within 10 years. Will Income-Based Repayment Hurt My Credit Score? Completing an application for income-driven repayment does not trigger a hard credit check and won’t cause your credit score to drop. If you miss payments or are late on your student loans—through IDR or otherwise—then your credit score could decrease. How Long Does Income-Driven Repayment Last? Income-driven repayment lasts up to 20 or 25 years, depending on which IDR plan you’re on. After that, the remaining balance is forgiven. The Bottom Line With federal student loans, you have a lot of different repayment options, both based on your income and otherwise. Making payments based on your income and family size through an IDR plan means you pay what you can, not necessarily what your lender decides is appropriate. If you’re thinking about enrolling in an IDR plan, visit StudentAid.gov and see which ones you’re eligible for. If you’re unsure what you might qualify for, use the estimator and input your loan and income details to see different payment options. Make sure to review all your payment options to see which plan could be right for you.

https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670

Spot Bitcoin ETFs Are Approved by SEC, Cleared To Start Trading Thursday

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The U.S. Securities and Exchange Commission approved<strong> </strong>11<strong> </strong>bitcoin exchange-traded fund (ETF) applications.</li><li>The spot bitcoin ETFs are expected to begin trading on Thursday.</li><li>Spot bitcoin ETFs will help make investing in the cryptocurrency more accessible, bringing more investors and assets into the crypto space.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Spot bitcoin exchange-traded funds (ETFs) are cleared to begin trading Thursday after receiving regulatory approval on Wednesday from the U.S. Securities and Exchange Commission (SEC).<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_6-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-crypto-exchanges-5071855" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best Crypto Exchanges and Apps for May 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-11-spot-bitcoin-etfs-approved"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> 11 Spot Bitcoin ETFs Approved </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The regulator gave the green light to the following products: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li>ARK 21Shares Bitcoin ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARKB">ARKB</a>)</li> <li>Bitwise Bitcoin ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITB">BITB</a>)</li> <li>Fidelity Wise Origin Bitcoin Trust (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FBTC">FBTC</a>)</li> <li>Franklin Bitcoin ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EZBC">EZBC</a>)</li> <li>Grayscale Bitcoin Trust (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC">GBTC</a>)</li> <li>Hashdex Bitcoin ETF (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DEFI">DEFI</a>)</li> <li>Invesco Galaxy Bitcoin ETF (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=btco">BTCO</a>)</li> <li>iShares Bitcoin Trust (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibit">IBIT</a>)</li> <li>Valkyrie Bitcoin Fund (<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=brrr">BRRR</a>)</li> <li>VanEck Bitcoin Trust (<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hodl">HODL</a>)</li> <li>WisdomTree Bitcoin Fund (<a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcw">BTCW</a>)<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In a bid to appeal to investors, many issuers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etf-issuers-unveil-expenses-heres-how-they-compare-8423839">slashed and offered waivers to their spot bitcoin ETF fees</a> ahead of the SEC nod. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-a-long-wait-for-spot-bitcoin-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> A Long Wait for Spot Bitcoin ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> It has been a long road for the approval of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-8358373">spot bitcoin ETF</a> in the United States. The journey began in 2013 when an entity affiliated with the Winklevoss twins sent the first application for such a financial product to the SEC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> While that application was eventually rejected, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/bitcoin-etfs-explained/">bitcoin ETFs based on futures products</a> were eventually approved by the SEC starting in 2021. Up until now, a large number of spot-based bitcoin ETF applications had been <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sec-points-to-unregulated-spot-market-in-first-oral-arguments-against-grayscale-7229073">rejected</a> on the grounds that bitcoin's unregulated nature creates too much risk for investors. Crypto asset manager Grayscale eventually sued the SEC to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/court-rules-sec-was-wrong-to-block-bitcoin-etf-7963127">force more clarity on the matter</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> However, it was Blackrock's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK">BLK</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609">application for a spot bitcoin product</a> in June last year that gathered momentum behind the idea. As the investment giant from traditional finance stepped into the arena, many others such as Fidelity and Franklin Templeton followed suit. This was seen as a sign that regulatory approval was on the way due to the firms' pivotal role in the U.S. financial system. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> While regulators and issuers went back and forth to iron out details, there were some last-minute glitches. An unauthorized post announcing the approval on social media platform X from the SEC's account on Tuesday sent bitcoin prices soaring past $48,000 before the regulator clarified that its X account had been compromised. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-what-this-regulatory-approval-means-for-bitcoin"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> What This Regulatory Approval Means for Bitcoin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The SEC's sign-off serves as a significant regulatory seal of approval for the world's largest crypto asset, likely reducing some investor fears about investing in the space. It not only brings more regulatory safeguards but allows investors to invest with well-established financial firms. But SEC Chair Gensler warned investors to consider risks before putting their money into the product. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> "While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto," said Gensler in a statement.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Until now, retail investors have only been able to gain cryptocurrency exposure by buying coins directly or through ETFs that trade in cryptocurrency futures. A spot bitcoin ETF will allow investors, especially retail investors, to gain access to bitcoin without needing to hold their investment in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-wallet.asp">bitcoin wallet</a>. Instead, they simply hold the ETFs in their brokerage account.<br/><br/>Analysts expect significant amounts of money to flow into bitcoin spot ETFs, and that optimism has helped boost the price of bitcoin substantially in recent months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> According to estimates from <em>Bloomberg Intelligence, t</em>he spot bitcoin ETF market could grow to $100 billion over time.<span class="ql-inline-citation" data-cite="1"></span> Financial services provider Galaxy estimates inflows in spot bitcoin ETF products could rise from $14 billion in the first year to $39 billion within three years.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <em>Update—Jan. 10, 2024: This article was updated to add comments from the SEC.</em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * The U.S. Securities and Exchange Commission approved11bitcoin exchange-traded fund (ETF) applications. * The spot bitcoin ETFs are expected to begin trading on Thursday. * Spot bitcoin ETFs will help make investing in the cryptocurrency more accessible, bringing more investors and assets into the crypto space. Spot bitcoin exchange-traded funds (ETFs) are cleared to begin trading Thursday after receiving regulatory approval on Wednesday from the U.S. Securities and Exchange Commission (SEC). [Best Crypto Exchanges and Apps for May 2024](https://www.investopedia.com/best-crypto-exchanges-5071855) ## 11 Spot Bitcoin ETFs Approved The regulator gave the green light to the following products: * ARK 21Shares Bitcoin ETF ([ARKB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARKB)) * Bitwise Bitcoin ETF ([BITB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITB)) * Fidelity Wise Origin Bitcoin Trust ([FBTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FBTC)) * Franklin Bitcoin ETF ([EZBC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EZBC)) * Grayscale Bitcoin Trust ([GBTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC)) * Hashdex Bitcoin ETF ([DEFI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DEFI)) * Invesco Galaxy Bitcoin ETF ([BTCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=btco)) * iShares Bitcoin Trust ([IBIT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibit)) * Valkyrie Bitcoin Fund ([BRRR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=brrr)) * VanEck Bitcoin Trust ([HODL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hodl)) * WisdomTree Bitcoin Fund ([BTCW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcw)) In a bid to appeal to investors, many issuers [slashed and offered waivers to their spot bitcoin ETF fees](https://www.investopedia.com/spot-bitcoin-etf-issuers-unveil-expenses-heres-how-they-compare-8423839) ahead of the SEC nod. ## A Long Wait for Spot Bitcoin ETFs It has been a long road for the approval of a [spot bitcoin ETF](https://www.investopedia.com/spot-bitcoin-etfs-8358373) in the United States. The journey began in 2013 when an entity affiliated with the Winklevoss twins sent the first application for such a financial product to the SEC. While that application was eventually rejected, [bitcoin ETFs based on futures products](https://www.investopedia.com/investing/bitcoin-etfs-explained/) were eventually approved by the SEC starting in 2021. Up until now, a large number of spot-based bitcoin ETF applications had been [rejected](https://www.investopedia.com/sec-points-to-unregulated-spot-market-in-first-oral-arguments-against-grayscale-7229073) on the grounds that bitcoin's unregulated nature creates too much risk for investors. Crypto asset manager Grayscale eventually sued the SEC to [force more clarity on the matter](https://www.investopedia.com/court-rules-sec-was-wrong-to-block-bitcoin-etf-7963127). However, it was Blackrock's ([BLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK)) [application for a spot bitcoin product](https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609) in June last year that gathered momentum behind the idea. As the investment giant from traditional finance stepped into the arena, many others such as Fidelity and Franklin Templeton followed suit. This was seen as a sign that regulatory approval was on the way due to the firms' pivotal role in the U.S. financial system. While regulators and issuers went back and forth to iron out details, there were some last-minute glitches. An unauthorized post announcing the approval on social media platform X from the SEC's account on Tuesday sent bitcoin prices soaring past $48,000 before the regulator clarified that its X account had been compromised. ## What This Regulatory Approval Means for Bitcoin The SEC's sign-off serves as a significant regulatory seal of approval for the world's largest crypto asset, likely reducing some investor fears about investing in the space. It not only brings more regulatory safeguards but allows investors to invest with well-established financial firms. But SEC Chair Gensler warned investors to consider risks before putting their money into the product. "While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto," said Gensler in a statement. Until now, retail investors have only been able to gain cryptocurrency exposure by buying coins directly or through ETFs that trade in cryptocurrency futures. A spot bitcoin ETF will allow investors, especially retail investors, to gain access to bitcoin without needing to hold their investment in a [bitcoin wallet](https://www.investopedia.com/terms/b/bitcoin-wallet.asp). Instead, they simply hold the ETFs in their brokerage account. Analysts expect significant amounts of money to flow into bitcoin spot ETFs, and that optimism has helped boost the price of bitcoin substantially in recent months. According to estimates from *Bloomberg Intelligence, t*he spot bitcoin ETF market could grow to $100 billion over time. Financial services provider Galaxy estimates inflows in spot bitcoin ETF products could rise from $14 billion in the first year to $39 billion within three years. *Update—Jan. 10, 2024: This article was updated to add comments from the SEC.* Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The U.S. Securities and Exchange Commission approved 11 bitcoin exchange-traded fund (ETF) applications.The spot bitcoin ETFs are expected to begin trading on Thursday.Spot bitcoin ETFs will help make investing in the cryptocurrency more accessible, bringing more investors and assets into the crypto space. Spot bitcoin exchange-traded funds (ETFs) are cleared to begin trading Thursday after receiving regulatory approval on Wednesday from the U.S. Securities and Exchange Commission (SEC). Best Crypto Exchanges and Apps for May 2024 11 Spot Bitcoin ETFs Approved The regulator gave the green light to the following products: ARK 21Shares Bitcoin ETF (ARKB) Bitwise Bitcoin ETF (BITB) Fidelity Wise Origin Bitcoin Trust (FBTC) Franklin Bitcoin ETF (EZBC) Grayscale Bitcoin Trust (GBTC) Hashdex Bitcoin ETF (DEFI) Invesco Galaxy Bitcoin ETF (BTCO) iShares Bitcoin Trust (IBIT) Valkyrie Bitcoin Fund (BRRR) VanEck Bitcoin Trust (HODL) WisdomTree Bitcoin Fund (BTCW) In a bid to appeal to investors, many issuers slashed and offered waivers to their spot bitcoin ETF fees ahead of the SEC nod. A Long Wait for Spot Bitcoin ETFs It has been a long road for the approval of a spot bitcoin ETF in the United States. The journey began in 2013 when an entity affiliated with the Winklevoss twins sent the first application for such a financial product to the SEC. While that application was eventually rejected, bitcoin ETFs based on futures products were eventually approved by the SEC starting in 2021. Up until now, a large number of spot-based bitcoin ETF applications had been rejected on the grounds that bitcoin's unregulated nature creates too much risk for investors. Crypto asset manager Grayscale eventually sued the SEC to force more clarity on the matter. However, it was Blackrock's (BLK) application for a spot bitcoin product in June last year that gathered momentum behind the idea. As the investment giant from traditional finance stepped into the arena, many others such as Fidelity and Franklin Templeton followed suit. This was seen as a sign that regulatory approval was on the way due to the firms' pivotal role in the U.S. financial system. While regulators and issuers went back and forth to iron out details, there were some last-minute glitches. An unauthorized post announcing the approval on social media platform X from the SEC's account on Tuesday sent bitcoin prices soaring past $48,000 before the regulator clarified that its X account had been compromised. What This Regulatory Approval Means for Bitcoin The SEC's sign-off serves as a significant regulatory seal of approval for the world's largest crypto asset, likely reducing some investor fears about investing in the space. It not only brings more regulatory safeguards but allows investors to invest with well-established financial firms. But SEC Chair Gensler warned investors to consider risks before putting their money into the product. "While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto," said Gensler in a statement. Until now, retail investors have only been able to gain cryptocurrency exposure by buying coins directly or through ETFs that trade in cryptocurrency futures. A spot bitcoin ETF will allow investors, especially retail investors, to gain access to bitcoin without needing to hold their investment in a bitcoin wallet. Instead, they simply hold the ETFs in their brokerage account.Analysts expect significant amounts of money to flow into bitcoin spot ETFs, and that optimism has helped boost the price of bitcoin substantially in recent months. According to estimates from Bloomberg Intelligence, the spot bitcoin ETF market could grow to $100 billion over time. Financial services provider Galaxy estimates inflows in spot bitcoin ETF products could rise from $14 billion in the first year to $39 billion within three years. Update—Jan. 10, 2024: This article was updated to add comments from the SEC. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/30-year-mortgage-rates-jump-8623549

30-Year Mortgage Rates Jump

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Rates on 30-year mortgages bumped more than an eighth of a percentage point higher Monday, pushing the flagship average up to 7.26%—its highest level in almost two weeks. Most other new purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage rates</a> rose by double-digit basis points as well.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 2, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/RVA6mC3xBWVi7uprAb6wnpOYnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/RVA6mC3xBWVi7uprAb6wnpOYnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png" data-srcset="https://www.investopedia.com/thmb/jw3ZJr85mYHftmRvpzQWNFwFc_o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 2, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/RVA6mC3xBWVi7uprAb6wnpOYnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png" srcset="https://www.investopedia.com/thmb/jw3ZJr85mYHftmRvpzQWNFwFc_o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png 750w" width="2480"/> </noscript> </div> </div> </figure> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Mortgage Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.26%</td> <td>7.51%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.28%</td> <td>7.55%</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>6.95%</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.44%</td> <td>6.74%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.79%</td> <td>7.83%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Because rates vary widely across lenders, it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly no matter the type of home loan you seek. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_8-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_11-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - March 29, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Rates on 30-year new purchase mortgages spiked 14 basis points Monday. That raises the 30-year average to 7.26%, its most expensive level since March 20, and 15 points above the March low of 7.11%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Rates on 30-year loans remain elevated compared to the dip into 6% territory we saw at the start of February. But they are considerably cheaper than October's historic 23-year peak of 8.45%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Jmj7V/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="30-Year Mortgage Rates Since June 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Rates on 15-year new purchase loans climbed similarly Monday, adding 13 basis points to average 6.44%. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they're still much more affordable than last fall's 7.59% average—a peak since 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Jumbo 30-year rates also climbed 13 basis points, after holding steady for two days. Monday's 6.95% average matches the March high. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Monday's biggest rate mover FHA 30-year loans, which saw their average surge 23 basis points, while the 10/6 adjustable-rate average jumped 20 points. No new purchase averages declined Monday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.26%</td> <td>+0.14</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.28%</td> <td>+0.23</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>6.87%</td> <td>+0.10</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>+0.13</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.03%</td> <td>+0.17</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.44%</td> <td>+0.13</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.79%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.36%</td> <td>+0.11</td> </tr> <tr> <td>10/6 ARM</td> <td>7.52%</td> <td>+0.20</td> </tr> <tr> <td>7/6 ARM</td> <td>7.61%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.58%</td> <td>+0.13</td> </tr> <tr> <td>5/6 ARM</td> <td>7.79%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>+0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/FiQLa/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-weekly-freddie-mac-average"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Weekly Freddie Mac Average </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading slipped 8 basis points to 6.79%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a <em>weekly</em> average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>, while Investopedia’s averages only include zero-point loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Though most refinancing rates climbed Monday, the 30-year refi average was one of a few that fell, subtracting a notable 19 basis points. That tightens the spread between 30-year new purchase and refi rates to a narrow 25 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The other two refi loan types to show a non-trivial decline Monday were 7/6 and 5/6 ARM loans, whose averages dropped 8 and 7 basis points, respectively. Moving the other way, the 20-year refi average shot up 22 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 156px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th>Daily Change</th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.51%</td> <td>-0.19</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.55%</td> <td>+0.03</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.37%</td> <td>-0.02</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>+0.12</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.38%</td> <td>+0.22</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.74%</td> <td>+0.18</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.90%</td> <td>+0.04</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.60%</td> <td>+0.15</td> </tr> <tr> <td>10/6 ARM</td> <td>7.77%</td> <td>+0.19</td> </tr> <tr> <td>7/6 ARM</td> <td>7.77%</td> <td>-0.08</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.68%</td> <td>+0.13</td> </tr> <tr> <td>5/6 ARM</td> <td>7.83%</td> <td>-0.07</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>+0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_46-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The states with the cheapest 30-year new purchase rates Monday were Mississippi, Vermont, Rhode Island, Louisiana, New York, and Hawaii, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Oregon, and Washington. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_53-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/jI2O4/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Mortgage Rates by State"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve's</a> current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Between that time and July 2023, the Fed aggressively raised the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20.<span class="ql-inline-citation" data-cite="5"></span> Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-how-we-track-mortgage-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> How We Track Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p></div>

Rates on 30-year mortgages bumped more than an eighth of a percentage point higher Monday, pushing the flagship average up to 7.26%—its highest level in almost two weeks. Most other new purchase [mortgage rates](https://www.investopedia.com/mortgage-rates-5094943) rose by double-digit basis points as well. ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 2, 2024]() :max_bytes(150000):strip_icc()/04-02-e4443a6aaadf4a7780ef7372cab38cde.png) | National Averages of Lenders' Best Mortgage Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.26% | 7.51% | | FHA 30-Year Fixed | 7.28% | 7.55% | | Jumbo 30-Year Fixed | 6.95% | 6.95% | | 15-Year Fixed | 6.44% | 6.74% | | 5/6 ARM | 7.79% | 7.83% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Because rates vary widely across lenders, it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly no matter the type of home loan you seek. [Compare the Best Mortgage Rates Today - March 29, 2024](https://www.investopedia.com/mortgage-rates-5094943) ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages spiked 14 basis points Monday. That raises the 30-year average to 7.26%, its most expensive level since March 20, and 15 points above the March low of 7.11%. Rates on 30-year loans remain elevated compared to the dip into 6% territory we saw at the start of February. But they are considerably cheaper than October's historic 23-year peak of 8.45%. Rates on 15-year new purchase loans climbed similarly Monday, adding 13 basis points to average 6.44%. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they're still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year rates also climbed 13 basis points, after holding steady for two days. Monday's 6.95% average matches the March high. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Monday's biggest rate mover FHA 30-year loans, which saw their average surge 23 basis points, while the 10/6 adjustable-rate average jumped 20 points. No new purchase averages declined Monday. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.26% | +0.14 | | FHA 30-Year Fixed | 7.28% | +0.23 | | VA 30-Year Fixed | 6.87% | +0.10 | | Jumbo 30-Year Fixed | 6.95% | +0.13 | | 20-Year Fixed | 7.03% | +0.17 | | 15-Year Fixed | 6.44% | +0.13 | | FHA 15-Year Fixed | 6.79% | No Change | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.36% | +0.11 | | 10/6 ARM | 7.52% | +0.20 | | 7/6 ARM | 7.61% | +0.03 | | Jumbo 7/6 ARM | 6.58% | +0.13 | | 5/6 ARM | 7.79% | No Change | | Jumbo 5/6 ARM | 6.68% | +0.13 | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading slipped 8 basis points to 6.79%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a *weekly* average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), while Investopedia’s averages only include zero-point loans. ## Today's Mortgage Rate Averages: Refinancing Though most refinancing rates climbed Monday, the 30-year refi average was one of a few that fell, subtracting a notable 19 basis points. That tightens the spread between 30-year new purchase and refi rates to a narrow 25 basis points. The other two refi loan types to show a non-trivial decline Monday were 7/6 and 5/6 ARM loans, whose averages dropped 8 and 7 basis points, respectively. Moving the other way, the 20-year refi average shot up 22 basis points. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.51% | -0.19 | | FHA 30-Year Fixed | 7.55% | +0.03 | | VA 30-Year Fixed | 7.37% | -0.02 | | Jumbo 30-Year Fixed | 6.95% | +0.12 | | 20-Year Fixed | 7.38% | +0.22 | | 15-Year Fixed | 6.74% | +0.18 | | FHA 15-Year Fixed | 6.90% | +0.04 | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.60% | +0.15 | | 10/6 ARM | 7.77% | +0.19 | | 7/6 ARM | 7.77% | -0.08 | | Jumbo 7/6 ARM | 6.68% | +0.13 | | 5/6 ARM | 7.83% | -0.07 | | Jumbo 5/6 ARM | 6.68% | +0.13 | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. ## Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Monday were Mississippi, Vermont, Rhode Island, Louisiana, New York, and Hawaii, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Oregon, and Washington. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The [Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "[dot plot](https://www.investopedia.com/dot-plot-4581755)" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. ## How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

Rates on 30-year mortgages bumped more than an eighth of a percentage point higher Monday, pushing the flagship average up to 7.26%—its highest level in almost two weeks. Most other new purchase mortgage rates rose by double-digit basis points as well. National Averages of Lenders' Best Mortgage Rates Loan Type New Purchase Refinance 30-Year Fixed 7.26% 7.51% FHA 30-Year Fixed 7.28% 7.55% Jumbo 30-Year Fixed 6.95% 6.95% 15-Year Fixed 6.44% 6.74% 5/6 ARM 7.79% 7.83% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Because rates vary widely across lenders, it's always smart to shop around for your best mortgage option and compare rates regularly no matter the type of home loan you seek. Compare the Best Mortgage Rates Today - March 29, 2024 Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages spiked 14 basis points Monday. That raises the 30-year average to 7.26%, its most expensive level since March 20, and 15 points above the March low of 7.11%. Rates on 30-year loans remain elevated compared to the dip into 6% territory we saw at the start of February. But they are considerably cheaper than October's historic 23-year peak of 8.45%. Rates on 15-year new purchase loans climbed similarly Monday, adding 13 basis points to average 6.44%. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they're still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year rates also climbed 13 basis points, after holding steady for two days. Monday's 6.95% average matches the March high. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Monday's biggest rate mover FHA 30-year loans, which saw their average surge 23 basis points, while the 10/6 adjustable-rate average jumped 20 points. No new purchase averages declined Monday. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.26% +0.14 FHA 30-Year Fixed 7.28% +0.23 VA 30-Year Fixed 6.87% +0.10 Jumbo 30-Year Fixed 6.95% +0.13 20-Year Fixed 7.03% +0.17 15-Year Fixed 6.44% +0.13 FHA 15-Year Fixed 6.79% No Change Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.36% +0.11 10/6 ARM 7.52% +0.20 7/6 ARM 7.61% +0.03 Jumbo 7/6 ARM 6.58% +0.13 5/6 ARM 7.79% No Change Jumbo 5/6 ARM 6.68% +0.13 The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading slipped 8 basis points to 6.79%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a weekly average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with discount points, while Investopedia’s averages only include zero-point loans. Today's Mortgage Rate Averages: Refinancing Though most refinancing rates climbed Monday, the 30-year refi average was one of a few that fell, subtracting a notable 19 basis points. That tightens the spread between 30-year new purchase and refi rates to a narrow 25 basis points. The other two refi loan types to show a non-trivial decline Monday were 7/6 and 5/6 ARM loans, whose averages dropped 8 and 7 basis points, respectively. Moving the other way, the 20-year refi average shot up 22 basis points. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.51% -0.19 FHA 30-Year Fixed 7.55% +0.03 VA 30-Year Fixed 7.37% -0.02 Jumbo 30-Year Fixed 6.95% +0.12 20-Year Fixed 7.38% +0.22 15-Year Fixed 6.74% +0.18 FHA 15-Year Fixed 6.90% +0.04 Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.60% +0.15 10/6 ARM 7.77% +0.19 7/6 ARM 7.77% -0.08 Jumbo 7/6 ARM 6.68% +0.13 5/6 ARM 7.83% -0.07 Jumbo 5/6 ARM 6.68% +0.13 Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Monday were Mississippi, Vermont, Rhode Island, Louisiana, New York, and Hawaii, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Oregon, and Washington. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "dot plot" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

https://www.investopedia.com/terms/b/backstop.asp

Back Stop: Definition, How It Works in Offering, and Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-back-stop"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Back Stop? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In corporate finance and investment banking, a back stop (or backstop) is to provide last-resort support or to make a bid in a securities <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offering.asp">offering</a> for the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsubscribed.asp">unsubscribed</a> portion of shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> When a company is trying to raise capital through an issuance—and wants to guarantee the amount received through the issue—it may get a back stop from an underwriter or a major shareholder, such as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentbank.asp">investment bank</a>, to buy any of its unsubscribed shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A back stop is the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares.</li><li>When a company is trying to raise capital through an issuance, it may get a back stop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares.</li><li>Back stops function as a type of "insurance" and support for the overall offering, ensuring that the offering does not fail if all shares are not subscribed.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-back-stop-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How a Back Stop Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A back stop functions as a form of insurance. While not an actual insurance plan, a company can guarantee that a certain amount of its offering will be purchased by particular organizations, usually investment banking firms, if the open market does not produce enough investors and a portion of the offering goes unsold. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> If the organization providing the back stop is an investment banking firm, sub-underwriters representing the investment firm will enter into an agreement with the company. This agreement is referred to as a firm-commitment underwriting deal or contract, and it provides overall support for the offering by committing to purchase a specific number of unsold shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> By entering into a firm-commitment underwriting agreement, the associated organization has claimed full responsibility for the quantity of shares specified if they initially go unsold, and promises to provide the associated capital in exchange for the available shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> This gives assurance to the issuer that the minimum capital can be raised regardless of the open market activity. Additionally, all risk associated with the specified shares is effectively transferred to the underwritten organization. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If all of the offering is purchased through regular investment vehicles, the contract obligating the organization to purchase any unsold shares is rendered void, as the conditions surrounding the promise to purchase no longer exist. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The contracts between an issuer and the underwriting organization can take various forms. For example, the underwriting organization can provide the issuer with a revolving credit loan to boost credit ratings for the issuer. They may also issue letters of credit as guarantees to the entity raising capital through offerings.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If the underwriting organization takes possession of any shares, as specified in the agreement, the shares belong to the organization to manage as it sees fit. The shares are treated the same way as any other investment purchased through normal market activity. The issuing company can impose no restrictions on how the shares are traded. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The underwriting organization may subsequently hold or sell the associated securities per the regulations that govern the activity overall. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-example-of-a-back-stop"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Example of a Back Stop </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rightsoffering.asp" rel="noopener noreferrer">rights offering</a>, you may see a statement to this effect: "ABC Company will provide a 100 percent back stop of up to $100 million for any unsubscribed portion of the XYZ Company rights offering." If XYZ is trying to raise $200 million, but only raises $100 million through investors, then ABC Company purchases the remainder. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-what-is-a-back-stop-in-a-bond-issue"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Back Stop in a Bond Issue?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Similar to the back stop in an equity placement, a back stop for a bond issue is a type of guarantee whereby the underwriting bank or syndicate will fix a price at which to purchase any unsold or unsubscribed bonds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-are-backstop-purchasers"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Are Backstop Purchasers?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If the underwriting bank or investment banking syndicate cannot or do not want to back stop a new issue, third-party <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/backstop_purchaser.asp">backstop purchasers</a> may be called upon to step in and buy any unsubscribed portion of a securities issue. These purchasers may provide a bid substantially below the issue price and/or may demand fees as compensation. They would then often try to sell off the holdings over time at a profit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-are-volcker-rule-backstop-provisions"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Volcker Rule Backstop Provisions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volcker-rule.asp">Volcker Rule</a> is a set of financial regulations that separates the commercial and investment banking activities of a firm. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/062315/what-purpose-volcker-rule.asp">Its purpose</a> is to prevent conflicts of interest and unfair practices to the detriment of a bank's customers. One provision of the Rule is to prevent the backstopping of a securities issue by an underwriting bank if it will create a conflict of interest. Moreover, a back stop would be prohibited if it would "result, directly or indirectly, in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy; or pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States."<span class="ql-inline-citation" data-cite="1"></span></p></div> </div></div>

## What Is a Back Stop? In corporate finance and investment banking, a back stop (or backstop) is to provide last-resort support or to make a bid in a securities [offering](https://www.investopedia.com/terms/o/offering.asp) for the [unsubscribed](https://www.investopedia.com/terms/u/unsubscribed.asp) portion of shares. When a company is trying to raise capital through an issuance—and wants to guarantee the amount received through the issue—it may get a back stop from an underwriter or a major shareholder, such as an [investment bank](https://www.investopedia.com/terms/i/investmentbank.asp), to buy any of its unsubscribed shares. ### Key Takeaways * A back stop is the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. * When a company is trying to raise capital through an issuance, it may get a back stop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares. * Back stops function as a type of "insurance" and support for the overall offering, ensuring that the offering does not fail if all shares are not subscribed. ## How a Back Stop Works A back stop functions as a form of insurance. While not an actual insurance plan, a company can guarantee that a certain amount of its offering will be purchased by particular organizations, usually investment banking firms, if the open market does not produce enough investors and a portion of the offering goes unsold. If the organization providing the back stop is an investment banking firm, sub-underwriters representing the investment firm will enter into an agreement with the company. This agreement is referred to as a firm-commitment underwriting deal or contract, and it provides overall support for the offering by committing to purchase a specific number of unsold shares. By entering into a firm-commitment underwriting agreement, the associated organization has claimed full responsibility for the quantity of shares specified if they initially go unsold, and promises to provide the associated capital in exchange for the available shares. This gives assurance to the issuer that the minimum capital can be raised regardless of the open market activity. Additionally, all risk associated with the specified shares is effectively transferred to the underwritten organization. If all of the offering is purchased through regular investment vehicles, the contract obligating the organization to purchase any unsold shares is rendered void, as the conditions surrounding the promise to purchase no longer exist. ### The contracts between an issuer and the underwriting organization can take various forms. For example, the underwriting organization can provide the issuer with a revolving credit loan to boost credit ratings for the issuer. They may also issue letters of credit as guarantees to the entity raising capital through offerings. ## Special Considerations If the underwriting organization takes possession of any shares, as specified in the agreement, the shares belong to the organization to manage as it sees fit. The shares are treated the same way as any other investment purchased through normal market activity. The issuing company can impose no restrictions on how the shares are traded. The underwriting organization may subsequently hold or sell the associated securities per the regulations that govern the activity overall. ## Example of a Back Stop In a [rights offering](https://www.investopedia.com/terms/r/rightsoffering.asp), you may see a statement to this effect: "ABC Company will provide a 100 percent back stop of up to $100 million for any unsubscribed portion of the XYZ Company rights offering." If XYZ is trying to raise $200 million, but only raises $100 million through investors, then ABC Company purchases the remainder. ## What Is a Back Stop in a Bond Issue? Similar to the back stop in an equity placement, a back stop for a bond issue is a type of guarantee whereby the underwriting bank or syndicate will fix a price at which to purchase any unsold or unsubscribed bonds. ## Who Are Backstop Purchasers? If the underwriting bank or investment banking syndicate cannot or do not want to back stop a new issue, third-party [backstop purchasers](https://www.investopedia.com/terms/b/backstop_purchaser.asp) may be called upon to step in and buy any unsubscribed portion of a securities issue. These purchasers may provide a bid substantially below the issue price and/or may demand fees as compensation. They would then often try to sell off the holdings over time at a profit. ## What Are Volcker Rule Backstop Provisions? The [Volcker Rule](https://www.investopedia.com/terms/v/volcker-rule.asp) is a set of financial regulations that separates the commercial and investment banking activities of a firm. [Its purpose](https://www.investopedia.com/ask/answers/062315/what-purpose-volcker-rule.asp) is to prevent conflicts of interest and unfair practices to the detriment of a bank's customers. One provision of the Rule is to prevent the backstopping of a securities issue by an underwriting bank if it will create a conflict of interest. Moreover, a back stop would be prohibited if it would "result, directly or indirectly, in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy; or pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States."

What Is a Back Stop? In corporate finance and investment banking, a back stop (or backstop) is to provide last-resort support or to make a bid in a securities offering for the unsubscribed portion of shares. When a company is trying to raise capital through an issuance—and wants to guarantee the amount received through the issue—it may get a back stop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares. Key Takeaways A back stop is the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares.When a company is trying to raise capital through an issuance, it may get a back stop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares.Back stops function as a type of "insurance" and support for the overall offering, ensuring that the offering does not fail if all shares are not subscribed. How a Back Stop Works A back stop functions as a form of insurance. While not an actual insurance plan, a company can guarantee that a certain amount of its offering will be purchased by particular organizations, usually investment banking firms, if the open market does not produce enough investors and a portion of the offering goes unsold. If the organization providing the back stop is an investment banking firm, sub-underwriters representing the investment firm will enter into an agreement with the company. This agreement is referred to as a firm-commitment underwriting deal or contract, and it provides overall support for the offering by committing to purchase a specific number of unsold shares. By entering into a firm-commitment underwriting agreement, the associated organization has claimed full responsibility for the quantity of shares specified if they initially go unsold, and promises to provide the associated capital in exchange for the available shares. This gives assurance to the issuer that the minimum capital can be raised regardless of the open market activity. Additionally, all risk associated with the specified shares is effectively transferred to the underwritten organization. If all of the offering is purchased through regular investment vehicles, the contract obligating the organization to purchase any unsold shares is rendered void, as the conditions surrounding the promise to purchase no longer exist. The contracts between an issuer and the underwriting organization can take various forms. For example, the underwriting organization can provide the issuer with a revolving credit loan to boost credit ratings for the issuer. They may also issue letters of credit as guarantees to the entity raising capital through offerings. Special Considerations If the underwriting organization takes possession of any shares, as specified in the agreement, the shares belong to the organization to manage as it sees fit. The shares are treated the same way as any other investment purchased through normal market activity. The issuing company can impose no restrictions on how the shares are traded. The underwriting organization may subsequently hold or sell the associated securities per the regulations that govern the activity overall. Example of a Back Stop In a rights offering, you may see a statement to this effect: "ABC Company will provide a 100 percent back stop of up to $100 million for any unsubscribed portion of the XYZ Company rights offering." If XYZ is trying to raise $200 million, but only raises $100 million through investors, then ABC Company purchases the remainder. What Is a Back Stop in a Bond Issue? Similar to the back stop in an equity placement, a back stop for a bond issue is a type of guarantee whereby the underwriting bank or syndicate will fix a price at which to purchase any unsold or unsubscribed bonds. Who Are Backstop Purchasers? If the underwriting bank or investment banking syndicate cannot or do not want to back stop a new issue, third-party backstop purchasers may be called upon to step in and buy any unsubscribed portion of a securities issue. These purchasers may provide a bid substantially below the issue price and/or may demand fees as compensation. They would then often try to sell off the holdings over time at a profit. What Are Volcker Rule Backstop Provisions? The Volcker Rule is a set of financial regulations that separates the commercial and investment banking activities of a firm. Its purpose is to prevent conflicts of interest and unfair practices to the detriment of a bank's customers. One provision of the Rule is to prevent the backstopping of a securities issue by an underwriting bank if it will create a conflict of interest. Moreover, a back stop would be prohibited if it would "result, directly or indirectly, in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy; or pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States."

https://www.investopedia.com/articles/forex/082815/these-are-best-hours-trade-british-pound.asp

The Best Times to Trade the British Pound (GBP)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Financial news events produce two main benefits for trading the British pound. The first is an obvious <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trend.asp" rel="noopener noreferrer">trend</a>, while the second is higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp" rel="noopener noreferrer">liquidity</a>. Financial news can come at unpredictable times, but much of it is released on a regular schedule by financial institutions and governments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Financial news events produce two main benefits for trading the British pound, an obvious trend and higher liquidity.</li><li>There are major financial events, such as Black Wednesday and Brexit, that impact the direction of the British pound for years.</li><li>Most monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States, making this a good time for trading.</li><li>Central bank interest rate announcements, which usually take place at regularly scheduled times, also have a powerful influence on exchange rates.</li><li>Stock market operating hours and price action can significantly impact the British pound.</li></ul></div></div></div> <span class="heading-toc" id="toc-currency-pairs-and-trading-hours"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Currency Pairs and Trading Hours </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The British pound sterling (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gbp.asp">GBP</a>) is the fourth most widely traded currency in the world, behind the U.S. dollar (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp">USD</a>), the euro (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">EUR</a>), and the Japanese yen (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp">JPY</a>). The GBP also ranks third in globally held reserves. GBP traders speculate on strength and weakness through <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencypair.asp">currency pairs</a> that establish comparative value in real-time. Although forex brokers offer dozens of related crosses, most clients focus their attention on the four most popular pairs: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>U.S. dollar: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/g/gbp-usd-british-pound-us-dollar-currency-pair.asp">GBP/USD</a></li> <li>Swiss franc: GBP/CHF</li> <li>Japanese yen: GBP/JPY</li> <li>Euro: EUR/GBP</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The GBP trades continuously from Sunday evening to Friday afternoon in the United States, offering significant opportunities for profit. However, volume and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> vary greatly in each 24-hour cycle, with spreads widening in slow periods and narrowing during active periods. While the ability to open and close positions at any time marks a forex benefit, the majority of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-strategy.asp">trading strategies</a> work best in busy periods. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-british-pound-price-catalysts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> British Pound Price Catalysts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The best times to trade this instrument track the release of critical economic data as well as open hours at equity, options, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> exchanges. Planning for these releases requires two-sided research because local (U.K.) financial news can move popular GBP pairs with the same intensity as news in other venues. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In addition, the pairs are highly susceptible to economic and political macro events that trigger highly correlated price action across equities, currencies, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond markets</a> around the world. China’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/devaluation.asp">devaluation</a> of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/c/cny-china-yuan-renminbi.asp">yuan</a> in August 2015 offers a perfect illustration. Even natural disasters have the power to generate this type of coordinated response, as evidenced by the 2011 Japanese tsunami. The 2020 <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dow-slips-into-bear-market-territory-on-coronavirus-concerns-4799529">bear market</a> in stocks also led to dramatic swings in currency values as the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/carry-trade-definition-4682656">carry trade</a> collapsed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are also major financial events, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/black-wednesday.asp">Black Wednesday</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brexit.asp">Brexit</a>, that impact the direction of the British pound for years. Currency traders can make an enormous amount of money by betting on the right direction. However, it is crucial to get out of the wrong side of these trades quickly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>It is essential to have an exit strategy, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/09/use-stop-loss.asp" rel="noopener noreferrer">stop loss</a>, when making highly leveraged currency trades.</p></div></div></div> <span class="heading-toc" id="toc-economic-releases"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Economic Releases </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The majority of monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States.<span class="ql-inline-citation" data-cite="1"></span> Thirty to 60 minutes before these releases and one to three hours afterward highlight the best times to trade the GBP because the news flow will impact the pound's value. The majority of European data becomes available around the same time as U.K. data. That makes it an excellent time to trade European currency pairs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economic-calendar.asp" rel="noopener noreferrer">U.S. economic releases</a> usually occur between 8:30 a.m. and 10 a.m. Eastern Time and also generate extraordinary GBP trading volume. There are good odds for strongly trending <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-action.asp" rel="noopener noreferrer">price action</a> in several or all of the pairs. Japanese releases receive less attention because they occur when the United Kingdom is in the middle of its sleep cycle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-british-pound-and-equity-exchange-hours"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> British Pound and Equity Exchange Hours </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Many GBP traders' schedules roughly follow exchange hours, with most of their activity occurring when Frankfurt and New York <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equitymarket.asp" rel="noopener noreferrer">equity markets</a> are open for business. This localization generates an increase in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp" rel="noopener noreferrer">trading volume</a> around midnight on the U.S. East Coast, continuing through the night and into the American lunch hour when forex trading activity can drop sharply. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp" rel="noopener noreferrer">central bank</a> agendas shift this activity cycle with forex traders worldwide staying at their desks when the Federal Reserve (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fomc.asp" rel="noopener noreferrer">FOMC</a>) is scheduled to release a 2 p.m. interest rate decision or the minutes of the previous meeting. The Bank of England (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/boe.asp" rel="noopener noreferrer">BOE</a>) issues its rate decisions at 7 a.m., and the European Central Bank (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeancentralbank.asp" rel="noopener noreferrer">ECB</a>) follows at 7:45 a.m., leading to high activity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-what-time-is-the-gbpusd-pair-most-volatile"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Time Is the GBP/USD Pair Most Volatile?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The GBP/USD market is usually most volatile between 2:00 a.m and 12:00 p.m Eastern Time.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-is-gbp-stronger-than-usd"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is GBP Stronger Than USD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The British pound has historically been <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/070516/why-british-pound-stronger-us-dollar.asp">stronger than the US dollar</a>. As of June 28, 2023, the exchange rate is 1 GBP/1.27 USD. However, experts point out that past performance is not a reliable indicator of future results.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-what-is-the-prediction-for-gbpusd-in-2023"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Prediction for GBP/USD in 2023?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The GBP/USD pair is forecast to fall to 1.16 in September 2023 and to 1.15 in December 2023.<span class="ql-inline-citation" data-cite="3"></span></p><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-is-eurgbp-a-good-pair-to-trade"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is EUR/GBP a Good Pair to Trade?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The EUR/GBP pair is very popular in the forex market and one of the most traded currency pairs. With excellent liquodity, it's also one of the most profitable pairs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Four popular currency pairs offer British pound sterling traders a wide variety of short and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longterm.asp" rel="noopener noreferrer">long-term</a> opportunities. The best times to trade these instruments are centered around key economic releases, when European and American exchanges keep all cross markets active and highly liquid. </p></div>

Financial news events produce two main benefits for trading the British pound. The first is an obvious [trend](https://www.investopedia.com/terms/t/trend.asp), while the second is higher [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). Financial news can come at unpredictable times, but much of it is released on a regular schedule by financial institutions and governments. ### Key Takeaways * Financial news events produce two main benefits for trading the British pound, an obvious trend and higher liquidity. * There are major financial events, such as Black Wednesday and Brexit, that impact the direction of the British pound for years. * Most monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States, making this a good time for trading. * Central bank interest rate announcements, which usually take place at regularly scheduled times, also have a powerful influence on exchange rates. * Stock market operating hours and price action can significantly impact the British pound. ## Currency Pairs and Trading Hours The British pound sterling ([GBP](https://www.investopedia.com/terms/g/gbp.asp)) is the fourth most widely traded currency in the world, behind the U.S. dollar ([USD](https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp)), the euro ([EUR](https://www.investopedia.com/terms/e/euro.asp)), and the Japanese yen ([JPY](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp)). The GBP also ranks third in globally held reserves. GBP traders speculate on strength and weakness through [currency pairs](https://www.investopedia.com/terms/c/currencypair.asp) that establish comparative value in real-time. Although forex brokers offer dozens of related crosses, most clients focus their attention on the four most popular pairs: * U.S. dollar: [GBP/USD](https://www.investopedia.com/terms/forex/g/gbp-usd-british-pound-us-dollar-currency-pair.asp) * Swiss franc: GBP/CHF * Japanese yen: GBP/JPY * Euro: EUR/GBP The GBP trades continuously from Sunday evening to Friday afternoon in the United States, offering significant opportunities for profit. However, volume and [volatility](https://www.investopedia.com/terms/v/volatility.asp) vary greatly in each 24-hour cycle, with spreads widening in slow periods and narrowing during active periods. While the ability to open and close positions at any time marks a forex benefit, the majority of [trading strategies](https://www.investopedia.com/terms/t/trading-strategy.asp) work best in busy periods. ## British Pound Price Catalysts The best times to trade this instrument track the release of critical economic data as well as open hours at equity, options, and [futures](https://www.investopedia.com/terms/f/futures.asp) exchanges. Planning for these releases requires two-sided research because local (U.K.) financial news can move popular GBP pairs with the same intensity as news in other venues. In addition, the pairs are highly susceptible to economic and political macro events that trigger highly correlated price action across equities, currencies, and [bond markets](https://www.investopedia.com/terms/b/bondmarket.asp) around the world. China’s [devaluation](https://www.investopedia.com/terms/d/devaluation.asp) of the [yuan](https://www.investopedia.com/terms/forex/c/cny-china-yuan-renminbi.asp) in August 2015 offers a perfect illustration. Even natural disasters have the power to generate this type of coordinated response, as evidenced by the 2011 Japanese tsunami. The 2020 [bear market](https://www.investopedia.com/dow-slips-into-bear-market-territory-on-coronavirus-concerns-4799529) in stocks also led to dramatic swings in currency values as the [carry trade](https://www.investopedia.com/carry-trade-definition-4682656) collapsed. There are also major financial events, such as [Black Wednesday](https://www.investopedia.com/terms/b/black-wednesday.asp) and [Brexit](https://www.investopedia.com/terms/b/brexit.asp), that impact the direction of the British pound for years. Currency traders can make an enormous amount of money by betting on the right direction. However, it is crucial to get out of the wrong side of these trades quickly. ### It is essential to have an exit strategy, such as a [stop loss](https://www.investopedia.com/articles/stocks/09/use-stop-loss.asp), when making highly leveraged currency trades. ## Economic Releases The majority of monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States. Thirty to 60 minutes before these releases and one to three hours afterward highlight the best times to trade the GBP because the news flow will impact the pound's value. The majority of European data becomes available around the same time as U.K. data. That makes it an excellent time to trade European currency pairs. [U.S. economic releases](https://www.investopedia.com/terms/e/economic-calendar.asp) usually occur between 8:30 a.m. and 10 a.m. Eastern Time and also generate extraordinary GBP trading volume. There are good odds for strongly trending [price action](https://www.investopedia.com/terms/p/price-action.asp) in several or all of the pairs. Japanese releases receive less attention because they occur when the United Kingdom is in the middle of its sleep cycle. ## British Pound and Equity Exchange Hours Many GBP traders' schedules roughly follow exchange hours, with most of their activity occurring when Frankfurt and New York [equity markets](https://www.investopedia.com/terms/e/equitymarket.asp) are open for business. This localization generates an increase in [trading volume](https://www.investopedia.com/terms/v/volume.asp) around midnight on the U.S. East Coast, continuing through the night and into the American lunch hour when forex trading activity can drop sharply. However, [central bank](https://www.investopedia.com/terms/c/centralbank.asp) agendas shift this activity cycle with forex traders worldwide staying at their desks when the Federal Reserve ([FOMC](https://www.investopedia.com/terms/f/fomc.asp)) is scheduled to release a 2 p.m. interest rate decision or the minutes of the previous meeting. The Bank of England ([BOE](https://www.investopedia.com/terms/b/boe.asp)) issues its rate decisions at 7 a.m., and the European Central Bank ([ECB](https://www.investopedia.com/terms/e/europeancentralbank.asp)) follows at 7:45 a.m., leading to high activity. ## What Time Is the GBP/USD Pair Most Volatile? The GBP/USD market is usually most volatile between 2:00 a.m and 12:00 p.m Eastern Time. ## Is GBP Stronger Than USD? The British pound has historically been [stronger than the US dollar](https://www.investopedia.com/ask/answers/070516/why-british-pound-stronger-us-dollar.asp). As of June 28, 2023, the exchange rate is 1 GBP/1.27 USD. However, experts point out that past performance is not a reliable indicator of future results. ## What Is the Prediction for GBP/USD in 2023? The GBP/USD pair is forecast to fall to 1.16 in September 2023 and to 1.15 in December 2023. ## Is EUR/GBP a Good Pair to Trade? The EUR/GBP pair is very popular in the forex market and one of the most traded currency pairs. With excellent liquodity, it's also one of the most profitable pairs. ## The Bottom Line Four popular currency pairs offer British pound sterling traders a wide variety of short and [long-term](https://www.investopedia.com/terms/l/longterm.asp) opportunities. The best times to trade these instruments are centered around key economic releases, when European and American exchanges keep all cross markets active and highly liquid.

Financial news events produce two main benefits for trading the British pound. The first is an obvious trend, while the second is higher liquidity. Financial news can come at unpredictable times, but much of it is released on a regular schedule by financial institutions and governments. Key Takeaways Financial news events produce two main benefits for trading the British pound, an obvious trend and higher liquidity.There are major financial events, such as Black Wednesday and Brexit, that impact the direction of the British pound for years.Most monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States, making this a good time for trading.Central bank interest rate announcements, which usually take place at regularly scheduled times, also have a powerful influence on exchange rates.Stock market operating hours and price action can significantly impact the British pound. Currency Pairs and Trading Hours The British pound sterling (GBP) is the fourth most widely traded currency in the world, behind the U.S. dollar (USD), the euro (EUR), and the Japanese yen (JPY). The GBP also ranks third in globally held reserves. GBP traders speculate on strength and weakness through currency pairs that establish comparative value in real-time. Although forex brokers offer dozens of related crosses, most clients focus their attention on the four most popular pairs: U.S. dollar: GBP/USD Swiss franc: GBP/CHF Japanese yen: GBP/JPY Euro: EUR/GBP The GBP trades continuously from Sunday evening to Friday afternoon in the United States, offering significant opportunities for profit. However, volume and volatility vary greatly in each 24-hour cycle, with spreads widening in slow periods and narrowing during active periods. While the ability to open and close positions at any time marks a forex benefit, the majority of trading strategies work best in busy periods. British Pound Price Catalysts The best times to trade this instrument track the release of critical economic data as well as open hours at equity, options, and futures exchanges. Planning for these releases requires two-sided research because local (U.K.) financial news can move popular GBP pairs with the same intensity as news in other venues. In addition, the pairs are highly susceptible to economic and political macro events that trigger highly correlated price action across equities, currencies, and bond markets around the world. China’s devaluation of the yuan in August 2015 offers a perfect illustration. Even natural disasters have the power to generate this type of coordinated response, as evidenced by the 2011 Japanese tsunami. The 2020 bear market in stocks also led to dramatic swings in currency values as the carry trade collapsed. There are also major financial events, such as Black Wednesday and Brexit, that impact the direction of the British pound for years. Currency traders can make an enormous amount of money by betting on the right direction. However, it is crucial to get out of the wrong side of these trades quickly. It is essential to have an exit strategy, such as a stop loss, when making highly leveraged currency trades. Economic Releases The majority of monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States. Thirty to 60 minutes before these releases and one to three hours afterward highlight the best times to trade the GBP because the news flow will impact the pound's value. The majority of European data becomes available around the same time as U.K. data. That makes it an excellent time to trade European currency pairs. U.S. economic releases usually occur between 8:30 a.m. and 10 a.m. Eastern Time and also generate extraordinary GBP trading volume. There are good odds for strongly trending price action in several or all of the pairs. Japanese releases receive less attention because they occur when the United Kingdom is in the middle of its sleep cycle. British Pound and Equity Exchange Hours Many GBP traders' schedules roughly follow exchange hours, with most of their activity occurring when Frankfurt and New York equity markets are open for business. This localization generates an increase in trading volume around midnight on the U.S. East Coast, continuing through the night and into the American lunch hour when forex trading activity can drop sharply. However, central bank agendas shift this activity cycle with forex traders worldwide staying at their desks when the Federal Reserve (FOMC) is scheduled to release a 2 p.m. interest rate decision or the minutes of the previous meeting. The Bank of England (BOE) issues its rate decisions at 7 a.m., and the European Central Bank (ECB) follows at 7:45 a.m., leading to high activity. What Time Is the GBP/USD Pair Most Volatile? The GBP/USD market is usually most volatile between 2:00 a.m and 12:00 p.m Eastern Time. Is GBP Stronger Than USD? The British pound has historically been stronger than the US dollar. As of June 28, 2023, the exchange rate is 1 GBP/1.27 USD. However, experts point out that past performance is not a reliable indicator of future results. What Is the Prediction for GBP/USD in 2023? The GBP/USD pair is forecast to fall to 1.16 in September 2023 and to 1.15 in December 2023. Is EUR/GBP a Good Pair to Trade? The EUR/GBP pair is very popular in the forex market and one of the most traded currency pairs. With excellent liquodity, it's also one of the most profitable pairs. The Bottom Line Four popular currency pairs offer British pound sterling traders a wide variety of short and long-term opportunities. The best times to trade these instruments are centered around key economic releases, when European and American exchanges keep all cross markets active and highly liquid.

https://www.investopedia.com/with-covid-era-cruises-come-a-sea-of-new-rules-5192092

With COVID-Era Cruises Come a Sea of New Rules

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> As cruise lines begin to set sail again this summer after a 15-month pause due to the COVID-19 pandemic, would-be passengers will find a rapidly changing set of new travel policies and health protocols to navigate—including mandatory travel insurance requirements in some cases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>As they begin to sail again this summer, cruise lines are instituting new rules for vaccinated and unvaccinated passengers.</li><li>Royal Caribbean and MSC are the first two cruise lines to announce travel insurance requirements, and Carnival Cruise Line joined them in recent days. Others are expected to follow soon.</li><li>Cruise lines continue to navigate between CDC regulations and Florida law in setting on-board protocols and in-port policies.</li><li>Rules are still evolving, so travel experts say keeping in touch with the cruise line and your travel advisor are essential.</li></ul></div></div></div> <span class="heading-toc" id="toc-piloting-covid-19-precautions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Piloting COVID-19 Precautions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Many cruise lines are requiring proof of vaccination against COVID-19 to board, but vaccine requirements can vary by cruise line, ship, and departure port/destination. And new health and safety practices—along with added insurance rules—distinguish between vaccinated and unvaccinated cruisers in many ways. They reflect current guidelines issued by the Centers for Disease Control and Prevention (CDC), which require U.S-based ships to complete trial cruises to test health and safety protocols if the cruise line expects to return to sailing with less than 95% fully vaccinated guests or crew.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> At the same time, cruise lines are attempting to adhere to Florida law, which currently prevents companies operating in the state from requiring proof of vaccination. Royal Caribbean International and MSC Cruises are the first two lines to outline insurance protocols for vaccinated vs. unvaccinated U.S. passengers, experts say, but others may soon follow suit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Those protocols include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Royal Caribbean International now requires unvaccinated guests over age 12 on cruises departing from Florida homeports to have special travel insurance that covers at least $25,000 per person for COVID-19-related medical expenses should they test positive on board and $50,000 per person for quarantine and medical evacuation. The mandatory insurance applies to cruises from Aug. 1 through Dec. 31, except bookings made between March 19 and June 28.<span class="ql-inline-citation" data-cite="2"></span></li><li>Carnival Cruise Lines is now requiring proof of at least a first vaccine dose 14 days or more before departure date or for unvaccinated passengers to carry at least $10,000 in medical expense and $30,000 in emergency medical evacuation insurance for any Florida-based cruises.<span class="ql-inline-citation" data-cite="10"></span> </li><li>MSC Cruises also requires unvaccinated travelers (and those who don’t provide proof of vaccination) on U.S. cruises to buy the cruise line's Travel Insurance and Covid-19 Protection Services policy. Fully vaccinated passengers booked for sailings on or before Oct. 31 get MSC’s COVID-19 Reassurance protections at no charge.<span class="ql-inline-citation" data-cite="4"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> "Right now, those are the only three cruise lines that have announced that policy," Chris Gray Faust, managing editor of the industry news and review site Cruise Critic, told Investopedia. "What the three have in common is that they are both family friendly, with a higher percentage of children who are unvaccinated because they are not eligible," she says, noting that family-focused Disney Cruise Line, however, has not yet released its onboard protocols. "Generally, the closer the lines get to their restart dates, that's when they release the protocols for each specific ship." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Cruise Critic maintains a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cruisecritic.com/articles.cfm?ID=5872" rel="nofollow">list of health and safety requirements by cruise line</a> that it updates as new announcements are made. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Complicating the situation for cruise lines sailing from Florida is an ongoing legal tangle between the state and the CDC. Last week, the agency appealed a federal judge's order in a lawsuit against it by the state that would, as of July 18, turn the CDC's "conditional sailing order" regulations into recommendations, similar to those in place for the airline, hotel, and entertainment industries, the Miami Herald reported.<span class="ql-inline-citation" data-cite="5"></span> The order says CDC regulations were causing Florida to miss out on tax dollars generated by the cruise industry. Florida ports account for about 59% of all U.S. embarkations, according to the latest data from the Cruise Lines International Association.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-prioritizing-vaccine-status-insurance-protections"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Prioritizing Vaccine Status, Insurance Protections </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Judging from more than 5,000 reader opinions gathered in a June survey by Cruise Critic, 89% of people say they’d feel safer taking a cruise with fellow vaccinated travelers and 80% would prefer to sail on a ship with a vaccine requirement.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> A June 21 tally by travel insurance comparison site InsureMyTrip, meantime, shows the number of insurance policies sold for future cruises hit their highest level since February 2020—up 60% from four weeks ago.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> "Overall, we've seen an increase in travelers researching travel insurance," says Suzanne Morrow, vice president of business development at InsureMyTrip. "And we anticipate more cruise lines will likely follow suit and begin requesting passengers have travel insurance." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Pandemic uncertainty has already led to a noticeable growth spurt in<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insurance-news-5114162"> Cancel for Any Reason (CFAR) insurance</a>, which some<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-travel-insurance-4842641"> travel insurance companies</a> now offer as an optional upgrade across their entire range of policies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-navigating-uncharted-territory"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Navigating Uncharted Territory </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> With increased vaccination rates and eased travel restrictions, 44% of new U.S. cruise bookings in this year’s first quarter were for 2021 departures, with 20% of them for summer dates, according to data released in June by Expedia Group. Expedia says those numbers indicate that travelers are ready to cruise again—despite having to maneuver through an evolving set of rules.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> "It's important to remember that as much as we see policies vary and evolve on land, we can expect the same both for cruise ships as well as the destinations they visit," Cruise Critic’s Gray Faust says. "What might be policy one day could change the next." The best advice right now? Keep in close contact with the cruise line and your travel advisor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> "They’ll be able to help navigate the latest policies that will impact your specific sailing—whether it’s onboard rules, or in-port policies," she says. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

As cruise lines begin to set sail again this summer after a 15-month pause due to the COVID-19 pandemic, would-be passengers will find a rapidly changing set of new travel policies and health protocols to navigate—including mandatory travel insurance requirements in some cases. ### Key Takeaways * As they begin to sail again this summer, cruise lines are instituting new rules for vaccinated and unvaccinated passengers. * Royal Caribbean and MSC are the first two cruise lines to announce travel insurance requirements, and Carnival Cruise Line joined them in recent days. Others are expected to follow soon. * Cruise lines continue to navigate between CDC regulations and Florida law in setting on-board protocols and in-port policies. * Rules are still evolving, so travel experts say keeping in touch with the cruise line and your travel advisor are essential. ## Piloting COVID-19 Precautions Many cruise lines are requiring proof of vaccination against COVID-19 to board, but vaccine requirements can vary by cruise line, ship, and departure port/destination. And new health and safety practices—along with added insurance rules—distinguish between vaccinated and unvaccinated cruisers in many ways. They reflect current guidelines issued by the Centers for Disease Control and Prevention (CDC), which require U.S-based ships to complete trial cruises to test health and safety protocols if the cruise line expects to return to sailing with less than 95% fully vaccinated guests or crew. At the same time, cruise lines are attempting to adhere to Florida law, which currently prevents companies operating in the state from requiring proof of vaccination. Royal Caribbean International and MSC Cruises are the first two lines to outline insurance protocols for vaccinated vs. unvaccinated U.S. passengers, experts say, but others may soon follow suit. Those protocols include: * Royal Caribbean International now requires unvaccinated guests over age 12 on cruises departing from Florida homeports to have special travel insurance that covers at least $25,000 per person for COVID-19-related medical expenses should they test positive on board and $50,000 per person for quarantine and medical evacuation. The mandatory insurance applies to cruises from Aug. 1 through Dec. 31, except bookings made between March 19 and June 28. * Carnival Cruise Lines is now requiring proof of at least a first vaccine dose 14 days or more before departure date or for unvaccinated passengers to carry at least $10,000 in medical expense and $30,000 in emergency medical evacuation insurance for any Florida-based cruises. * MSC Cruises also requires unvaccinated travelers (and those who don’t provide proof of vaccination) on U.S. cruises to buy the cruise line's Travel Insurance and Covid-19 Protection Services policy. Fully vaccinated passengers booked for sailings on or before Oct. 31 get MSC’s COVID-19 Reassurance protections at no charge. "Right now, those are the only three cruise lines that have announced that policy," Chris Gray Faust, managing editor of the industry news and review site Cruise Critic, told Investopedia. "What the three have in common is that they are both family friendly, with a higher percentage of children who are unvaccinated because they are not eligible," she says, noting that family-focused Disney Cruise Line, however, has not yet released its onboard protocols. "Generally, the closer the lines get to their restart dates, that's when they release the protocols for each specific ship." Cruise Critic maintains a [list of health and safety requirements by cruise line](https://www.cruisecritic.com/articles.cfm?ID=5872) that it updates as new announcements are made. Complicating the situation for cruise lines sailing from Florida is an ongoing legal tangle between the state and the CDC. Last week, the agency appealed a federal judge's order in a lawsuit against it by the state that would, as of July 18, turn the CDC's "conditional sailing order" regulations into recommendations, similar to those in place for the airline, hotel, and entertainment industries, the Miami Herald reported. The order says CDC regulations were causing Florida to miss out on tax dollars generated by the cruise industry. Florida ports account for about 59% of all U.S. embarkations, according to the latest data from the Cruise Lines International Association. ## Prioritizing Vaccine Status, Insurance Protections Judging from more than 5,000 reader opinions gathered in a June survey by Cruise Critic, 89% of people say they’d feel safer taking a cruise with fellow vaccinated travelers and 80% would prefer to sail on a ship with a vaccine requirement. A June 21 tally by travel insurance comparison site InsureMyTrip, meantime, shows the number of insurance policies sold for future cruises hit their highest level since February 2020—up 60% from four weeks ago. "Overall, we've seen an increase in travelers researching travel insurance," says Suzanne Morrow, vice president of business development at InsureMyTrip. "And we anticipate more cruise lines will likely follow suit and begin requesting passengers have travel insurance." Pandemic uncertainty has already led to a noticeable growth spurt in [Cancel for Any Reason (CFAR) insurance](https://www.investopedia.com/insurance-news-5114162), which some [travel insurance companies](https://www.investopedia.com/best-travel-insurance-4842641) now offer as an optional upgrade across their entire range of policies. ## Navigating Uncharted Territory With increased vaccination rates and eased travel restrictions, 44% of new U.S. cruise bookings in this year’s first quarter were for 2021 departures, with 20% of them for summer dates, according to data released in June by Expedia Group. Expedia says those numbers indicate that travelers are ready to cruise again—despite having to maneuver through an evolving set of rules. "It's important to remember that as much as we see policies vary and evolve on land, we can expect the same both for cruise ships as well as the destinations they visit," Cruise Critic’s Gray Faust says. "What might be policy one day could change the next." The best advice right now? Keep in close contact with the cruise line and your travel advisor. "They’ll be able to help navigate the latest policies that will impact your specific sailing—whether it’s onboard rules, or in-port policies," she says. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

As cruise lines begin to set sail again this summer after a 15-month pause due to the COVID-19 pandemic, would-be passengers will find a rapidly changing set of new travel policies and health protocols to navigate—including mandatory travel insurance requirements in some cases. Key Takeaways As they begin to sail again this summer, cruise lines are instituting new rules for vaccinated and unvaccinated passengers.Royal Caribbean and MSC are the first two cruise lines to announce travel insurance requirements, and Carnival Cruise Line joined them in recent days. Others are expected to follow soon.Cruise lines continue to navigate between CDC regulations and Florida law in setting on-board protocols and in-port policies.Rules are still evolving, so travel experts say keeping in touch with the cruise line and your travel advisor are essential. Piloting COVID-19 Precautions Many cruise lines are requiring proof of vaccination against COVID-19 to board, but vaccine requirements can vary by cruise line, ship, and departure port/destination. And new health and safety practices—along with added insurance rules—distinguish between vaccinated and unvaccinated cruisers in many ways. They reflect current guidelines issued by the Centers for Disease Control and Prevention (CDC), which require U.S-based ships to complete trial cruises to test health and safety protocols if the cruise line expects to return to sailing with less than 95% fully vaccinated guests or crew. At the same time, cruise lines are attempting to adhere to Florida law, which currently prevents companies operating in the state from requiring proof of vaccination. Royal Caribbean International and MSC Cruises are the first two lines to outline insurance protocols for vaccinated vs. unvaccinated U.S. passengers, experts say, but others may soon follow suit. Those protocols include: Royal Caribbean International now requires unvaccinated guests over age 12 on cruises departing from Florida homeports to have special travel insurance that covers at least $25,000 per person for COVID-19-related medical expenses should they test positive on board and $50,000 per person for quarantine and medical evacuation. The mandatory insurance applies to cruises from Aug. 1 through Dec. 31, except bookings made between March 19 and June 28.Carnival Cruise Lines is now requiring proof of at least a first vaccine dose 14 days or more before departure date or for unvaccinated passengers to carry at least $10,000 in medical expense and $30,000 in emergency medical evacuation insurance for any Florida-based cruises. MSC Cruises also requires unvaccinated travelers (and those who don’t provide proof of vaccination) on U.S. cruises to buy the cruise line's Travel Insurance and Covid-19 Protection Services policy. Fully vaccinated passengers booked for sailings on or before Oct. 31 get MSC’s COVID-19 Reassurance protections at no charge. "Right now, those are the only three cruise lines that have announced that policy," Chris Gray Faust, managing editor of the industry news and review site Cruise Critic, told Investopedia. "What the three have in common is that they are both family friendly, with a higher percentage of children who are unvaccinated because they are not eligible," she says, noting that family-focused Disney Cruise Line, however, has not yet released its onboard protocols. "Generally, the closer the lines get to their restart dates, that's when they release the protocols for each specific ship." Cruise Critic maintains a list of health and safety requirements by cruise line that it updates as new announcements are made. Complicating the situation for cruise lines sailing from Florida is an ongoing legal tangle between the state and the CDC. Last week, the agency appealed a federal judge's order in a lawsuit against it by the state that would, as of July 18, turn the CDC's "conditional sailing order" regulations into recommendations, similar to those in place for the airline, hotel, and entertainment industries, the Miami Herald reported. The order says CDC regulations were causing Florida to miss out on tax dollars generated by the cruise industry. Florida ports account for about 59% of all U.S. embarkations, according to the latest data from the Cruise Lines International Association. Prioritizing Vaccine Status, Insurance Protections Judging from more than 5,000 reader opinions gathered in a June survey by Cruise Critic, 89% of people say they’d feel safer taking a cruise with fellow vaccinated travelers and 80% would prefer to sail on a ship with a vaccine requirement. A June 21 tally by travel insurance comparison site InsureMyTrip, meantime, shows the number of insurance policies sold for future cruises hit their highest level since February 2020—up 60% from four weeks ago. "Overall, we've seen an increase in travelers researching travel insurance," says Suzanne Morrow, vice president of business development at InsureMyTrip. "And we anticipate more cruise lines will likely follow suit and begin requesting passengers have travel insurance." Pandemic uncertainty has already led to a noticeable growth spurt in Cancel for Any Reason (CFAR) insurance, which some travel insurance companies now offer as an optional upgrade across their entire range of policies. Navigating Uncharted Territory With increased vaccination rates and eased travel restrictions, 44% of new U.S. cruise bookings in this year’s first quarter were for 2021 departures, with 20% of them for summer dates, according to data released in June by Expedia Group. Expedia says those numbers indicate that travelers are ready to cruise again—despite having to maneuver through an evolving set of rules. "It's important to remember that as much as we see policies vary and evolve on land, we can expect the same both for cruise ships as well as the destinations they visit," Cruise Critic’s Gray Faust says. "What might be policy one day could change the next." The best advice right now? Keep in close contact with the cruise line and your travel advisor. "They’ll be able to help navigate the latest policies that will impact your specific sailing—whether it’s onboard rules, or in-port policies," she says. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/d/durham-business-school.asp

Durham University Business School Definition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-durham-university-business-school"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Durham University Business School? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Durham University Business School is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionaleducation/08/business-school.asp">business school</a> of Durham University. Founded in 1965 and located in Durham, in the United Kingdom (UK), the school offers both undergraduate and graduate programs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The Durham University Business School has rapidly grown to become a well-respected <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/b-school.asp">B-school</a> on the international stage. It holds the distinction of having been accredited by all three of the major business-school accreditation bodies: the European Quality Improvement System (EQUIS), the Association to Advance Collegiate Schools of Business (AACSB), and the Association of Masters of Business Administration (AMBA).<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Durham University Business School is a business school located at Durham University in the United Kingdom.</li><li>The university has consistently achieved high ranks in various categories, especially in terms of value for money.</li><li>The school offers a variety of undergraduate and postgraduate programs, including part-time MBA programs.</li><li>Home to a highly diverse student body, Durham University Business School students can benefit from various international exchange opportunities, as well as local job and internship placements.</li></ul></div></div></div> <span class="heading-toc" id="toc-programs-at-durham-university-business-school"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Programs at Durham University Business School </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In 2002, Durham University merged its economics and finance departments with its Foundation for Small and Medium Enterprise Development. Together, these three institutions now operate together as Durham University Business School.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The Durham University Business School’s programs include undergraduate majors in core business school subjects such as accounting, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance.asp">finance</a>, and economics. These programs, which take between three and four years to complete, are known for their diverse student body and a large network of international exchange opportunities.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Obtaining an MBA can be a good way to change career paths that would otherwise be difficult to do just by attempting to change jobs. Students can focus on specific coursework and make connections related to the career path they desire.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Durham University Business School undergraduate students are encouraged to participate in a one-year internship placement program with participating businesses known as a "Placement Year."<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> At the graduate level, Durham University Business School offers a range of MBA and postgraduate programs. In addition to the full-time <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mba.asp">MBA</a> program, which is completed in 12 months, the school also offers a variety of MBA programs designed for students who wish to study on a part-time basis while continuing to work in their careers.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> These include the online MBA program and the Durham-EBS Executive MBA which is taught in concentrated three-day blocks once a month.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-durham-university-rankings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Durham University Rankings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The<em> Financial Times</em> ranked the Durham Business School's online MBA program as the eighth best in the world in 2023. <em>The Economist</em> ranked the MBA program second best in the U.K. and the <em>Financial Times</em> ranked it the 66th best business school in Europe. In 2022, the <em>Financial Times</em> ranked the MBA program first in the U.K. (and in 2023), fifth in Europe, and 12th in the world in terms of value for money.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-what-is-durham-business-school-ranked"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Durham Business School Ranked?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Durham Business School has different ranks per publication and category. In 2022, <em>The Economist</em> ranked Durham's MBA program as the second best in the U.K. In 2023, the <em>Financial Times</em> ranked its online MBA program as eighth best in the world.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-is-durham-business-school-hard-to-get-into"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Durham Business School Hard to Get Into?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Durham University Business School MBA program has an acceptance rate of 11.4%. This means that out of 100 applicants, approximately 11 are accepted, which would indicate that it is a competitive school to gain admission to.<span class="ql-inline-citation" data-cite="11"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-is-durham-university-an-ivy-league-school"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Durham University an Ivy League School?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ivy League schools are a group of schools in the United States. Durham University is in the U.K., so would not qualify to be an Ivy League school; however, it is part of the Russell Group in the U.K., which is considered to be the U.K.'s Ivy League equivalent.<span class="ql-inline-citation" data-cite="12"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Durham University Business School offers master's degrees, MBA, Ph.D., and DBA programs and is consistently highly ranked in various categories, particularly in regard to value for money. One of the highlights of the school is its encouragement of a placement year, where students participate in an internship program at a business to gain valuable work experience. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Those looking to advance their education or make career changes might consider Durham Business School.<br/> </p></div>

## What Is Durham University Business School? Durham University Business School is the [business school](https://www.investopedia.com/articles/professionaleducation/08/business-school.asp) of Durham University. Founded in 1965 and located in Durham, in the United Kingdom (UK), the school offers both undergraduate and graduate programs. The Durham University Business School has rapidly grown to become a well-respected [B-school](https://www.investopedia.com/terms/b/b-school.asp) on the international stage. It holds the distinction of having been accredited by all three of the major business-school accreditation bodies: the European Quality Improvement System (EQUIS), the Association to Advance Collegiate Schools of Business (AACSB), and the Association of Masters of Business Administration (AMBA). ### Key Takeaways * Durham University Business School is a business school located at Durham University in the United Kingdom. * The university has consistently achieved high ranks in various categories, especially in terms of value for money. * The school offers a variety of undergraduate and postgraduate programs, including part-time MBA programs. * Home to a highly diverse student body, Durham University Business School students can benefit from various international exchange opportunities, as well as local job and internship placements. ## Programs at Durham University Business School In 2002, Durham University merged its economics and finance departments with its Foundation for Small and Medium Enterprise Development. Together, these three institutions now operate together as Durham University Business School. The Durham University Business School’s programs include undergraduate majors in core business school subjects such as accounting, [finance](https://www.investopedia.com/terms/f/finance.asp), and economics. These programs, which take between three and four years to complete, are known for their diverse student body and a large network of international exchange opportunities. ### Obtaining an MBA can be a good way to change career paths that would otherwise be difficult to do just by attempting to change jobs. Students can focus on specific coursework and make connections related to the career path they desire. Durham University Business School undergraduate students are encouraged to participate in a one-year internship placement program with participating businesses known as a "Placement Year." At the graduate level, Durham University Business School offers a range of MBA and postgraduate programs. In addition to the full-time [MBA](https://www.investopedia.com/terms/m/mba.asp) program, which is completed in 12 months, the school also offers a variety of MBA programs designed for students who wish to study on a part-time basis while continuing to work in their careers. These include the online MBA program and the Durham-EBS Executive MBA which is taught in concentrated three-day blocks once a month. ## Durham University Rankings The *Financial Times* ranked the Durham Business School's online MBA program as the eighth best in the world in 2023. *The Economist* ranked the MBA program second best in the U.K. and the *Financial Times* ranked it the 66th best business school in Europe. In 2022, the *Financial Times* ranked the MBA program first in the U.K. (and in 2023), fifth in Europe, and 12th in the world in terms of value for money. ## What Is Durham Business School Ranked? Durham Business School has different ranks per publication and category. In 2022, *The Economist* ranked Durham's MBA program as the second best in the U.K. In 2023, the *Financial Times* ranked its online MBA program as eighth best in the world. ## Is Durham Business School Hard to Get Into? The Durham University Business School MBA program has an acceptance rate of 11.4%. This means that out of 100 applicants, approximately 11 are accepted, which would indicate that it is a competitive school to gain admission to. ## Is Durham University an Ivy League School? Ivy League schools are a group of schools in the United States. Durham University is in the U.K., so would not qualify to be an Ivy League school; however, it is part of the Russell Group in the U.K., which is considered to be the U.K.'s Ivy League equivalent. ## The Bottom Line Durham University Business School offers master's degrees, MBA, Ph.D., and DBA programs and is consistently highly ranked in various categories, particularly in regard to value for money. One of the highlights of the school is its encouragement of a placement year, where students participate in an internship program at a business to gain valuable work experience. Those looking to advance their education or make career changes might consider Durham Business School.

What Is Durham University Business School? Durham University Business School is the business school of Durham University. Founded in 1965 and located in Durham, in the United Kingdom (UK), the school offers both undergraduate and graduate programs. The Durham University Business School has rapidly grown to become a well-respected B-school on the international stage. It holds the distinction of having been accredited by all three of the major business-school accreditation bodies: the European Quality Improvement System (EQUIS), the Association to Advance Collegiate Schools of Business (AACSB), and the Association of Masters of Business Administration (AMBA). Key Takeaways Durham University Business School is a business school located at Durham University in the United Kingdom.The university has consistently achieved high ranks in various categories, especially in terms of value for money.The school offers a variety of undergraduate and postgraduate programs, including part-time MBA programs.Home to a highly diverse student body, Durham University Business School students can benefit from various international exchange opportunities, as well as local job and internship placements. Programs at Durham University Business School In 2002, Durham University merged its economics and finance departments with its Foundation for Small and Medium Enterprise Development. Together, these three institutions now operate together as Durham University Business School. The Durham University Business School’s programs include undergraduate majors in core business school subjects such as accounting, finance, and economics. These programs, which take between three and four years to complete, are known for their diverse student body and a large network of international exchange opportunities. Obtaining an MBA can be a good way to change career paths that would otherwise be difficult to do just by attempting to change jobs. Students can focus on specific coursework and make connections related to the career path they desire. Durham University Business School undergraduate students are encouraged to participate in a one-year internship placement program with participating businesses known as a "Placement Year." At the graduate level, Durham University Business School offers a range of MBA and postgraduate programs. In addition to the full-time MBA program, which is completed in 12 months, the school also offers a variety of MBA programs designed for students who wish to study on a part-time basis while continuing to work in their careers. These include the online MBA program and the Durham-EBS Executive MBA which is taught in concentrated three-day blocks once a month. Durham University Rankings The Financial Times ranked the Durham Business School's online MBA program as the eighth best in the world in 2023. The Economist ranked the MBA program second best in the U.K. and the Financial Times ranked it the 66th best business school in Europe. In 2022, the Financial Times ranked the MBA program first in the U.K. (and in 2023), fifth in Europe, and 12th in the world in terms of value for money. What Is Durham Business School Ranked? Durham Business School has different ranks per publication and category. In 2022, The Economist ranked Durham's MBA program as the second best in the U.K. In 2023, the Financial Times ranked its online MBA program as eighth best in the world. Is Durham Business School Hard to Get Into? The Durham University Business School MBA program has an acceptance rate of 11.4%. This means that out of 100 applicants, approximately 11 are accepted, which would indicate that it is a competitive school to gain admission to. Is Durham University an Ivy League School? Ivy League schools are a group of schools in the United States. Durham University is in the U.K., so would not qualify to be an Ivy League school; however, it is part of the Russell Group in the U.K., which is considered to be the U.K.'s Ivy League equivalent. The Bottom Line Durham University Business School offers master's degrees, MBA, Ph.D., and DBA programs and is consistently highly ranked in various categories, particularly in regard to value for money. One of the highlights of the school is its encouragement of a placement year, where students participate in an internship program at a business to gain valuable work experience. Those looking to advance their education or make career changes might consider Durham Business School.

https://www.investopedia.com/ask/answers/060415/what-are-main-substitutes-oil-and-gas-energy.asp

What Are the Main Substitutes for Oil and Gas Energy?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The main alternatives to oil and gas energy include nuclear power, solar power, ethanol, and wind power. Fossil fuels still dwarf these alternatives in global and domestic energy markets, but there is considerable public momentum to increase their utilization as industries shift towards <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sustainability.asp">sustainability</a> and more green business practices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Solar, wind, and nuclear power are all alternatives to energy from fossil fuels.</li><li>Oil and gas dominate the global market but other forms are gaining ground research and development into cleaner energies continue.</li><li>Nuclear power is less expensive than other forms of "green" energy like hydropower or solar.</li><li>Solar and wind energy can be expensive forms of alternative energy to start using due to massive capital costs.</li><li>While nuclear power is common in some European countries, it has not been embraced as strongly in the U.S. for myriad reasons.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-development-of-alternate-energy-sources"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Development of Alternate Energy Sources </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Fossil fuels are comprised primarily of energy sources from coal, oil, propane, and natural gas. They accounted for approximately 79% of total energy consumption in the United States in 2022.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Historically, alternative forms of energy have proven to be uneconomic substitutes. They have been less efficient and more expensive (or, in the case of nuclear power, restricted from expanding) than fossil fuels. As a result, the government currently provides subsidies (often in the form of tax incentives) for consumers who choose cleaner <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rec.asp">forms of renewable energy</a> either for their houses or for their vehicles. Between 2016 and 2022, 46% of federal energy subsidies went toward forms of renewable energy.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> With more research occurring in this space, however, and pressure coming from consumers who are interested in non-fossil fuel sources, both businesses and governments are investing in renewable energy infrastructure and development. As the alternatives to fossil fuels grow and become more economically viable, the laws of supply and demand are expected to push down prices to be competitive with traditional fossil fuels. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-nuclear-power"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Nuclear Power </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The number of nuclear power reactors in the United States peaked at 112 before beginning to decline in 1998. However, due to improvements that increased the capacity of each reactor, the lower number of reactors continued to produce between 19% and 20% U.S. domestic electrical output through 2021. By August 2023, the U.S. had 93 operating nuclear power reactors.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Many other countries have larger concentrations of nuclear energy. France, for example, is one of the world's foremost users of nuclear power and generates almost 70% of its electricity through it.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>According to the U.S. Department of Energy, nuclear power is the most reliable energy source when compared to other energy sources.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Nuclear power can run much more cheaply than other clean energy forms, such as solar, wind, or hydropower. Nevertheless, in the U.S. (and many other countries), governments have put a stop to nuclear expansion for decades. This has been partly out of fears for public safety and partly for political reasons. Events like the Chernobyl accident in 1986 are still scarring examples of nuclear power gone wrong in many people's minds, making the prospect of nuclear as an oil alternative psychologically hard to embrace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> However, as research around safe nuclear energy develops, clean nuclear power may eventually power entire cities. Bill Gates, for example, has already started a company called TerraPower that is investigating ways to harness the power of nuclear power for the long term.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The $1.2 trillion Infrastructure Investment and Jobs Act, enacted under the Biden administration, provides $65 billion in funds for energy-related areas, and the money will be invested in researching and developing next-generation technologies like clean hydrogen, advanced nuclear, and carbon capture.<span class="ql-inline-citation" data-cite="6"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-solar-and-wind-power"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Solar and Wind Power </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Solar and wind power are also two popular renewable energy sources. Proponents argue that these substitutes offer a clean break from fossil fuels and rely on power from natural sources. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Solar energy is the fastest-growing source of new electricity in the United States, with millions of solar unit installations across the United States.<span class="ql-inline-citation" data-cite="11"></span> In 2021, there were record shipments of solar panels across the United States, while at the same time, the cost of solar installations has continued to decrease. In 2010, the average value (which is a proxy for price) was $1.96 per peak kW. By 2021, that number had declined to $0.34.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The number of solar installations rose by 34% across the United States in 2023. The U.S. Energy Information Administration predicts that the U.S. electric capacity additions from solar installations will grow to 62% in 2024, up from 45% in 2022.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Wind costs 1-2 cents per kilowatt-hour (after factoring in tax credits), making it one of the lowest-priced energy solutions available. In 2022, wind turbines generated more than 10% of energy in the United States, and that amount is expected to grow. The United States is currently investing over $10 billion each year into new wind projects.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Both types of energy do have their downsides, including cost. Installing the equipment that generates and distributes both solar and wind energies requires a large capital outlay. Solar energy still faces market barriers and grid integration challenges that hinder deployment. In addition, non-hardware costs including permitting and financing pose cost challenges.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Meanwhile, wind power is often best located on remote lands, far from cities where electricity is needed. This can require substantial infrastructure to store and transport the energy once it is generated. Wind power may not be the most economical use of the land and may cause noise, aesthetic pollution, or negatively impact local wildlife.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-what-is-sustainable-energy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Sustainable Energy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Sustainable energy is energy from sources that can maintain their current operations without compromising either future energy needs or the climate. Fossil fuels are not sustainable sources of power because they are a finite resource and cause considerable damage to the environment when they are used. Power sources such as solar or wind power are derived from renewable, non-polluting resources (sun and wind).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-are-the-main-types-of-sustainable-energy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Types of Sustainable Energy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The main types of sustainable, or renewable, energy are solar (from the sun), wind, bioenergy (organic matter burned for fuel), and hydroelectric (from water, such as tidal energy).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-is-nuclear-power-sustainable"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Nuclear Power Sustainable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Nuclear power is not sustainable. Nuclear fuels are a finite resource that can only be mined in some places, and the waste created by the process can last for thousands of years. However, it is considered "cleaner" than power from fossil fuels because it provides a low-carbon way of generating energy with minimal waste compared to sources like power from coal.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The major alternatives to energy from fossil fuels are solar, wind, and nuclear power. Currently, oil, coal, and natural gas still dominate the global market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Nuclear power has been embraced strongly in Europe but less in the United States, though it is less expensive than alternatives like solar power or hydropower. Solar and wind power continue to expand in the United States, though they have traditionally been expensive to implement due to the massive capital costs of installations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> However, as governments and businesses invest in research and development of clean energy alternatives, renewable energy is becoming more common and economical for consumers. </p></div>

The main alternatives to oil and gas energy include nuclear power, solar power, ethanol, and wind power. Fossil fuels still dwarf these alternatives in global and domestic energy markets, but there is considerable public momentum to increase their utilization as industries shift towards [sustainability](https://www.investopedia.com/terms/s/sustainability.asp) and more green business practices. ### Key Takeaways * Solar, wind, and nuclear power are all alternatives to energy from fossil fuels. * Oil and gas dominate the global market but other forms are gaining ground research and development into cleaner energies continue. * Nuclear power is less expensive than other forms of "green" energy like hydropower or solar. * Solar and wind energy can be expensive forms of alternative energy to start using due to massive capital costs. * While nuclear power is common in some European countries, it has not been embraced as strongly in the U.S. for myriad reasons. ## Development of Alternate Energy Sources Fossil fuels are comprised primarily of energy sources from coal, oil, propane, and natural gas. They accounted for approximately 79% of total energy consumption in the United States in 2022. Historically, alternative forms of energy have proven to be uneconomic substitutes. They have been less efficient and more expensive (or, in the case of nuclear power, restricted from expanding) than fossil fuels. As a result, the government currently provides subsidies (often in the form of tax incentives) for consumers who choose cleaner [forms of renewable energy](https://www.investopedia.com/terms/r/rec.asp) either for their houses or for their vehicles. Between 2016 and 2022, 46% of federal energy subsidies went toward forms of renewable energy. With more research occurring in this space, however, and pressure coming from consumers who are interested in non-fossil fuel sources, both businesses and governments are investing in renewable energy infrastructure and development. As the alternatives to fossil fuels grow and become more economically viable, the laws of supply and demand are expected to push down prices to be competitive with traditional fossil fuels. ## Nuclear Power The number of nuclear power reactors in the United States peaked at 112 before beginning to decline in 1998. However, due to improvements that increased the capacity of each reactor, the lower number of reactors continued to produce between 19% and 20% U.S. domestic electrical output through 2021. By August 2023, the U.S. had 93 operating nuclear power reactors. Many other countries have larger concentrations of nuclear energy. France, for example, is one of the world's foremost users of nuclear power and generates almost 70% of its electricity through it. ### According to the U.S. Department of Energy, nuclear power is the most reliable energy source when compared to other energy sources. Nuclear power can run much more cheaply than other clean energy forms, such as solar, wind, or hydropower. Nevertheless, in the U.S. (and many other countries), governments have put a stop to nuclear expansion for decades. This has been partly out of fears for public safety and partly for political reasons. Events like the Chernobyl accident in 1986 are still scarring examples of nuclear power gone wrong in many people's minds, making the prospect of nuclear as an oil alternative psychologically hard to embrace. However, as research around safe nuclear energy develops, clean nuclear power may eventually power entire cities. Bill Gates, for example, has already started a company called TerraPower that is investigating ways to harness the power of nuclear power for the long term. ### The $1.2 trillion Infrastructure Investment and Jobs Act, enacted under the Biden administration, provides $65 billion in funds for energy-related areas, and the money will be invested in researching and developing next-generation technologies like clean hydrogen, advanced nuclear, and carbon capture. ## Solar and Wind Power Solar and wind power are also two popular renewable energy sources. Proponents argue that these substitutes offer a clean break from fossil fuels and rely on power from natural sources. Solar energy is the fastest-growing source of new electricity in the United States, with millions of solar unit installations across the United States. In 2021, there were record shipments of solar panels across the United States, while at the same time, the cost of solar installations has continued to decrease. In 2010, the average value (which is a proxy for price) was $1.96 per peak kW. By 2021, that number had declined to $0.34. The number of solar installations rose by 34% across the United States in 2023. The U.S. Energy Information Administration predicts that the U.S. electric capacity additions from solar installations will grow to 62% in 2024, up from 45% in 2022. Wind costs 1-2 cents per kilowatt-hour (after factoring in tax credits), making it one of the lowest-priced energy solutions available. In 2022, wind turbines generated more than 10% of energy in the United States, and that amount is expected to grow. The United States is currently investing over $10 billion each year into new wind projects. Both types of energy do have their downsides, including cost. Installing the equipment that generates and distributes both solar and wind energies requires a large capital outlay. Solar energy still faces market barriers and grid integration challenges that hinder deployment. In addition, non-hardware costs including permitting and financing pose cost challenges. Meanwhile, wind power is often best located on remote lands, far from cities where electricity is needed. This can require substantial infrastructure to store and transport the energy once it is generated. Wind power may not be the most economical use of the land and may cause noise, aesthetic pollution, or negatively impact local wildlife. ## What Is Sustainable Energy? Sustainable energy is energy from sources that can maintain their current operations without compromising either future energy needs or the climate. Fossil fuels are not sustainable sources of power because they are a finite resource and cause considerable damage to the environment when they are used. Power sources such as solar or wind power are derived from renewable, non-polluting resources (sun and wind). ## What Are the Main Types of Sustainable Energy? The main types of sustainable, or renewable, energy are solar (from the sun), wind, bioenergy (organic matter burned for fuel), and hydroelectric (from water, such as tidal energy). ## Is Nuclear Power Sustainable? Nuclear power is not sustainable. Nuclear fuels are a finite resource that can only be mined in some places, and the waste created by the process can last for thousands of years. However, it is considered "cleaner" than power from fossil fuels because it provides a low-carbon way of generating energy with minimal waste compared to sources like power from coal. ## The Bottom Line The major alternatives to energy from fossil fuels are solar, wind, and nuclear power. Currently, oil, coal, and natural gas still dominate the global market. Nuclear power has been embraced strongly in Europe but less in the United States, though it is less expensive than alternatives like solar power or hydropower. Solar and wind power continue to expand in the United States, though they have traditionally been expensive to implement due to the massive capital costs of installations. However, as governments and businesses invest in research and development of clean energy alternatives, renewable energy is becoming more common and economical for consumers.

The main alternatives to oil and gas energy include nuclear power, solar power, ethanol, and wind power. Fossil fuels still dwarf these alternatives in global and domestic energy markets, but there is considerable public momentum to increase their utilization as industries shift towards sustainability and more green business practices. Key Takeaways Solar, wind, and nuclear power are all alternatives to energy from fossil fuels.Oil and gas dominate the global market but other forms are gaining ground research and development into cleaner energies continue.Nuclear power is less expensive than other forms of "green" energy like hydropower or solar.Solar and wind energy can be expensive forms of alternative energy to start using due to massive capital costs.While nuclear power is common in some European countries, it has not been embraced as strongly in the U.S. for myriad reasons. Development of Alternate Energy Sources Fossil fuels are comprised primarily of energy sources from coal, oil, propane, and natural gas. They accounted for approximately 79% of total energy consumption in the United States in 2022. Historically, alternative forms of energy have proven to be uneconomic substitutes. They have been less efficient and more expensive (or, in the case of nuclear power, restricted from expanding) than fossil fuels. As a result, the government currently provides subsidies (often in the form of tax incentives) for consumers who choose cleaner forms of renewable energy either for their houses or for their vehicles. Between 2016 and 2022, 46% of federal energy subsidies went toward forms of renewable energy. With more research occurring in this space, however, and pressure coming from consumers who are interested in non-fossil fuel sources, both businesses and governments are investing in renewable energy infrastructure and development. As the alternatives to fossil fuels grow and become more economically viable, the laws of supply and demand are expected to push down prices to be competitive with traditional fossil fuels. Nuclear Power The number of nuclear power reactors in the United States peaked at 112 before beginning to decline in 1998. However, due to improvements that increased the capacity of each reactor, the lower number of reactors continued to produce between 19% and 20% U.S. domestic electrical output through 2021. By August 2023, the U.S. had 93 operating nuclear power reactors. Many other countries have larger concentrations of nuclear energy. France, for example, is one of the world's foremost users of nuclear power and generates almost 70% of its electricity through it. According to the U.S. Department of Energy, nuclear power is the most reliable energy source when compared to other energy sources. Nuclear power can run much more cheaply than other clean energy forms, such as solar, wind, or hydropower. Nevertheless, in the U.S. (and many other countries), governments have put a stop to nuclear expansion for decades. This has been partly out of fears for public safety and partly for political reasons. Events like the Chernobyl accident in 1986 are still scarring examples of nuclear power gone wrong in many people's minds, making the prospect of nuclear as an oil alternative psychologically hard to embrace. However, as research around safe nuclear energy develops, clean nuclear power may eventually power entire cities. Bill Gates, for example, has already started a company called TerraPower that is investigating ways to harness the power of nuclear power for the long term. The $1.2 trillion Infrastructure Investment and Jobs Act, enacted under the Biden administration, provides $65 billion in funds for energy-related areas, and the money will be invested in researching and developing next-generation technologies like clean hydrogen, advanced nuclear, and carbon capture. Solar and Wind Power Solar and wind power are also two popular renewable energy sources. Proponents argue that these substitutes offer a clean break from fossil fuels and rely on power from natural sources. Solar energy is the fastest-growing source of new electricity in the United States, with millions of solar unit installations across the United States. In 2021, there were record shipments of solar panels across the United States, while at the same time, the cost of solar installations has continued to decrease. In 2010, the average value (which is a proxy for price) was $1.96 per peak kW. By 2021, that number had declined to $0.34. The number of solar installations rose by 34% across the United States in 2023. The U.S. Energy Information Administration predicts that the U.S. electric capacity additions from solar installations will grow to 62% in 2024, up from 45% in 2022. Wind costs 1-2 cents per kilowatt-hour (after factoring in tax credits), making it one of the lowest-priced energy solutions available. In 2022, wind turbines generated more than 10% of energy in the United States, and that amount is expected to grow. The United States is currently investing over $10 billion each year into new wind projects. Both types of energy do have their downsides, including cost. Installing the equipment that generates and distributes both solar and wind energies requires a large capital outlay. Solar energy still faces market barriers and grid integration challenges that hinder deployment. In addition, non-hardware costs including permitting and financing pose cost challenges. Meanwhile, wind power is often best located on remote lands, far from cities where electricity is needed. This can require substantial infrastructure to store and transport the energy once it is generated. Wind power may not be the most economical use of the land and may cause noise, aesthetic pollution, or negatively impact local wildlife. What Is Sustainable Energy? Sustainable energy is energy from sources that can maintain their current operations without compromising either future energy needs or the climate. Fossil fuels are not sustainable sources of power because they are a finite resource and cause considerable damage to the environment when they are used. Power sources such as solar or wind power are derived from renewable, non-polluting resources (sun and wind). What Are the Main Types of Sustainable Energy? The main types of sustainable, or renewable, energy are solar (from the sun), wind, bioenergy (organic matter burned for fuel), and hydroelectric (from water, such as tidal energy). Is Nuclear Power Sustainable? Nuclear power is not sustainable. Nuclear fuels are a finite resource that can only be mined in some places, and the waste created by the process can last for thousands of years. However, it is considered "cleaner" than power from fossil fuels because it provides a low-carbon way of generating energy with minimal waste compared to sources like power from coal. The Bottom Line The major alternatives to energy from fossil fuels are solar, wind, and nuclear power. Currently, oil, coal, and natural gas still dominate the global market. Nuclear power has been embraced strongly in Europe but less in the United States, though it is less expensive than alternatives like solar power or hydropower. Solar and wind power continue to expand in the United States, though they have traditionally been expensive to implement due to the massive capital costs of installations. However, as governments and businesses invest in research and development of clean energy alternatives, renewable energy is becoming more common and economical for consumers.

https://www.investopedia.com/articles/stocks/09/message-board-credibility.asp

Needle in a Haystack: Stock Message Boards

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Stock message boards give investors an opportunity to connect with other investors at all levels of expertise and learn more about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/investing-strategies/">profitable investing strategies</a>. Although the communication methods on the Internet can be wide in range—from newsletters to podcasts to blogs—messages boards that focus on investing and personal finance continue to be one of the most popular ways for traders to interact on the Internet and share information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> However, it's the accuracy and credibility of the content producer that determines the legitimacy of the content itself, and this is certainly an important factor when considering whether to participate in any stock message board. While the information available on these forums can be beneficial to investors, we have to remember to consider the sources. Not all sources are legitimate, and not all have your best interests in mind. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> In this article, you'll discover how to spot and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crime-and-fraud-4427767">avoid fraudsters lurking in online forums</a> while still benefitting from those credible stock message boards worthy of your time and attention. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Many investors use online stock message boards to connect with other investors, share information, and discover profitable trading tips.</li><li>While there are many educational and informational benefits to stock message boards, investors need to be careful to avoid making investment decisions based on misleading, erroneous, or fraudulent postings.</li><li>Before investing based on someone's analysis or ideas posted on a forum, investors should confirm the information by conducting their own research and consulting with a trusted professional.</li></ul></div></div></div> <span class="heading-toc" id="toc-stock-message-boards-101"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Stock Message Boards 101 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Many message boards focus on a specific topic or group of topics, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp" rel="noopener noreferrer">investing in options</a>, precious metals, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp" rel="noopener noreferrer">exchange traded funds</a> (ETFs), or commodities. These boards allow readers to interact with people who share similar interests or have specialized knowledge in a particular field. The main function is to provide a forum where readers and users can share their thoughts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Finance message boards are often flush with hot stock ideas and valuable tips and information. However, when considering the source—and understanding that many message boards are hosted by, maintained by, and receive content from private citizens—ulterior motives can often come into play. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Much like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp" rel="noopener noreferrer">insider trading</a>, erroneous message board information can have an effect on stock prices, and weeding through the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/061205.asp" rel="noopener noreferrer">misleading "tips"</a> can be daunting. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-digging-for-the-gems"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Digging for the Gems </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are some common factors to watch out for when analyzing message board information and its source. Look for individuals who are blind to opposing views. Such "posters" can seem to have insight into stock patterns but may be up to little more than attempting to skew opinions for personal gain. Also, message board posters with an ulterior motive may make calculated appearances at a critical juncture. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> By glossing over facts and citing other questionable sources, these posters can attempt to divert attention from the real issues at hand. They may provide misleading facts to bolster their arguments, throwing out impressive statistics and inaccurately citing a company's numbers, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp" rel="noopener noreferrer">price-to-earnings ratio</a> (P/E ratio), <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestment.asp" rel="noopener noreferrer">return on investment</a> (ROI), or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividendyield.asp" rel="noopener noreferrer">dividend yield</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Before investing in a stock based on someone else's analysis, be sure to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/06/ratios.asp" rel="noopener noreferrer">confirm the numbers yourself</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can easily check out the financial numbers of publicly traded companies by reviewing their quarterly and annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial statements</a>, which they make available for investors on their websites.</p></div></div></div> <span class="heading-toc" id="toc-what-makes-a-poster-believable"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> What Makes a Poster Believable? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Obviously, it can be difficult to confirm credentials and legitimacy on the Internet. But it can be done. Credible posters often make their identities known and provide links to their personal websites, business websites, or personal resumes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Also, legitimate posters will often focus on facts or provide unbiased sources to back up their comments or information. (Remember, you can aim to turn frustrating hours into profit-turning minutes by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/08/research-long-term-investor.asp">managing your investing time</a> properly.) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-negative-impact"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Negative Impact </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> It's also vital to understand that there are frequently naysayers on message boards—individuals who will take an opposing position to other posters. These people may become quite hostile in trying to sway others' opinions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> For example, message boards that revolve around <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp">investment strategies</a> or stock trading ideas sometimes include individuals who will put down a company, regardless of how well it performs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Conversely, some individuals tout the qualities of a certain company, regardless of how dubious that company's outlook might appear. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Also, while message boards can be a terrific resource and a great educational tool, they should not be the only tool that's utilized. If an individual were to pick up stock ideas or tax advice, it probably makes sense to talk those ideas over with a professional before acting on them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The Internet is filled with message boards that cater to general discussions and those that cater to topic-specific subjects. Both have the potential to enlighten or entertain readers and posters. However, participants on such sites should understand that erroneous information may be hidden in even the most credible of sources. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Carefully weeding out the legitimate opinions and analysis of investing and trading sites can be a task in itself, but that's the job at hand when trying to get the most value from stock message boards. </p></div>

Stock message boards give investors an opportunity to connect with other investors at all levels of expertise and learn more about [profitable investing strategies](https://www.investopedia.com/investing/investing-strategies/). Although the communication methods on the Internet can be wide in range—from newsletters to podcasts to blogs—messages boards that focus on investing and personal finance continue to be one of the most popular ways for traders to interact on the Internet and share information. However, it's the accuracy and credibility of the content producer that determines the legitimacy of the content itself, and this is certainly an important factor when considering whether to participate in any stock message board. While the information available on these forums can be beneficial to investors, we have to remember to consider the sources. Not all sources are legitimate, and not all have your best interests in mind. In this article, you'll discover how to spot and [avoid fraudsters lurking in online forums](https://www.investopedia.com/crime-and-fraud-4427767) while still benefitting from those credible stock message boards worthy of your time and attention. ### Key Takeaways * Many investors use online stock message boards to connect with other investors, share information, and discover profitable trading tips. * While there are many educational and informational benefits to stock message boards, investors need to be careful to avoid making investment decisions based on misleading, erroneous, or fraudulent postings. * Before investing based on someone's analysis or ideas posted on a forum, investors should confirm the information by conducting their own research and consulting with a trusted professional. ## Stock Message Boards 101 Many message boards focus on a specific topic or group of topics, such as [investing in options](https://www.investopedia.com/terms/o/option.asp), precious metals, [exchange traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs), or commodities. These boards allow readers to interact with people who share similar interests or have specialized knowledge in a particular field. The main function is to provide a forum where readers and users can share their thoughts. Finance message boards are often flush with hot stock ideas and valuable tips and information. However, when considering the source—and understanding that many message boards are hosted by, maintained by, and receive content from private citizens—ulterior motives can often come into play. Much like [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp), erroneous message board information can have an effect on stock prices, and weeding through the [misleading "tips"](https://www.investopedia.com/ask/answers/05/061205.asp) can be daunting. ## Digging for the Gems There are some common factors to watch out for when analyzing message board information and its source. Look for individuals who are blind to opposing views. Such "posters" can seem to have insight into stock patterns but may be up to little more than attempting to skew opinions for personal gain. Also, message board posters with an ulterior motive may make calculated appearances at a critical juncture. By glossing over facts and citing other questionable sources, these posters can attempt to divert attention from the real issues at hand. They may provide misleading facts to bolster their arguments, throwing out impressive statistics and inaccurately citing a company's numbers, such as [price-to-earnings ratio](https://www.investopedia.com/terms/p/price-earningsratio.asp) (P/E ratio), [return on investment](https://www.investopedia.com/terms/r/returnoninvestment.asp) (ROI), or [dividend yield](https://www.investopedia.com/terms/d/dividendyield.asp). Before investing in a stock based on someone else's analysis, be sure to [confirm the numbers yourself](https://www.investopedia.com/articles/stocks/06/ratios.asp). ### You can easily check out the financial numbers of publicly traded companies by reviewing their quarterly and annual [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp), which they make available for investors on their websites. ## What Makes a Poster Believable? Obviously, it can be difficult to confirm credentials and legitimacy on the Internet. But it can be done. Credible posters often make their identities known and provide links to their personal websites, business websites, or personal resumes. Also, legitimate posters will often focus on facts or provide unbiased sources to back up their comments or information. (Remember, you can aim to turn frustrating hours into profit-turning minutes by [managing your investing time](https://www.investopedia.com/articles/stocks/08/research-long-term-investor.asp) properly.) ## Negative Impact It's also vital to understand that there are frequently naysayers on message boards—individuals who will take an opposing position to other posters. These people may become quite hostile in trying to sway others' opinions. For example, message boards that revolve around [investment strategies](https://www.investopedia.com/terms/i/investmentstrategy.asp) or stock trading ideas sometimes include individuals who will put down a company, regardless of how well it performs. Conversely, some individuals tout the qualities of a certain company, regardless of how dubious that company's outlook might appear. Also, while message boards can be a terrific resource and a great educational tool, they should not be the only tool that's utilized. If an individual were to pick up stock ideas or tax advice, it probably makes sense to talk those ideas over with a professional before acting on them. ## The Bottom Line The Internet is filled with message boards that cater to general discussions and those that cater to topic-specific subjects. Both have the potential to enlighten or entertain readers and posters. However, participants on such sites should understand that erroneous information may be hidden in even the most credible of sources. Carefully weeding out the legitimate opinions and analysis of investing and trading sites can be a task in itself, but that's the job at hand when trying to get the most value from stock message boards.

Stock message boards give investors an opportunity to connect with other investors at all levels of expertise and learn more about profitable investing strategies. Although the communication methods on the Internet can be wide in range—from newsletters to podcasts to blogs—messages boards that focus on investing and personal finance continue to be one of the most popular ways for traders to interact on the Internet and share information. However, it's the accuracy and credibility of the content producer that determines the legitimacy of the content itself, and this is certainly an important factor when considering whether to participate in any stock message board. While the information available on these forums can be beneficial to investors, we have to remember to consider the sources. Not all sources are legitimate, and not all have your best interests in mind. In this article, you'll discover how to spot and avoid fraudsters lurking in online forums while still benefitting from those credible stock message boards worthy of your time and attention. Key Takeaways Many investors use online stock message boards to connect with other investors, share information, and discover profitable trading tips.While there are many educational and informational benefits to stock message boards, investors need to be careful to avoid making investment decisions based on misleading, erroneous, or fraudulent postings.Before investing based on someone's analysis or ideas posted on a forum, investors should confirm the information by conducting their own research and consulting with a trusted professional. Stock Message Boards 101 Many message boards focus on a specific topic or group of topics, such as investing in options, precious metals, exchange traded funds (ETFs), or commodities. These boards allow readers to interact with people who share similar interests or have specialized knowledge in a particular field. The main function is to provide a forum where readers and users can share their thoughts. Finance message boards are often flush with hot stock ideas and valuable tips and information. However, when considering the source—and understanding that many message boards are hosted by, maintained by, and receive content from private citizens—ulterior motives can often come into play. Much like insider trading, erroneous message board information can have an effect on stock prices, and weeding through the misleading "tips" can be daunting. Digging for the Gems There are some common factors to watch out for when analyzing message board information and its source. Look for individuals who are blind to opposing views. Such "posters" can seem to have insight into stock patterns but may be up to little more than attempting to skew opinions for personal gain. Also, message board posters with an ulterior motive may make calculated appearances at a critical juncture. By glossing over facts and citing other questionable sources, these posters can attempt to divert attention from the real issues at hand. They may provide misleading facts to bolster their arguments, throwing out impressive statistics and inaccurately citing a company's numbers, such as price-to-earnings ratio (P/E ratio), return on investment (ROI), or dividend yield. Before investing in a stock based on someone else's analysis, be sure to confirm the numbers yourself. You can easily check out the financial numbers of publicly traded companies by reviewing their quarterly and annual financial statements, which they make available for investors on their websites. What Makes a Poster Believable? Obviously, it can be difficult to confirm credentials and legitimacy on the Internet. But it can be done. Credible posters often make their identities known and provide links to their personal websites, business websites, or personal resumes. Also, legitimate posters will often focus on facts or provide unbiased sources to back up their comments or information. (Remember, you can aim to turn frustrating hours into profit-turning minutes by managing your investing time properly.) Negative Impact It's also vital to understand that there are frequently naysayers on message boards—individuals who will take an opposing position to other posters. These people may become quite hostile in trying to sway others' opinions. For example, message boards that revolve around investment strategies or stock trading ideas sometimes include individuals who will put down a company, regardless of how well it performs. Conversely, some individuals tout the qualities of a certain company, regardless of how dubious that company's outlook might appear. Also, while message boards can be a terrific resource and a great educational tool, they should not be the only tool that's utilized. If an individual were to pick up stock ideas or tax advice, it probably makes sense to talk those ideas over with a professional before acting on them. The Bottom Line The Internet is filled with message boards that cater to general discussions and those that cater to topic-specific subjects. Both have the potential to enlighten or entertain readers and posters. However, participants on such sites should understand that erroneous information may be hidden in even the most credible of sources. Carefully weeding out the legitimate opinions and analysis of investing and trading sites can be a task in itself, but that's the job at hand when trying to get the most value from stock message boards.

https://www.investopedia.com/best-cryptocurrency-trading-courses-5111984

Best Cryptocurrency Trading Courses

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content list-sc" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="featured-partners__info-svg"><svg fill="none" height="13" width="12" xmlns="http://www.w3.org/2000/svg"><path d="M5.5 9h1V6h-1v3zM6 1.5c-2.76 0-5 2.24-5 5s2.24 5 5 5 5-2.24 5-5-2.24-5-5-5zm0 9c-2.205 0-4-1.795-4-4s1.795-4 4-4 4 1.795 4 4-1.795 4-4 4zM5.5 5h1V4h-1v1z" fill="#000" fill-opacity=".95" fill-rule="evenodd"></path></svg></symbol> <symbol id="light-box-arrow"><svg viewbox="2575 18840 48 48" xmlns="http://www.w3.org/2000/svg"><g transform="translate(1355 18464)"><circle cx="24" cy="24" fill="#fff" r="24" transform="translate(1220 376)"></circle><path d="M1248.675 390l9.38 9.38M1258.055 399.38l-9.38 9.553M1232 399.38h25.186" fill="none" stroke="#000" stroke-linecap="round" stroke-miterlimit="10" stroke-width="3"></path></g></svg></symbol> <symbol id="jw-player-cc"><svg viewbox="0 0 240 240" xmlns="http://www.w3.org/2000/svg"><path d="M215,40H25c-2.7,0-5,2.2-5,5v150c0,2.7,2.2,5,5,5h190c2.7,0,5-2.2,5-5V45C220,42.2,217.8,40,215,40z M108.1,137.7c0.7-0.7,1.5-1.5,2.4-2.3l6.6,7.8c-2.2,2.4-5,4.4-8,5.8c-8,3.5-17.3,2.4-24.3-2.9c-3.9-3.6-5.9-8.7-5.5-14v-25.6c0-2.7,0.5-5.3,1.5-7.8c0.9-2.2,2.4-4.3,4.2-5.9c5.7-4.5,13.2-6.2,20.3-4.6c3.3,0.5,6.3,2,8.7,4.3c1.3,1.3,2.5,2.6,3.5,4.2l-7.1,6.9c-2.4-3.7-6.5-5.9-10.9-5.9c-2.4-0.2-4.8,0.7-6.6,2.3c-1.7,1.7-2.5,4.1-2.4,6.5v25.6C90.4,141.7,102,143.5,108.1,137.7z M152.9,137.7c0.7-0.7,1.5-1.5,2.4-2.3l6.6,7.8c-2.2,2.4-5,4.4-8,5.8c-8,3.5-17.3,2.4-24.3-2.9c-3.9-3.6-5.9-8.7-5.5-14v-25.6c0-2.7,0.5-5.3,1.5-7.8c0.9-2.2,2.4-4.3,4.2-5.9c5.7-4.5,13.2-6.2,20.3-4.6c3.3,0.5,6.3,2,8.7,4.3c1.3,1.3,2.5,2.6,3.5,4.2l-7.1,6.9c-2.4-3.7-6.5-5.9-10.9-5.9c-2.4-0.2-4.8,0.7-6.6,2.3c-1.7,1.7-2.5,4.1-2.4,6.5v25.6C135.2,141.7,146.8,143.5,152.9,137.7z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="u-font-carbon--dd112"> <div class="comp product-roundup-content--finance product-roundup--base product-roundup--base" data-tracking-container="true" data-tracking-id="PRM Roundup | PRM Template" id="product-roundup-content--finance_1-0"> <div class="article-content"> <div class="article-intro article-content__description article-container expert-content structured-content text-passage"> <div class="comp mntl-sc-page--commerce intro-content prm-sc-page mntl-sc-page mntl-block" id="intro-content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> While many people may want to dismiss cryptocurrency trading as a passing fad, there's no doubt it's becoming an economic force to be reckoned with. In fact, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp">global cryptocurrency market</a> value is expected to reach $1.9 billion by 2028.<span class="ql-inline-citation" data-cite="1"></span> Cryptocurrency trading courses dig into the inner workings of this emerging market and outline the best strategies for making money through trading and investing.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> We reviewed the best cryptocurrency trading courses for both beginners and experts. Here are our top six picks based on skill level, cost, ease of use, and more. Note that since cryptocurrencies are not backed by any bank or international currency, trading in cryptocurrency comes with considerable risks for fraud and cybercrime. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" id="product-roundup-content__summary-list_1-0"> <span class="heading-toc" id="summary-list"></span> <h2 class="summary-list__title"> The Best Cryptocurrency Trading Courses for 2024 </h2> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Overall:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> The Complete Cryptocurrency Investment Course</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Beginner’s Course:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Cryptocurrency Fundamentals</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Advanced Strategies:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Algorithmic Cryptocurrency Trading</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Passive Strategies:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> The Complete Cryptocurrency &amp; Bitcoin Trading Course 2023</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Interactive:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Cryptocurrency Trading: Technical Analysis Masterclass</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Value:</strong> <a class="summary-list__item-top-pick" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://www.linkedin.com/learning/cryptocurrency-foundations" rel="nofollow noskim noopener nocaes" target="_blank"> Cryptocurrency Foundations</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list --> <div class="comp mntl-sc-page--commerce post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> </div><!-- end: comp mntl-sc-page--commerce post-intro prm-sc-page mntl-sc-page mntl-block --> </div> <div class="article-body"> <div class="loc article-left-nav article-body__left-nav product-roundup__left-nav js-sticky-container"> <div class="comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="product-roundup__toc_1-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_1-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_1-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_1-0"> Best Cryptocurrency Trading Courses</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_1-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="Expand" id="mntl-toc-toggle__btn_1-0"> Expand</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Best 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class="link__wrapper">The Complete Cryptocurrency &amp; Bitcoin Trading Course 2023</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Cryptocurrency Trading" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-4"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cryptocurrency Trading" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-interactive-cryptocurrency-trading-technical-analysis-masterclass" rel="nocaes"> <span class="link__wrapper">Cryptocurrency Trading</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp 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data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (3)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-The Bottom Line" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-the-bottom-line" id="mntl-toc__list-item-link_1-0" rel="nocaes"><span class="link__wrapper">The Bottom Line</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" 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data-click-action="OnPageClick-What Makes a Great Cryptocurrency Trading Course?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-makes-a-great-cryptocurrency-trading-course" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">What Makes a Great Cryptocurrency Trading Course?</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-What Is the Best Strategy for Crypto Trading?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-is-the-best-strategy-for-crypto-trading" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">What Is the Best Strategy for Crypto Trading?</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-What Does a Cryptocurrency Trading Course Cost?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-a-cryptocurrency-trading-course-cost" id="mntl-toc__list-item-link_1-0-4" rel="nocaes"><span class="link__wrapper">What Does a Cryptocurrency Trading Course Cost?</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-we-chose-the-best-cryptocurrency-trading-courses" id="mntl-toc__list-item-link_1-0-5" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <div class="loc article-body__inner article-body__inner"> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-best-overall-the-complete-cryptocurrency-investment-course"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Overall</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> The Complete Cryptocurrency Investment Course</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Udemy" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/xSpo2wwQeS8ouWHTNaYvhzqg3L0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-fd88f359195440f1a61ea53da5a8e1b2.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Udemy" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/xSpo2wwQeS8ouWHTNaYvhzqg3L0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-fd88f359195440f1a61ea53da5a8e1b2.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Udemy</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-1"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Udemy" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> Udemy’s Complete Cryptocurrency Investment Course covers all of the fundamentals of cryptocurrency investing in an affordable, self-paced, mobile-friendly format, making it the best overall cryptocurrency trading course on our list. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-3"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>30-day money-back guarantee</p></li> <li><p>Easy-to-use course app</p></li> <li><p>Lifetime course access</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Founded in 2009, Udemy has since grown to become one of the largest online learning platforms offering over 210,000 courses taught by more than 75,000 instructors in 75 languages.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="15"></span> Its Complete Cryptocurrency Investment Course introduces students to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">basics of cryptocurrencies</a> and advances them quickly into investing techniques featuring live examples. As a result, it’s our clear choice as the best course overall.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-5"> The Complete Cryptocurrency Investment Course is led by Mohsen Hassan, a programmer, trader, and financial risk manager who has taught investing to more than 300,000 Udemy students.<span class="ql-inline-citation" data-cite="3"></span> The course consists of over 12.5 hours of on-demand video, one article, and two downloadable resources and can be accessed on the Udemy mobile app. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-6"> The Complete Cryptocurrency Investment Course walks beginners through the fundamentals of cryptocurrency and quickly moves to live examples of buying, transferring, and using wallets as well as portfolio management techniques for both passive and active investing. Through this course, Hassan buys, transfers, secures, and builds a portfolio with real money so students can see exactly how it’s done. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-7"> The Complete Cryptocurrency Investment Course costs just $99.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee.<span class="ql-inline-citation" data-cite="3"></span> Udemy runs specials all the time, so you may be able to purchase the course for a much lower price. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-best-beginners-course-cryptocurrency-fundamentals"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-1"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Beginner’s Course</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Cryptocurrency Fundamentals</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-1"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-1"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-1"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-8" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Udemy Career Coaching Certification" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/J4Vmjw85DdJ2WOXP4GNInq3WM44=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-5aa2cc3318364e1e91d421903562f485.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="Udemy Career Coaching Certification" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/J4Vmjw85DdJ2WOXP4GNInq3WM44=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-5aa2cc3318364e1e91d421903562f485.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-1"> <span class="figure-article-caption-owner"><p>Udemy Career Coaching Certification</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-9"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Udemy" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> Udemy’s Cryptocurrency Fundamentals course quickly teaches beginners how to use, buy, sell, and trade cryptocurrency in just over two hours, placing it in our top spot as the best course for beginners. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-11"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Free quick-start PDF</p></li> <li><p>Lifetime access</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> Another offering from Udemy, Cryptocurrency Fundamentals teaches beginners exactly what they need to do in order to start buying, selling, and trading cryptocurrencies. The quick video format and bonus quick-start guide make it our selection as the best course for beginners.    </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-13"> Cryptocurrency Fundamentals is taught by bestselling instructor and author George Levy, who has taught over 180,000 students on Udemy.<span class="ql-inline-citation" data-cite="4"></span> The course’s simple structure consists of more than two hours worth of video, one article, and five downloadable resources.     </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-14"> Cryptocurrency Fundamentals is designed to teach beginners the foundations of cryptocurrencies they need to quickly and safely buy, trade, and sell on their own. Students also get the “Cryptocurrency Exchange: Starter Guide,” a downloadable PDF that teaches students how to trade cryptocurrencies even faster.       </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-15"> Cryptocurrency Fundamentals costs $74.99, but steep discounts are often available.<span class="ql-inline-citation" data-cite="16"></span> As with all Udemy courses, Cryptocurrency Fundamentals can be accessed on the Udemy mobile app and includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion at the end of the course. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-best-for-advanced-strategies-algorithmic-cryptocurrency-trading"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-2"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Advanced Strategies</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Algorithmic Cryptocurrency Trading</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-2"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-2"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-2"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-16" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Udemy Career Coaching Certification" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/jYpDKBv06iPG0VlnX2H3ADezjCI=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-cd1ed536749a46be8adc642404124650.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="Udemy Career Coaching Certification" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/jYpDKBv06iPG0VlnX2H3ADezjCI=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-cd1ed536749a46be8adc642404124650.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-2"> <span class="figure-article-caption-owner"><p>Udemy Career Coaching Certification</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-17"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Udemy" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-18"> Udemy’s Algorithmic Cryptocurrency Trading course provides students with five cryptocurrency trading strategies along with tested and ready-to-use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-robo-advisors-4693125" rel="noopener noreferrer">Expert Advisors (EA)</a> robots, making it our pick as the best course for advanced trading strategies. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-19"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>30-day money-back guarantee</p></li> <li><p>Personal support from the instructor</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> <li><p>No quizzes or assessment tools</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> Udemy doesn’t just teach beginning courses in cryptocurrency trading. Its Algorithmic Cryptocurrency Trading course offers five fully manual and automatic strategies for trading cryptocurrencies. Combined with five downloadable EAs, the course ranks as the best for advanced strategies.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-21"> Algorithmic Cryptocurrency Trading is taught by professional Forex and cryptocurrency trader Petko Zhivkov Aleksandrov whose Udemy courses enroll over 10,000 students every year (for more than 70,000 to date).<span class="ql-inline-citation" data-cite="5"></span>   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-22"> Despite its advanced techniques, Algorithmic Cryptocurrency Trading is perfectly suited for both beginner and experienced traders. The course consists of 2.5 hours of on-demand video, one article, and 13 downloadable resources and can be easily accessed on Udemy’s mobile app. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-23"> Algorithmic Cryptocurrency Trading teaches students five manual and automatic strategies that diversify the risk between cryptocurrencies and remove emotions from the trading process. At the backbone of the course are five free, downloadable EAs that let users try advanced algorithmic cryptocurrency trading without any programming skills.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-24"> Algorithmic Cryptocurrency Trading costs $74.99.<span class="ql-inline-citation" data-cite="17"></span> Again, steep discounts are often available. The course includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-best-for-passive-strategies-the-complete-cryptocurrency--bitcoin-trading-course-2023"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-3"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Passive Strategies</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> The Complete Cryptocurrency &amp; Bitcoin Trading Course 2023</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-25" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Udemy Career Coaching Certification" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/KxuiqIMzPp3XxjwrJalb7KFbm-U=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-4bb56c46c39d46d1a7d1b0f8cdecaf90.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="Udemy Career Coaching Certification" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/KxuiqIMzPp3XxjwrJalb7KFbm-U=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-4bb56c46c39d46d1a7d1b0f8cdecaf90.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-3"> <span class="figure-article-caption-owner"><p>Udemy Career Coaching Certification</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-26"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-3"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Udemy" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F" id="button_1-0-3" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> Udemy’s lengthy Complete Cryptocurrency &amp; Bitcoin Trading Course 2023 promises to teach students how to earn passive income from cryptocurrency trading, a bold boast that places it on our list as the best course for passive strategies. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-28"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>30-day money-back guarantee</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-29"> Although the course description reads like a sensational sales letter, Udemy’s Complete Cryptocurrency &amp; Bitcoin Trading Course 2023 is highly rated and has enrolled more than 20,000 students.<span class="ql-inline-citation" data-cite="6"></span> That, combined with its focus on a “copy &amp; paste” system for earning passive cryptocurrency income, makes the course our choice as the best for passive strategies.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-30"> The Complete Cryptocurrency &amp; Bitcoin Trading Course 2023 is taught by financial e-learning platform Wealthy Education which boasts over 270,000 students, more than 39,000 reviews, and a whopping 67 courses on Udemy.<span class="ql-inline-citation" data-cite="7"></span> The course consists of 9.5 hours of on-demand video, one practice test, four articles, and 19 downloadable resources and can be accessed on the Udemy mobile app. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-31"> While much of the course description is rather flowery in its language, a perusal of the syllabus reveals direct and practical strategies. Modules include instruction on how to register and secure cryptocurrency trading accounts, the best trading tool to use, how to reduce risks and protect profits, and technical trading techniques like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp">exponential moving averages</a>.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-32"> The Complete Cryptocurrency &amp; Bitcoin Trading Course 2023 costs $119.99 and includes Udemy’s standard full lifetime access, certificate of completion, and 30-day money-back guarantee.<span class="ql-inline-citation" data-cite="18"></span> Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-4"> <span class="heading-toc" id="toc-best-interactive-cryptocurrency-trading-technical-analysis-masterclass"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-4"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Interactive</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Cryptocurrency Trading</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Technical Analysis Masterclass</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-4"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-4"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-4"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-33" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Udemy Career Coaching Certification" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/w3uf99MXIxYJzLMc27NyuJ-TJG0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-23a6bffbbb3640e894a7908bc4706ddf.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-4" width="1500"/> <noscript> <img alt="Udemy Career Coaching Certification" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/w3uf99MXIxYJzLMc27NyuJ-TJG0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-23a6bffbbb3640e894a7908bc4706ddf.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-4"> <span class="figure-article-caption-owner"><p>Udemy Career Coaching Certification</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-34"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-4"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Udemy" data-retailer-type="other" data-tracking-container="true" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F" id="button_1-0-4" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-35"> Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass requires students to set up a free trial with TradingView, a social platform for traders and investors. Combined with tons of trading examples, the course earns our top spot as the best interactive course. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-36"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>30-day money-back guarantee</p></li> <li><p>Lots of examples and downloads</p></li> <li><p>Lifetime course access</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-37"> Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass is another offering from the financial e-learning platform Wealthy Education. The course’s requirement to set up a free TradingView account for chart analysis, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hot-wallet.asp">cryptocurrency wallets</a>, and crypto trading accounts makes it our choice as the best interactive course. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> The course consists of 6.5 hours of on-demand video, one practice test, four articles, and 13 downloadable resources and can be accessed on the Udemy mobile app. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-39"> Cryptocurrency Trading: Technical Analysis Masterclass focuses on the philosophy of trading and risk as well as learning technical indicators to accurately assess the direction of trading markets. While the course claims to be accessible to beginners, it’s better suited for those with a deep interest in learning the intricacies of cryptocurrency and other trading strategies.     </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-40"> Cryptocurrency Trading: Technical Analysis Masterclass costs just $89.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee.<span class="ql-inline-citation" data-cite="19"></span> Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-5"> <span class="heading-toc" id="toc-best-value-cryptocurrency-foundations"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-5"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Value</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Cryptocurrency Foundations</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-5"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-5"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-5"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-41" style="--imgWidth: 153px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="LinkedIn Learning" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/W8Zjwqad1vBLIDpzYM9cguOtF-A=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Linkedin_Learning-49b103eb84c04330922ed6307071dd92.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-5" width="1500"/> <noscript> <img alt="LinkedIn Learning" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/W8Zjwqad1vBLIDpzYM9cguOtF-A=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Linkedin_Learning-49b103eb84c04330922ed6307071dd92.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp figure-caption mntl-figure-caption figure-article-caption" id="mntl-figure-caption_1-0-5"> <span class="figure-article-caption-owner"><p> LinkedIn Learning</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-42"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-5"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="at LinkedIn Learning" data-retailer-type="other" data-tracking-container="true" href="https://www.linkedin.com/learning/cryptocurrency-foundations" id="button_1-0-5" rel="noskim noopener nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-43"> Cryptocurrency Foundations is a beginner cryptocurrency trading course available through a monthly or yearly subscription to LinkedIn Learning, which offers access to over 21,000 other courses. This makes the course the best value on our list.<span class="ql-inline-citation" data-cite="10"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-44"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Annual or monthly pricing</p></li> <li><p>30-day free trial</p></li> <li><p>Access to all LinkedIn Learning courses with subscription<br/></p></li> <li><p>Includes quizzes and exercises</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accredited certificates not available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-45"> Lynda.com was founded in 2005 by Lynda Weinman and bought by LinkedIn in 2015 which rebranded it as LinkedIn Learning.<span class="ql-inline-citation" data-cite="11"></span> Its Cryptocurrency Foundations is a popular course that gives students access to over 21,000 other business and marketing courses, making it our choice as the best value.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-46"> Cryptocurrency Foundations is taught by Jonathan Reichental, an award-winning technology leader whose innovative work in government has been recognized by the White House.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="12"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-47"> Cryptocurrency Foundations is a fairly short course that covers the fundamentals of cryptocurrency, mining, and trading. The course is just over an hour long and includes five quizzes that cover blockchain databases, hashing, cryptography, and more.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-48"> After completing Cryptocurrency Foundations, students will receive a certificate of completion which can be printed and shared on their LinkedIn profile. The course also fulfills <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasba.asp">National Association of State Boards of Accountancy (NASBA)</a> continuing professional education credits (CPEs).     </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-49"> Students can access all course content in Cryptocurrency Foundations for free for 30 days. After that, the cost is $19.99 per month paid annually or $39.99 per month paid monthly. A LinkedIn Learning subscription also gives students access to over 21,000 courses in business, creative, and technology topics.<span class="ql-inline-citation" data-cite="10"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-the-bottom-line"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-1"> While some might say that cryptocurrency trading is as much an art as a science, the next best thing to having someone to mentor you on the subtleties of trading is to find a good course. With that in mind, we chose Udemy’s Complete Cryptocurrency Investment Course as the best overall course due to its reputation, live examples, and downloadable resources.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-2"> Udemy’s Cryptocurrency Fundamentals wowed us as the best for beginners with its two-hour video format and quick-start guide, while its Udemy’s Algorithmic Cryptocurrency Trading course featuring a plethora of manual and automatic strategies and downloadable tools won the best for advanced strategies. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-3"> Beginners looking to make money passively with cryptocurrencies will love Udemy’s Complete Cryptocurrency &amp; Bitcoin Trading Course “copy and paste” system, making it our best choice for passive strategies. The Udemy platform also took the spot for the best interactive course with its Cryptocurrency Trading: Technical Analysis Masterclass which has students follow along using real trading tools. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-4"> Finally, LinkedIn Learning scored the best value with its Cryptocurrency Foundations course due to the fact that students can access the platform’s 21,000+ courses all for a reasonable monthly subscription. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-compare-providers"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-5"> <span class="mntl-sc-block-heading__text"> Compare Providers </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Table Block" id="mntl-sc-block_4-0-6"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Course</b></th> <th><b>Category</b></th> <th><b>Cost</b>*</th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F" rel="sponsored nofollow">The Complete Cryptocurrency Investment Course</a></td> <td>Best Overall</td> <td>$99.99</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F" rel="sponsored nofollow">Cryptocurrency Fundamentals</a></td> <td>Best Beginner’s Course</td> <td>$74.99</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F" rel="sponsored nofollow">Algorithmic Cryptocurrency Trading</a></td> <td>Best for Advanced Strategies</td> <td>$74.99</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F" rel="sponsored nofollow">The Complete Cryptocurrency &amp; Bitcoin Trading Course</a></td> <td>Best for Passive Strategies</td> <td>$119.99</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F" rel="sponsored nofollow">Cryptocurrency Trading: Technical Analysis Masterclass</a></td> <td>Best Interactive</td> <td>$89.99</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://linkedin-learning.pxf.io/c/2104074/625705/8005?u=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fcryptocurrency-foundations" rel="sponsored nofollow">Cryptocurrency Foundations</a></td> <td>Best Value</td> <td>$39.99 per month ($19.99 per month paid annually)</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-7"> * Full-price cost </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp has-details mntl-sc-block prm-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block" id="mntl-sc-block_4-0-8"> <div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"> <div class="comp lazyload aspectratio-16:9 mntl-sc-block-inlinevideo__video mntl-jwplayer" data-bgset="https://cdn.jwplayer.com/v2/media/aAnss42z/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div><!-- end: comp lazyload aspectratio-16:9 mntl-sc-block-inlinevideo__video mntl-jwplayer --> </div><!-- end: comp mntl-sc-block-inlinevideo__video-container mntl-block --> <span class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0"> What Is Cryptocurrency?</span><!-- end: comp mntl-sc-block-inlinevideo__title mntl-text-block --> <div class="comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block" id="mntl-sc-block-inlinevideo__feature-link-wrapper_1-0"> <span class="comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link" id="mntl-sc-block-inlinevideo__feature-link_1-0"></span><!-- end: comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link --> <!-- end: mntl-sc-block-inlinevideo__feature-link mntl-text-link --> </div><!-- end: comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block --> </div><!-- end: comp has-details mntl-sc-block prm-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-9"> <span class="heading-toc" id="toc-what-makes-a-great-cryptocurrency-trading-course"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Makes a Great Cryptocurrency Trading Course?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Cryptocurrency trading requires understanding the relationship between risk and reward, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/02/091802.asp">technical analysis</a>, emotional control, and other complex market factors. As a result, the best cryptocurrency trading courses outline the fundamentals of cryptocurrency as they relate to these and more traditional trading strategies. </p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-10"> <span class="heading-toc" id="toc-what-is-the-best-strategy-for-crypto-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Strategy for Crypto Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Whole articles could be written on each individual cryptocurrency trading strategy and which one is the best. The answer depends on each trader’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk tolerance</a>, financial goals, and level of involvement. Depending on the preference, that can involve any number of passive or active strategies.</p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <div class="comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_4-0-11"> <span class="heading-toc" id="toc-what-does-a-cryptocurrency-trading-course-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does a Cryptocurrency Trading Course Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Due to its ability to attract highly talented experts, Udemy dominated the field in terms of the majority of high-quality cryptocurrency trading courses we came across. While most started at around $100, due to Udemy’s habit of offering frequent specials, we were able to find them for no more than $19.99 each for lifetime access.</p><p>LinkedIn Learning also offered a good beginner’s course for $39.99 per month. When you consider you also get access to over 21,000 courses for that price (including eight cryptocurrency courses), that’s a pretty good deal as well.</p></div> </div><!-- end: comp mntl-sc-block prm-sc-block-questionandanswer--finance prm-sc-block-questionandanswer mntl-sc-block-questionandanswer --> <span class="heading-toc" id="toc-how-we-chose-the-best-cryptocurrency-trading-courses"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-12"> <span class="mntl-sc-block-heading__text"> How We Chose the Best Cryptocurrency Trading Courses  </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-13"> We looked at over a dozen cryptocurrency trading courses for this review. Although we did find a few courses taught by individuals on their own websites, we found that Udemy offered the most popular and thorough courses with LinkedIn Learning coming in at a close second. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-14"> We primarily looked at courses taught by true cryptocurrency trading experts and that had high reviews and enrollment numbers. We also made sure to choose courses that focused on the fundamentals of cryptocurrency only as it related to real trading techniques and strategies.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-15"> Although cost wasn’t a big consideration, we stayed clear of independent courses that charged far more than either Udemy’s discount course prices or LinkedIn Learning’s affordable monthly subscription for the simple reason that they didn’t provide any additional value for their money. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> </div> </div> </div><!-- end: comp product-roundup-content--finance product-roundup--base product-roundup--base --> </div> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. 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While many people may want to dismiss cryptocurrency trading as a passing fad, there's no doubt it's becoming an economic force to be reckoned with. In fact, the [global cryptocurrency market](https://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp) value is expected to reach $1.9 billion by 2028. Cryptocurrency trading courses dig into the inner workings of this emerging market and outline the best strategies for making money through trading and investing.  We reviewed the best cryptocurrency trading courses for both beginners and experts. Here are our top six picks based on skill level, cost, ease of use, and more. Note that since cryptocurrencies are not backed by any bank or international currency, trading in cryptocurrency comes with considerable risks for fraud and cybercrime. ## The Best Cryptocurrency Trading Courses for 2024 * **Best Overall:** [The Complete Cryptocurrency Investment Course](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F) * **Best Beginner’s Course:** [Cryptocurrency Fundamentals](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F) * **Best for Advanced Strategies:** [Algorithmic Cryptocurrency Trading](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F) * **Best for Passive Strategies:** [The Complete Cryptocurrency & Bitcoin Trading Course 2023](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F) * **Best Interactive:** [Cryptocurrency Trading: Technical Analysis Masterclass](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F) * **Best Value:** [Cryptocurrency Foundations](https://www.linkedin.com/learning/cryptocurrency-foundations) Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed. Best Cryptocurrency Trading Courses Expand Best Cryptocurrency Trading Courses * [Our Top Picks](#summary-list) * [The Complete Cryptocurrency Investment Course](#toc-best-overall-the-complete-cryptocurrency-investment-course) * [Cryptocurrency Fundamentals](#toc-best-beginners-course-cryptocurrency-fundamentals) * [Algorithmic Cryptocurrency Trading](#toc-best-for-advanced-strategies-algorithmic-cryptocurrency-trading) * [The Complete Cryptocurrency & Bitcoin Trading Course 2023](#toc-best-for-passive-strategies-the-complete-cryptocurrency--bitcoin-trading-course-2023) * [Cryptocurrency Trading](#toc-best-interactive-cryptocurrency-trading-technical-analysis-masterclass) * [Cryptocurrency Foundations](#toc-best-value-cryptocurrency-foundations) * See More (3) * [The Bottom Line](#toc-the-bottom-line) * [Compare Providers](#toc-compare-providers) * [What Makes a Great Cryptocurrency Trading Course?](#toc-what-makes-a-great-cryptocurrency-trading-course) * [What Is the Best Strategy for Crypto Trading?](#toc-what-is-the-best-strategy-for-crypto-trading) * [What Does a Cryptocurrency Trading Course Cost?](#toc-what-does-a-cryptocurrency-trading-course-cost) * [Methodology](#toc-how-we-chose-the-best-cryptocurrency-trading-courses) ### Best Overall : The Complete Cryptocurrency Investment Course --- ![Udemy]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-fd88f359195440f1a61ea53da5a8e1b2.jpg) Udemy [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F) Udemy’s Complete Cryptocurrency Investment Course covers all of the fundamentals of cryptocurrency investing in an affordable, self-paced, mobile-friendly format, making it the best overall cryptocurrency trading course on our list. Pros * 30-day money-back guarantee * Easy-to-use course app * Lifetime course access Cons * Accredited certificates not available Founded in 2009, Udemy has since grown to become one of the largest online learning platforms offering over 210,000 courses taught by more than 75,000 instructors in 75 languages. Its Complete Cryptocurrency Investment Course introduces students to the [basics of cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) and advances them quickly into investing techniques featuring live examples. As a result, it’s our clear choice as the best course overall.   The Complete Cryptocurrency Investment Course is led by Mohsen Hassan, a programmer, trader, and financial risk manager who has taught investing to more than 300,000 Udemy students. The course consists of over 12.5 hours of on-demand video, one article, and two downloadable resources and can be accessed on the Udemy mobile app. The Complete Cryptocurrency Investment Course walks beginners through the fundamentals of cryptocurrency and quickly moves to live examples of buying, transferring, and using wallets as well as portfolio management techniques for both passive and active investing. Through this course, Hassan buys, transfers, secures, and builds a portfolio with real money so students can see exactly how it’s done. The Complete Cryptocurrency Investment Course costs just $99.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee. Udemy runs specials all the time, so you may be able to purchase the course for a much lower price. ### Best Beginner’s Course : Cryptocurrency Fundamentals --- ![Udemy Career Coaching Certification]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-5aa2cc3318364e1e91d421903562f485.jpg) Udemy Career Coaching Certification [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F) Udemy’s Cryptocurrency Fundamentals course quickly teaches beginners how to use, buy, sell, and trade cryptocurrency in just over two hours, placing it in our top spot as the best course for beginners. Pros * Free quick-start PDF * Lifetime access Cons * Accredited certificates not available Another offering from Udemy, Cryptocurrency Fundamentals teaches beginners exactly what they need to do in order to start buying, selling, and trading cryptocurrencies. The quick video format and bonus quick-start guide make it our selection as the best course for beginners.    Cryptocurrency Fundamentals is taught by bestselling instructor and author George Levy, who has taught over 180,000 students on Udemy. The course’s simple structure consists of more than two hours worth of video, one article, and five downloadable resources.     Cryptocurrency Fundamentals is designed to teach beginners the foundations of cryptocurrencies they need to quickly and safely buy, trade, and sell on their own. Students also get the “Cryptocurrency Exchange: Starter Guide,” a downloadable PDF that teaches students how to trade cryptocurrencies even faster.       Cryptocurrency Fundamentals costs $74.99, but steep discounts are often available. As with all Udemy courses, Cryptocurrency Fundamentals can be accessed on the Udemy mobile app and includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion at the end of the course. ### Best for Advanced Strategies : Algorithmic Cryptocurrency Trading --- ![Udemy Career Coaching Certification]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-cd1ed536749a46be8adc642404124650.jpg) Udemy Career Coaching Certification [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F) Udemy’s Algorithmic Cryptocurrency Trading course provides students with five cryptocurrency trading strategies along with tested and ready-to-use [Expert Advisors (EA)](https://www.investopedia.com/best-robo-advisors-4693125) robots, making it our pick as the best course for advanced trading strategies. Pros * 30-day money-back guarantee * Personal support from the instructor Cons * Accredited certificates not available * No quizzes or assessment tools Udemy doesn’t just teach beginning courses in cryptocurrency trading. Its Algorithmic Cryptocurrency Trading course offers five fully manual and automatic strategies for trading cryptocurrencies. Combined with five downloadable EAs, the course ranks as the best for advanced strategies.  Algorithmic Cryptocurrency Trading is taught by professional Forex and cryptocurrency trader Petko Zhivkov Aleksandrov whose Udemy courses enroll over 10,000 students every year (for more than 70,000 to date).   Despite its advanced techniques, Algorithmic Cryptocurrency Trading is perfectly suited for both beginner and experienced traders. The course consists of 2.5 hours of on-demand video, one article, and 13 downloadable resources and can be easily accessed on Udemy’s mobile app. Algorithmic Cryptocurrency Trading teaches students five manual and automatic strategies that diversify the risk between cryptocurrencies and remove emotions from the trading process. At the backbone of the course are five free, downloadable EAs that let users try advanced algorithmic cryptocurrency trading without any programming skills.   Algorithmic Cryptocurrency Trading costs $74.99. Again, steep discounts are often available. The course includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion. ### Best for Passive Strategies : The Complete Cryptocurrency & Bitcoin Trading Course 2023 --- ![Udemy Career Coaching Certification]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-4bb56c46c39d46d1a7d1b0f8cdecaf90.jpg) Udemy Career Coaching Certification [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F) Udemy’s lengthy Complete Cryptocurrency & Bitcoin Trading Course 2023 promises to teach students how to earn passive income from cryptocurrency trading, a bold boast that places it on our list as the best course for passive strategies. Pros * 30-day money-back guarantee Cons * Accredited certificates not available Although the course description reads like a sensational sales letter, Udemy’s Complete Cryptocurrency & Bitcoin Trading Course 2023 is highly rated and has enrolled more than 20,000 students. That, combined with its focus on a “copy & paste” system for earning passive cryptocurrency income, makes the course our choice as the best for passive strategies.   The Complete Cryptocurrency & Bitcoin Trading Course 2023 is taught by financial e-learning platform Wealthy Education which boasts over 270,000 students, more than 39,000 reviews, and a whopping 67 courses on Udemy. The course consists of 9.5 hours of on-demand video, one practice test, four articles, and 19 downloadable resources and can be accessed on the Udemy mobile app. While much of the course description is rather flowery in its language, a perusal of the syllabus reveals direct and practical strategies. Modules include instruction on how to register and secure cryptocurrency trading accounts, the best trading tool to use, how to reduce risks and protect profits, and technical trading techniques like [exponential moving averages](https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp).   The Complete Cryptocurrency & Bitcoin Trading Course 2023 costs $119.99 and includes Udemy’s standard full lifetime access, certificate of completion, and 30-day money-back guarantee. Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. ### Best Interactive : Cryptocurrency Trading : Technical Analysis Masterclass --- ![Udemy Career Coaching Certification]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-23a6bffbbb3640e894a7908bc4706ddf.jpg) Udemy Career Coaching Certification [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F) Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass requires students to set up a free trial with TradingView, a social platform for traders and investors. Combined with tons of trading examples, the course earns our top spot as the best interactive course. Pros * 30-day money-back guarantee * Lots of examples and downloads * Lifetime course access Cons * Accredited certificates not available Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass is another offering from the financial e-learning platform Wealthy Education. The course’s requirement to set up a free TradingView account for chart analysis, [cryptocurrency wallets](https://www.investopedia.com/terms/h/hot-wallet.asp), and crypto trading accounts makes it our choice as the best interactive course. The course consists of 6.5 hours of on-demand video, one practice test, four articles, and 13 downloadable resources and can be accessed on the Udemy mobile app. Cryptocurrency Trading: Technical Analysis Masterclass focuses on the philosophy of trading and risk as well as learning technical indicators to accurately assess the direction of trading markets. While the course claims to be accessible to beginners, it’s better suited for those with a deep interest in learning the intricacies of cryptocurrency and other trading strategies.     Cryptocurrency Trading: Technical Analysis Masterclass costs just $89.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee. Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. ### Best Value : Cryptocurrency Foundations --- ![LinkedIn Learning]() :fill(white):max_bytes(150000):strip_icc()/Linkedin_Learning-49b103eb84c04330922ed6307071dd92.jpg)  LinkedIn Learning [Sign Up Now](https://www.linkedin.com/learning/cryptocurrency-foundations) Cryptocurrency Foundations is a beginner cryptocurrency trading course available through a monthly or yearly subscription to LinkedIn Learning, which offers access to over 21,000 other courses. This makes the course the best value on our list. Pros * Annual or monthly pricing * 30-day free trial * Access to all LinkedIn Learning courses with subscription * Includes quizzes and exercises Cons * Accredited certificates not available Lynda.com was founded in 2005 by Lynda Weinman and bought by LinkedIn in 2015 which rebranded it as LinkedIn Learning. Its Cryptocurrency Foundations is a popular course that gives students access to over 21,000 other business and marketing courses, making it our choice as the best value. Cryptocurrency Foundations is taught by Jonathan Reichental, an award-winning technology leader whose innovative work in government has been recognized by the White House. Cryptocurrency Foundations is a fairly short course that covers the fundamentals of cryptocurrency, mining, and trading. The course is just over an hour long and includes five quizzes that cover blockchain databases, hashing, cryptography, and more.  After completing Cryptocurrency Foundations, students will receive a certificate of completion which can be printed and shared on their LinkedIn profile. The course also fulfills [National Association of State Boards of Accountancy (NASBA)](https://www.investopedia.com/terms/n/nasba.asp) continuing professional education credits (CPEs).     Students can access all course content in Cryptocurrency Foundations for free for 30 days. After that, the cost is $19.99 per month paid annually or $39.99 per month paid monthly. A LinkedIn Learning subscription also gives students access to over 21,000 courses in business, creative, and technology topics. ## The Bottom Line While some might say that cryptocurrency trading is as much an art as a science, the next best thing to having someone to mentor you on the subtleties of trading is to find a good course. With that in mind, we chose Udemy’s Complete Cryptocurrency Investment Course as the best overall course due to its reputation, live examples, and downloadable resources.  Udemy’s Cryptocurrency Fundamentals wowed us as the best for beginners with its two-hour video format and quick-start guide, while its Udemy’s Algorithmic Cryptocurrency Trading course featuring a plethora of manual and automatic strategies and downloadable tools won the best for advanced strategies. Beginners looking to make money passively with cryptocurrencies will love Udemy’s Complete Cryptocurrency & Bitcoin Trading Course “copy and paste” system, making it our best choice for passive strategies. The Udemy platform also took the spot for the best interactive course with its Cryptocurrency Trading: Technical Analysis Masterclass which has students follow along using real trading tools. Finally, LinkedIn Learning scored the best value with its Cryptocurrency Foundations course due to the fact that students can access the platform’s 21,000+ courses all for a reasonable monthly subscription. ## Compare Providers | **Course** | **Category** | **Cost**\* | | --- | --- | --- | | [The Complete Cryptocurrency Investment Course](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcomplete-cryptocurrency-investing-course-passive-active%2F) | Best Overall | $99.99 | | [Cryptocurrency Fundamentals](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-fundamentals%2F) | Best Beginner’s Course | $74.99 | | [Algorithmic Cryptocurrency Trading](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fcryptocurrency-algorithmic-trading-the-revolution%2F) | Best for Advanced Strategies | $74.99 | | [The Complete Cryptocurrency & Bitcoin Trading Course](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Fthe-complete-cryptocurrency-trading-course%2F) | Best for Passive Strategies | $119.99 | | [Cryptocurrency Trading: Technical Analysis Masterclass](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Fcourse%2Ftechnical-analysis-for-cryptocurrency-trading%2F) | Best Interactive | $89.99 | | [Cryptocurrency Foundations](https://linkedin-learning.pxf.io/c/2104074/625705/8005?u=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fcryptocurrency-foundations) | Best Value | $39.99 per month ($19.99 per month paid annually) | \* Full-price cost What Is Cryptocurrency? ## What Makes a Great Cryptocurrency Trading Course? Cryptocurrency trading requires understanding the relationship between risk and reward, [technical analysis](https://www.investopedia.com/articles/trading/02/091802.asp), emotional control, and other complex market factors. As a result, the best cryptocurrency trading courses outline the fundamentals of cryptocurrency as they relate to these and more traditional trading strategies.  ## What Is the Best Strategy for Crypto Trading? Whole articles could be written on each individual cryptocurrency trading strategy and which one is the best. The answer depends on each trader’s [risk tolerance](https://www.investopedia.com/terms/r/risk.asp), financial goals, and level of involvement. Depending on the preference, that can involve any number of passive or active strategies. ## What Does a Cryptocurrency Trading Course Cost? Due to its ability to attract highly talented experts, Udemy dominated the field in terms of the majority of high-quality cryptocurrency trading courses we came across. While most started at around $100, due to Udemy’s habit of offering frequent specials, we were able to find them for no more than $19.99 each for lifetime access. LinkedIn Learning also offered a good beginner’s course for $39.99 per month. When you consider you also get access to over 21,000 courses for that price (including eight cryptocurrency courses), that’s a pretty good deal as well. ## How We Chose the Best Cryptocurrency Trading Courses We looked at over a dozen cryptocurrency trading courses for this review. Although we did find a few courses taught by individuals on their own websites, we found that Udemy offered the most popular and thorough courses with LinkedIn Learning coming in at a close second. We primarily looked at courses taught by true cryptocurrency trading experts and that had high reviews and enrollment numbers. We also made sure to choose courses that focused on the fundamentals of cryptocurrency only as it related to real trading techniques and strategies.  Although cost wasn’t a big consideration, we stayed clear of independent courses that charged far more than either Udemy’s discount course prices or LinkedIn Learning’s affordable monthly subscription for the simple reason that they didn’t provide any additional value for their money. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. Fortune Business Insights. "[Cryptocurrency Market to Exhibit 11.1% CAGR in 2021-2028; Growing Interest of Investors and Supporting Regulations to Augment Market Growth](https://www.fortunebusinessinsights.com/industry-reports/cryptocurrency-market-100149)." 2. Udemy. "[Learn about Udemy Culture, Mission, and Careers](https://about.udemy.com/?locale=en-us)." 3. Crunchbase. "[Udemy](https://www.crunchbase.com/organization/udemy)." 4. Udemy. "[The Complete Cryptocurrency Investment Course](https://www.udemy.com/course/complete-cryptocurrency-investing-course-passive-active/?ranMID=39197&ranEAID=Q*Sg3glZ%2Ffs&ranSiteID=Q.Sg3glZ_fs-AavNQJwynsRLlTOlSVay9w&utm_source=aff-campaign&LSNPUBID=Q*Sg3glZ%2Ffs&utm_medium=udemyads#instructor-1)." 5. Udemy. "[George Levy Profile](https://www.udemy.com/course/cryptocurrency-fundamentals/?ranMID=39197&ranEAID=Q*Sg3glZ%2Ffs&ranSiteID=Q.Sg3glZ_fs-o2D6mHmpRKL6oDrjj8tk9w&LSNPUBID=Q*Sg3glZ%2Ffs&utm_source=aff-campaign&utm_medium=udemyads#instructor-1)." 6. Udemy. "[Cryptocurrency Fundamentals](https://www.udemy.com/course/cryptocurrency-fundamentals/)." 7. Udemy. "[Petko Zhivkov Aleksandrov Profile](https://www.udemy.com/user/petko-jivkov-alexandrov/)." 8. Udemy. "[Algorithmic Cryptocurrency Trading + Top 5 Robots in 2023](https://www.udemy.com/course/cryptocurrency-algorithmic-trading-the-revolution/)." 9. Udemy. "[The Complete Cryptocurrency & Bitcoin Trading Course 2023](https://www.udemy.com/course/the-complete-cryptocurrency-trading-course/?ranMID=39197&ranEAID=Q*Sg3glZ%2Ffs&ranSiteID=Q.Sg3glZ_fs-XkKtIOgVWdtI1JsT0yufqw&LSNPUBID=Q*Sg3glZ%2Ffs&utm_source=aff-campaign&utm_medium=udemyads)." 10. Udemy. "[Wealthy Education Profile](https://www.udemy.com/course/the-complete-cryptocurrency-trading-course/?ranMID=39197&ranEAID=Q*Sg3glZ%2Ffs&ranSiteID=Q.Sg3glZ_fs-XkKtIOgVWdtI1JsT0yufqw&LSNPUBID=Q*Sg3glZ%2Ffs&utm_source=aff-campaign&utm_medium=udemyads#instructor-1)." 11. Udemy. "[The Complete Cryptocurrency & Bitcoin Trading Course 2023.](https://www.udemy.com/course/the-complete-cryptocurrency-trading-course/)" 12. Udemy. "[Cryptocurrency Trading: Technical Analysis Masterclass 2023](https://www.udemy.com/course/technical-analysis-for-cryptocurrency-trading/)." 13. LinkedIn. "[LinkedIn Learning Subscription](https://www.linkedin.com/learning/subscription/products?upsellTrk=lil_upsell_nav_subscription&lipi=urn%3Ali%3Apage%3Ad_learning_feed%3BNBdYFqxfS6KAMFupv3CqRg%3D%3D&trk=trk_default_learning&upsellOrderOrigin=trk_default_learning&upsellTrackingId=VavjHb1bT5KPC%2BKrVuPZTw%3D%3D&_l=en_US&destRedirectURL=https%3A%2F%2Fwww.linkedin.com%2Flearning%2F%3Ftrk%3Dtrk_default_learning&lipi=urn%3Ali%3Apage%3Ad_learning_feed%3BNBdYFqxfS6KAMFupv3CqRg%3D%3D&licu=urn%3Ali%3Acontrol%3Ad_learning_feed-lil_upsell_nav_subscription)." 14. LinkedIn. "[LinkedIn to Acquire lynda.com](https://news.linkedin.com/2015/linkedin-to-acquire-lyndacom)." 15. Linkedin. "[Linkedin Courses](https://www.linkedin.com/learning/subscription/products?upsellTrk=lil_upsell_nav_subscription&lipi=urn%3Ali%3Apage%3Ad_learning_browse%3B%2FJoSm0ZBSGmNWjSdkSNz4A%3D%3D&trk=trk_default_learning&upsellOrderOrigin=aff-ir_progid%3D8005_partid%3D2104074_sid%3D_adid%3D625705&upsellTrackingId=c6sMd%2BhgRlCXsASu3RE8cQ%3D%3D&_l=en_US&destRedirectURL=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fbrowse%2Fbusiness%3Ftrk%3Dtrk_default_learning&lipi=urn%3Ali%3Apage%3Ad_learning_browse%3B%2FJoSm0ZBSGmNWjSdkSNz4A%3D%3D&licu=urn%3Ali%3Acontrol%3Ad_learning_browse-lil_upsell_nav_subscription)." 16. Pitchbook. "[Jonathan Reichental](https://pitchbook.com/profiles/investor/232219-27)." 17. LinkedIn. "[Jonathan Reichental, Ph.D.](https://www.linkedin.com/in/reichental/?trk=lil_course)" Related Articles [![Best Investing Courses of 2024]() :max_bytes(150000):strip_icc()/best-investing-courses-4783334-final-c2944bda24bd4811838dfdc898c9148a.png) Best Investing Courses](https://www.investopedia.com/best-investing-courses-4783334) [![The Best Online Stock Trading Classes of 2024]() :max_bytes(150000):strip_icc()/best-online-stock-trading-classes-5089249-final-5f670112acf14b0bad8dd17476aff54c.png) Best Online Stock Trading Classes](https://www.investopedia.com/best-online-stock-trading-classes-5089249) [![Best-online-bookkeeping-classes-5080723]() :max_bytes(150000):strip_icc()/_OnlineBookeepingClasses_da-kuk-0411dd898bec481692e294f7f1fc5f2c.jpg) Best Online Bookkeeping Classes](https://www.investopedia.com/best-online-bookkeeping-classes-5080723) [Investing Basics](https://www.investopedia.com/investing-essentials-4689754) [![Online Financial Modeling Courses]() :max_bytes(150000):strip_icc()/GettyImages-1360020411-935c258babf04dc9bacccf8a4e5d13c9.jpg) Best Online Financial Modeling Courses](https://www.investopedia.com/best-online-financial-modeling-courses-5083766) [![Best Day Trading Courses]() :max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg) Best Day Trading Courses](https://www.investopedia.com/best-day-trading-courses-5176199) Related Terms [Passive Income: What It Is and Ideas for 2024](https://www.investopedia.com/terms/p/passiveincome.asp) Passive income is earnings from a rental property, limited partnership, or other enterprise in which a person is not actively involved. [more](https://www.investopedia.com/terms/p/passiveincome.asp) [What Is a Bloomberg Terminal? Functions, Costs, and Alternatives](https://www.investopedia.com/terms/b/bloomberg_terminal.asp) A Bloomberg terminal is a computer system offering access to Bloomberg's investment data service, news feeds, messaging, and trade execution services. [more](https://www.investopedia.com/terms/b/bloomberg_terminal.asp) [Currency Trading Platform: Meaning, Example, Pros And Cons](https://www.investopedia.com/terms/forex/c/currency-trading-platforms.asp) A currency or forex trading platform is a type of trading platform used to help currency traders with forex trading analysis and trade execution. [more](https://www.investopedia.com/terms/forex/c/currency-trading-platforms.asp) [Algorithmic Trading: Definition, How It Works, Pros & Cons](https://www.investopedia.com/terms/a/algorithmictrading.asp) Algorithmic trading uses advanced mathematical models for making transaction decisions in the financial markets. [more](https://www.investopedia.com/terms/a/algorithmictrading.asp) [Technical Analysis of Stocks and Trends Definition](https://www.investopedia.com/terms/t/technical-analysis-of-stocks-and-trends.asp) Technical analysis of stocks and trends is the study of historical market data, including price and volume, to predict future market behavior. [more](https://www.investopedia.com/terms/t/technical-analysis-of-stocks-and-trends.asp) [Intraday: Definition, Intraday Trading, and Intraday Strategies](https://www.investopedia.com/terms/i/intraday.asp) Intraday is shorthand for securities that trade on the markets during regular business hours. Day traders closely watch these moves, hoping to score quick profits. [more](https://www.investopedia.com/terms/i/intraday.asp)

While many people may want to dismiss cryptocurrency trading as a passing fad, there's no doubt it's becoming an economic force to be reckoned with. In fact, the global cryptocurrency market value is expected to reach $1.9 billion by 2028. Cryptocurrency trading courses dig into the inner workings of this emerging market and outline the best strategies for making money through trading and investing.  We reviewed the best cryptocurrency trading courses for both beginners and experts. Here are our top six picks based on skill level, cost, ease of use, and more. Note that since cryptocurrencies are not backed by any bank or international currency, trading in cryptocurrency comes with considerable risks for fraud and cybercrime. The Best Cryptocurrency Trading Courses for 2024 Best Overall: The Complete Cryptocurrency Investment Course Best Beginner’s Course: Cryptocurrency Fundamentals Best for Advanced Strategies: Algorithmic Cryptocurrency Trading Best for Passive Strategies: The Complete Cryptocurrency & Bitcoin Trading Course 2023 Best Interactive: Cryptocurrency Trading: Technical Analysis Masterclass Best Value: Cryptocurrency Foundations Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed. Best Cryptocurrency Trading Courses Expand Best Cryptocurrency Trading Courses Our Top Picks The Complete Cryptocurrency Investment Course Cryptocurrency Fundamentals Algorithmic Cryptocurrency Trading The Complete Cryptocurrency & Bitcoin Trading Course 2023 Cryptocurrency Trading Cryptocurrency Foundations See More (3) The Bottom Line Compare Providers What Makes a Great Cryptocurrency Trading Course? What Is the Best Strategy for Crypto Trading? What Does a Cryptocurrency Trading Course Cost? Methodology Best Overall : The Complete Cryptocurrency Investment Course Udemy Sign Up Now Udemy’s Complete Cryptocurrency Investment Course covers all of the fundamentals of cryptocurrency investing in an affordable, self-paced, mobile-friendly format, making it the best overall cryptocurrency trading course on our list. Pros 30-day money-back guarantee Easy-to-use course app Lifetime course access Cons Accredited certificates not available Founded in 2009, Udemy has since grown to become one of the largest online learning platforms offering over 210,000 courses taught by more than 75,000 instructors in 75 languages. Its Complete Cryptocurrency Investment Course introduces students to the basics of cryptocurrencies and advances them quickly into investing techniques featuring live examples. As a result, it’s our clear choice as the best course overall.   The Complete Cryptocurrency Investment Course is led by Mohsen Hassan, a programmer, trader, and financial risk manager who has taught investing to more than 300,000 Udemy students. The course consists of over 12.5 hours of on-demand video, one article, and two downloadable resources and can be accessed on the Udemy mobile app. The Complete Cryptocurrency Investment Course walks beginners through the fundamentals of cryptocurrency and quickly moves to live examples of buying, transferring, and using wallets as well as portfolio management techniques for both passive and active investing. Through this course, Hassan buys, transfers, secures, and builds a portfolio with real money so students can see exactly how it’s done. The Complete Cryptocurrency Investment Course costs just $99.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee. Udemy runs specials all the time, so you may be able to purchase the course for a much lower price. Best Beginner’s Course : Cryptocurrency Fundamentals Udemy Career Coaching Certification Sign Up Now Udemy’s Cryptocurrency Fundamentals course quickly teaches beginners how to use, buy, sell, and trade cryptocurrency in just over two hours, placing it in our top spot as the best course for beginners. Pros Free quick-start PDF Lifetime access Cons Accredited certificates not available Another offering from Udemy, Cryptocurrency Fundamentals teaches beginners exactly what they need to do in order to start buying, selling, and trading cryptocurrencies. The quick video format and bonus quick-start guide make it our selection as the best course for beginners.    Cryptocurrency Fundamentals is taught by bestselling instructor and author George Levy, who has taught over 180,000 students on Udemy. The course’s simple structure consists of more than two hours worth of video, one article, and five downloadable resources.     Cryptocurrency Fundamentals is designed to teach beginners the foundations of cryptocurrencies they need to quickly and safely buy, trade, and sell on their own. Students also get the “Cryptocurrency Exchange: Starter Guide,” a downloadable PDF that teaches students how to trade cryptocurrencies even faster.       Cryptocurrency Fundamentals costs $74.99, but steep discounts are often available. As with all Udemy courses, Cryptocurrency Fundamentals can be accessed on the Udemy mobile app and includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion at the end of the course. Best for Advanced Strategies : Algorithmic Cryptocurrency Trading Udemy Career Coaching Certification Sign Up Now Udemy’s Algorithmic Cryptocurrency Trading course provides students with five cryptocurrency trading strategies along with tested and ready-to-use Expert Advisors (EA) robots, making it our pick as the best course for advanced trading strategies. Pros 30-day money-back guarantee Personal support from the instructor Cons Accredited certificates not available No quizzes or assessment tools Udemy doesn’t just teach beginning courses in cryptocurrency trading. Its Algorithmic Cryptocurrency Trading course offers five fully manual and automatic strategies for trading cryptocurrencies. Combined with five downloadable EAs, the course ranks as the best for advanced strategies.  Algorithmic Cryptocurrency Trading is taught by professional Forex and cryptocurrency trader Petko Zhivkov Aleksandrov whose Udemy courses enroll over 10,000 students every year (for more than 70,000 to date).   Despite its advanced techniques, Algorithmic Cryptocurrency Trading is perfectly suited for both beginner and experienced traders. The course consists of 2.5 hours of on-demand video, one article, and 13 downloadable resources and can be easily accessed on Udemy’s mobile app. Algorithmic Cryptocurrency Trading teaches students five manual and automatic strategies that diversify the risk between cryptocurrencies and remove emotions from the trading process. At the backbone of the course are five free, downloadable EAs that let users try advanced algorithmic cryptocurrency trading without any programming skills.   Algorithmic Cryptocurrency Trading costs $74.99. Again, steep discounts are often available. The course includes full lifetime access, a 30-day money-back guarantee, and a certificate of completion. Best for Passive Strategies : The Complete Cryptocurrency & Bitcoin Trading Course 2023 Udemy Career Coaching Certification Sign Up Now Udemy’s lengthy Complete Cryptocurrency & Bitcoin Trading Course 2023 promises to teach students how to earn passive income from cryptocurrency trading, a bold boast that places it on our list as the best course for passive strategies. Pros 30-day money-back guarantee Cons Accredited certificates not available Although the course description reads like a sensational sales letter, Udemy’s Complete Cryptocurrency & Bitcoin Trading Course 2023 is highly rated and has enrolled more than 20,000 students. That, combined with its focus on a “copy & paste” system for earning passive cryptocurrency income, makes the course our choice as the best for passive strategies.   The Complete Cryptocurrency & Bitcoin Trading Course 2023 is taught by financial e-learning platform Wealthy Education which boasts over 270,000 students, more than 39,000 reviews, and a whopping 67 courses on Udemy. The course consists of 9.5 hours of on-demand video, one practice test, four articles, and 19 downloadable resources and can be accessed on the Udemy mobile app. While much of the course description is rather flowery in its language, a perusal of the syllabus reveals direct and practical strategies. Modules include instruction on how to register and secure cryptocurrency trading accounts, the best trading tool to use, how to reduce risks and protect profits, and technical trading techniques like exponential moving averages.   The Complete Cryptocurrency & Bitcoin Trading Course 2023 costs $119.99 and includes Udemy’s standard full lifetime access, certificate of completion, and 30-day money-back guarantee. Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. Best Interactive : Cryptocurrency Trading : Technical Analysis Masterclass Udemy Career Coaching Certification Sign Up Now Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass requires students to set up a free trial with TradingView, a social platform for traders and investors. Combined with tons of trading examples, the course earns our top spot as the best interactive course. Pros 30-day money-back guarantee Lots of examples and downloads Lifetime course access Cons Accredited certificates not available Udemy’s Cryptocurrency Trading: Technical Analysis Masterclass is another offering from the financial e-learning platform Wealthy Education. The course’s requirement to set up a free TradingView account for chart analysis, cryptocurrency wallets, and crypto trading accounts makes it our choice as the best interactive course. The course consists of 6.5 hours of on-demand video, one practice test, four articles, and 13 downloadable resources and can be accessed on the Udemy mobile app. Cryptocurrency Trading: Technical Analysis Masterclass focuses on the philosophy of trading and risk as well as learning technical indicators to accurately assess the direction of trading markets. While the course claims to be accessible to beginners, it’s better suited for those with a deep interest in learning the intricacies of cryptocurrency and other trading strategies.     Cryptocurrency Trading: Technical Analysis Masterclass costs just $89.99 and includes full lifetime access, a certificate of completion at the end of the course, and a 30-day money-back guarantee. Due to Udemy’s regular specials, you can usually take the course for a much cheaper price. Best Value : Cryptocurrency Foundations  LinkedIn Learning Sign Up Now Cryptocurrency Foundations is a beginner cryptocurrency trading course available through a monthly or yearly subscription to LinkedIn Learning, which offers access to over 21,000 other courses. This makes the course the best value on our list. Pros Annual or monthly pricing 30-day free trial Access to all LinkedIn Learning courses with subscription Includes quizzes and exercises Cons Accredited certificates not available Lynda.com was founded in 2005 by Lynda Weinman and bought by LinkedIn in 2015 which rebranded it as LinkedIn Learning. Its Cryptocurrency Foundations is a popular course that gives students access to over 21,000 other business and marketing courses, making it our choice as the best value. Cryptocurrency Foundations is taught by Jonathan Reichental, an award-winning technology leader whose innovative work in government has been recognized by the White House. Cryptocurrency Foundations is a fairly short course that covers the fundamentals of cryptocurrency, mining, and trading. The course is just over an hour long and includes five quizzes that cover blockchain databases, hashing, cryptography, and more.  After completing Cryptocurrency Foundations, students will receive a certificate of completion which can be printed and shared on their LinkedIn profile. The course also fulfills National Association of State Boards of Accountancy (NASBA) continuing professional education credits (CPEs).     Students can access all course content in Cryptocurrency Foundations for free for 30 days. After that, the cost is $19.99 per month paid annually or $39.99 per month paid monthly. A LinkedIn Learning subscription also gives students access to over 21,000 courses in business, creative, and technology topics. The Bottom Line While some might say that cryptocurrency trading is as much an art as a science, the next best thing to having someone to mentor you on the subtleties of trading is to find a good course. With that in mind, we chose Udemy’s Complete Cryptocurrency Investment Course as the best overall course due to its reputation, live examples, and downloadable resources.  Udemy’s Cryptocurrency Fundamentals wowed us as the best for beginners with its two-hour video format and quick-start guide, while its Udemy’s Algorithmic Cryptocurrency Trading course featuring a plethora of manual and automatic strategies and downloadable tools won the best for advanced strategies. Beginners looking to make money passively with cryptocurrencies will love Udemy’s Complete Cryptocurrency & Bitcoin Trading Course “copy and paste” system, making it our best choice for passive strategies. The Udemy platform also took the spot for the best interactive course with its Cryptocurrency Trading: Technical Analysis Masterclass which has students follow along using real trading tools. Finally, LinkedIn Learning scored the best value with its Cryptocurrency Foundations course due to the fact that students can access the platform’s 21,000+ courses all for a reasonable monthly subscription. Compare Providers Course Category Cost* The Complete Cryptocurrency Investment Course Best Overall $99.99 Cryptocurrency Fundamentals Best Beginner’s Course $74.99 Algorithmic Cryptocurrency Trading Best for Advanced Strategies $74.99 The Complete Cryptocurrency & Bitcoin Trading Course Best for Passive Strategies $119.99 Cryptocurrency Trading: Technical Analysis Masterclass Best Interactive $89.99 Cryptocurrency Foundations Best Value $39.99 per month ($19.99 per month paid annually) * Full-price cost What Is Cryptocurrency? What Makes a Great Cryptocurrency Trading Course? Cryptocurrency trading requires understanding the relationship between risk and reward, technical analysis, emotional control, and other complex market factors. As a result, the best cryptocurrency trading courses outline the fundamentals of cryptocurrency as they relate to these and more traditional trading strategies.  What Is the Best Strategy for Crypto Trading? Whole articles could be written on each individual cryptocurrency trading strategy and which one is the best. The answer depends on each trader’s risk tolerance, financial goals, and level of involvement. Depending on the preference, that can involve any number of passive or active strategies. What Does a Cryptocurrency Trading Course Cost? Due to its ability to attract highly talented experts, Udemy dominated the field in terms of the majority of high-quality cryptocurrency trading courses we came across. While most started at around $100, due to Udemy’s habit of offering frequent specials, we were able to find them for no more than $19.99 each for lifetime access.LinkedIn Learning also offered a good beginner’s course for $39.99 per month. When you consider you also get access to over 21,000 courses for that price (including eight cryptocurrency courses), that’s a pretty good deal as well. How We Chose the Best Cryptocurrency Trading Courses  We looked at over a dozen cryptocurrency trading courses for this review. Although we did find a few courses taught by individuals on their own websites, we found that Udemy offered the most popular and thorough courses with LinkedIn Learning coming in at a close second. We primarily looked at courses taught by true cryptocurrency trading experts and that had high reviews and enrollment numbers. We also made sure to choose courses that focused on the fundamentals of cryptocurrency only as it related to real trading techniques and strategies.  Although cost wasn’t a big consideration, we stayed clear of independent courses that charged far more than either Udemy’s discount course prices or LinkedIn Learning’s affordable monthly subscription for the simple reason that they didn’t provide any additional value for their money. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Fortune Business Insights. "Cryptocurrency Market to Exhibit 11.1% CAGR in 2021-2028; Growing Interest of Investors and Supporting Regulations to Augment Market Growth." Udemy. "Learn about Udemy Culture, Mission, and Careers." Crunchbase. "Udemy." Udemy. "The Complete Cryptocurrency Investment Course." Udemy. "George Levy Profile." Udemy. "Cryptocurrency Fundamentals." Udemy. "Petko Zhivkov Aleksandrov Profile." Udemy. "Algorithmic Cryptocurrency Trading + Top 5 Robots in 2023." Udemy. "The Complete Cryptocurrency & Bitcoin Trading Course 2023." Udemy. "Wealthy Education Profile." Udemy. "The Complete Cryptocurrency & Bitcoin Trading Course 2023." Udemy. "Cryptocurrency Trading: Technical Analysis Masterclass 2023." LinkedIn. "LinkedIn Learning Subscription." LinkedIn. "LinkedIn to Acquire lynda.com." Linkedin. "Linkedin Courses." Pitchbook. "Jonathan Reichental." LinkedIn. "Jonathan Reichental, Ph.D." Related Articles Best Investing Courses Best Online Stock Trading Classes Best Online Bookkeeping Classes Investing Basics Best Online Financial Modeling Courses Best Day Trading Courses Related Terms Passive Income: What It Is and Ideas for 2024 Passive income is earnings from a rental property, limited partnership, or other enterprise in which a person is not actively involved. more What Is a Bloomberg Terminal? Functions, Costs, and Alternatives A Bloomberg terminal is a computer system offering access to Bloomberg's investment data service, news feeds, messaging, and trade execution services. more Currency Trading Platform: Meaning, Example, Pros And Cons A currency or forex trading platform is a type of trading platform used to help currency traders with forex trading analysis and trade execution. more Algorithmic Trading: Definition, How It Works, Pros & Cons Algorithmic trading uses advanced mathematical models for making transaction decisions in the financial markets. more Technical Analysis of Stocks and Trends Definition Technical analysis of stocks and trends is the study of historical market data, including price and volume, to predict future market behavior. more Intraday: Definition, Intraday Trading, and Intraday Strategies Intraday is shorthand for securities that trade on the markets during regular business hours. Day traders closely watch these moves, hoping to score quick profits. more

https://www.investopedia.com/terms/l/limitup.asp

Limit Up: What It Is, How It Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-limit-up"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Limit Up? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Limit up is the maximum amount a price is permitted to increase during one trading day. The term is often used in relation to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodityfuturescontract.asp" rel="noopener noreferrer">commodities futures markets</a>, where regulators seek to prevent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp" rel="noopener noreferrer">volatility</a> from reaching extreme levels. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitdown.asp" rel="noopener noreferrer">Limit down</a>, by contrast, refers to the maximum permitted decline in one trading day. Both limit up and limit down prices are examples of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tradingcurb.asp" rel="noopener noreferrer">circuit breakers</a>—interventions employed by exchanges to help maintain orderly trading conditions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The limit up price is the maximum price a commodity futures contract is allowed to rise within one trading session.</li><li>It is put in place to prevent extreme volatility or manipulation of futures prices.</li><li>Limit up prices are adjusted on a daily basis by exchanges, and have led to reduced volatility in recent years.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-limit-up"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Limit Up </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A limit up price is the maximum daily price movement permitted for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures contract</a>. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchange</a> will monitor the trading of all futures contracts and automatically halt trading in a contract if its limit up price is reached. Different futures contracts will have different price limit rules, so it is perfectly possible for some parts of the market to be halted while other trading activities continue as normal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If a price rises above its limit up level, the exchange can either halt trading in that security or choose to raise the limit up and permit further trading.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The rationale behind imposing limit up prices is to help smooth out the volatility of the commodity futures markets.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Another advantage of using limit up prices is to make it more difficult for unscrupulous <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp">traders</a> to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/manipulation.asp">manipulate</a> the market, such as by flooding the market with a large number of highly-priced orders in an attempt to artificially bid up the price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Importantly, the use of limit up prices does not prevent traders from entering <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/basics-trading-stock-know-your-orders/">orders</a> to trade futures at levels above the limit price. However, these traders may need to wait until trading in these futures is allowed to resume before their orders will be filled. Investors wishing to place trades above the limit up level may wish to use <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gtc.asp">good 'til canceled</a> (GTC) or good 'til date (GTD) orders to accommodate these potential delays.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-example-of-limit-up"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Example of Limit Up </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Commodity exchanges such as the CME publish daily price limits on their website. Each day, the exchange recalculates what the limit up and limit down prices should be for each contract.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> For example, as of 2023, the limit up price for ethanol futures contracts was set at $0.30 per contract.<span class="ql-inline-citation" data-cite="3"></span> Importantly, in certain physically deliverable markets these price limits are lifted in the month in which the contracts <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expire</a>, in order to allow room for the futures price to converge with the underlying <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp">spot price</a> of the commodity.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <em>Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.</em> </p></div>

## What Is Limit Up? Limit up is the maximum amount a price is permitted to increase during one trading day. The term is often used in relation to the [commodities futures markets](https://www.investopedia.com/terms/c/commodityfuturescontract.asp), where regulators seek to prevent [volatility](https://www.investopedia.com/terms/v/volatility.asp) from reaching extreme levels. [Limit down](https://www.investopedia.com/terms/l/limitdown.asp), by contrast, refers to the maximum permitted decline in one trading day. Both limit up and limit down prices are examples of [circuit breakers](https://www.investopedia.com/terms/t/tradingcurb.asp)—interventions employed by exchanges to help maintain orderly trading conditions. ### Key Takeaways * The limit up price is the maximum price a commodity futures contract is allowed to rise within one trading session. * It is put in place to prevent extreme volatility or manipulation of futures prices. * Limit up prices are adjusted on a daily basis by exchanges, and have led to reduced volatility in recent years. ## Understanding Limit Up A limit up price is the maximum daily price movement permitted for a [futures contract](https://www.investopedia.com/terms/f/futures.asp). The [exchange](https://www.investopedia.com/terms/e/exchange.asp) will monitor the trading of all futures contracts and automatically halt trading in a contract if its limit up price is reached. Different futures contracts will have different price limit rules, so it is perfectly possible for some parts of the market to be halted while other trading activities continue as normal. ### If a price rises above its limit up level, the exchange can either halt trading in that security or choose to raise the limit up and permit further trading. The rationale behind imposing limit up prices is to help smooth out the volatility of the commodity futures markets. Another advantage of using limit up prices is to make it more difficult for unscrupulous [traders](https://www.investopedia.com/terms/t/trader.asp) to [manipulate](https://www.investopedia.com/terms/m/manipulation.asp) the market, such as by flooding the market with a large number of highly-priced orders in an attempt to artificially bid up the price. Importantly, the use of limit up prices does not prevent traders from entering [orders](https://www.investopedia.com/investing/basics-trading-stock-know-your-orders/) to trade futures at levels above the limit price. However, these traders may need to wait until trading in these futures is allowed to resume before their orders will be filled. Investors wishing to place trades above the limit up level may wish to use [good 'til canceled](https://www.investopedia.com/terms/g/gtc.asp) (GTC) or good 'til date (GTD) orders to accommodate these potential delays. ## Example of Limit Up Commodity exchanges such as the CME publish daily price limits on their website. Each day, the exchange recalculates what the limit up and limit down prices should be for each contract.  For example, as of 2023, the limit up price for ethanol futures contracts was set at $0.30 per contract. Importantly, in certain physically deliverable markets these price limits are lifted in the month in which the contracts [expire](https://www.investopedia.com/terms/e/expirationdate.asp), in order to allow room for the futures price to converge with the underlying [spot price](https://www.investopedia.com/terms/s/spotprice.asp) of the commodity. *Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.*

What Is Limit Up? Limit up is the maximum amount a price is permitted to increase during one trading day. The term is often used in relation to the commodities futures markets, where regulators seek to prevent volatility from reaching extreme levels. Limit down, by contrast, refers to the maximum permitted decline in one trading day. Both limit up and limit down prices are examples of circuit breakers—interventions employed by exchanges to help maintain orderly trading conditions. Key Takeaways The limit up price is the maximum price a commodity futures contract is allowed to rise within one trading session.It is put in place to prevent extreme volatility or manipulation of futures prices.Limit up prices are adjusted on a daily basis by exchanges, and have led to reduced volatility in recent years. Understanding Limit Up A limit up price is the maximum daily price movement permitted for a futures contract. The exchange will monitor the trading of all futures contracts and automatically halt trading in a contract if its limit up price is reached. Different futures contracts will have different price limit rules, so it is perfectly possible for some parts of the market to be halted while other trading activities continue as normal. If a price rises above its limit up level, the exchange can either halt trading in that security or choose to raise the limit up and permit further trading. The rationale behind imposing limit up prices is to help smooth out the volatility of the commodity futures markets. Another advantage of using limit up prices is to make it more difficult for unscrupulous traders to manipulate the market, such as by flooding the market with a large number of highly-priced orders in an attempt to artificially bid up the price. Importantly, the use of limit up prices does not prevent traders from entering orders to trade futures at levels above the limit price. However, these traders may need to wait until trading in these futures is allowed to resume before their orders will be filled. Investors wishing to place trades above the limit up level may wish to use good 'til canceled (GTC) or good 'til date (GTD) orders to accommodate these potential delays. Example of Limit Up Commodity exchanges such as the CME publish daily price limits on their website. Each day, the exchange recalculates what the limit up and limit down prices should be for each contract.  For example, as of 2023, the limit up price for ethanol futures contracts was set at $0.30 per contract. Importantly, in certain physically deliverable markets these price limits are lifted in the month in which the contracts expire, in order to allow room for the futures price to converge with the underlying spot price of the commodity. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

https://www.investopedia.com/terms/g/gilt-edged-securities.asp

Gilt-Edged Securities: Definition, History, and Current Uses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-gilt-edged-securities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Are Gilt-Edged Securities? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations. In the past, these instruments referred to the certificates issued by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/boe.asp">Bank of England</a> (BOE) on behalf of the Majesty's Treasury, so named because the paper they were printed on customarily featured gilded (golden) edges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> By nature, a gilt-edged denotes a high-quality item whose value remains fairly constant over time. As an investment vehicle, this equates to high-grade securities with relatively low yields compared to riskier, below-investment-grade securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> For that reason, gilt-edge securities were once solely issued by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bluechip.asp">blue-chip companies</a> and national governments with proven track records of turning profits. Aside from conventional gilts, the British government issues index-linked gilts that offer semi-annual coupon payments adjusted for inflation.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Government bonds in the U.K., India, and several other commonwealth countries are still known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gilts.asp">gilts</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Gilt-edged securities refer to high-grade bonds that some national governments and private organizations issue in an effort to generate revenue.</li><li>Also known as gilts, these securities were originally issued by the Bank of England.</li><li>These instruments got their names because the certificates were printed on paper stock with gilded edges.</li><li>Gilt-edged securities are favored by investors who seek predictable returns, with little risk of default.</li><li>Gilt-edged investments have similar features to United States Treasury securities.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-gilt-edged-securities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Understanding Gilt-Edged Securities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Gilt-edged securities are high-grade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/gilt-edged-bond.asp">investment bonds</a> offered by governments and large corporations as a method of borrowing funds. The issuing institutions typically boast strong track records of consistent earnings that can cover dividend or interest payments. In many ways, these are the next safest bonds to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp">U.S. Treasury securities</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The United Kingdom and other Commonwealth nations still rely on these securities, in much the same way the U.S. uses Treasury bonds to raise revenue. A conventional gilt issued by the U.K. government pays the holder a fixed cash payment biannually until maturity, at which point the principal is returned in full. The coupon payment reflects the market interest rate at the time of issuance and indicates the cash payment that the holder will receive each year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Similar to Treasury securities, the duration of gilt-edged assets can range from a few years up to 50 years. After the 2008 recession, large quantities of gilts were created and repurchased by the Bank of England in its campaign to jump-start economic relief efforts.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>About 20% of all U.K. gilts are held by pension funds.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-limitations-of-gilt-edged-securities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Limitations of Gilt-Edged Securities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Although gilt-edged securities are offered by reliable government bodies and large corporations, they present certain drawbacks. Primarily, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a> tend to fluctuate with interest rates, where rate hikes will cause the price of a gilt to decline, and vice versa. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> During periods when global economic conditions are improving, interest rates tend to rise. In this case, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/giltfund.asp">gilt ETFs and mutual funds</a> are likely to fall in value. For this reason, investors looking to generate substantial returns during periods of economic growth may source better value in index funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The greatest advantage of gilt-edge securities is the fact that these instruments are typically tied to interest rates. Consequently, they are ideal investments for retirees seeking reliable returns with minimal risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-does-gilt-edged-mean-in-business"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does Gilt-Edged Mean in Business?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In business or financial terms, "gilt-edged" refers to a financial product of high quality and low risk. Typically, these are securities of the highest value. They are most commonly associated with U.K. government bonds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-why-is-it-called-gilt"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is It Called "Gilt"?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>U.K. government bonds, known as "gilts" are termed as such because the original bond certificates had gilded edges, hence the name of "gilt-edged" security.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-what-are-the-advantages-of-gilt-edged-securities"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Advantages of Gilt-Edged Securities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The primary advantage of gilt-edged securities is their safety. They are low-risk investments with a better asset quality than equities, and as such, come with low yields, which can be seen as a disadvantage. To earn more yield, one would need to invest in higher-risk securities, such as stocks or high-yield bonds.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Gilt-edged securities are high-quality bonds issued by governments or blue-chip companies and are primarily associated with the U.K., as they are government bonds, similar to U.S. Treasuries. Investors looking for safe securities with low yields can consider investing in gilts. </p></div>

## What Are Gilt-Edged Securities? Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations. In the past, these instruments referred to the certificates issued by the [Bank of England](https://www.investopedia.com/terms/b/boe.asp) (BOE) on behalf of the Majesty's Treasury, so named because the paper they were printed on customarily featured gilded (golden) edges. By nature, a gilt-edged denotes a high-quality item whose value remains fairly constant over time. As an investment vehicle, this equates to high-grade securities with relatively low yields compared to riskier, below-investment-grade securities. For that reason, gilt-edge securities were once solely issued by [blue-chip companies](https://www.investopedia.com/terms/b/bluechip.asp) and national governments with proven track records of turning profits. Aside from conventional gilts, the British government issues index-linked gilts that offer semi-annual coupon payments adjusted for inflation.  Government bonds in the U.K., India, and several other commonwealth countries are still known as [gilts](https://www.investopedia.com/terms/g/gilts.asp). ### Key Takeaways * Gilt-edged securities refer to high-grade bonds that some national governments and private organizations issue in an effort to generate revenue. * Also known as gilts, these securities were originally issued by the Bank of England. * These instruments got their names because the certificates were printed on paper stock with gilded edges. * Gilt-edged securities are favored by investors who seek predictable returns, with little risk of default. * Gilt-edged investments have similar features to United States Treasury securities. ## Understanding Gilt-Edged Securities Gilt-edged securities are high-grade [investment bonds](https://www.investopedia.com/ask/answers/09/gilt-edged-bond.asp) offered by governments and large corporations as a method of borrowing funds. The issuing institutions typically boast strong track records of consistent earnings that can cover dividend or interest payments. In many ways, these are the next safest bonds to [U.S. Treasury securities](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp). The United Kingdom and other Commonwealth nations still rely on these securities, in much the same way the U.S. uses Treasury bonds to raise revenue. A conventional gilt issued by the U.K. government pays the holder a fixed cash payment biannually until maturity, at which point the principal is returned in full. The coupon payment reflects the market interest rate at the time of issuance and indicates the cash payment that the holder will receive each year. Similar to Treasury securities, the duration of gilt-edged assets can range from a few years up to 50 years. After the 2008 recession, large quantities of gilts were created and repurchased by the Bank of England in its campaign to jump-start economic relief efforts. ### About 20% of all U.K. gilts are held by pension funds. ## Limitations of Gilt-Edged Securities Although gilt-edged securities are offered by reliable government bodies and large corporations, they present certain drawbacks. Primarily, the [bonds](https://www.investopedia.com/terms/b/bond.asp) tend to fluctuate with interest rates, where rate hikes will cause the price of a gilt to decline, and vice versa. During periods when global economic conditions are improving, interest rates tend to rise. In this case, [gilt ETFs and mutual funds](https://www.investopedia.com/terms/g/giltfund.asp) are likely to fall in value. For this reason, investors looking to generate substantial returns during periods of economic growth may source better value in index funds. The greatest advantage of gilt-edge securities is the fact that these instruments are typically tied to interest rates. Consequently, they are ideal investments for retirees seeking reliable returns with minimal risk. ## What Does Gilt-Edged Mean in Business? In business or financial terms, "gilt-edged" refers to a financial product of high quality and low risk. Typically, these are securities of the highest value. They are most commonly associated with U.K. government bonds. ## Why Is It Called "Gilt"? U.K. government bonds, known as "gilts" are termed as such because the original bond certificates had gilded edges, hence the name of "gilt-edged" security. ## What Are the Advantages of Gilt-Edged Securities? The primary advantage of gilt-edged securities is their safety. They are low-risk investments with a better asset quality than equities, and as such, come with low yields, which can be seen as a disadvantage. To earn more yield, one would need to invest in higher-risk securities, such as stocks or high-yield bonds. ## The Bottom Line Gilt-edged securities are high-quality bonds issued by governments or blue-chip companies and are primarily associated with the U.K., as they are government bonds, similar to U.S. Treasuries. Investors looking for safe securities with low yields can consider investing in gilts.

What Are Gilt-Edged Securities? Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations. In the past, these instruments referred to the certificates issued by the Bank of England (BOE) on behalf of the Majesty's Treasury, so named because the paper they were printed on customarily featured gilded (golden) edges. By nature, a gilt-edged denotes a high-quality item whose value remains fairly constant over time. As an investment vehicle, this equates to high-grade securities with relatively low yields compared to riskier, below-investment-grade securities. For that reason, gilt-edge securities were once solely issued by blue-chip companies and national governments with proven track records of turning profits. Aside from conventional gilts, the British government issues index-linked gilts that offer semi-annual coupon payments adjusted for inflation.  Government bonds in the U.K., India, and several other commonwealth countries are still known as gilts. Key Takeaways Gilt-edged securities refer to high-grade bonds that some national governments and private organizations issue in an effort to generate revenue.Also known as gilts, these securities were originally issued by the Bank of England.These instruments got their names because the certificates were printed on paper stock with gilded edges.Gilt-edged securities are favored by investors who seek predictable returns, with little risk of default.Gilt-edged investments have similar features to United States Treasury securities. Understanding Gilt-Edged Securities Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a method of borrowing funds. The issuing institutions typically boast strong track records of consistent earnings that can cover dividend or interest payments. In many ways, these are the next safest bonds to U.S. Treasury securities. The United Kingdom and other Commonwealth nations still rely on these securities, in much the same way the U.S. uses Treasury bonds to raise revenue. A conventional gilt issued by the U.K. government pays the holder a fixed cash payment biannually until maturity, at which point the principal is returned in full. The coupon payment reflects the market interest rate at the time of issuance and indicates the cash payment that the holder will receive each year. Similar to Treasury securities, the duration of gilt-edged assets can range from a few years up to 50 years. After the 2008 recession, large quantities of gilts were created and repurchased by the Bank of England in its campaign to jump-start economic relief efforts. About 20% of all U.K. gilts are held by pension funds. Limitations of Gilt-Edged Securities Although gilt-edged securities are offered by reliable government bodies and large corporations, they present certain drawbacks. Primarily, the bonds tend to fluctuate with interest rates, where rate hikes will cause the price of a gilt to decline, and vice versa. During periods when global economic conditions are improving, interest rates tend to rise. In this case, gilt ETFs and mutual funds are likely to fall in value. For this reason, investors looking to generate substantial returns during periods of economic growth may source better value in index funds. The greatest advantage of gilt-edge securities is the fact that these instruments are typically tied to interest rates. Consequently, they are ideal investments for retirees seeking reliable returns with minimal risk. What Does Gilt-Edged Mean in Business? In business or financial terms, "gilt-edged" refers to a financial product of high quality and low risk. Typically, these are securities of the highest value. They are most commonly associated with U.K. government bonds. Why Is It Called "Gilt"? U.K. government bonds, known as "gilts" are termed as such because the original bond certificates had gilded edges, hence the name of "gilt-edged" security. What Are the Advantages of Gilt-Edged Securities? The primary advantage of gilt-edged securities is their safety. They are low-risk investments with a better asset quality than equities, and as such, come with low yields, which can be seen as a disadvantage. To earn more yield, one would need to invest in higher-risk securities, such as stocks or high-yield bonds. The Bottom Line Gilt-edged securities are high-quality bonds issued by governments or blue-chip companies and are primarily associated with the U.K., as they are government bonds, similar to U.S. Treasuries. Investors looking for safe securities with low yields can consider investing in gilts.

https://www.investopedia.com/terms/m/matrix-trading.asp

Matrix Trading: What it is, Risks, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-matrix-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Matrix Trading? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Matrix trading is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed income</a> trading strategy that looks for discrepancies in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldcurve.asp">yield curve</a>, which an investor can capitalize upon by instituting a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondswap.asp">bond swap</a>. Discrepancies come about when current yields on a particular class of bond—such as corporate or municipal, for example—do not match up with the rest of the yield curve or to its historical norms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Matrix trading involves looking for mispricings related to the yield curve on fixed-income investments.</li><li>The matrix trader swaps bonds, expecting the mispricing to correct itself resulting in a profit. </li><li>They may also use the information to simply exchange a current holding for a better one.</li><li>Matrix trading is not without risk since the mispricing may not correct itself or may get even worse.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-matrix-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Matrix Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Matrix trading is a strategy of swapping bonds in order to take advantage of temporary differences in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldspread.asp">yield spread</a> between bonds with different ratings or different classes. An investor performing a matrix trade could be looking to profit purely as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrageur.asp">arbitrageur</a>—by waiting for the market to "correct" a yield spread discrepancy—or by trading up for free yield, for example, by swapping debt with similar risks but different <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskpremium.asp">risk premiums</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Matrix trading may require matrix pricing. When a particular fixed income instrument isn't heavily traded, the trader must come up with a value for it because recent prices may not always reflect the real value in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thinly-traded.asp">thinly traded </a>market. Matrix pricing involves estimating what the price of a bond should be by looking at similar debt issues and then applying algorithms and formulas to tease out a reasonable value. If the current price is different than the expected value, then the trader can devise a strategy for taking advantage of the mispricing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Matrix traders ultimately expect that apparent mispricings in relative yields are anomalous and will correct over a short period of time. Yield curves and yield spreads can be thrown off historical patterns for any number of reasons, but most of those reasons will have a common source: uncertainty on the part of traders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Individual classes of bonds may also be inefficiently priced for a period of time, like when a high-profile corporate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> sends shock waves through other corporate debt instruments with similar ratings. While certain bonds may not be directly affected by the event at all, they still experience mispricing as traders look to reshuffle positions or view the future as uncertain. As the dust settles, the prices tend to return to their proper values. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-matrix-trading-risks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Matrix Trading Risks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Matrix trading is not without risk. Mispricings can occur for good reason, and may not correct back to expected levels. A higher yield than expected could be due to selling pressure in a bond related to the underlying company's struggles that haven't been fully realized yet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Also, conditions may continue to deteriorate, even if there is no good reason for it. During a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitulation.asp">market panic</a>, mispricings can be extensive and long-lasting. While the mispricing may<em> </em>resolve itself, a trader may not be able to withstand the losses in the meantime. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Like any strategy, matrix traders profit when what they expect to happen occurs. If they are wrong, and the mispricing doesn't correct itself or continues to move against them resulting in a loss, they will look to exit the position and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/limiting-losses/">limit losses</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-example-of-matrix-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Example of Matrix Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Assume that the difference in interest rates between U.S. short-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/on-the-runtreasuries.asp">Treasuries</a> and AAA-rated corporate bonds has historically been 2%, while the difference between Treasuries and AA-rated bonds is usually 2.5%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Company XYZ has an AAA-rated bond yielding 4% and its competitor ABC Corp. has an AA-rated bond yielding 4.2%. The difference between the AAA and AA bond is just 0.2% instead of the historic 0.5%. A matrix trader would buy the AAA-rated bond and sell the AA-rated bond, expecting the yield spread to widen (causing the price of the AA bond to fall as its yield rises). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Traders may also look at ranges instead of specific numbers, and become interested when the spread goes outside the historical range. For example, a trader may notice that the spread between AA and AAA is often contained between 0.4% and 0.7%. If a bond moves significantly outside this range, it alerts the trader that something important is going on, or that there is potential mispricing that can be taken advantage of. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Similar strategies can be employed for bonds situated in different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturities</a>, in different economic sectors, and in different countries or locales. </p></div>

## What Is Matrix Trading? Matrix trading is a [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp) trading strategy that looks for discrepancies in the [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp), which an investor can capitalize upon by instituting a [bond swap](https://www.investopedia.com/terms/b/bondswap.asp). Discrepancies come about when current yields on a particular class of bond—such as corporate or municipal, for example—do not match up with the rest of the yield curve or to its historical norms. ### Key Takeaways * Matrix trading involves looking for mispricings related to the yield curve on fixed-income investments. * The matrix trader swaps bonds, expecting the mispricing to correct itself resulting in a profit. * They may also use the information to simply exchange a current holding for a better one. * Matrix trading is not without risk since the mispricing may not correct itself or may get even worse. ## Understanding Matrix Trading Matrix trading is a strategy of swapping bonds in order to take advantage of temporary differences in the [yield spread](https://www.investopedia.com/terms/y/yieldspread.asp) between bonds with different ratings or different classes. An investor performing a matrix trade could be looking to profit purely as an [arbitrageur](https://www.investopedia.com/terms/a/arbitrageur.asp)—by waiting for the market to "correct" a yield spread discrepancy—or by trading up for free yield, for example, by swapping debt with similar risks but different [risk premiums](https://www.investopedia.com/terms/r/riskpremium.asp). Matrix trading may require matrix pricing. When a particular fixed income instrument isn't heavily traded, the trader must come up with a value for it because recent prices may not always reflect the real value in a [thinly traded](https://www.investopedia.com/terms/t/thinly-traded.asp) market. Matrix pricing involves estimating what the price of a bond should be by looking at similar debt issues and then applying algorithms and formulas to tease out a reasonable value. If the current price is different than the expected value, then the trader can devise a strategy for taking advantage of the mispricing. Matrix traders ultimately expect that apparent mispricings in relative yields are anomalous and will correct over a short period of time. Yield curves and yield spreads can be thrown off historical patterns for any number of reasons, but most of those reasons will have a common source: uncertainty on the part of traders. Individual classes of bonds may also be inefficiently priced for a period of time, like when a high-profile corporate [default](https://www.investopedia.com/terms/d/default2.asp) sends shock waves through other corporate debt instruments with similar ratings. While certain bonds may not be directly affected by the event at all, they still experience mispricing as traders look to reshuffle positions or view the future as uncertain. As the dust settles, the prices tend to return to their proper values. ## Matrix Trading Risks Matrix trading is not without risk. Mispricings can occur for good reason, and may not correct back to expected levels. A higher yield than expected could be due to selling pressure in a bond related to the underlying company's struggles that haven't been fully realized yet. Also, conditions may continue to deteriorate, even if there is no good reason for it. During a [market panic](https://www.investopedia.com/terms/c/capitulation.asp), mispricings can be extensive and long-lasting. While the mispricing mayresolve itself, a trader may not be able to withstand the losses in the meantime. Like any strategy, matrix traders profit when what they expect to happen occurs. If they are wrong, and the mispricing doesn't correct itself or continues to move against them resulting in a loss, they will look to exit the position and [limit losses](https://www.investopedia.com/investing/limiting-losses/). ## Example of Matrix Trading Assume that the difference in interest rates between U.S. short-term [Treasuries](https://www.investopedia.com/terms/o/on-the-runtreasuries.asp) and AAA-rated corporate bonds has historically been 2%, while the difference between Treasuries and AA-rated bonds is usually 2.5%. Company XYZ has an AAA-rated bond yielding 4% and its competitor ABC Corp. has an AA-rated bond yielding 4.2%. The difference between the AAA and AA bond is just 0.2% instead of the historic 0.5%. A matrix trader would buy the AAA-rated bond and sell the AA-rated bond, expecting the yield spread to widen (causing the price of the AA bond to fall as its yield rises). Traders may also look at ranges instead of specific numbers, and become interested when the spread goes outside the historical range. For example, a trader may notice that the spread between AA and AAA is often contained between 0.4% and 0.7%. If a bond moves significantly outside this range, it alerts the trader that something important is going on, or that there is potential mispricing that can be taken advantage of. Similar strategies can be employed for bonds situated in different [maturities](https://www.investopedia.com/terms/m/maturity.asp), in different economic sectors, and in different countries or locales.

What Is Matrix Trading? Matrix trading is a fixed income trading strategy that looks for discrepancies in the yield curve, which an investor can capitalize upon by instituting a bond swap. Discrepancies come about when current yields on a particular class of bond—such as corporate or municipal, for example—do not match up with the rest of the yield curve or to its historical norms. Key Takeaways Matrix trading involves looking for mispricings related to the yield curve on fixed-income investments.The matrix trader swaps bonds, expecting the mispricing to correct itself resulting in a profit. They may also use the information to simply exchange a current holding for a better one.Matrix trading is not without risk since the mispricing may not correct itself or may get even worse. Understanding Matrix Trading Matrix trading is a strategy of swapping bonds in order to take advantage of temporary differences in the yield spread between bonds with different ratings or different classes. An investor performing a matrix trade could be looking to profit purely as an arbitrageur—by waiting for the market to "correct" a yield spread discrepancy—or by trading up for free yield, for example, by swapping debt with similar risks but different risk premiums. Matrix trading may require matrix pricing. When a particular fixed income instrument isn't heavily traded, the trader must come up with a value for it because recent prices may not always reflect the real value in a thinly traded market. Matrix pricing involves estimating what the price of a bond should be by looking at similar debt issues and then applying algorithms and formulas to tease out a reasonable value. If the current price is different than the expected value, then the trader can devise a strategy for taking advantage of the mispricing. Matrix traders ultimately expect that apparent mispricings in relative yields are anomalous and will correct over a short period of time. Yield curves and yield spreads can be thrown off historical patterns for any number of reasons, but most of those reasons will have a common source: uncertainty on the part of traders. Individual classes of bonds may also be inefficiently priced for a period of time, like when a high-profile corporate default sends shock waves through other corporate debt instruments with similar ratings. While certain bonds may not be directly affected by the event at all, they still experience mispricing as traders look to reshuffle positions or view the future as uncertain. As the dust settles, the prices tend to return to their proper values. Matrix Trading Risks Matrix trading is not without risk. Mispricings can occur for good reason, and may not correct back to expected levels. A higher yield than expected could be due to selling pressure in a bond related to the underlying company's struggles that haven't been fully realized yet. Also, conditions may continue to deteriorate, even if there is no good reason for it. During a market panic, mispricings can be extensive and long-lasting. While the mispricing may resolve itself, a trader may not be able to withstand the losses in the meantime. Like any strategy, matrix traders profit when what they expect to happen occurs. If they are wrong, and the mispricing doesn't correct itself or continues to move against them resulting in a loss, they will look to exit the position and limit losses. Example of Matrix Trading Assume that the difference in interest rates between U.S. short-term Treasuries and AAA-rated corporate bonds has historically been 2%, while the difference between Treasuries and AA-rated bonds is usually 2.5%. Company XYZ has an AAA-rated bond yielding 4% and its competitor ABC Corp. has an AA-rated bond yielding 4.2%. The difference between the AAA and AA bond is just 0.2% instead of the historic 0.5%. A matrix trader would buy the AAA-rated bond and sell the AA-rated bond, expecting the yield spread to widen (causing the price of the AA bond to fall as its yield rises). Traders may also look at ranges instead of specific numbers, and become interested when the spread goes outside the historical range. For example, a trader may notice that the spread between AA and AAA is often contained between 0.4% and 0.7%. If a bond moves significantly outside this range, it alerts the trader that something important is going on, or that there is potential mispricing that can be taken advantage of. Similar strategies can be employed for bonds situated in different maturities, in different economic sectors, and in different countries or locales.

https://www.investopedia.com/roblox-chooses-direct-listing-over-ipo-madness-5101253

Roblox Chooses Direct Listing Over IPO Madness

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Roblox Corporation, a video game company with an in-game purchase model, was supposed to complete its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp" rel="noopener noreferrer">initial public offering</a> (IPO) in December of last year. The company delayed its IPO after seeing Airbnb, Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=abnb" rel="noopener noreferrer">ABNB</a>) and DoorDash, Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dash" rel="noopener noreferrer">DASH</a>) post incredible first-day pops that challenged the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp" rel="noopener noreferrer">valuation</a> models for tech IPOs. Instead, the company has announced it will go public through a direct listing. We'll look at what a direct listing is and why Roblox's decision is a sign of trouble for the traditional IPO market.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Roblox has decided to go with a direct listing rather than its planned IPO due to the pricing issues apparent in the market.</li> <li>The company's decision highlights some issues with the IPO process, including the difficulty hitting the right price.</li> <li>Roblox instead completed another round of private capital raising, meaning <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp" rel="noopener noreferrer">retail investors</a> are once again missing out on most of the early growth in a tech company.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-direct-listings-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> How Direct Listings Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> There used to be a clear line between direct listings and IPOs. Direct listings were essentially undertaken for liquidity reasons, as new capital wasn't raised because only existing shares were auctioned on the market. Spotify Technology S.A. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=spot" rel="noopener noreferrer">SPOT</a>) and Slack Technologies, Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=work" rel="noopener noreferrer">WORK</a>) are two notable tech firms that went public through direct listings under the traditional process. In late December 2020, however, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission</a> (SEC) changed the rules around direct listings to allow companies to raise cash through direct listings by auctioning new shares along with those of current shareholders looking to sell.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> With the recent rule change, direct listings are even more attractive than before. Prior to the rule change, direct listings still allowed companies to save the money paid to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriter.asp" rel="noopener noreferrer">underwriters</a> in an IPO, but they couldn't raise new funds. With the rule change, companies can undergo a direct listing, raise capital, and still save money. The direct listing process also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/difference-between-ipo-and-direct-listing/" rel="noopener noreferrer">doesn't involve a lock-up for existing shareholders</a> like an IPO requires. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-the-ipo-issues"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> The IPO Issues </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The rule change around direct listings – one pushed for by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp" rel="noopener noreferrer">New York Stock Exchange</a> (NYSE)<span class="ql-inline-citation" data-cite="1"></span> – is tied up with larger issues related to the IPO market. The idea behind an IPO is that a company pays a fee for expert help and support pricing its shares so that the market buys all of them at the right price. The fees paid as part of an IPO are the biggest direct cost, and PWC estimates that the average underwriting fee is 3.5% to 7% of the gross IPO proceeds. Generally, the larger the deal, the smaller the percentage fee – although the dollar amount will of course be much larger when we are talking billion-dollar-plus IPOs.<span class="ql-inline-citation" data-cite="3"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> While the costs are significant, the fees would be a non-issue if the companies felt they were getting full value on the pricing side. Unfortunately, the massive IPO pops of companies like Airbnb suggest that these companies are leaving money on the table when they do go public. There is a very good argument that we are in a bit of an IPO bubble, but that doesn't excuse the professional that companies are paying tens of millions of dollars leaving billions of dollars of capital on the table.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-why-roblox-chose-direct-listing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Why Roblox Chose Direct Listing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> We don't have to spend much time guessing why Roblox has walked away from its IPO. The Wall Street Journal reported that it was the trading action on Airbnb and DoorDash that caused company executives to delay rather than leaving capital on the table. After postponing the planned IPO, Roblox raised over half a billion in a Series H funding round. The latest funding round values the company at $29.5 billion – a massive jump from $4 billion in its previous funding round.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This probably means that Roblox is less concerned with raising more capital as part of a planned direct listing. Instead, the direct listing is merely giving existing investors a planned liquidity event to cash out if they want to. Roblox will still have the option to raise more capital when the time comes, of course, and the direct listing is planned, not imminent. Roblox can always change those plans as it did with the IPO.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-bottom-line-ipos-need-to-change"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Bottom Line: IPOs Need to Change </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Direct listing is just one alternative to skirting IPO issues, of course. For years now, we have also seen companies choose to stay private and do more private funding rounds, only going through an IPO at a much more mature stage. This is what Roblox has done with the Series H round, although it has stated that the direct listing is in planning stages, thereby giving all the current investors a commitment toward eventual market liquidity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The fact that companies are going so far beyond <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp" rel="noopener noreferrer">Series A, B, and C funding</a> is a sign that something isn't right. While this trend is understandable from the company perspective, it also means that retail investors miss much of the growth in these companies. When companies in the late stages of development undergo an IPO, retail investors are mainly helping early sophisticated and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp" rel="noopener noreferrer">institutional investors</a> cash out with a lot of the gains. Clearly, the IPO process needs to change, or we will be seeing a lot more direct listings and/or delayed IPOs in the future. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

Roblox Corporation, a video game company with an in-game purchase model, was supposed to complete its [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO) in December of last year. The company delayed its IPO after seeing Airbnb, Inc. ([ABNB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=abnb)) and DoorDash, Inc. ([DASH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dash)) post incredible first-day pops that challenged the [valuation](https://www.investopedia.com/terms/v/valuation.asp) models for tech IPOs. Instead, the company has announced it will go public through a direct listing. We'll look at what a direct listing is and why Roblox's decision is a sign of trouble for the traditional IPO market.  ### Key Takeaways * Roblox has decided to go with a direct listing rather than its planned IPO due to the pricing issues apparent in the market. * The company's decision highlights some issues with the IPO process, including the difficulty hitting the right price. * Roblox instead completed another round of private capital raising, meaning [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp) are once again missing out on most of the early growth in a tech company. ## How Direct Listings Work There used to be a clear line between direct listings and IPOs. Direct listings were essentially undertaken for liquidity reasons, as new capital wasn't raised because only existing shares were auctioned on the market. Spotify Technology S.A. ([SPOT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spot)) and Slack Technologies, Inc. ([WORK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=work)) are two notable tech firms that went public through direct listings under the traditional process. In late December 2020, however, the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) changed the rules around direct listings to allow companies to raise cash through direct listings by auctioning new shares along with those of current shareholders looking to sell.  With the recent rule change, direct listings are even more attractive than before. Prior to the rule change, direct listings still allowed companies to save the money paid to [underwriters](https://www.investopedia.com/terms/u/underwriter.asp) in an IPO, but they couldn't raise new funds. With the rule change, companies can undergo a direct listing, raise capital, and still save money. The direct listing process also [doesn't involve a lock-up for existing shareholders](https://www.investopedia.com/investing/difference-between-ipo-and-direct-listing/) like an IPO requires. ## The IPO Issues The rule change around direct listings – one pushed for by the [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE) – is tied up with larger issues related to the IPO market. The idea behind an IPO is that a company pays a fee for expert help and support pricing its shares so that the market buys all of them at the right price. The fees paid as part of an IPO are the biggest direct cost, and PWC estimates that the average underwriting fee is 3.5% to 7% of the gross IPO proceeds. Generally, the larger the deal, the smaller the percentage fee – although the dollar amount will of course be much larger when we are talking billion-dollar-plus IPOs.  While the costs are significant, the fees would be a non-issue if the companies felt they were getting full value on the pricing side. Unfortunately, the massive IPO pops of companies like Airbnb suggest that these companies are leaving money on the table when they do go public. There is a very good argument that we are in a bit of an IPO bubble, but that doesn't excuse the professional that companies are paying tens of millions of dollars leaving billions of dollars of capital on the table. ## Why Roblox Chose Direct Listing We don't have to spend much time guessing why Roblox has walked away from its IPO. The Wall Street Journal reported that it was the trading action on Airbnb and DoorDash that caused company executives to delay rather than leaving capital on the table. After postponing the planned IPO, Roblox raised over half a billion in a Series H funding round. The latest funding round values the company at $29.5 billion – a massive jump from $4 billion in its previous funding round. This probably means that Roblox is less concerned with raising more capital as part of a planned direct listing. Instead, the direct listing is merely giving existing investors a planned liquidity event to cash out if they want to. Roblox will still have the option to raise more capital when the time comes, of course, and the direct listing is planned, not imminent. Roblox can always change those plans as it did with the IPO.  ## Bottom Line: IPOs Need to Change Direct listing is just one alternative to skirting IPO issues, of course. For years now, we have also seen companies choose to stay private and do more private funding rounds, only going through an IPO at a much more mature stage. This is what Roblox has done with the Series H round, although it has stated that the direct listing is in planning stages, thereby giving all the current investors a commitment toward eventual market liquidity. The fact that companies are going so far beyond [Series A, B, and C funding](https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp) is a sign that something isn't right. While this trend is understandable from the company perspective, it also means that retail investors miss much of the growth in these companies. When companies in the late stages of development undergo an IPO, retail investors are mainly helping early sophisticated and [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) cash out with a lot of the gains. Clearly, the IPO process needs to change, or we will be seeing a lot more direct listings and/or delayed IPOs in the future. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Roblox Corporation, a video game company with an in-game purchase model, was supposed to complete its initial public offering (IPO) in December of last year. The company delayed its IPO after seeing Airbnb, Inc. (ABNB) and DoorDash, Inc. (DASH) post incredible first-day pops that challenged the valuation models for tech IPOs. Instead, the company has announced it will go public through a direct listing. We'll look at what a direct listing is and why Roblox's decision is a sign of trouble for the traditional IPO market.  Key Takeaways Roblox has decided to go with a direct listing rather than its planned IPO due to the pricing issues apparent in the market. The company's decision highlights some issues with the IPO process, including the difficulty hitting the right price. Roblox instead completed another round of private capital raising, meaning retail investors are once again missing out on most of the early growth in a tech company. How Direct Listings Work There used to be a clear line between direct listings and IPOs. Direct listings were essentially undertaken for liquidity reasons, as new capital wasn't raised because only existing shares were auctioned on the market. Spotify Technology S.A. (SPOT) and Slack Technologies, Inc. (WORK) are two notable tech firms that went public through direct listings under the traditional process. In late December 2020, however, the Securities and Exchange Commission (SEC) changed the rules around direct listings to allow companies to raise cash through direct listings by auctioning new shares along with those of current shareholders looking to sell.  With the recent rule change, direct listings are even more attractive than before. Prior to the rule change, direct listings still allowed companies to save the money paid to underwriters in an IPO, but they couldn't raise new funds. With the rule change, companies can undergo a direct listing, raise capital, and still save money. The direct listing process also doesn't involve a lock-up for existing shareholders like an IPO requires. The IPO Issues The rule change around direct listings – one pushed for by the New York Stock Exchange (NYSE) – is tied up with larger issues related to the IPO market. The idea behind an IPO is that a company pays a fee for expert help and support pricing its shares so that the market buys all of them at the right price. The fees paid as part of an IPO are the biggest direct cost, and PWC estimates that the average underwriting fee is 3.5% to 7% of the gross IPO proceeds. Generally, the larger the deal, the smaller the percentage fee – although the dollar amount will of course be much larger when we are talking billion-dollar-plus IPOs.  While the costs are significant, the fees would be a non-issue if the companies felt they were getting full value on the pricing side. Unfortunately, the massive IPO pops of companies like Airbnb suggest that these companies are leaving money on the table when they do go public. There is a very good argument that we are in a bit of an IPO bubble, but that doesn't excuse the professional that companies are paying tens of millions of dollars leaving billions of dollars of capital on the table. Why Roblox Chose Direct Listing We don't have to spend much time guessing why Roblox has walked away from its IPO. The Wall Street Journal reported that it was the trading action on Airbnb and DoorDash that caused company executives to delay rather than leaving capital on the table. After postponing the planned IPO, Roblox raised over half a billion in a Series H funding round. The latest funding round values the company at $29.5 billion – a massive jump from $4 billion in its previous funding round. This probably means that Roblox is less concerned with raising more capital as part of a planned direct listing. Instead, the direct listing is merely giving existing investors a planned liquidity event to cash out if they want to. Roblox will still have the option to raise more capital when the time comes, of course, and the direct listing is planned, not imminent. Roblox can always change those plans as it did with the IPO.  Bottom Line: IPOs Need to Change Direct listing is just one alternative to skirting IPO issues, of course. For years now, we have also seen companies choose to stay private and do more private funding rounds, only going through an IPO at a much more mature stage. This is what Roblox has done with the Series H round, although it has stated that the direct listing is in planning stages, thereby giving all the current investors a commitment toward eventual market liquidity. The fact that companies are going so far beyond Series A, B, and C funding is a sign that something isn't right. While this trend is understandable from the company perspective, it also means that retail investors miss much of the growth in these companies. When companies in the late stages of development undergo an IPO, retail investors are mainly helping early sophisticated and institutional investors cash out with a lot of the gains. Clearly, the IPO process needs to change, or we will be seeing a lot more direct listings and/or delayed IPOs in the future. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/articles/active-trading/082415/arbitrage-pricing-theory-its-not-just-fancy-math.asp

Arbitrage Pricing Theory: It's Not Just Fancy Math

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Arbitrage pricing theory (APT) is an alternative to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capm.asp">capital asset pricing model</a> (CAPM) for explaining returns of assets or portfolios. It was developed by economist <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stephen-m-ross-school-of-business-at-the-university-of-michigan.asp">Stephen Ross</a> in the 1970s. Over the years, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apt.asp">arbitrage pricing theory</a> has grown in popularity for its relatively simpler assumptions. However, arbitrage pricing theory is a lot more difficult to apply in practice because it requires a lot of data and complex statistical analysis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Let's see what arbitrage pricing theory is and how we can put it into practice.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Arbitrage is the practice of simultaneously buying and selling the same item at two different prices for a risk-free profit.</li><li>In financial economics, arbitrage pricing theory (APT) assumes that market inefficiencies arise from time to time but are kept in check through the work of arbitrageurs who identify and immediately eliminate such opportunities as they arise.</li><li>APT is formalized using a multi-factor formula that relates the linear relationship between an asset's expected return and various macroeconomic variables.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-apt"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Is APT? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> APT is a multi-factor technical model based on the relationship between a financial asset's expected return and its risk. The model is designed to capture the sensitivity of the asset's returns to changes in certain <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a> variables. Investors and financial analysts can use these results to help price securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Inherent to the arbitrage pricing theory is the belief that mispriced securities can represent short-term, risk-free profit opportunities. APT differs from the more conventional CAPM, which uses only a single factor. Like CAPM, however, the APT assumes that a factor model can effectively describe the correlation between risk and return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-3-underlying-assumptions-of-apt"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> 3 Underlying Assumptions of APT </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Unlike the capital asset pricing model, arbitrage pricing theory does not assume that investors hold efficient portfolios. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The theory does, however, follow three underlying assumptions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Asset returns are explained by systematic factors.</li> <li>Investors can build a portfolio of assets where <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/specificrisk.asp">specific risk</a> is eliminated through diversification.</li> <li>No arbitrage opportunity exists among well-diversified portfolios. If any arbitrage opportunities do exist, they will be exploited away by investors. (This is how the theory got its name.)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-assumptions-of-the-capital-asset-pricing-model"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Assumptions of the Capital Asset Pricing Model </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> We can see that these are more relaxed assumptions than those of the capital asset pricing model. That model assumes that all investors hold homogeneous expectations about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/meanreturn.asp">mean return</a> and variance of assets. It also assumes that the same <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientfrontier.asp">efficient frontier</a> is available to all investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> For a well-diversified portfolio, a basic formula describing arbitrage pricing theory can be written as the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <span data-value="\begin{aligned} &amp;E(R_p) = R_f + \beta_1 f_1 + \beta_2 f_2 + \dotso + \beta_n f_n \\ &amp;\textbf{where:}\\ &amp;E(R_p)=\text{Expected return}\\ &amp;R_f=\text{Risk-free return}\\ &amp;\beta_n=\text{Sensitivity to the factor of }n\\ &amp;f_n=n^{th}\text{ factor price}\\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> E </mi> <mo> ( </mo> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> ) </mo> <mo> = </mo> <msub> <mi> R </mi> <mi> f </mi> </msub> <mo> + </mo> <msub> <mi> β </mi> <mn> 1 </mn> </msub> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> + </mo> <msub> <mi> β </mi> <mn> 2 </mn> </msub> <msub> <mi> f </mi> <mn> 2 </mn> </msub> <mo> + </mo> <mo> … </mo> <mo> + </mo> <msub> <mi> β </mi> <mi> n </mi> </msub> <msub> <mi> f </mi> <mi> n </mi> </msub> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> E </mi> <mo> ( </mo> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> ) </mo> <mo> = </mo> <mtext> Expected return </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> R </mi> <mi> f </mi> </msub> <mo> = </mo> <mtext> Risk-free return </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> β </mi> <mi> n </mi> </msub> <mo> = </mo> <mtext> Sensitivity to the factor of  </mtext> <mi> n </mi> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> f </mi> <mi> n </mi> </msub> <mo> = </mo> <msup> <mi> n </mi> <mrow> <mi> t </mi> <mi> h </mi> </mrow> </msup> <mtext>  factor price </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;E(R_p) = R_f + \beta_1 f_1 + \beta_2 f_2 + \dotso + \beta_n f_n \\ &amp;\textbf{where:}\\ &amp;E(R_p)=\text{Expected return}\\ &amp;R_f=\text{Risk-free return}\\ &amp;\beta_n=\text{Sensitivity to the factor of }n\\ &amp;f_n=n^{th}\text{ factor price}\\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">E</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="minner">…</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">E</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Expected return</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Risk-free return</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Sensitivity to the factor of </span></span><span class="mord mathdefault">n</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">n</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathdefault mtight">t</span><span class="mord mathdefault mtight">h</span></span></span></span></span></span></span></span></span><span class="mord text"><span class="mord"> factor price</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> R_f is the return if the asset did not have exposure to any factors, that is to say, all </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <span data-value="\beta_n = 0"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <msub> <mi> β </mi> <mi> n </mi> </msub> <mo> = </mo> <mn> 0 </mn> </mrow> <annotation encoding="application/x-tex"> \beta_n = 0 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">0</span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Unlike in the capital asset pricing model, the arbitrage pricing theory does not specify the factors. However, according to the research of Stephen Ross and Richard Roll, the most important factors are the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li>Change in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a></li> <li>Change in the level of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipi.asp">industrial production</a></li> <li>Shifts in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskpremium.asp">risk premiums</a></li> <li>Change in the shape of the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termstructure.asp">term structure of interest rates</a><span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> According to researchers Ross and Roll, if no surprise happens in the change of the above factors, the actual return will be equal to the expected return.<span class="ql-inline-citation" data-cite="1"></span> However, in case of unanticipated changes to the factors, the actual return will be defined as follows: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <span data-value="\begin{aligned} &amp;R_p = E(R_p) + \beta_1 f'_1 + \beta_2 f'_2 + \dotso + \beta_n f'_n + e \\ &amp;\textbf{where:}\\ &amp;\begin{aligned} f'_n=&amp;\text{ The unanticipated change in the factor or}\\ &amp;\ \text{ surprise factor}\end{aligned}\\ &amp;e=\text{The residual part of actual return}\\ &amp;7\% = 2\% + 3.45*f_1 + 0.033*f_2\\ &amp;f_1= 1.43\%\\ &amp;f_2= 2.47\%\\ &amp;E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2\\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> = </mo> <mi> E </mi> <mo> ( </mo> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> ) </mo> <mo> + </mo> <msub> <mi> β </mi> <mn> 1 </mn> </msub> <msubsup> <mi> f </mi> <mn> 1 </mn> <mo> ′ </mo> </msubsup> <mo> + </mo> <msub> <mi> β </mi> <mn> 2 </mn> </msub> <msubsup> <mi> f </mi> <mn> 2 </mn> <mo> ′ </mo> </msubsup> <mo> + </mo> <mo> … </mo> <mo> + </mo> <msub> <mi> β </mi> <mi> n </mi> </msub> <msubsup> <mi> f </mi> <mi> n </mi> <mo> ′ </mo> </msubsup> <mo> + </mo> <mi> e </mi> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtable> <mtr> <mtd> <mstyle> <mrow> <msubsup> <mi> f </mi> <mi> n </mi> <mo> ′ </mo> </msubsup> <mo> = </mo> </mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext>  The unanticipated change in the factor or </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext>   surprise factor </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> e </mi> <mo> = </mo> <mtext> The residual part of actual return </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mn> 7 </mn> <mi> % </mi> <mo> = </mo> <mn> 2 </mn> <mi> % </mi> <mo> + </mo> <mn> 3.45 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> + </mo> <mn> 0.033 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 2 </mn> </msub> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> = </mo> <mn> 1.43 </mn> <mi> % </mi> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> f </mi> <mn> 2 </mn> </msub> <mo> = </mo> <mn> 2.47 </mn> <mi> % </mi> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> E </mi> <mo> ( </mo> <msub> <mi> R </mi> <mi> i </mi> </msub> <mo> ) </mo> <mo> = </mo> <mn> 2 </mn> <mi> % </mi> <mo> + </mo> <mn> 1.43 </mn> <mi> % </mi> <mo> ∗ </mo> <msub> <mi> β </mi> <mn> 1 </mn> </msub> <mo> + </mo> <mn> 2.47 </mn> <mi> % </mi> <mo> ∗ </mo> <msub> <mi> β </mi> <mn> 2 </mn> </msub> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;R_p = E(R_p) + \beta_1 f'_1 + \beta_2 f'_2 + \dotso + \beta_n f'_n + e \\ &amp;\textbf{where:}\\ &amp;\begin{aligned} f'_n=&amp;\text{ The unanticipated change in the factor or}\\ &amp;\ \text{ surprise factor}\end{aligned}\\ &amp;e=\text{The residual part of actual return}\\ &amp;7\% = 2\% + 3.45*f_1 + 0.033*f_2\\ &amp;f_1= 1.43\%\\ &amp;f_2= 2.47\%\\ &amp;E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2\\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord mathdefault">E</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight">′</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight">′</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="minner">…</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight">′</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord mathdefault">e</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight">′</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord"> The unanticipated change in the factor or</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"> </span><span class="mord text"><span class="mord"> surprise factor</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">e</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">The residual part of actual return</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord">7</span><span class="mord">%</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">2</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">3</span><span class="mord">.</span><span class="mord">4</span><span class="mord">5</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">0</span><span class="mord">.</span><span class="mord">0</span><span class="mord">3</span><span class="mord">3</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">1</span><span class="mord">.</span><span class="mord">4</span><span class="mord">3</span><span class="mord">%</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">2</span><span class="mord">.</span><span class="mord">4</span><span class="mord">7</span><span class="mord">%</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">E</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">2</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">1</span><span class="mord">.</span><span class="mord">4</span><span class="mord">3</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">2</span><span class="mord">.</span><span class="mord">4</span><span class="mord">7</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Note that f'_nis the unanticipated change in the factor or surprise factor, e is the residual part of actual return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-estimating-factor-sensitivities-and-factor-premiums"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Estimating Factor Sensitivities and Factor Premiums </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> How we can actually derive factor sensitivities? Recall that in the capital asset pricing model, we derived asset beta, which measures asset sensitivity to market return, by simply regressing actual asset returns against market returns. Deriving the factors' beta is pretty much the same procedure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> For the purpose of illustrating the technique of estimating <strong>ß_n</strong>(sensitivity to the factor n)<strong> </strong>and <strong>f_n</strong>(the nth factor price)<strong>, </strong>let's take the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/total_return_index.asp">S&amp;P 500 Total Return Index</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">NASDAQ Composite Total Return Index</a> as proxies for well-diversified portfolios for which we wish to find <strong>ß_n</strong> and <strong>f_n</strong>. For simplicity, we'll assume that we know <strong>R_f</strong>(the risk-free return)<strong> </strong>is 2%. We'll also assume that the annual expected return of the portfolios are 7% for the S&amp;P 500 Total Return Index and 9% for the NASDAQ Composite Total Return Index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> Step 1: Determine Systematic Factors </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> We have to determine the systematic factors by which portfolio returns are explained. Let’s assume that the real <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product</a> (GDP) growth rate and the 10-year Treasury bond yield change are the factors that we need. Since we have chosen two indices with large constituents, we can be confident that our portfolios are well diversified with close to zero specific risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> Step 2: Obtain Betas </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> We ran a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regression.asp">regression</a> on historical quarterly data of each index against quarterly real GDP growth rates and quarterly T-bond yield changes. Note that because these calculations are for illustrative purposes only, we will skip the technical sides of regression analysis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Here are the results: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_53-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><br/><p><strong>  Indices (Proxies for Portfolios)</strong></p><br/></td> <td><br/><p>ß₁of GDP Growth Rate</p><br/></td> <td><br/><p>ß₂ of T-Bond Yield Change</p><br/></td> </tr> <tr> <td><br/><p>  <strong>S&amp;P 500 Total Return Index</strong></p><br/></td> <td><br/><p>3.45</p><br/></td> <td><br/><p>0.033</p><br/></td> </tr> <tr> <td><br/><p> <strong> NASDAQ Composite Total Return Index</strong></p><br/></td> <td><br/><p>4.74</p><br/></td> <td><br/><p>0.098</p><br/></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Regression results tell us that both portfolios have much higher sensitivities to GDP growth rates (which is logical because GDP growth is usually reflected in the equity market change) and very tiny sensitivities to T-bond yield change (this too is logical because stocks are less sensitive to yield changes than bonds).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Step 3: Obtain Factor Prices or Factor Premiums </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Now that we have obtained the beta factors (see the table above), we can estimate factor prices (i.e., <em>f</em>₁ and <em>f</em>₂) by solving the following set of equations: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> <span data-value="7\% = 2\% + 3.45*f_1 + 0.033*f_2"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mn> 7 </mn> <mi> % </mi> <mo> = </mo> <mn> 2 </mn> <mi> % </mi> <mo> + </mo> <mn> 3.45 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> + </mo> <mn> 0.033 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 2 </mn> </msub> </mrow> <annotation encoding="application/x-tex"> 7\% = 2\% + 3.45*f_1 + 0.033*f_2 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord">7</span><span class="mord">%</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">2</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">3</span><span class="mord">.</span><span class="mord">4</span><span class="mord">5</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">0</span><span class="mord">.</span><span class="mord">0</span><span class="mord">3</span><span class="mord">3</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <span data-value="9\% = 2\% + 4.74*f_1 + 0.098*f_2"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mn> 9 </mn> <mi> % </mi> <mo> = </mo> <mn> 2 </mn> <mi> % </mi> <mo> + </mo> <mn> 4.74 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> + </mo> <mn> 0.098 </mn> <mo> ∗ </mo> <msub> <mi> f </mi> <mn> 2 </mn> </msub> </mrow> <annotation encoding="application/x-tex"> 9\% = 2\% + 4.74*f_1 + 0.098*f_2 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord">9</span><span class="mord">%</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">2</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">4</span><span class="mord">.</span><span class="mord">7</span><span class="mord">4</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">0</span><span class="mord">.</span><span class="mord">0</span><span class="mord">9</span><span class="mord">8</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span><br/>Solving these equations we get: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <span data-value="f_1= 1.43\%"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <msub> <mi> f </mi> <mn> 1 </mn> </msub> <mo> = </mo> <mn> 1.43 </mn> <mi> % </mi> </mrow> <annotation encoding="application/x-tex"> f_1= 1.43\% </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">1</span><span class="mord">.</span><span class="mord">4</span><span class="mord">3</span><span class="mord">%</span></span></span></span></span> and </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <span data-value="f_2= 2.47\%"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <msub> <mi> f </mi> <mn> 2 </mn> </msub> <mo> = </mo> <mn> 2.47 </mn> <mi> % </mi> </mrow> <annotation encoding="application/x-tex"> f_2= 2.47\% </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">f</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">2</span><span class="mord">.</span><span class="mord">4</span><span class="mord">7</span><span class="mord">%</span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Therefore, a general <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exante.asp">ex-ante</a><strong> </strong>arbitrage pricing theory equation for any <em>i </em>portfolio will be as follows: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <span data-value="E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mi> E </mi> <mo> ( </mo> <msub> <mi> R </mi> <mi> i </mi> </msub> <mo> ) </mo> <mo> = </mo> <mn> 2 </mn> <mi> % </mi> <mo> + </mo> <mn> 1.43 </mn> <mi> % </mi> <mo> ∗ </mo> <msub> <mi> β </mi> <mn> 1 </mn> </msub> <mo> + </mo> <mn> 2.47 </mn> <mi> % </mi> <mo> ∗ </mo> <msub> <mi> β </mi> <mn> 2 </mn> </msub> </mrow> <annotation encoding="application/x-tex"> E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord mathdefault">E</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">R</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">2</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">1</span><span class="mord">.</span><span class="mord">4</span><span class="mord">3</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">2</span><span class="mord">.</span><span class="mord">4</span><span class="mord">7</span><span class="mord">%</span><span class="mspace"></span><span class="mbin">∗</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-taking-advantage-of-arbitrage-opportunities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> Taking Advantage of Arbitrage Opportunities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> The idea behind a no-arbitrage condition is that if there is a mispriced security in the market, investors can always construct a portfolio with factor sensitivities similar to those of mispriced securities and exploit the arbitrage opportunity.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> For example, suppose that apart from our index portfolios there is an ABC Portfolio with the respective data provided in the following table: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_77-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><br><b>Portfolios</b><br/></br></th> <th><br/><b>Expected Return</b><br/></th> <th><br/><b>ß</b>_<b>1</b><br/></th> <th><br/><b>ß</b>_<b>2</b><br/></th> </tr> </thead> <tbody data-check="0"> <tr> <td><br/>S&amp;P 500 Total Return Index<br/></td> <td><br/>7%<br/></td> <td><br/>3.45<br/></td> <td><br/>0.033<br/></td> </tr> <tr> <td><br/>NASDAQ Composite Total Return Index<br/></td> <td><br/>9%<br/></td> <td><br/>4.74<br/></td> <td><br/>0.098<br/></td> </tr> <tr> <td><br/>ABC Portfolio (or Arbitrage Portfolio)<br/></td> <td><br/>8%<br/></td> <td><br/>3.837<br/></td> <td><br/>0.0525<br/></td> </tr> <tr> <td><br/><b>Combined Index Portfolio = 0.7*S&amp;P500+0.3*NASDAQ</b><br/></td> <td><br/>7.6%<br/></td> <td><br/>3.837<br/></td> <td><br/>0.0525<br/></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> We can construct a portfolio from the first two index portfolios (with an S&amp;P 500 Total Return Index weight of 70% and NASDAQ Composite Total Return Index weight of 30%) with similar factor sensitivities as the ABC Portfolio as shown in the last row of the table. Let's call this the Combined Index Portfolio. The Combined Index Portfolio has the same betas to the systematic factors as the ABC Portfolio but a lower expected return.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> This implies that the ABC portfolio is undervalued. We will then short the Combined Index Portfolio and with those proceeds purchase shares of the ABC Portfolio, which is also called the arbitrage portfolio (because it exploits the arbitrage opportunity). As all investors would sell an overvalued and buy an undervalued portfolio, this would drive away any arbitrage profit.<strong> </strong>This is why the theory is called arbitrage pricing theory. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Arbitrage pricing theory, as an alternative model to the capital asset pricing model, tries to explain asset or portfolio returns with systematic factors and asset/portfolio sensitivities to such factors. The theory estimates the expected returns of well-diversified portfolios with the underlying assumption that portfolios are well-diversified and any discrepancy from the equilibrium price in the market would be instantaneously driven away by investors. Any difference between actual return and expected return is explained by factor surprises (differences between expected and actual values of factors).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> The drawback of arbitrage pricing theory is that it does not specify the systematic factors, but analysts can find these by regressing historical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio-return.asp">portfolio returns</a> against factors such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realgdp.asp">real GDP</a> growth rates, inflation changes, term structure changes, risk premium changes, and so on. Regression equations make it possible to assess which systematic factors explain portfolio returns and which do not. </p></div>

Arbitrage pricing theory (APT) is an alternative to the [capital asset pricing model](https://www.investopedia.com/terms/c/capm.asp) (CAPM) for explaining returns of assets or portfolios. It was developed by economist [Stephen Ross](https://www.investopedia.com/terms/s/stephen-m-ross-school-of-business-at-the-university-of-michigan.asp) in the 1970s. Over the years, [arbitrage pricing theory](https://www.investopedia.com/terms/a/apt.asp) has grown in popularity for its relatively simpler assumptions. However, arbitrage pricing theory is a lot more difficult to apply in practice because it requires a lot of data and complex statistical analysis. Let's see what arbitrage pricing theory is and how we can put it into practice. ### Key Takeaways * Arbitrage is the practice of simultaneously buying and selling the same item at two different prices for a risk-free profit. * In financial economics, arbitrage pricing theory (APT) assumes that market inefficiencies arise from time to time but are kept in check through the work of arbitrageurs who identify and immediately eliminate such opportunities as they arise. * APT is formalized using a multi-factor formula that relates the linear relationship between an asset's expected return and various macroeconomic variables. ## What Is APT? APT is a multi-factor technical model based on the relationship between a financial asset's expected return and its risk. The model is designed to capture the sensitivity of the asset's returns to changes in certain [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) variables. Investors and financial analysts can use these results to help price securities. Inherent to the arbitrage pricing theory is the belief that mispriced securities can represent short-term, risk-free profit opportunities. APT differs from the more conventional CAPM, which uses only a single factor. Like CAPM, however, the APT assumes that a factor model can effectively describe the correlation between risk and return. ## 3 Underlying Assumptions of APT Unlike the capital asset pricing model, arbitrage pricing theory does not assume that investors hold efficient portfolios. The theory does, however, follow three underlying assumptions: * Asset returns are explained by systematic factors. * Investors can build a portfolio of assets where [specific risk](https://www.investopedia.com/terms/s/specificrisk.asp) is eliminated through diversification. * No arbitrage opportunity exists among well-diversified portfolios. If any arbitrage opportunities do exist, they will be exploited away by investors. (This is how the theory got its name.) ## Assumptions of the Capital Asset Pricing Model We can see that these are more relaxed assumptions than those of the capital asset pricing model. That model assumes that all investors hold homogeneous expectations about [mean return](https://www.investopedia.com/terms/m/meanreturn.asp) and variance of assets. It also assumes that the same [efficient frontier](https://www.investopedia.com/terms/e/efficientfrontier.asp) is available to all investors. For a well-diversified portfolio, a basic formula describing arbitrage pricing theory can be written as the following: E ( R p ) = R f + β 1 f 1 + β 2 f 2 + … + β n f n where: E ( R p ) = Expected return R f = Risk-free return β n = Sensitivity to the factor of  n f n = n t h  factor price \begin{aligned} &E(R\_p) = R\_f + \beta\_1 f\_1 + \beta\_2 f\_2 + \dotso + \beta\_n f\_n \\ &\textbf{where:}\\ &E(R\_p)=\text{Expected return}\\ &R\_f=\text{Risk-free return}\\ &\beta\_n=\text{Sensitivity to the factor of }n\\ &f\_n=n^{th}\text{ factor price}\\ \end{aligned} ​E(Rp​)=Rf​+β1​f1​+β2​f2​+…+βn​fn​where:E(Rp​)=Expected returnRf​=Risk-free returnβn​=Sensitivity to the factor of nfn​=nth factor price​ Rf is the return if the asset did not have exposure to any factors, that is to say, all β n = 0 \beta\_n = 0 βn​=0 Unlike in the capital asset pricing model, the arbitrage pricing theory does not specify the factors. However, according to the research of Stephen Ross and Richard Roll, the most important factors are the following: * Change in [inflation](https://www.investopedia.com/terms/i/inflation.asp) * Change in the level of [industrial production](https://www.investopedia.com/terms/i/ipi.asp) * Shifts in [risk premiums](https://www.investopedia.com/terms/r/riskpremium.asp) * Change in the shape of the [term structure of interest rates](https://www.investopedia.com/terms/t/termstructure.asp) According to researchers Ross and Roll, if no surprise happens in the change of the above factors, the actual return will be equal to the expected return. However, in case of unanticipated changes to the factors, the actual return will be defined as follows: R p = E ( R p ) + β 1 f 1 ′ + β 2 f 2 ′ + … + β n f n ′ + e where: f n ′ =  The unanticipated change in the factor or   surprise factor e = The residual part of actual return 7 % = 2 % + 3.45 ∗ f 1 + 0.033 ∗ f 2 f 1 = 1.43 % f 2 = 2.47 % E ( R i ) = 2 % + 1.43 % ∗ β 1 + 2.47 % ∗ β 2 \begin{aligned} &R\_p = E(R\_p) + \beta\_1 f'\_1 + \beta\_2 f'\_2 + \dotso + \beta\_n f'\_n + e \\ &\textbf{where:}\\ &\begin{aligned} f'\_n=&\text{ The unanticipated change in the factor or}\\ &\ \text{ surprise factor}\end{aligned}\\ &e=\text{The residual part of actual return}\\ &7\% = 2\% + 3.45\*f\_1 + 0.033\*f\_2\\ &f\_1= 1.43\%\\ &f\_2= 2.47\%\\ &E(R\_i) = 2\% + 1.43\%\*\beta\_1 + 2.47\%\*\beta\_2\\ \end{aligned} ​Rp​=E(Rp​)+β1​f1′​+β2​f2′​+…+βn​fn′​+ewhere:fn′​=​ The unanticipated change in the factor or  surprise factor​e=The residual part of actual return7%=2%+3.45∗f1​+0.033∗f2​f1​=1.43%f2​=2.47%E(Ri​)=2%+1.43%∗β1​+2.47%∗β2​​ Note that f'n is the unanticipated change in the factor or surprise factor, e is the residual part of actual return. ## Estimating Factor Sensitivities and Factor Premiums How we can actually derive factor sensitivities? Recall that in the capital asset pricing model, we derived asset beta, which measures asset sensitivity to market return, by simply regressing actual asset returns against market returns. Deriving the factors' beta is pretty much the same procedure. For the purpose of illustrating the technique of estimating **ßn** (sensitivity to the factor n)and **fn** (the nth factor price)**,**let's take the [S&P 500 Total Return Index](https://www.investopedia.com/terms/t/total_return_index.asp) and the [NASDAQ Composite Total Return Index](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) as proxies for well-diversified portfolios for which we wish to find **ßn** and **fn**. For simplicity, we'll assume that we know **Rf** (the risk-free return)is 2%. We'll also assume that the annual expected return of the portfolios are 7% for the S&P 500 Total Return Index and 9% for the NASDAQ Composite Total Return Index. ### Step 1: Determine Systematic Factors We have to determine the systematic factors by which portfolio returns are explained. Let’s assume that the real [gross domestic product](https://www.investopedia.com/terms/g/gdp.asp) (GDP) growth rate and the 10-year Treasury bond yield change are the factors that we need. Since we have chosen two indices with large constituents, we can be confident that our portfolios are well diversified with close to zero specific risk. ### Step 2: Obtain Betas We ran a [regression](https://www.investopedia.com/terms/r/regression.asp) on historical quarterly data of each index against quarterly real GDP growth rates and quarterly T-bond yield changes. Note that because these calculations are for illustrative purposes only, we will skip the technical sides of regression analysis. Here are the results: | **Indices (Proxies for Portfolios)** | ß1 of GDP Growth Rate | ß2 of T-Bond Yield Change | | --- | --- | --- | | **S&P 500 Total Return Index** | 3.45 | 0.033 | | **NASDAQ Composite Total Return Index** | 4.74 | 0.098 | Regression results tell us that both portfolios have much higher sensitivities to GDP growth rates (which is logical because GDP growth is usually reflected in the equity market change) and very tiny sensitivities to T-bond yield change (this too is logical because stocks are less sensitive to yield changes than bonds).  ### Step 3: Obtain Factor Prices or Factor Premiums Now that we have obtained the beta factors (see the table above), we can estimate factor prices (i.e., *f*1 and *f*2) by solving the following set of equations: 7 % = 2 % + 3.45 ∗ f 1 + 0.033 ∗ f 2 7\% = 2\% + 3.45\*f\_1 + 0.033\*f\_2 7%=2%+3.45∗f1​+0.033∗f2​ 9 % = 2 % + 4.74 ∗ f 1 + 0.098 ∗ f 2 9\% = 2\% + 4.74\*f\_1 + 0.098\*f\_2 9%=2%+4.74∗f1​+0.098∗f2​ Solving these equations we get: f 1 = 1.43 % f\_1= 1.43\% f1​=1.43% and f 2 = 2.47 % f\_2= 2.47\% f2​=2.47% Therefore, a general [ex-ante](https://www.investopedia.com/terms/e/exante.asp)arbitrage pricing theory equation for any *i*portfolio will be as follows: E ( R i ) = 2 % + 1.43 % ∗ β 1 + 2.47 % ∗ β 2 E(R\_i) = 2\% + 1.43\%\*\beta\_1 + 2.47\%\*\beta\_2 E(Ri​)=2%+1.43%∗β1​+2.47%∗β2​ ## Taking Advantage of Arbitrage Opportunities The idea behind a no-arbitrage condition is that if there is a mispriced security in the market, investors can always construct a portfolio with factor sensitivities similar to those of mispriced securities and exploit the arbitrage opportunity.  For example, suppose that apart from our index portfolios there is an ABC Portfolio with the respective data provided in the following table: | **Portfolios** | **Expected Return** | **ß****1** | **ß****2** | | --- | --- | --- | --- | | S&P 500 Total Return Index | 7% | 3.45 | 0.033 | | NASDAQ Composite Total Return Index | 9% | 4.74 | 0.098 | | ABC Portfolio (or Arbitrage Portfolio) | 8% | 3.837 | 0.0525 | | **Combined Index Portfolio = 0.7\*S&P500+0.3\*NASDAQ** | 7.6% | 3.837 | 0.0525 | We can construct a portfolio from the first two index portfolios (with an S&P 500 Total Return Index weight of 70% and NASDAQ Composite Total Return Index weight of 30%) with similar factor sensitivities as the ABC Portfolio as shown in the last row of the table. Let's call this the Combined Index Portfolio. The Combined Index Portfolio has the same betas to the systematic factors as the ABC Portfolio but a lower expected return.  This implies that the ABC portfolio is undervalued. We will then short the Combined Index Portfolio and with those proceeds purchase shares of the ABC Portfolio, which is also called the arbitrage portfolio (because it exploits the arbitrage opportunity). As all investors would sell an overvalued and buy an undervalued portfolio, this would drive away any arbitrage profit.This is why the theory is called arbitrage pricing theory. ## The Bottom Line Arbitrage pricing theory, as an alternative model to the capital asset pricing model, tries to explain asset or portfolio returns with systematic factors and asset/portfolio sensitivities to such factors. The theory estimates the expected returns of well-diversified portfolios with the underlying assumption that portfolios are well-diversified and any discrepancy from the equilibrium price in the market would be instantaneously driven away by investors. Any difference between actual return and expected return is explained by factor surprises (differences between expected and actual values of factors).  The drawback of arbitrage pricing theory is that it does not specify the systematic factors, but analysts can find these by regressing historical [portfolio returns](https://www.investopedia.com/terms/p/portfolio-return.asp) against factors such as [real GDP](https://www.investopedia.com/terms/r/realgdp.asp) growth rates, inflation changes, term structure changes, risk premium changes, and so on. Regression equations make it possible to assess which systematic factors explain portfolio returns and which do not.

Arbitrage pricing theory (APT) is an alternative to the capital asset pricing model (CAPM) for explaining returns of assets or portfolios. It was developed by economist Stephen Ross in the 1970s. Over the years, arbitrage pricing theory has grown in popularity for its relatively simpler assumptions. However, arbitrage pricing theory is a lot more difficult to apply in practice because it requires a lot of data and complex statistical analysis. Let's see what arbitrage pricing theory is and how we can put it into practice. Key Takeaways Arbitrage is the practice of simultaneously buying and selling the same item at two different prices for a risk-free profit.In financial economics, arbitrage pricing theory (APT) assumes that market inefficiencies arise from time to time but are kept in check through the work of arbitrageurs who identify and immediately eliminate such opportunities as they arise.APT is formalized using a multi-factor formula that relates the linear relationship between an asset's expected return and various macroeconomic variables. What Is APT? APT is a multi-factor technical model based on the relationship between a financial asset's expected return and its risk. The model is designed to capture the sensitivity of the asset's returns to changes in certain macroeconomic variables. Investors and financial analysts can use these results to help price securities. Inherent to the arbitrage pricing theory is the belief that mispriced securities can represent short-term, risk-free profit opportunities. APT differs from the more conventional CAPM, which uses only a single factor. Like CAPM, however, the APT assumes that a factor model can effectively describe the correlation between risk and return. 3 Underlying Assumptions of APT Unlike the capital asset pricing model, arbitrage pricing theory does not assume that investors hold efficient portfolios. The theory does, however, follow three underlying assumptions: Asset returns are explained by systematic factors. Investors can build a portfolio of assets where specific risk is eliminated through diversification. No arbitrage opportunity exists among well-diversified portfolios. If any arbitrage opportunities do exist, they will be exploited away by investors. (This is how the theory got its name.) Assumptions of the Capital Asset Pricing Model We can see that these are more relaxed assumptions than those of the capital asset pricing model. That model assumes that all investors hold homogeneous expectations about mean return and variance of assets. It also assumes that the same efficient frontier is available to all investors. For a well-diversified portfolio, a basic formula describing arbitrage pricing theory can be written as the following: E ( R p ) = R f + β 1 f 1 + β 2 f 2 + … + β n f n where: E ( R p ) = Expected return R f = Risk-free return β n = Sensitivity to the factor of  n f n = n t h  factor price \begin{aligned} &E(R_p) = R_f + \beta_1 f_1 + \beta_2 f_2 + \dotso + \beta_n f_n \\ &\textbf{where:}\\ &E(R_p)=\text{Expected return}\\ &R_f=\text{Risk-free return}\\ &\beta_n=\text{Sensitivity to the factor of }n\\ &f_n=n^{th}\text{ factor price}\\ \end{aligned} ​E(Rp​)=Rf​+β1​f1​+β2​f2​+…+βn​fn​where:E(Rp​)=Expected returnRf​=Risk-free returnβn​=Sensitivity to the factor of nfn​=nth factor price​ Rf is the return if the asset did not have exposure to any factors, that is to say, all β n = 0 \beta_n = 0 βn​=0 Unlike in the capital asset pricing model, the arbitrage pricing theory does not specify the factors. However, according to the research of Stephen Ross and Richard Roll, the most important factors are the following: Change in inflation Change in the level of industrial production Shifts in risk premiums Change in the shape of the term structure of interest rates According to researchers Ross and Roll, if no surprise happens in the change of the above factors, the actual return will be equal to the expected return. However, in case of unanticipated changes to the factors, the actual return will be defined as follows: R p = E ( R p ) + β 1 f 1 ′ + β 2 f 2 ′ + … + β n f n ′ + e where: f n ′ =  The unanticipated change in the factor or   surprise factor e = The residual part of actual return 7 % = 2 % + 3.45 ∗ f 1 + 0.033 ∗ f 2 f 1 = 1.43 % f 2 = 2.47 % E ( R i ) = 2 % + 1.43 % ∗ β 1 + 2.47 % ∗ β 2 \begin{aligned} &R_p = E(R_p) + \beta_1 f'_1 + \beta_2 f'_2 + \dotso + \beta_n f'_n + e \\ &\textbf{where:}\\ &\begin{aligned} f'_n=&\text{ The unanticipated change in the factor or}\\ &\ \text{ surprise factor}\end{aligned}\\ &e=\text{The residual part of actual return}\\ &7\% = 2\% + 3.45*f_1 + 0.033*f_2\\ &f_1= 1.43\%\\ &f_2= 2.47\%\\ &E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2\\ \end{aligned} ​Rp​=E(Rp​)+β1​f1′​+β2​f2′​+…+βn​fn′​+ewhere:fn′​=​ The unanticipated change in the factor or  surprise factor​e=The residual part of actual return7%=2%+3.45∗f1​+0.033∗f2​f1​=1.43%f2​=2.47%E(Ri​)=2%+1.43%∗β1​+2.47%∗β2​​ Note that f'n is the unanticipated change in the factor or surprise factor, e is the residual part of actual return. Estimating Factor Sensitivities and Factor Premiums How we can actually derive factor sensitivities? Recall that in the capital asset pricing model, we derived asset beta, which measures asset sensitivity to market return, by simply regressing actual asset returns against market returns. Deriving the factors' beta is pretty much the same procedure. For the purpose of illustrating the technique of estimating ßn (sensitivity to the factor n) and fn (the nth factor price), let's take the S&P 500 Total Return Index and the NASDAQ Composite Total Return Index as proxies for well-diversified portfolios for which we wish to find ßn and fn. For simplicity, we'll assume that we know Rf (the risk-free return) is 2%. We'll also assume that the annual expected return of the portfolios are 7% for the S&P 500 Total Return Index and 9% for the NASDAQ Composite Total Return Index. Step 1: Determine Systematic Factors We have to determine the systematic factors by which portfolio returns are explained. Let’s assume that the real gross domestic product (GDP) growth rate and the 10-year Treasury bond yield change are the factors that we need. Since we have chosen two indices with large constituents, we can be confident that our portfolios are well diversified with close to zero specific risk. Step 2: Obtain Betas We ran a regression on historical quarterly data of each index against quarterly real GDP growth rates and quarterly T-bond yield changes. Note that because these calculations are for illustrative purposes only, we will skip the technical sides of regression analysis. Here are the results:   Indices (Proxies for Portfolios) ß1 of GDP Growth Rate ß2 of T-Bond Yield Change   S&P 500 Total Return Index 3.45 0.033   NASDAQ Composite Total Return Index 4.74 0.098 Regression results tell us that both portfolios have much higher sensitivities to GDP growth rates (which is logical because GDP growth is usually reflected in the equity market change) and very tiny sensitivities to T-bond yield change (this too is logical because stocks are less sensitive to yield changes than bonds).  Step 3: Obtain Factor Prices or Factor Premiums Now that we have obtained the beta factors (see the table above), we can estimate factor prices (i.e., f1 and f2) by solving the following set of equations: 7 % = 2 % + 3.45 ∗ f 1 + 0.033 ∗ f 2 7\% = 2\% + 3.45*f_1 + 0.033*f_2 7%=2%+3.45∗f1​+0.033∗f2​ 9 % = 2 % + 4.74 ∗ f 1 + 0.098 ∗ f 2 9\% = 2\% + 4.74*f_1 + 0.098*f_2 9%=2%+4.74∗f1​+0.098∗f2​Solving these equations we get: f 1 = 1.43 % f_1= 1.43\% f1​=1.43% and f 2 = 2.47 % f_2= 2.47\% f2​=2.47% Therefore, a general ex-ante arbitrage pricing theory equation for any i portfolio will be as follows: E ( R i ) = 2 % + 1.43 % ∗ β 1 + 2.47 % ∗ β 2 E(R_i) = 2\% + 1.43\%*\beta_1 + 2.47\%*\beta_2 E(Ri​)=2%+1.43%∗β1​+2.47%∗β2​ Taking Advantage of Arbitrage Opportunities The idea behind a no-arbitrage condition is that if there is a mispriced security in the market, investors can always construct a portfolio with factor sensitivities similar to those of mispriced securities and exploit the arbitrage opportunity.  For example, suppose that apart from our index portfolios there is an ABC Portfolio with the respective data provided in the following table: Portfolios Expected Return ß1 ß2 S&P 500 Total Return Index 7% 3.45 0.033 NASDAQ Composite Total Return Index 9% 4.74 0.098 ABC Portfolio (or Arbitrage Portfolio) 8% 3.837 0.0525 Combined Index Portfolio = 0.7*S&P500+0.3*NASDAQ 7.6% 3.837 0.0525 We can construct a portfolio from the first two index portfolios (with an S&P 500 Total Return Index weight of 70% and NASDAQ Composite Total Return Index weight of 30%) with similar factor sensitivities as the ABC Portfolio as shown in the last row of the table. Let's call this the Combined Index Portfolio. The Combined Index Portfolio has the same betas to the systematic factors as the ABC Portfolio but a lower expected return.  This implies that the ABC portfolio is undervalued. We will then short the Combined Index Portfolio and with those proceeds purchase shares of the ABC Portfolio, which is also called the arbitrage portfolio (because it exploits the arbitrage opportunity). As all investors would sell an overvalued and buy an undervalued portfolio, this would drive away any arbitrage profit. This is why the theory is called arbitrage pricing theory. The Bottom Line  Arbitrage pricing theory, as an alternative model to the capital asset pricing model, tries to explain asset or portfolio returns with systematic factors and asset/portfolio sensitivities to such factors. The theory estimates the expected returns of well-diversified portfolios with the underlying assumption that portfolios are well-diversified and any discrepancy from the equilibrium price in the market would be instantaneously driven away by investors. Any difference between actual return and expected return is explained by factor surprises (differences between expected and actual values of factors).  The drawback of arbitrage pricing theory is that it does not specify the systematic factors, but analysts can find these by regressing historical portfolio returns against factors such as real GDP growth rates, inflation changes, term structure changes, risk premium changes, and so on. Regression equations make it possible to assess which systematic factors explain portfolio returns and which do not.

https://www.investopedia.com/articles/pf/11/opening-an-offshore-bank-account.asp

How To Open and Access an Offshore Bank Account

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Having an offshore account simply means you're banking with a financial institution that's not in the country where you live. Anyone can open an offshore bank account with just a few hours of work. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specific requirements relevant to your situation. The following is an overview of what you can expect if you decide to open an offshore bank account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Offshore banking means you conduct banking services with a financial institution outside your country.</li><li>To open an account with an offshore bank, you will need to provide proof of your identity and other documents.</li><li>Banks also may require information on the source of your deposits.</li><li>You can access your account using a debit card or by making wire transfers.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-offshore-banking"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Is Offshore Banking? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> People who bank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offshore.asp">offshore</a> do so in a part of the world outside their country. As such, the term offshore banking is generally used to describe international banks, companies, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investments</a>. Some places have become well-known providers of offshore banking including Switzerland, Bermuda, or the Cayman Islands. But offshore banking is available in many other countries as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Anyone can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/053116/top-10-checking-accounts-us-expats-living-abroad-cof-schw.asp">open an offshore banking account</a>. In fact, you're banking "offshore" if you're an American who has a bank account in Canada. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Offshore banking is often discussed in a negative way because many people use it to hide their money and avoid paying taxes. Others use it for illicit purposes like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneylaundering.asp">money laundering</a> and tax evasion. While these activities are criminal and can result in prosecution, jail time, or heavy fines, offshore banking itself isn't illegal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Having an offshore bank can be necessary if you run a business in a foreign country or if you live in another country for part of the year.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> You may also choose to use offshore banking in a country that has favorable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/tax/09/tax-havens.asp">tax treatment</a>. Some parts of the world allow you to invest your money while earning income on that money <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-free.asp">tax-free</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Be aware that if you are a U.S. citizen, you must <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp#:~:text=Offshore%20bank%20accounts%20must%20be,they%20fear%20losing%20their%20investments.">declare offshore accounts</a> to the Internal Revenue Service (IRS). It requires that Americans file the IRS FBAR form and report any money exceeding $10,000 in the aggregate that is held in foreign accounts. There is a foreign-earned <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income tax</a> exclusion for the money you earn abroad, but the rest is taxable.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-the-basic-requirements"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> The Basic Requirements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The basics of opening an offshore bank account are similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/banking-101/">opening a bank account</a> in your home country. Offshore banks require your personal information, such as your name, date of birth, address, citizenship, and occupation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> To verify your personal information, you will need to submit a copy of your passport, driver's license, or other identifying documents issued by a governmental agency. Banks are also concerned with verifying your residence or physical address because this may affect taxation. This requirement may be satisfied by presenting a utility bill or a similar document. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Regardless of what type of document you provide, banks will need to make sure it is authentic. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/notarize.asp">notarized</a> copy of certain documents may suffice in some cases. But other offshore centers prefer an apostille stamp—a special type of certification mark that's used internationally. If this is the case, you will need to visit the government office that is authorized to issue this stamp for your state or nation.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-additional-verification-documents"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Additional Verification Documents </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> There are often considerable additional requirements to open an account with an offshore bank. These requirements are designed to discourage money laundering, tax fraud, or other illegal activities often associated with offshore banking. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> First, offshore banks may ask for financial reference documents from your current bank, indicating average balances and a satisfactory relationship. This is commonly satisfied by bank statements for the last six to 12 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Second, many offshore banks ask about the nature of transactions expected to take place through the account. This may seem intrusive, but offshore banking centers have been under increasing pressure to stop illegal activity.<span class="ql-inline-citation" data-cite="6"></span> For this purpose, many offshore banks want additional documentation, noting the source of funds you are depositing in the bank. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Many offshore banks will want to know the nature of the transactions in your account before you can begin conducting your business.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> For instance, a wage slip from your employer will likely suffice if you're using the account to make deposits from your employer. To verify your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentincome.asp">investment income</a>, an offshore bank may ask for information about your investments and where they are held. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> For business or real estate transactions, you may need to provide sales contracts or other relevant documents. If you deposit funds from an insurance contract, you may need to provide a letter from your insurance company. If your money comes from an inheritance, the bank may ask for a letter from the executor of the estate testifying to this effect. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-choosing-a-currency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Choosing a Currency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Unlike domestic accounts, offshore bank accounts offer the option of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a> in which you wish to hold your funds. This can be a highly valuable feature of an offshore account, especially if one's domestic currency is unstable or expected to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciate</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> While that may be an attractive feature, it's important to understand the consequences of holding your account in different currencies. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offshore-banking-unit.asp">holding funds in certain currencies</a> may allow you to earn interest on your deposits, but it can also result in tax liability. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>With an offshore account, you may also need to exchange currencies to make deposits and withdrawals, which could be a significant expense depending on the fee structure and exchange rates offered.</p></div></div></div> <span class="heading-toc" id="toc-depositing-to-an-offshore-bank-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Depositing to an Offshore Bank Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Offshore bank accounts are most often funded electronically through international <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp">wire transfers</a>. However, the systems that enable free electronic transfers common in domestic banking are typically not able to transfer money internationally. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Sending a wire transfer is a simple process, but almost all banks charge international wire <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balance-transfer-fee.asp">transfer fees</a> to send or receive funds. Pricing for wire transfers varies between banks, so be sure to look for deals. There are few good alternatives. Domestic checks are generally not accepted in foreign jurisdictions, and depositing funds in person on a regular basis is impractical. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-making-withdrawals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> Making Withdrawals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Offshore banks offer a variety of ways to withdraw funds to maximize the convenience of using their services. Many offshore banks issue a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> that allows you to easily access your funds worldwide. Make sure you're aware of the fees for using the card because they can add up. Withdrawing larger amounts of cash at one time may help to minimize these fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Some offshore banks offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/check.asp">checks</a>. However, this is usually not a preferred method–primarily, because confidentiality is often desired in offshore accounts. Problems may also arise because checks drawn on foreign accounts aren't always accepted locally. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> The best option may be to use two accounts—one offshore and one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account, where they can be easily accessed. This method offers greater privacy and security, while also providing the convenience of local banking services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-why-use-an-offshore-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Use an Offshore Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Offshore bank accounts can make it simpler to manage your financial commitments across multiple countries and regions. They can be useful if you need to make or receive regular international payments and transfers, especially if you're working or living outside your home country. They also can be useful if you own assets abroad, such as investments or property, or if you are financially supporting family members abroad.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-offshore-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Offshore Banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The benefits of an offshore account include potential tax savings, the ability to make investments in varied currencies, holding money to make and receive payments in multiple currencies, and having access to international expertise and investment advice. Another benefit is you can keep your money in a secure and central location that's also connected to your local accounts.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-are-there-bank-fees-when-you-have-an-offshore-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Bank Fees When You Have an Offshore Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some offshore accounts may have a monthly fee or may charge for international transfers. Others don't. For example, the HSBC Expat Bank Account has no monthly fee and transfers between HSBC accounts are free. Other fees and charges may apply, so review the terms and conditions before opening an offshore account.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Despite the mystique surrounding them, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/112415/opening-bank-account-costa-rica-american.asp">offshore accounts are relatively simple to open</a>. Typically, all it requires that you fill out paperwork, supply basic identifying documents, and provide additional information to show that you aren't planning to use the account for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/022015/what-methods-are-used-launder-money.asp">illegal activity</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Choosing the best currency and optimizing deposits and withdrawals are slightly more complicated, but optimal choices become clearer as you study the options. When using offshore bank accounts and receiving international wire transfers, consider consulting with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxadvisor.asp">tax professional</a> to ensure you are following all the tax regulations at home and abroad. </p></div>

Having an offshore account simply means you're banking with a financial institution that's not in the country where you live. Anyone can open an offshore bank account with just a few hours of work. Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specific requirements relevant to your situation. The following is an overview of what you can expect if you decide to open an offshore bank account. ### Key Takeaways * Offshore banking means you conduct banking services with a financial institution outside your country. * To open an account with an offshore bank, you will need to provide proof of your identity and other documents. * Banks also may require information on the source of your deposits. * You can access your account using a debit card or by making wire transfers. ## What Is Offshore Banking? People who bank [offshore](https://www.investopedia.com/terms/o/offshore.asp) do so in a part of the world outside their country. As such, the term offshore banking is generally used to describe international banks, companies, and [investments](https://www.investopedia.com/terms/i/investment.asp). Some places have become well-known providers of offshore banking including Switzerland, Bermuda, or the Cayman Islands. But offshore banking is available in many other countries as well. Anyone can [open an offshore banking account](https://www.investopedia.com/articles/personal-finance/053116/top-10-checking-accounts-us-expats-living-abroad-cof-schw.asp). In fact, you're banking "offshore" if you're an American who has a bank account in Canada. Offshore banking is often discussed in a negative way because many people use it to hide their money and avoid paying taxes. Others use it for illicit purposes like [money laundering](https://www.investopedia.com/terms/m/moneylaundering.asp) and tax evasion. While these activities are criminal and can result in prosecution, jail time, or heavy fines, offshore banking itself isn't illegal. ### Note Having an offshore bank can be necessary if you run a business in a foreign country or if you live in another country for part of the year. You may also choose to use offshore banking in a country that has favorable [tax treatment](https://www.investopedia.com/articles/tax/09/tax-havens.asp). Some parts of the world allow you to invest your money while earning income on that money [tax-free](https://www.investopedia.com/terms/t/tax-free.asp). Be aware that if you are a U.S. citizen, you must [declare offshore accounts](https://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp#:~:text=Offshore%20bank%20accounts%20must%20be,they%20fear%20losing%20their%20investments.) to the Internal Revenue Service (IRS). It requires that Americans file the IRS FBAR form and report any money exceeding $10,000 in the aggregate that is held in foreign accounts. There is a foreign-earned [income tax](https://www.investopedia.com/terms/i/incometax.asp) exclusion for the money you earn abroad, but the rest is taxable. ## The Basic Requirements The basics of opening an offshore bank account are similar to [opening a bank account](https://www.investopedia.com/personal-finance/banking-101/) in your home country. Offshore banks require your personal information, such as your name, date of birth, address, citizenship, and occupation. To verify your personal information, you will need to submit a copy of your passport, driver's license, or other identifying documents issued by a governmental agency. Banks are also concerned with verifying your residence or physical address because this may affect taxation. This requirement may be satisfied by presenting a utility bill or a similar document. Regardless of what type of document you provide, banks will need to make sure it is authentic. A [notarized](https://www.investopedia.com/terms/n/notarize.asp) copy of certain documents may suffice in some cases. But other offshore centers prefer an apostille stamp—a special type of certification mark that's used internationally. If this is the case, you will need to visit the government office that is authorized to issue this stamp for your state or nation. ## Additional Verification Documents There are often considerable additional requirements to open an account with an offshore bank. These requirements are designed to discourage money laundering, tax fraud, or other illegal activities often associated with offshore banking. First, offshore banks may ask for financial reference documents from your current bank, indicating average balances and a satisfactory relationship. This is commonly satisfied by bank statements for the last six to 12 months. Second, many offshore banks ask about the nature of transactions expected to take place through the account. This may seem intrusive, but offshore banking centers have been under increasing pressure to stop illegal activity. For this purpose, many offshore banks want additional documentation, noting the source of funds you are depositing in the bank. ### Many offshore banks will want to know the nature of the transactions in your account before you can begin conducting your business. For instance, a wage slip from your employer will likely suffice if you're using the account to make deposits from your employer. To verify your [investment income](https://www.investopedia.com/terms/i/investmentincome.asp), an offshore bank may ask for information about your investments and where they are held. For business or real estate transactions, you may need to provide sales contracts or other relevant documents. If you deposit funds from an insurance contract, you may need to provide a letter from your insurance company. If your money comes from an inheritance, the bank may ask for a letter from the executor of the estate testifying to this effect. ## Choosing a Currency Unlike domestic accounts, offshore bank accounts offer the option of the [currency](https://www.investopedia.com/terms/c/currency.asp) in which you wish to hold your funds. This can be a highly valuable feature of an offshore account, especially if one's domestic currency is unstable or expected to [depreciate](https://www.investopedia.com/terms/d/depreciation.asp). While that may be an attractive feature, it's important to understand the consequences of holding your account in different currencies. For example, [holding funds in certain currencies](https://www.investopedia.com/terms/o/offshore-banking-unit.asp) may allow you to earn interest on your deposits, but it can also result in tax liability. ### With an offshore account, you may also need to exchange currencies to make deposits and withdrawals, which could be a significant expense depending on the fee structure and exchange rates offered. ## Depositing to an Offshore Bank Account Offshore bank accounts are most often funded electronically through international [wire transfers](https://www.investopedia.com/terms/w/wiretransfer.asp). However, the systems that enable free electronic transfers common in domestic banking are typically not able to transfer money internationally. Sending a wire transfer is a simple process, but almost all banks charge international wire [transfer fees](https://www.investopedia.com/terms/b/balance-transfer-fee.asp) to send or receive funds. Pricing for wire transfers varies between banks, so be sure to look for deals. There are few good alternatives. Domestic checks are generally not accepted in foreign jurisdictions, and depositing funds in person on a regular basis is impractical. ## Making Withdrawals Offshore banks offer a variety of ways to withdraw funds to maximize the convenience of using their services. Many offshore banks issue a [debit card](https://www.investopedia.com/terms/d/debitcard.asp) that allows you to easily access your funds worldwide. Make sure you're aware of the fees for using the card because they can add up. Withdrawing larger amounts of cash at one time may help to minimize these fees. Some offshore banks offer [checks](https://www.investopedia.com/terms/c/check.asp). However, this is usually not a preferred method–primarily, because confidentiality is often desired in offshore accounts. Problems may also arise because checks drawn on foreign accounts aren't always accepted locally. The best option may be to use two accounts—one offshore and one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account, where they can be easily accessed. This method offers greater privacy and security, while also providing the convenience of local banking services. ## Why Use an Offshore Account? Offshore bank accounts can make it simpler to manage your financial commitments across multiple countries and regions. They can be useful if you need to make or receive regular international payments and transfers, especially if you're working or living outside your home country. They also can be useful if you own assets abroad, such as investments or property, or if you are financially supporting family members abroad. ## What Are the Benefits of Offshore Banking? The benefits of an offshore account include potential tax savings, the ability to make investments in varied currencies, holding money to make and receive payments in multiple currencies, and having access to international expertise and investment advice. Another benefit is you can keep your money in a secure and central location that's also connected to your local accounts. ## Are There Bank Fees When You Have an Offshore Account? Some offshore accounts may have a monthly fee or may charge for international transfers. Others don't. For example, the HSBC Expat Bank Account has no monthly fee and transfers between HSBC accounts are free. Other fees and charges may apply, so review the terms and conditions before opening an offshore account. ## The Bottom Line Despite the mystique surrounding them, [offshore accounts are relatively simple to open](https://www.investopedia.com/articles/personal-finance/112415/opening-bank-account-costa-rica-american.asp). Typically, all it requires that you fill out paperwork, supply basic identifying documents, and provide additional information to show that you aren't planning to use the account for [illegal activity](https://www.investopedia.com/ask/answers/022015/what-methods-are-used-launder-money.asp). Choosing the best currency and optimizing deposits and withdrawals are slightly more complicated, but optimal choices become clearer as you study the options. When using offshore bank accounts and receiving international wire transfers, consider consulting with a [tax professional](https://www.investopedia.com/terms/t/taxadvisor.asp) to ensure you are following all the tax regulations at home and abroad.

Having an offshore account simply means you're banking with a financial institution that's not in the country where you live. Anyone can open an offshore bank account with just a few hours of work. Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specific requirements relevant to your situation. The following is an overview of what you can expect if you decide to open an offshore bank account. Key Takeaways Offshore banking means you conduct banking services with a financial institution outside your country.To open an account with an offshore bank, you will need to provide proof of your identity and other documents.Banks also may require information on the source of your deposits.You can access your account using a debit card or by making wire transfers. What Is Offshore Banking? People who bank offshore do so in a part of the world outside their country. As such, the term offshore banking is generally used to describe international banks, companies, and investments. Some places have become well-known providers of offshore banking including Switzerland, Bermuda, or the Cayman Islands. But offshore banking is available in many other countries as well. Anyone can open an offshore banking account. In fact, you're banking "offshore" if you're an American who has a bank account in Canada. Offshore banking is often discussed in a negative way because many people use it to hide their money and avoid paying taxes. Others use it for illicit purposes like money laundering and tax evasion. While these activities are criminal and can result in prosecution, jail time, or heavy fines, offshore banking itself isn't illegal. Note Having an offshore bank can be necessary if you run a business in a foreign country or if you live in another country for part of the year. You may also choose to use offshore banking in a country that has favorable tax treatment. Some parts of the world allow you to invest your money while earning income on that money tax-free. Be aware that if you are a U.S. citizen, you must declare offshore accounts to the Internal Revenue Service (IRS). It requires that Americans file the IRS FBAR form and report any money exceeding $10,000 in the aggregate that is held in foreign accounts. There is a foreign-earned income tax exclusion for the money you earn abroad, but the rest is taxable. The Basic Requirements The basics of opening an offshore bank account are similar to opening a bank account in your home country. Offshore banks require your personal information, such as your name, date of birth, address, citizenship, and occupation. To verify your personal information, you will need to submit a copy of your passport, driver's license, or other identifying documents issued by a governmental agency. Banks are also concerned with verifying your residence or physical address because this may affect taxation. This requirement may be satisfied by presenting a utility bill or a similar document. Regardless of what type of document you provide, banks will need to make sure it is authentic. A notarized copy of certain documents may suffice in some cases. But other offshore centers prefer an apostille stamp—a special type of certification mark that's used internationally. If this is the case, you will need to visit the government office that is authorized to issue this stamp for your state or nation. Additional Verification Documents There are often considerable additional requirements to open an account with an offshore bank. These requirements are designed to discourage money laundering, tax fraud, or other illegal activities often associated with offshore banking. First, offshore banks may ask for financial reference documents from your current bank, indicating average balances and a satisfactory relationship. This is commonly satisfied by bank statements for the last six to 12 months. Second, many offshore banks ask about the nature of transactions expected to take place through the account. This may seem intrusive, but offshore banking centers have been under increasing pressure to stop illegal activity. For this purpose, many offshore banks want additional documentation, noting the source of funds you are depositing in the bank. Many offshore banks will want to know the nature of the transactions in your account before you can begin conducting your business. For instance, a wage slip from your employer will likely suffice if you're using the account to make deposits from your employer. To verify your investment income, an offshore bank may ask for information about your investments and where they are held. For business or real estate transactions, you may need to provide sales contracts or other relevant documents. If you deposit funds from an insurance contract, you may need to provide a letter from your insurance company. If your money comes from an inheritance, the bank may ask for a letter from the executor of the estate testifying to this effect. Choosing a Currency Unlike domestic accounts, offshore bank accounts offer the option of the currency in which you wish to hold your funds. This can be a highly valuable feature of an offshore account, especially if one's domestic currency is unstable or expected to depreciate. While that may be an attractive feature, it's important to understand the consequences of holding your account in different currencies. For example, holding funds in certain currencies may allow you to earn interest on your deposits, but it can also result in tax liability. With an offshore account, you may also need to exchange currencies to make deposits and withdrawals, which could be a significant expense depending on the fee structure and exchange rates offered. Depositing to an Offshore Bank Account Offshore bank accounts are most often funded electronically through international wire transfers. However, the systems that enable free electronic transfers common in domestic banking are typically not able to transfer money internationally. Sending a wire transfer is a simple process, but almost all banks charge international wire transfer fees to send or receive funds. Pricing for wire transfers varies between banks, so be sure to look for deals. There are few good alternatives. Domestic checks are generally not accepted in foreign jurisdictions, and depositing funds in person on a regular basis is impractical. Making Withdrawals Offshore banks offer a variety of ways to withdraw funds to maximize the convenience of using their services. Many offshore banks issue a debit card that allows you to easily access your funds worldwide. Make sure you're aware of the fees for using the card because they can add up. Withdrawing larger amounts of cash at one time may help to minimize these fees. Some offshore banks offer checks. However, this is usually not a preferred method–primarily, because confidentiality is often desired in offshore accounts. Problems may also arise because checks drawn on foreign accounts aren't always accepted locally. The best option may be to use two accounts—one offshore and one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account, where they can be easily accessed. This method offers greater privacy and security, while also providing the convenience of local banking services. Why Use an Offshore Account? Offshore bank accounts can make it simpler to manage your financial commitments across multiple countries and regions. They can be useful if you need to make or receive regular international payments and transfers, especially if you're working or living outside your home country. They also can be useful if you own assets abroad, such as investments or property, or if you are financially supporting family members abroad. What Are the Benefits of Offshore Banking? The benefits of an offshore account include potential tax savings, the ability to make investments in varied currencies, holding money to make and receive payments in multiple currencies, and having access to international expertise and investment advice. Another benefit is you can keep your money in a secure and central location that's also connected to your local accounts. Are There Bank Fees When You Have an Offshore Account? Some offshore accounts may have a monthly fee or may charge for international transfers. Others don't. For example, the HSBC Expat Bank Account has no monthly fee and transfers between HSBC accounts are free. Other fees and charges may apply, so review the terms and conditions before opening an offshore account. The Bottom Line Despite the mystique surrounding them, offshore accounts are relatively simple to open. Typically, all it requires that you fill out paperwork, supply basic identifying documents, and provide additional information to show that you aren't planning to use the account for illegal activity. Choosing the best currency and optimizing deposits and withdrawals are slightly more complicated, but optimal choices become clearer as you study the options. When using offshore bank accounts and receiving international wire transfers, consider consulting with a tax professional to ensure you are following all the tax regulations at home and abroad.

https://www.investopedia.com/top-cd-rates-today-april-18-2024-earn-5-to-5-55-on-terms-of-6-months-to-3-years-8635809

Top CD Rates Today, April 18, 2024 - Earn 5% to 5.55% on Terms of 6 Months to 3 Years

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_1-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 18, 2024. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/82ryfIgmUrioOOISyxwJxTjTZDM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/82ryfIgmUrioOOISyxwJxTjTZDM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png" data-srcset="https://www.investopedia.com/thmb/bft1fnhyxCPN4vE40-xEm0jozlA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 18, 2024. " class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/82ryfIgmUrioOOISyxwJxTjTZDM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png" srcset="https://www.investopedia.com/thmb/bft1fnhyxCPN4vE40-xEm0jozlA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png 750w" width="2480"/> </noscript> </div> </div> </figure> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_2-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_3-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The nation-leading CD rate of 5,55% APY held its ground for another day, offered by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.newtekbank.com/certificate-of-deposit/" rel="nofollow">Newtek Bank</a> for a 6-month term.</li> <li>Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years.</li> <li>The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY.</li> <li>The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year.</li> <li>But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-530-to-555-apy-for-3-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.30% to 5.55% APY for 3 to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">6-month term</a>. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">1-year</a> and 18-month terms, you can earn up to 5.40%—thanks to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">leading 18-month rate</a> bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">15 months</a>. For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 18-23 months.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_13-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/RvNJM/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-longer-terms-will-lock-your-rate-to-2027or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Longer Terms Will Lock Your Rate to 2027—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 3-year CD</a> paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">5 years</a> down the road. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_18-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.totaldirectbank.com/personal/cds" rel="noopener noreferrer sponsored nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.newtekbank.com/certificate-of-deposit/" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.applefcu.org/rates" rel="noopener noreferrer sponsored nofollow">Apple Federal Credit Union</a>, <a class="null" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.expeditioncu.com/rates/index.html" rel="noopener noreferrer nofollow">Expedition Credit Union</a>, and <a class="null" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.nexbankpersonal.com/certificates-of-deposit-cds" rel="noopener noreferrer sponsored nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://northernbankdirect.com/cds-all-rates" rel="noopener noreferrer nofollow">Northern Bank Direct</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.30% APY</td> <td>5.30% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.dollarsavingsdirect.com/securebanking/cdInfo.do" rel="sponsored nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="nofollow">Credit Human</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878"> 1 to 2 percentage points ahead of inflation</a>.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-record-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near Record Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">Certificate of deposit (CD) rates</a> have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_29-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/QGty7/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. Fall peak vs. Jan 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-jumbo-deposits-can-provide-more-cd-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Jumbo Deposits Can Provide More CD Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_36-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.49% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.40% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.40% APY</td> <td>5.30% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>4.90% APY</td> <td>5.30% APY*</td> <td>4.96% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.37% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> To combat decades-high inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> aggressively hiked the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_43-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/9PkVO/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">maintain the fed fund rate at its current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Unfortunately for those anxious for rate cuts, last week's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">release of new inflation data</a> did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January.<span class="ql-inline-citation" data-cite="44"></span> In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year.<span class="ql-inline-citation" data-cite="41"></span> But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, around 17% of traders currently predict we'll see three cuts by the end of 2024.<span class="ql-inline-citation" data-cite="39"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_62-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_64-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_68-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_69-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

![Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 18, 2024. ]() :max_bytes(150000):strip_icc()/4-18-ef66fec4dccb4c96a968b028fe90785d.png) ### Key Takeaways * The nation-leading CD rate of 5,55% APY held its ground for another day, offered by [Newtek Bank](https://www.newtekbank.com/certificate-of-deposit/) for a 6-month term. * Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years. * The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. * But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a [6-month term](https://www.investopedia.com/best-6-month-cd-rates-4783267). The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In the [1-year](https://www.investopedia.com/best-1-year-cd-rates-4796650) and 18-month terms, you can earn up to 5.40%—thanks to the [leading 18-month rate](https://www.investopedia.com/best-18-month-cd-rates-5272348) bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to [15 months](https://www.investopedia.com/best-1-year-cd-rates-4796650). For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 18-23 months. ## Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a [top 3-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or [5 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) down the road. | **CD Terms** | **Yesterday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.42% APY | 5.42% APY | No change | [TotalDirectBank](https://www.totaldirectbank.com/personal/cds) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://www.newtekbank.com/certificate-of-deposit/) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [Apple Federal Credit Union](https://www.applefcu.org/rates), [Expedition Credit Union](https://www.expeditioncu.com/rates/index.html), and [NexBank](https://www.nexbankpersonal.com/certificates-of-deposit-cds) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [Northern Bank Direct](https://northernbankdirect.com/cds-all-rates) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.30% APY | 5.30% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://www.dollarsavingsdirect.com/securebanking/cdInfo.do) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay [1 to 2 percentage points ahead of inflation](https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878). ## CD Rates Are Still Near Record Highs [Certificate of deposit (CD) rates](https://www.investopedia.com/terms/c/certificateofdeposit.asp) have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ## Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.42% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.40% APY | 5.40% APY | 5.50% APY\* | | 18 months | 5.40% APY | 5.30% APY | 5.41% APY\* | | 2 years | 4.90% APY | 5.30% APY\* | 4.96% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.70% APY\* | 4.48% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.37% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would [maintain the fed fund rate at its current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's [release of new inflation data](https://www.investopedia.com/inflation-heated-up-in-march-8629363) did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, around 17% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways The nation-leading CD rate of 5,55% APY held its ground for another day, offered by Newtek Bank for a 6-month term. Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years. The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY. The best CD rates have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a 6-month term. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In the 1-year and 18-month terms, you can earn up to 5.40%—thanks to the leading 18-month rate bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to 15 months. For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 18-23 months. Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a top 3-year CD paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or 5 years down the road. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change Apple Federal Credit Union, Expedition Credit Union, and NexBank 18 months 5.40% APY 5.40% APY No change Northern Bank Direct 2 years 5.30% APY 5.30% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.70% APY 4.70% APY No change Credit Human 5 years 4.70% APY 4.70% APY No change Credit Human To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay 1 to 2 percentage points ahead of inflation. CD Rates Are Still Near Record Highs Certificate of deposit (CD) rates have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.42% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.40% APY 5.40% APY 5.50% APY* 18 months 5.40% APY 5.30% APY 5.41% APY* 2 years 4.90% APY 5.30% APY* 4.96% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.70% APY* 4.48% APY 5 years 4.55% APY 4.70% APY* 4.37% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would maintain the fed fund rate at its current level, the fifth meeting in a row it's done so. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's release of new inflation data did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, around 17% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/terms/f/fccb.asp

Foreign Currency Convertible Bond (FCCB) Defined, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-foreign-currency-convertible-bond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Foreign Currency Convertible Bond? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A foreign currency convertible bond (FCCB) is a type of bond that is issued in a currency other than the issuer's home currency.</li><li>Convertible bonds fall in the middle of debt and equity financial instruments, both acting as a bond but allowing investors to convert the bond into stock.</li><li>These kinds of bonds are often listed by large, multinational companies with offices around the world, seeking to raise money in foreign currencies.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-foreign-currency-convertible-bonds-fccb"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Foreign Currency Convertible Bonds (FCCB) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A bond is a debt instrument that provides income to investors in the form of regularly scheduled interest payments called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp">coupons</a>. At the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a> of the bond, the investors are repaid the full <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a> of the bond. Some corporate entities issue a type of bond known as convertible bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A bondholder with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertiblebond.asp">convertible bond</a> has the option of converting the bond into a specified number of shares of the issuing company. Convertible bonds have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conversion-rate.asp">conversion rate</a> at which the bonds will be converted to equity. However, if the stock price stays below the conversion price, the bond will not be converted. Thus, convertible bonds allow bondholders to participate in the appreciation of the issuer’s underlying shares. There are various types of convertible bonds, one of which is the foreign currency convertible bond. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A company may choose to issue FCCBs in the currency of a country with lower interest rates or a more stable economy than the issuer's home country.</p></div></div></div> <span class="heading-toc" id="toc-how-foreign-currency-convertible-bonds-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> How Foreign Currency Convertible Bonds Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A foreign currency convertible bond (FCCB) is a convertible bond that is issued in a foreign currency, which means the principal repayment and periodic coupon payments will be made in a foreign currency. For example, an American listed company that issues a bond in India in rupees has, in effect, issued an FCCB. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Foreign currency convertible bonds are typically issued by multinational companies operating in a global space and looking to raise capital in foreign currencies. FCCB investors are usually hedge fund arbitrators and foreign nationals. These bonds can be issued along with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp">call option</a> (whereby the right of redemption lies with the bond issuer) or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/putoption.asp">put options</a> (whereby the right of redemption lies with bondholder). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A company may decide to raise money outside its home country to gain access to new markets for new or expansionary projects. FCCBs are generally issued by companies in the currency of those countries where interest rates are usually lower than the home country or foreign country economy is more stable than the home country economy. Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the issuer than a straight coupon-bearing plain vanilla bond, thereby, reducing its debt-financing costs. In addition, a favorable move in the exchange rates can reduce the issuer’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costofdebt.asp">cost of debt</a>, which is the interest payment made on bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Since the principal has to be repaid at maturity, an adverse movement in exchange rates in which the local currency weakens can cause cash outflows on repayment to be higher than any savings in interest rates, resulting in losses for the issuer. In addition, issuing bonds in a foreign currency exposes the issuer to any political, economic, and legal risks prevalent in the country. Furthermore, if the issuer’s stock price declines below the conversion price, FCCB investors will not convert their bonds to equity, which means the issuer will have to make the principal repayments at maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> An FCCB investor can purchase these bonds at a stock exchange, and has the option to convert the bond into equity or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depositaryreceipt.asp">depositary receipt</a> after a certain period of time. Investors can participate in any price appreciation of the issuer’s stock by converting the bond to equity. Bondholders take advantage of this appreciation by means of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/warrant.asp">warrants</a> attached to the bonds, which are activated when the price of the stock reaches a certain point. </p></div>

## What Is a Foreign Currency Convertible Bond? A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. ### Key Takeaways * A foreign currency convertible bond (FCCB) is a type of bond that is issued in a currency other than the issuer's home currency. * Convertible bonds fall in the middle of debt and equity financial instruments, both acting as a bond but allowing investors to convert the bond into stock. * These kinds of bonds are often listed by large, multinational companies with offices around the world, seeking to raise money in foreign currencies. ## Understanding Foreign Currency Convertible Bonds (FCCB) A bond is a debt instrument that provides income to investors in the form of regularly scheduled interest payments called [coupons](https://www.investopedia.com/terms/c/coupon.asp). At the [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) of the bond, the investors are repaid the full [face value](https://www.investopedia.com/terms/f/facevalue.asp) of the bond. Some corporate entities issue a type of bond known as convertible bonds. A bondholder with a [convertible bond](https://www.investopedia.com/terms/c/convertiblebond.asp) has the option of converting the bond into a specified number of shares of the issuing company. Convertible bonds have a [conversion rate](https://www.investopedia.com/terms/c/conversion-rate.asp) at which the bonds will be converted to equity. However, if the stock price stays below the conversion price, the bond will not be converted. Thus, convertible bonds allow bondholders to participate in the appreciation of the issuer’s underlying shares. There are various types of convertible bonds, one of which is the foreign currency convertible bond. ### A company may choose to issue FCCBs in the currency of a country with lower interest rates or a more stable economy than the issuer's home country. ## How Foreign Currency Convertible Bonds Work A foreign currency convertible bond (FCCB) is a convertible bond that is issued in a foreign currency, which means the principal repayment and periodic coupon payments will be made in a foreign currency. For example, an American listed company that issues a bond in India in rupees has, in effect, issued an FCCB. Foreign currency convertible bonds are typically issued by multinational companies operating in a global space and looking to raise capital in foreign currencies. FCCB investors are usually hedge fund arbitrators and foreign nationals. These bonds can be issued along with a [call option](https://www.investopedia.com/terms/c/calloption.asp) (whereby the right of redemption lies with the bond issuer) or [put options](https://www.investopedia.com/terms/p/putoption.asp) (whereby the right of redemption lies with bondholder). ## Special Considerations A company may decide to raise money outside its home country to gain access to new markets for new or expansionary projects. FCCBs are generally issued by companies in the currency of those countries where interest rates are usually lower than the home country or foreign country economy is more stable than the home country economy. Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the issuer than a straight coupon-bearing plain vanilla bond, thereby, reducing its debt-financing costs. In addition, a favorable move in the exchange rates can reduce the issuer’s [cost of debt](https://www.investopedia.com/terms/c/costofdebt.asp), which is the interest payment made on bonds. Since the principal has to be repaid at maturity, an adverse movement in exchange rates in which the local currency weakens can cause cash outflows on repayment to be higher than any savings in interest rates, resulting in losses for the issuer. In addition, issuing bonds in a foreign currency exposes the issuer to any political, economic, and legal risks prevalent in the country. Furthermore, if the issuer’s stock price declines below the conversion price, FCCB investors will not convert their bonds to equity, which means the issuer will have to make the principal repayments at maturity. An FCCB investor can purchase these bonds at a stock exchange, and has the option to convert the bond into equity or a [depositary receipt](https://www.investopedia.com/terms/d/depositaryreceipt.asp) after a certain period of time. Investors can participate in any price appreciation of the issuer’s stock by converting the bond to equity. Bondholders take advantage of this appreciation by means of [warrants](https://www.investopedia.com/terms/w/warrant.asp) attached to the bonds, which are activated when the price of the stock reaches a certain point.

What Is a Foreign Currency Convertible Bond? A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. Key Takeaways A foreign currency convertible bond (FCCB) is a type of bond that is issued in a currency other than the issuer's home currency.Convertible bonds fall in the middle of debt and equity financial instruments, both acting as a bond but allowing investors to convert the bond into stock.These kinds of bonds are often listed by large, multinational companies with offices around the world, seeking to raise money in foreign currencies. Understanding Foreign Currency Convertible Bonds (FCCB) A bond is a debt instrument that provides income to investors in the form of regularly scheduled interest payments called coupons. At the maturity date of the bond, the investors are repaid the full face value of the bond. Some corporate entities issue a type of bond known as convertible bonds. A bondholder with a convertible bond has the option of converting the bond into a specified number of shares of the issuing company. Convertible bonds have a conversion rate at which the bonds will be converted to equity. However, if the stock price stays below the conversion price, the bond will not be converted. Thus, convertible bonds allow bondholders to participate in the appreciation of the issuer’s underlying shares. There are various types of convertible bonds, one of which is the foreign currency convertible bond. A company may choose to issue FCCBs in the currency of a country with lower interest rates or a more stable economy than the issuer's home country. How Foreign Currency Convertible Bonds Work A foreign currency convertible bond (FCCB) is a convertible bond that is issued in a foreign currency, which means the principal repayment and periodic coupon payments will be made in a foreign currency. For example, an American listed company that issues a bond in India in rupees has, in effect, issued an FCCB. Foreign currency convertible bonds are typically issued by multinational companies operating in a global space and looking to raise capital in foreign currencies. FCCB investors are usually hedge fund arbitrators and foreign nationals. These bonds can be issued along with a call option (whereby the right of redemption lies with the bond issuer) or put options (whereby the right of redemption lies with bondholder). Special Considerations A company may decide to raise money outside its home country to gain access to new markets for new or expansionary projects. FCCBs are generally issued by companies in the currency of those countries where interest rates are usually lower than the home country or foreign country economy is more stable than the home country economy. Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the issuer than a straight coupon-bearing plain vanilla bond, thereby, reducing its debt-financing costs. In addition, a favorable move in the exchange rates can reduce the issuer’s cost of debt, which is the interest payment made on bonds. Since the principal has to be repaid at maturity, an adverse movement in exchange rates in which the local currency weakens can cause cash outflows on repayment to be higher than any savings in interest rates, resulting in losses for the issuer. In addition, issuing bonds in a foreign currency exposes the issuer to any political, economic, and legal risks prevalent in the country. Furthermore, if the issuer’s stock price declines below the conversion price, FCCB investors will not convert their bonds to equity, which means the issuer will have to make the principal repayments at maturity. An FCCB investor can purchase these bonds at a stock exchange, and has the option to convert the bond into equity or a depositary receipt after a certain period of time. Investors can participate in any price appreciation of the issuer’s stock by converting the bond to equity. Bondholders take advantage of this appreciation by means of warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.

https://www.investopedia.com/chase-announces-new-southwest-offers-5323447

Chase Announces Limited-Time Offers on Southwest Credit Cards

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Today, Chase announced a limited-time offer for its consumer Southwest co-branded credit cards. The card issuer is offering an increased sign-up bonus for new cardholders, offering 75,000 bonus points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Chase has launched a limited-time offer for new Southwest consumer cardholders.</li><li>Cardholders can earn 75,000 bonus points when they meet their card's spending requirements.</li><li>Chase has not provided an end date for the promotion.</li></ul></div></div></div> <span class="heading-toc" id="toc-should-you-apply-for-a-southwest-credit-card"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Should You Apply for a Southwest Credit Card? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Credit card issuers regularly offer limited-time sign-up bonus promotions to incentivize consumers to open new accounts. If you've had your eye on a Southwest Airlines credit card, now may be a good time to consider applying. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The limited-time offer gives new cardholders 75,000 bonus points after they spend $5,000 in the first three months—that's about $1,667 per month in credit card spending. The bonus is now available on the following cards: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/southwest-rapid-rewards-plus-credit-card-review-4799646">Southwest Rapid Rewards Plus Credit Card</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/southwest-airlines-rapid-rewards-premier-credit-card-review-4799029">Southwest Rapid Rewards Premier Credit Card</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/southwest-rapid-rewards-priority-credit-card-review-4796414">Southwest Rapid Rewards Priority Credit Card</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> It's important to note that all of the points you earn with a Southwest Airlines credit card count toward your eligibility for the coveted Southwest Companion Pass, which requires that you earn at least 125,000 points in a calendar year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The Companion Pass allows you to bring a plus-one with you on any Southwest flight for just the cost of taxes and fees. Once you earn it, it'll be active for the rest of the current calendar year and the next calendar year.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Consider getting one of these credit cards if you've been thinking about it already and you're loyal to Southwest Airlines. However, keep in mind that the spending requirement is a bit higher than many other travel credit cards, so it's important to avoid these cards unless you can meet that threshold with your regular everyday spending. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> As you consider whether one of these cards is right for you, compare each one to determine which one works best for you based on your travel habits and ability to pay an annual fee. Also, take your time to shop around and compare other travel credit cards to determine which one will give you the most value in the long run.<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

Today, Chase announced a limited-time offer for its consumer Southwest co-branded credit cards. The card issuer is offering an increased sign-up bonus for new cardholders, offering 75,000 bonus points. ### Key Takeaways * Chase has launched a limited-time offer for new Southwest consumer cardholders. * Cardholders can earn 75,000 bonus points when they meet their card's spending requirements. * Chase has not provided an end date for the promotion. ## Should You Apply for a Southwest Credit Card? Credit card issuers regularly offer limited-time sign-up bonus promotions to incentivize consumers to open new accounts. If you've had your eye on a Southwest Airlines credit card, now may be a good time to consider applying. The limited-time offer gives new cardholders 75,000 bonus points after they spend $5,000 in the first three months—that's about $1,667 per month in credit card spending. The bonus is now available on the following cards: * [Southwest Rapid Rewards Plus Credit Card](https://www.investopedia.com/southwest-rapid-rewards-plus-credit-card-review-4799646) * [Southwest Rapid Rewards Premier Credit Card](https://www.investopedia.com/southwest-airlines-rapid-rewards-premier-credit-card-review-4799029) * [Southwest Rapid Rewards Priority Credit Card](https://www.investopedia.com/southwest-rapid-rewards-priority-credit-card-review-4796414) It's important to note that all of the points you earn with a Southwest Airlines credit card count toward your eligibility for the coveted Southwest Companion Pass, which requires that you earn at least 125,000 points in a calendar year. The Companion Pass allows you to bring a plus-one with you on any Southwest flight for just the cost of taxes and fees. Once you earn it, it'll be active for the rest of the current calendar year and the next calendar year. Consider getting one of these credit cards if you've been thinking about it already and you're loyal to Southwest Airlines. However, keep in mind that the spending requirement is a bit higher than many other travel credit cards, so it's important to avoid these cards unless you can meet that threshold with your regular everyday spending. As you consider whether one of these cards is right for you, compare each one to determine which one works best for you based on your travel habits and ability to pay an annual fee. Also, take your time to shop around and compare other travel credit cards to determine which one will give you the most value in the long run. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Today, Chase announced a limited-time offer for its consumer Southwest co-branded credit cards. The card issuer is offering an increased sign-up bonus for new cardholders, offering 75,000 bonus points. Key Takeaways Chase has launched a limited-time offer for new Southwest consumer cardholders.Cardholders can earn 75,000 bonus points when they meet their card's spending requirements.Chase has not provided an end date for the promotion. Should You Apply for a Southwest Credit Card? Credit card issuers regularly offer limited-time sign-up bonus promotions to incentivize consumers to open new accounts. If you've had your eye on a Southwest Airlines credit card, now may be a good time to consider applying. The limited-time offer gives new cardholders 75,000 bonus points after they spend $5,000 in the first three months—that's about $1,667 per month in credit card spending. The bonus is now available on the following cards: Southwest Rapid Rewards Plus Credit Card Southwest Rapid Rewards Premier Credit Card Southwest Rapid Rewards Priority Credit Card It's important to note that all of the points you earn with a Southwest Airlines credit card count toward your eligibility for the coveted Southwest Companion Pass, which requires that you earn at least 125,000 points in a calendar year. The Companion Pass allows you to bring a plus-one with you on any Southwest flight for just the cost of taxes and fees. Once you earn it, it'll be active for the rest of the current calendar year and the next calendar year. Consider getting one of these credit cards if you've been thinking about it already and you're loyal to Southwest Airlines. However, keep in mind that the spending requirement is a bit higher than many other travel credit cards, so it's important to avoid these cards unless you can meet that threshold with your regular everyday spending. As you consider whether one of these cards is right for you, compare each one to determine which one works best for you based on your travel habits and ability to pay an annual fee. Also, take your time to shop around and compare other travel credit cards to determine which one will give you the most value in the long run. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/a/award-letter.asp

Fafsa Award Letter: What It Is, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-fafsa-award-letter"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a FAFSA Award Letter? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An award letter is the documentation sent from a college or university to the student that details how much financial support the student is eligible to receive. The award letter is sent following the student's submission of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp">Free Application for Federal Student Aid</a> (FAFSA) and application to attend college or university.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A financial aid award letter explains the total amount of monetary assistance a school will offer you to offset its costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An award letter details the FAFSA funding offered to a student.<span class="ql-inline-citation" data-cite="1"></span></li><li>The Free Application for Federal Student Aid (FAFSA) is the online form you need to submit to get any federal financial aid.<span class="ql-inline-citation" data-cite="2"></span></li><li>Financial aid award letters detail how much financial assistance a school offers you.<span class="ql-inline-citation" data-cite="1"></span></li><li>There are four main types of financial aid: grants, scholarships, work-study programs, and loans.<span class="ql-inline-citation" data-cite="3"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-fafsa-award-letters"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding FAFSA Award Letters </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Award letters help families budget and plan for college expenses. The award letter outlines the type and amount of all financial aid that is offered to the student, including grants (such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pell-grant.asp">Pell Grants</a> and Federal Supplemental Educational Opportunity Grants), loans (for instance, Stafford and Perkins Loans), scholarships, and any work-study eligibility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Unless otherwise specified, the award letter pertains only to the upcoming school year. Upon receipt of the award letter and deciding which school to attend, students must inform the selected school how much of the award (financial aid) will be accepted.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you submitted a FAFSA and were approved for financial aid, each school that accepted you will send you a financial aid award letter.<span class="ql-inline-citation" data-cite="1"></span> While there’s no standard format for these letters, each explains how much financial assistance the school is offering you. You’ll receive the letter electronically or through snail mail (or both). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In general, each financial aid award letter explains: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li><strong>The cost of attendance (COA).</strong> Your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cost-of-attendance.asp">COA</a> is an estimate of what you will pay for one year of school, including tuition and fees, room and board, books and supplies, and transportation.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Your expected family contribution (EFC).</strong> The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expected-family-contribution.asp">EFC</a> is a number the school uses to determine how much financial aid you’re eligible for. In general, the lower the EFC, the more funding you can get. Note that this is not the amount of money your family is required to pay.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Details (and dollar amounts). </strong>These pertain to whatever grants, scholarships, work-study programs, and loans the school is offering you.<span class="ql-inline-citation" data-cite="1"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Schools typically send out financial aid award letters close to when they send their acceptance letters. If you have questions about the timing, reach out to the school’s financial aid office</p></div></div></div> <span class="heading-toc" id="toc-fafsa-and-financial-aid"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> FAFSA and Financial Aid </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Financial aid is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp">money that helps you pay for college</a> or a career school. It can come in the form of grants, scholarships, work-study programs, and loans. If you’re starting to think about college, you’ve probably come across the acronym FAFSA. It stands for Free Application for Federal Student Aid—a form you need to fill out to get any federal financial aid.<span class="ql-inline-citation" data-cite="2"></span> Many states and colleges also use the FAFSA to determine whether you’ll get financial aid—and if so, how much. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> After you submit your FAFSA—and depending on whether you qualify for aid based on the information you provide—you’ll receive a financial aid award letter from each school you list on it. Each letter explains the federal and nonfederal financial aid options the school is offering you.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> You’re not obligated to accept the aid that is offered in your award package. You can compare your offers from different schools before you decide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Whether you accept or decline an offer, you need to respond to the school to let it know your decision. Be sure to check each school’s deadline, so you reply on time. </p></div>

## What Is a FAFSA Award Letter? An award letter is the documentation sent from a college or university to the student that details how much financial support the student is eligible to receive. The award letter is sent following the student's submission of the [Free Application for Federal Student Aid](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp) (FAFSA) and application to attend college or university. A financial aid award letter explains the total amount of monetary assistance a school will offer you to offset its costs. ### Key Takeaways * An award letter details the FAFSA funding offered to a student. * The Free Application for Federal Student Aid (FAFSA) is the online form you need to submit to get any federal financial aid. * Financial aid award letters detail how much financial assistance a school offers you. * There are four main types of financial aid: grants, scholarships, work-study programs, and loans. ## Understanding FAFSA Award Letters Award letters help families budget and plan for college expenses. The award letter outlines the type and amount of all financial aid that is offered to the student, including grants (such as [Pell Grants](https://www.investopedia.com/terms/p/pell-grant.asp) and Federal Supplemental Educational Opportunity Grants), loans (for instance, Stafford and Perkins Loans), scholarships, and any work-study eligibility. Unless otherwise specified, the award letter pertains only to the upcoming school year. Upon receipt of the award letter and deciding which school to attend, students must inform the selected school how much of the award (financial aid) will be accepted. If you submitted a FAFSA and were approved for financial aid, each school that accepted you will send you a financial aid award letter. While there’s no standard format for these letters, each explains how much financial assistance the school is offering you. You’ll receive the letter electronically or through snail mail (or both). In general, each financial aid award letter explains: * **The cost of attendance (COA).** Your [COA](https://www.investopedia.com/terms/c/cost-of-attendance.asp) is an estimate of what you will pay for one year of school, including tuition and fees, room and board, books and supplies, and transportation. * **Your expected family contribution (EFC).** The [EFC](https://www.investopedia.com/terms/e/expected-family-contribution.asp) is a number the school uses to determine how much financial aid you’re eligible for. In general, the lower the EFC, the more funding you can get. Note that this is not the amount of money your family is required to pay. * **Details (and dollar amounts).**These pertain to whatever grants, scholarships, work-study programs, and loans the school is offering you. ### Schools typically send out financial aid award letters close to when they send their acceptance letters. If you have questions about the timing, reach out to the school’s financial aid office ## FAFSA and Financial Aid Financial aid is [money that helps you pay for college](https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp) or a career school. It can come in the form of grants, scholarships, work-study programs, and loans. If you’re starting to think about college, you’ve probably come across the acronym FAFSA. It stands for Free Application for Federal Student Aid—a form you need to fill out to get any federal financial aid. Many states and colleges also use the FAFSA to determine whether you’ll get financial aid—and if so, how much. After you submit your FAFSA—and depending on whether you qualify for aid based on the information you provide—you’ll receive a financial aid award letter from each school you list on it. Each letter explains the federal and nonfederal financial aid options the school is offering you. You’re not obligated to accept the aid that is offered in your award package. You can compare your offers from different schools before you decide. Whether you accept or decline an offer, you need to respond to the school to let it know your decision. Be sure to check each school’s deadline, so you reply on time.

What Is a FAFSA Award Letter? An award letter is the documentation sent from a college or university to the student that details how much financial support the student is eligible to receive. The award letter is sent following the student's submission of the Free Application for Federal Student Aid (FAFSA) and application to attend college or university. A financial aid award letter explains the total amount of monetary assistance a school will offer you to offset its costs. Key Takeaways An award letter details the FAFSA funding offered to a student.The Free Application for Federal Student Aid (FAFSA) is the online form you need to submit to get any federal financial aid.Financial aid award letters detail how much financial assistance a school offers you.There are four main types of financial aid: grants, scholarships, work-study programs, and loans. Understanding FAFSA Award Letters Award letters help families budget and plan for college expenses. The award letter outlines the type and amount of all financial aid that is offered to the student, including grants (such as Pell Grants and Federal Supplemental Educational Opportunity Grants), loans (for instance, Stafford and Perkins Loans), scholarships, and any work-study eligibility. Unless otherwise specified, the award letter pertains only to the upcoming school year. Upon receipt of the award letter and deciding which school to attend, students must inform the selected school how much of the award (financial aid) will be accepted. If you submitted a FAFSA and were approved for financial aid, each school that accepted you will send you a financial aid award letter. While there’s no standard format for these letters, each explains how much financial assistance the school is offering you. You’ll receive the letter electronically or through snail mail (or both). In general, each financial aid award letter explains: The cost of attendance (COA). Your COA is an estimate of what you will pay for one year of school, including tuition and fees, room and board, books and supplies, and transportation. Your expected family contribution (EFC). The EFC is a number the school uses to determine how much financial aid you’re eligible for. In general, the lower the EFC, the more funding you can get. Note that this is not the amount of money your family is required to pay. Details (and dollar amounts). These pertain to whatever grants, scholarships, work-study programs, and loans the school is offering you. Schools typically send out financial aid award letters close to when they send their acceptance letters. If you have questions about the timing, reach out to the school’s financial aid office FAFSA and Financial Aid Financial aid is money that helps you pay for college or a career school. It can come in the form of grants, scholarships, work-study programs, and loans. If you’re starting to think about college, you’ve probably come across the acronym FAFSA. It stands for Free Application for Federal Student Aid—a form you need to fill out to get any federal financial aid. Many states and colleges also use the FAFSA to determine whether you’ll get financial aid—and if so, how much. After you submit your FAFSA—and depending on whether you qualify for aid based on the information you provide—you’ll receive a financial aid award letter from each school you list on it. Each letter explains the federal and nonfederal financial aid options the school is offering you. You’re not obligated to accept the aid that is offered in your award package. You can compare your offers from different schools before you decide. Whether you accept or decline an offer, you need to respond to the school to let it know your decision. Be sure to check each school’s deadline, so you reply on time.

https://www.investopedia.com/terms/f/federal_income_tax.asp

Federal Income Tax

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-federal-income-tax"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Federal Income Tax? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The U.S. federal income tax is levied by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service</a> (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. Federal income taxes apply to all forms of earnings that make up a taxpayer's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxableincome.asp">taxable income</a>, including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In the U.S., federal income tax <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/history-of-presidents-and-federal-income-tax-what-s-normal-5080237">rates for individuals are progressive</a>, meaning that as taxable income increases, so does the tax rate. Federal income tax rates range from 10% to 37% as of 2024 and kick in at specific income thresholds.<span class="ql-inline-citation" data-cite="47"></span> The income ranges to which the rates apply are called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">tax brackets</a>. Income that falls within each bracket is taxed at the corresponding rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The federal income tax is the largest source of revenue for the U.S. government.<span class="ql-inline-citation" data-cite="43"></span></li><li>Federal income tax is used for various expenses ranging from building and repairing the country's infrastructure to improving education and public transportation and providing disaster relief.<br/></li><li>Federal income taxes are based on your income and filing status; taxes apply to everyone, regardless of where they live or work.</li><li>Federal income tax liability can be reduced by tax deductions and tax credits, legislation that provides benefits to specific types of taxpayers.</li><li>Federal income taxes are collected by the federal government, while state income taxes are collected by the individual state(s) in which a taxpayer lives and earns income.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-federal-income-tax-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How Federal Income Tax Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Tax is collected from individuals and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatetax.asp">corporations</a> by the city, state, or country where they reside or operate. When the tax collected is credited to the country's government, it is referred to as a federal tax. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Governments use the money collected through federal taxes to pay for the growth and upkeep of the country. Some look at federal tax as “rent” charged to live in a country or the fee to use the resources provided by a country. When you pay tax to the U.S. government, you’re investing in your economy, as the government <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/government-spending-and-debt-4689795">uses the funds</a> to do the following:<span class="ql-inline-citation" data-cite="23"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li>Build, repair, and maintain infrastructure</li><li>Fund the pensions and benefits of government workers</li><li>Fund Social Security programs</li><li>Fund major health programs, including Medicare, Medicaid, CHIP, and marketplace subsidies</li><li>Fund "safety net" programs to assist lower-income households</li><li>Fund defense and international security programs</li><li>Improve sectors such as education, health, agriculture, utilities, and public transportation</li><li>Embark on new feats such as space exploration</li><li>Provide emergency disaster relief<span class="ql-inline-citation" data-cite="49"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In fiscal year 2023, the U.S. government collected $4.44 trillion in revenue and spent $6.13 trillion, resulting in a $1.70 trillion deficit.<span class="ql-inline-citation" data-cite="50"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The largest source of revenue for the federal government comes from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income</a> of its residents.<span class="ql-inline-citation" data-cite="43"></span>In fiscal year 2022 (the latest data available), the IRS collected over $4.9 trillion in receipts, of which individuals, estates, and trusts contributed $2.9 trillion. Meanwhile, business income taxes accounted for about $476 billion.<span class="ql-inline-citation" data-cite="51"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-types-of-taxable-income"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Types of Taxable Income </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Many different types of income are taxable. In addition, different forms of income may be assessed at different tax rates. Generally speaking, there are two types of income: earned income and unearned income.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Earned income is income primarily generated by being employed by an employer, including if you are self-employed. The most common forms of earned income are:<span class="ql-inline-citation" data-cite="52"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li>Wages, whether by salary or hourly pay</li><li>Business income or income from operations</li><li>Pensions and other forms of retirement benefits</li><li>Unemployment benefits</li><li>Sick pay and other forms of fringe benefits</li><li>Self-employment income</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Unearned income is income primarily generated by more passive forms of activity, especially surrounding investing. The most common forms of unearned income are:<span class="ql-inline-citation" data-cite="71"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li>Interest income or dividends</li><li>Royalties or residual income</li><li>Staking rewards or airdropped cryptocurrency</li><li>Sales of assets at a profit<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-gross-income-vs-net-income"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Gross Income vs. Net Income </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Workers receive their earnings either as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netincome.asp">net income</a>, also known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/take-home-pay.asp">take-home pay</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossincome.asp">gross income</a>. Net income is the total amount received after taxes, benefits, and voluntary contributions are deducted from the paycheck. When taxes are withheld, it means the company or payer has paid the tax to the government on the worker’s behalf. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The amount your employer withholds for taxes depends on how much you earn and the information you gave your employer on Form W-4.<span class="ql-inline-citation" data-cite="53"></span> All money earned, whether as a wage, salary, cash gift from an employer, business income, tips, gambling income, bonuses, or unemployment compensation, constitutes income for federal tax purposes.<span class="ql-inline-citation" data-cite="54"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-filing-federal-income-taxes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Filing Federal Income Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Federal income taxes are reported and remitted to the IRS through a series of forms created by the U.S. Department of Treasury. The primary form used to report Federal income taxes is Form 1040 which collects not only your personal information but your income and tax benefit activities for the year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> There are several variations of Form 1040 based on the type of activity incurred by the taxpayer over the prior year; an example of the first page for Form 1040-SR is below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> All pages of Form 1040-SR are available on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.irs.gov/pub/irs-pdf/f1040s.pdf">IRS website</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-portrait figure-high-res" id="mntl-sc-block_42-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:125.8%;"> <img alt="IRS 2023 1040-SR tax return form for seniors" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/spO-B7Ram2Ob1JJIjRV-ifs_JzU=/1434x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/QkS92CAb-njcEe5nOWjCP82XIUc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png" data-srcset="https://www.investopedia.com/thmb/HNZ6Kcx31hMYYEyGFAGPuwRAOdM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png 750w" data-tracking-container="true" height="1804" id="mntl-sc-block-image_1-0" width="1434"/> <noscript> <img alt="IRS 2023 1040-SR tax return form for seniors" class="img--noscript universal-image__image" height="1804" sizes="750px" src="https://www.investopedia.com/thmb/QkS92CAb-njcEe5nOWjCP82XIUc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png" srcset="https://www.investopedia.com/thmb/HNZ6Kcx31hMYYEyGFAGPuwRAOdM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png 750w" width="1434"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> If a taxpayer has more information to submit to the IRS, they usually attach or provide additional forms. For example, if you decide to claim an itemized deduction (discussed below), you are required to submit Schedule A to support your return.<span class="ql-inline-citation" data-cite="39"></span> Many tax credits (also discussed below) require additional forms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-federal-income-tax-brackets"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Federal Income Tax Brackets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The federal income tax is built on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/progressivetax.asp">progressive tax system</a>, where higher-income earners are taxed at higher rates. The tables below show the tax brackets and rates for 2023 and 2024.<span class="ql-inline-citation" data-cite="56"></span><span class="ql-inline-citation" data-cite="55"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_48-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">2023 Tax Brackets and Rates</th> </tr> <tr> <th>2023 Tax Rate</th> <th>Single Filers</th> <th>Married Filing Jointly</th> <th>Married Filing Separately</th> <th>Heads of Households</th> </tr> </thead> <tbody data-check="0"> <tr> <td>10%</td> <td>Up to $11,000</td> <td>Up to $22,000</td> <td>Up to $11,000</td> <td>Up to $15,700</td> </tr> <tr> <td>12% </td> <td>$11,001 to $44,725</td> <td>$22,001 to $89,450</td> <td>$11,001 to $44,725</td> <td>$15,701 to $59,850</td> </tr> <tr> <td>22% </td> <td>$44,726 to $95,375</td> <td>$89,451 to $190,750</td> <td>$44,726 to $95,375</td> <td>$59,851 to $95,350</td> </tr> <tr> <td>24% </td> <td>$95,376 to $182,100</td> <td>$190,751 to $364,200</td> <td>$95,376 to $182,100</td> <td>$95,351 to $182,100</td> </tr> <tr> <td>32% </td> <td>$182,101 to $231,250</td> <td>$364,201 to $462,500</td> <td>$182,101 to $231,250</td> <td>$182,101 to $231,250</td> </tr> <tr> <td>35% </td> <td>$231,251 to $578,125</td> <td>$462,501 to $693,750</td> <td>$231,251 to $346,875</td> <td>$231,251 to $578,100</td> </tr> <tr> <td>37% </td> <td>Over $578,125</td> <td>Over $693,750</td> <td>Over $346,875</td> <td>Over $578,100</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_50-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">2024 Tax Brackets and Rates</th> </tr> <tr> <th>2024 Tax Rate</th> <th>Single Filers</th> <th>Married Filing Jointly</th> <th>Married Filing Separately</th> <th>Heads of Households</th> </tr> </thead> <tbody data-check="0"> <tr> <td>10%</td> <td>Up to $11,600</td> <td>Up to $23,200</td> <td>Up to $11,600</td> <td>Up to $16,550</td> </tr> <tr> <td>12% </td> <td>$11,601 to $47,150</td> <td>$23,201 to $94,300</td> <td>$11,601 to $47,150</td> <td>$16,551 to $63,100</td> </tr> <tr> <td>22% </td> <td>$47,151 to $100,525</td> <td>$94,301 to $201,050</td> <td>$47,151 to $100,525</td> <td>$63,101 to $100,500</td> </tr> <tr> <td>24% </td> <td>$100,526 to $191,950</td> <td>$201,051 to $383,900</td> <td>$100,526 to $191,950</td> <td>$100,501 to $191,950</td> </tr> <tr> <td>32% </td> <td>$191,951 to $243,725</td> <td>$383,901 to $487,450</td> <td>$191,951 to $243,725</td> <td>$191,951 to $243,700</td> </tr> <tr> <td>35% </td> <td>$243,726 to $609,350</td> <td>$487,451 to $731,200</td> <td>$243,726 to $365,600</td> <td>$243,701 to $609,350</td> </tr> <tr> <td>37% </td> <td>Over $609,350</td> <td>Over $731,200</td> <td>Over $365,600</td> <td>Over $609,350</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-how-tax-brackets-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> How Tax Brackets Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The United States uses a progressive tax system, meaning taxpayers pay more incremental tax as they earn more income. This system aims to provide inherent tax benefits to lower-income individuals and collect <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0212/how-getting-a-raise-affects-your-taxes.aspx">more taxes from higher-income individuals</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Tax brackets are often cited as a range of income with an associated percentage. For example, for 2023 federal income taxes, taxpayers who earn between $44,726 and $95,375 are “in the 22% tax bracket”. This means their earnings between these two amounts are assessed at a 22% tax rate. Earnings below $44,726 are assessed at a lower rate, and earnings above $95,375 are assessed at a higher rate.<span class="ql-inline-citation" data-cite="57"></span> <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Marginal Tax Rate vs. Effective Tax Rate </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> As an example, an individual who is single and earns $80,000 annually falls into the 22% marginal tax bracket.<span class="ql-inline-citation" data-cite="32"></span> This means the taxpayer would be responsible for $12,908 in taxes for 2023, the breakdown for which is illustrated in the chart below:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_60-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Applying 2023 Tax Brackets and Rates to an Individual Earning $80,000</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Dollars</b></td> <td><b>Amount Subject to Tax</b></td> <td><b>Tax Rate</b></td> <td><b>Tax at Each Rate</b></td> </tr> <tr> <td>$0~$11,000</td> <td>$11,000</td> <td>10%</td> <td>$1,100</td> </tr> <tr> <td>$11,000 to $44,725</td> <td>$33,725</td> <td>12%</td> <td>$4,047</td> </tr> <tr> <td>$44,725 to $95,375</td> <td>$35,275</td> <td>22%</td> <td>$7,761</td> </tr> <tr> <td>Total</td> <td>$80,000</td> <td>-</td> <td><b>$12,908 total tax bill</b><span data-cite="58"></span></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Because of the varying tax brackets, a taxpayer will usually have an effective tax rate different from their highest tax bracket. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/marginaltaxrate.asp">marginal tax rate</a> is the additional tax paid for every extra dollar of income. For example, a 10% marginal tax rate means that $.10 of every next dollar earned will be taken as tax.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> However, note that while the marginal rate is 22%, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/effectivetaxrate.asp">effective tax rate</a> is 16.1%. This figure is arrived at by dividing the total tax bill ($12,908) by income ($80,000) and multiplying by 100. The effective tax rate is the actual rate the individual ends up paying in taxes to the government. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <span class="heading-toc" id="toc-how-to-reduce-your-taxes-tax-deductions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-heading__text"> How To Reduce Your Taxes: Tax Deductions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> There are two ways to pay less tax: make less money or earn more tax benefits. As it’s usually more advantageous to seek out tax benefits, there are several specific places taxpayers can look. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-deduction.asp">Tax deductions</a> are legislative enactments that allow a taxpayer to reduce the amount of income they are taxed on their return. Though tax deductions don’t directly reduce the amount of tax a taxpayer must pay, it does reduce the calculation basis for the taxpayer’s tax liability. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> For example, consider a taxpayer who contributes to a traditional IRA. In many situations, the taxpayer is allowed to deduct their contribution from their taxable income. Should the taxpayer have contributed the 2023 maximum amount, their taxable income would be reduced by $6,500. If the taxpayer is in the 22% marginal tax bracket, this would result in a potential $1,430 ($6,500 * 22%) tax savings.<span class="ql-inline-citation" data-cite="59"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_73-0"> <span class="mntl-sc-block-subheading__text"> Examples of Tax Deductions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The most common Federal tax deduction used to reduce your Federal income tax liability is the standard deduction. Each taxpayer may claim a standard deduction based on their filing status; this amount (which is reassessed annually) allows a taxpayer to reduce their taxable income by a set amount established by the Federal government. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> The alternative to a standard deduction is the itemized deduction. This option allows taxpayers to accumulate certain types of eligible expenses and opt to deduct the total allowable amount of these expenses instead of the standard deduction. These types of expenses include charitable contributions, mortgage interest payments, and medical expenses.<span class="ql-inline-citation" data-cite="61"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Last, there are deductions exclusive of the standard deduction or itemized deduction. For example, as long as taxpayers meet specific contribution and income limit thresholds, certain types of retirement contributions may be deducted.<span class="ql-inline-citation" data-cite="60"></span> Alternatively, taxpayers may receive deductions on other types of spending such as educational expenses.<span class="ql-inline-citation" data-cite="62"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-how-to-reduce-your-taxes-tax-credits"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> How To Reduce Your Taxes: Tax Credits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxcredit.asp">Tax credits</a> are legislative enactments that allow a taxpayer to reduce the amount of tax they owe. After a taxpayer’s tax liability is calculated, a taxpayer may then directly reduce their liability by tax credit amounts they are eligible for.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Take a taxpayer who has one child and is eligible for the Child Tax Credit. The taxpayer’s taxable income is $50,000, and the taxpayer’s tax liability is $4,500. The Child Tax Credit directly reduces the tax liability from $4,500 to $2,900. The Child Tax Credit is not applied to the $50,000 of taxable income; instead, it is directly applied to the tax liability amount.<span class="ql-inline-citation" data-cite="63"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> The largest tax credits are all associated with legislative incentive endeavors for specific types of taxpayers. For example, the Earned Income Tax Credit awards tax credits to those of low income, while the American Opportunity Tax Credit and Lifetime Learning Credit award those pursuing higher education. The Child and Dependent Care Credit benefits those with children/dependents.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_87-0"> <span class="mntl-sc-block-subheading__text"> Refundable vs. Nonrefundable Tax Credits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Some Federal tax credits are nonrefundable, meaning once they reduce your tax liability to $0, a taxpayer may not receive additional benefit nor receive a refund due to an unused portion of the credit. An example of a nonrefundable tax credit is the Adoption Tax Credit; once the credit reduces a taxpayer's tax liability to $0, the taxpayer will simply not pay tax.<span class="ql-inline-citation" data-cite="44"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> On the other hand, other credits may be refundable; not only can refundable tax credits reduce a taxpayer's liability to $0, but they may flip the taxpayer into receiving a tax refund. For example, if you owe $750 in taxes but qualify for a $1,000 refundable tax credit, you would ultimately receive a $250 tax refund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Be mindful that some credits are partially refundable. For example, in 2023, the Child Tax Credit of $1,600 is partially refundable; in 2024, up to $1,700 is refundable.<span class="ql-inline-citation" data-cite="65"></span><span class="ql-inline-citation" data-cite="64"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <span class="heading-toc" id="toc-state-income-tax-vs-federal-income-tax"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_94-0"> <span class="mntl-sc-block-heading__text"> State Income Tax vs. Federal Income Tax </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> It is important to distinguish between the definition of income tax and federal income tax. In the U.S., governments at the state level may also levy income taxes in addition to federal income taxes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> Not all states have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/state-income-tax.asp">state-level income taxes</a>. As of 2023, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming don’t have an income tax. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> New Hampshire taxes dividends and interest income only, but the state will completely phase out these taxes by 2027.<span class="ql-inline-citation" data-cite="66"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <span class="heading-toc" id="toc-individual-vs-other-federal-income-taxes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_101-0"> <span class="mntl-sc-block-heading__text"> Individual vs. Other Federal Income Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> The information above has been primarily informative regarding individual Federal income taxes. The IRS also collects tax revenue from other entities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> Businesses must report income and receive tax benefits similar to individuals. Certain legal business forms, such as partnerships, have a different tax filing date compared to individual filers.<span class="ql-inline-citation" data-cite="35"></span> In addition, businesses are subject to a wide range of tax credits only available to businesses; many credits derive from the General Business Credit filed using Form 3800.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> Charities and nonprofits that have received tax-exempt status must also usually file a Form 990 with the IRS to maintain their tax-free status. This information return does not result in any taxes owed from the nonprofit. However, information provided on the return may result in further evaluation or revocation of the tax-advantaged status.<span class="ql-inline-citation" data-cite="67"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> Last, international individuals or businesses may be required to file Federal taxes within the U.S. There are specific rules for foreign entities with income-generating activities within the United States and domestic entities with income-generating activities outside the United States.<span class="ql-inline-citation" data-cite="68"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_110-0"><span class="heading-toc" id="toc-what-are-the-federal-income-tax-brackets-for-2023-and-2024"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Federal Income Tax Brackets for 2023 and 2024?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The U.S. federal income tax is a marginal tax rate system based on an individual's income and filing status. For the 2023 and 2024 tax years, the tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.<span class="ql-inline-citation" data-cite="32"></span><span class="ql-inline-citation" data-cite="47"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_112-0"><span class="heading-toc" id="toc-does-social-security-count-as-income"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Social Security Count as Income?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Social Security benefits are not counted as gross income. However, benefits are included in your combined income, which the IRS uses to determine if you should pay taxes on your benefits. Combined income is determined by totaling your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/agi.asp">adjusted gross income</a> (AGI), nontaxable interest, and half of your Social Security benefits. If your combined income is between $25,000 and $34,000, you may be taxed on up to 50% of your benefits. If your combined income is more than $34,000, you may be taxed on up to 85% of your benefits.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_114-0"><span class="heading-toc" id="toc-which-country-has-the-highest-federal-income-tax"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Country Has the Highest Federal Income Tax?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ivory Coast has the highest tax rate at 60%.<span class="ql-inline-citation" data-cite="69"></span> Finland (56.95%), Denmark (56%), Japan (55.97%), Austria (55%), Sweden (52.3%), Aruba (52%), Belgium (50%), Israel (50%), and the Netherlands (49.5%) round out the top 10 as of 2023.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_116-0"><span class="heading-toc" id="toc-which-us-president-imposed-the-first-federal-income-tax"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which U.S. President Imposed the First Federal Income Tax?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>President Abraham Lincoln was the president to impose the first federal income tax by signing the Revenue Act on Aug. 5, 1861. The reason he did so was to finance the Civil War. A 3% tax was imposed on all annual incomes over $800.<span class="ql-inline-citation" data-cite="70"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_118-0"><span class="heading-toc" id="toc-when-is-federal-income-tax-due"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Is Federal Income Tax Due?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, federal income tax is due on April 15 of every year. The day can shift slightly if April 15 falls on a weekend or because of other factors.<span class="ql-inline-citation" data-cite="31"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_120-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_121-0"> Federal income taxes are considered a marginal tax or progressive tax and apply to all forms of earnings that make up a taxpayer's taxable income, including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income. Each year, the IRS releases updates to the tax brackets and rates that apply to single filers, married individuals filing joint returns or separately, and heads of households.<br/> </p></div>

## What Is Federal Income Tax? The U.S. federal income tax is levied by the [Internal Revenue Service](https://www.investopedia.com/terms/i/irs.asp) (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. Federal income taxes apply to all forms of earnings that make up a taxpayer's [taxable income](https://www.investopedia.com/terms/t/taxableincome.asp), including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income. In the U.S., federal income tax [rates for individuals are progressive](https://www.investopedia.com/history-of-presidents-and-federal-income-tax-what-s-normal-5080237), meaning that as taxable income increases, so does the tax rate. Federal income tax rates range from 10% to 37% as of 2024 and kick in at specific income thresholds. The income ranges to which the rates apply are called [tax brackets](https://www.investopedia.com/terms/t/taxbracket.asp). Income that falls within each bracket is taxed at the corresponding rate. ### Key Takeaways * The federal income tax is the largest source of revenue for the U.S. government. * Federal income tax is used for various expenses ranging from building and repairing the country's infrastructure to improving education and public transportation and providing disaster relief. * Federal income taxes are based on your income and filing status; taxes apply to everyone, regardless of where they live or work. * Federal income tax liability can be reduced by tax deductions and tax credits, legislation that provides benefits to specific types of taxpayers. * Federal income taxes are collected by the federal government, while state income taxes are collected by the individual state(s) in which a taxpayer lives and earns income. ## How Federal Income Tax Works Tax is collected from individuals and [corporations](https://www.investopedia.com/terms/c/corporatetax.asp) by the city, state, or country where they reside or operate. When the tax collected is credited to the country's government, it is referred to as a federal tax. Governments use the money collected through federal taxes to pay for the growth and upkeep of the country. Some look at federal tax as “rent” charged to live in a country or the fee to use the resources provided by a country. When you pay tax to the U.S. government, you’re investing in your economy, as the government [uses the funds](https://www.investopedia.com/government-spending-and-debt-4689795) to do the following: * Build, repair, and maintain infrastructure * Fund the pensions and benefits of government workers * Fund Social Security programs * Fund major health programs, including Medicare, Medicaid, CHIP, and marketplace subsidies * Fund "safety net" programs to assist lower-income households * Fund defense and international security programs * Improve sectors such as education, health, agriculture, utilities, and public transportation * Embark on new feats such as space exploration * Provide emergency disaster relief ### In fiscal year 2023, the U.S. government collected $4.44 trillion in revenue and spent $6.13 trillion, resulting in a $1.70 trillion deficit. The largest source of revenue for the federal government comes from the [income](https://www.investopedia.com/terms/i/incometax.asp) of its residents.In fiscal year 2022 (the latest data available), the IRS collected over $4.9 trillion in receipts, of which individuals, estates, and trusts contributed $2.9 trillion. Meanwhile, business income taxes accounted for about $476 billion. ## Types of Taxable Income Many different types of income are taxable. In addition, different forms of income may be assessed at different tax rates. Generally speaking, there are two types of income: earned income and unearned income.  Earned income is income primarily generated by being employed by an employer, including if you are self-employed. The most common forms of earned income are: * Wages, whether by salary or hourly pay * Business income or income from operations * Pensions and other forms of retirement benefits * Unemployment benefits * Sick pay and other forms of fringe benefits * Self-employment income Unearned income is income primarily generated by more passive forms of activity, especially surrounding investing. The most common forms of unearned income are: * Interest income or dividends * Royalties or residual income * Staking rewards or airdropped cryptocurrency * Sales of assets at a profit ## Gross Income vs. Net Income Workers receive their earnings either as [net income](https://www.investopedia.com/terms/n/netincome.asp), also known as [take-home pay](https://www.investopedia.com/terms/t/take-home-pay.asp), or [gross income](https://www.investopedia.com/terms/g/grossincome.asp). Net income is the total amount received after taxes, benefits, and voluntary contributions are deducted from the paycheck. When taxes are withheld, it means the company or payer has paid the tax to the government on the worker’s behalf. The amount your employer withholds for taxes depends on how much you earn and the information you gave your employer on Form W-4. All money earned, whether as a wage, salary, cash gift from an employer, business income, tips, gambling income, bonuses, or unemployment compensation, constitutes income for federal tax purposes. ## Filing Federal Income Taxes Federal income taxes are reported and remitted to the IRS through a series of forms created by the U.S. Department of Treasury. The primary form used to report Federal income taxes is Form 1040 which collects not only your personal information but your income and tax benefit activities for the year. There are several variations of Form 1040 based on the type of activity incurred by the taxpayer over the prior year; an example of the first page for Form 1040-SR is below. All pages of Form 1040-SR are available on the [IRS website](https://www.irs.gov/pub/irs-pdf/f1040s.pdf). ![IRS 2023 1040-SR tax return form for seniors]() :max_bytes(150000):strip_icc()/Screenshot2023-12-14101210-777d825ead72468587c3d238dfe0fe1c.png) Investopedia If a taxpayer has more information to submit to the IRS, they usually attach or provide additional forms. For example, if you decide to claim an itemized deduction (discussed below), you are required to submit Schedule A to support your return. Many tax credits (also discussed below) require additional forms. ## Federal Income Tax Brackets The federal income tax is built on a [progressive tax system](https://www.investopedia.com/terms/p/progressivetax.asp), where higher-income earners are taxed at higher rates. The tables below show the tax brackets and rates for 2023 and 2024. | 2023 Tax Brackets and Rates | | | | | | --- | --- | --- | --- | --- | | 2023 Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Heads of Households | | 10% | Up to $11,000 | Up to $22,000 | Up to $11,000 | Up to $15,700 | | 12% | $11,001 to $44,725 | $22,001 to $89,450 | $11,001 to $44,725 | $15,701 to $59,850 | | 22% | $44,726 to $95,375 | $89,451 to $190,750 | $44,726 to $95,375 | $59,851 to $95,350 | | 24% | $95,376 to $182,100 | $190,751 to $364,200 | $95,376 to $182,100 | $95,351 to $182,100 | | 32% | $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 | $182,101 to $231,250 | | 35% | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $346,875 | $231,251 to $578,100 | | 37% | Over $578,125 | Over $693,750 | Over $346,875 | Over $578,100 | | 2024 Tax Brackets and Rates | | | | | | --- | --- | --- | --- | --- | | 2024 Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Heads of Households | | 10% | Up to $11,600 | Up to $23,200 | Up to $11,600 | Up to $16,550 | | 12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 | | 22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 | | 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 | | 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 | | 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 | | 37% | Over $609,350 | Over $731,200 | Over $365,600 | Over $609,350 | ## How Tax Brackets Work The United States uses a progressive tax system, meaning taxpayers pay more incremental tax as they earn more income. This system aims to provide inherent tax benefits to lower-income individuals and collect [more taxes from higher-income individuals](https://www.investopedia.com/financial-edge/0212/how-getting-a-raise-affects-your-taxes.aspx). Tax brackets are often cited as a range of income with an associated percentage. For example, for 2023 federal income taxes, taxpayers who earn between $44,726 and $95,375 are “in the 22% tax bracket”. This means their earnings between these two amounts are assessed at a 22% tax rate. Earnings below $44,726 are assessed at a lower rate, and earnings above $95,375 are assessed at a higher rate.  ### Marginal Tax Rate vs. Effective Tax Rate As an example, an individual who is single and earns $80,000 annually falls into the 22% marginal tax bracket. This means the taxpayer would be responsible for $12,908 in taxes for 2023, the breakdown for which is illustrated in the chart below: | Applying 2023 Tax Brackets and Rates to an Individual Earning $80,000 | | | | | --- | --- | --- | --- | | **Dollars** | **Amount Subject to Tax** | **Tax Rate** | **Tax at Each Rate** | | $0~$11,000 | $11,000 | 10% | $1,100 | | $11,000 to $44,725 | $33,725 | 12% | $4,047 | | $44,725 to $95,375 | $35,275 | 22% | $7,761 | | Total | $80,000 | - | **$12,908 total tax bill** | Because of the varying tax brackets, a taxpayer will usually have an effective tax rate different from their highest tax bracket. The [marginal tax rate](https://www.investopedia.com/ask/answers/05/marginaltaxrate.asp) is the additional tax paid for every extra dollar of income. For example, a 10% marginal tax rate means that $.10 of every next dollar earned will be taken as tax. However, note that while the marginal rate is 22%, the [effective tax rate](https://www.investopedia.com/terms/e/effectivetaxrate.asp) is 16.1%. This figure is arrived at by dividing the total tax bill ($12,908) by income ($80,000) and multiplying by 100. The effective tax rate is the actual rate the individual ends up paying in taxes to the government. ## How To Reduce Your Taxes: Tax Deductions There are two ways to pay less tax: make less money or earn more tax benefits. As it’s usually more advantageous to seek out tax benefits, there are several specific places taxpayers can look. [Tax deductions](https://www.investopedia.com/terms/t/tax-deduction.asp) are legislative enactments that allow a taxpayer to reduce the amount of income they are taxed on their return. Though tax deductions don’t directly reduce the amount of tax a taxpayer must pay, it does reduce the calculation basis for the taxpayer’s tax liability. For example, consider a taxpayer who contributes to a traditional IRA. In many situations, the taxpayer is allowed to deduct their contribution from their taxable income. Should the taxpayer have contributed the 2023 maximum amount, their taxable income would be reduced by $6,500. If the taxpayer is in the 22% marginal tax bracket, this would result in a potential $1,430 ($6,500 \* 22%) tax savings. ### Examples of Tax Deductions The most common Federal tax deduction used to reduce your Federal income tax liability is the standard deduction. Each taxpayer may claim a standard deduction based on their filing status; this amount (which is reassessed annually) allows a taxpayer to reduce their taxable income by a set amount established by the Federal government. The alternative to a standard deduction is the itemized deduction. This option allows taxpayers to accumulate certain types of eligible expenses and opt to deduct the total allowable amount of these expenses instead of the standard deduction. These types of expenses include charitable contributions, mortgage interest payments, and medical expenses. Last, there are deductions exclusive of the standard deduction or itemized deduction. For example, as long as taxpayers meet specific contribution and income limit thresholds, certain types of retirement contributions may be deducted. Alternatively, taxpayers may receive deductions on other types of spending such as educational expenses. ## How To Reduce Your Taxes: Tax Credits [Tax credits](https://www.investopedia.com/terms/t/taxcredit.asp) are legislative enactments that allow a taxpayer to reduce the amount of tax they owe. After a taxpayer’s tax liability is calculated, a taxpayer may then directly reduce their liability by tax credit amounts they are eligible for.  Take a taxpayer who has one child and is eligible for the Child Tax Credit. The taxpayer’s taxable income is $50,000, and the taxpayer’s tax liability is $4,500. The Child Tax Credit directly reduces the tax liability from $4,500 to $2,900. The Child Tax Credit is not applied to the $50,000 of taxable income; instead, it is directly applied to the tax liability amount. The largest tax credits are all associated with legislative incentive endeavors for specific types of taxpayers. For example, the Earned Income Tax Credit awards tax credits to those of low income, while the American Opportunity Tax Credit and Lifetime Learning Credit award those pursuing higher education. The Child and Dependent Care Credit benefits those with children/dependents. ### Refundable vs. Nonrefundable Tax Credits Some Federal tax credits are nonrefundable, meaning once they reduce your tax liability to $0, a taxpayer may not receive additional benefit nor receive a refund due to an unused portion of the credit. An example of a nonrefundable tax credit is the Adoption Tax Credit; once the credit reduces a taxpayer's tax liability to $0, the taxpayer will simply not pay tax. On the other hand, other credits may be refundable; not only can refundable tax credits reduce a taxpayer's liability to $0, but they may flip the taxpayer into receiving a tax refund. For example, if you owe $750 in taxes but qualify for a $1,000 refundable tax credit, you would ultimately receive a $250 tax refund. Be mindful that some credits are partially refundable. For example, in 2023, the Child Tax Credit of $1,600 is partially refundable; in 2024, up to $1,700 is refundable. ## State Income Tax vs. Federal Income Tax It is important to distinguish between the definition of income tax and federal income tax. In the U.S., governments at the state level may also levy income taxes in addition to federal income taxes. Not all states have [state-level income taxes](https://www.investopedia.com/terms/state-income-tax.asp). As of 2023, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming don’t have an income tax. New Hampshire taxes dividends and interest income only, but the state will completely phase out these taxes by 2027. ## Individual vs. Other Federal Income Taxes The information above has been primarily informative regarding individual Federal income taxes. The IRS also collects tax revenue from other entities. Businesses must report income and receive tax benefits similar to individuals. Certain legal business forms, such as partnerships, have a different tax filing date compared to individual filers. In addition, businesses are subject to a wide range of tax credits only available to businesses; many credits derive from the General Business Credit filed using Form 3800. Charities and nonprofits that have received tax-exempt status must also usually file a Form 990 with the IRS to maintain their tax-free status. This information return does not result in any taxes owed from the nonprofit. However, information provided on the return may result in further evaluation or revocation of the tax-advantaged status. Last, international individuals or businesses may be required to file Federal taxes within the U.S. There are specific rules for foreign entities with income-generating activities within the United States and domestic entities with income-generating activities outside the United States. ## What Are the Federal Income Tax Brackets for 2023 and 2024? The U.S. federal income tax is a marginal tax rate system based on an individual's income and filing status. For the 2023 and 2024 tax years, the tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. ## Does Social Security Count as Income? Social Security benefits are not counted as gross income. However, benefits are included in your combined income, which the IRS uses to determine if you should pay taxes on your benefits. Combined income is determined by totaling your [adjusted gross income](https://www.investopedia.com/terms/a/agi.asp) (AGI), nontaxable interest, and half of your Social Security benefits. If your combined income is between $25,000 and $34,000, you may be taxed on up to 50% of your benefits. If your combined income is more than $34,000, you may be taxed on up to 85% of your benefits. ## Which Country Has the Highest Federal Income Tax? Ivory Coast has the highest tax rate at 60%. Finland (56.95%), Denmark (56%), Japan (55.97%), Austria (55%), Sweden (52.3%), Aruba (52%), Belgium (50%), Israel (50%), and the Netherlands (49.5%) round out the top 10 as of 2023. ## Which U.S. President Imposed the First Federal Income Tax? President Abraham Lincoln was the president to impose the first federal income tax by signing the Revenue Act on Aug. 5, 1861. The reason he did so was to finance the Civil War. A 3% tax was imposed on all annual incomes over $800. ## When Is Federal Income Tax Due? Generally, federal income tax is due on April 15 of every year. The day can shift slightly if April 15 falls on a weekend or because of other factors. ## The Bottom Line Federal income taxes are considered a marginal tax or progressive tax and apply to all forms of earnings that make up a taxpayer's taxable income, including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income. Each year, the IRS releases updates to the tax brackets and rates that apply to single filers, married individuals filing joint returns or separately, and heads of households.

What Is Federal Income Tax? The U.S. federal income tax is levied by the Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. Federal income taxes apply to all forms of earnings that make up a taxpayer's taxable income, including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income. In the U.S., federal income tax rates for individuals are progressive, meaning that as taxable income increases, so does the tax rate. Federal income tax rates range from 10% to 37% as of 2024 and kick in at specific income thresholds. The income ranges to which the rates apply are called tax brackets. Income that falls within each bracket is taxed at the corresponding rate. Key Takeaways The federal income tax is the largest source of revenue for the U.S. government.Federal income tax is used for various expenses ranging from building and repairing the country's infrastructure to improving education and public transportation and providing disaster relief.Federal income taxes are based on your income and filing status; taxes apply to everyone, regardless of where they live or work.Federal income tax liability can be reduced by tax deductions and tax credits, legislation that provides benefits to specific types of taxpayers.Federal income taxes are collected by the federal government, while state income taxes are collected by the individual state(s) in which a taxpayer lives and earns income. How Federal Income Tax Works Tax is collected from individuals and corporations by the city, state, or country where they reside or operate. When the tax collected is credited to the country's government, it is referred to as a federal tax. Governments use the money collected through federal taxes to pay for the growth and upkeep of the country. Some look at federal tax as “rent” charged to live in a country or the fee to use the resources provided by a country. When you pay tax to the U.S. government, you’re investing in your economy, as the government uses the funds to do the following: Build, repair, and maintain infrastructureFund the pensions and benefits of government workersFund Social Security programsFund major health programs, including Medicare, Medicaid, CHIP, and marketplace subsidiesFund "safety net" programs to assist lower-income householdsFund defense and international security programsImprove sectors such as education, health, agriculture, utilities, and public transportationEmbark on new feats such as space explorationProvide emergency disaster relief In fiscal year 2023, the U.S. government collected $4.44 trillion in revenue and spent $6.13 trillion, resulting in a $1.70 trillion deficit. The largest source of revenue for the federal government comes from the income of its residents.In fiscal year 2022 (the latest data available), the IRS collected over $4.9 trillion in receipts, of which individuals, estates, and trusts contributed $2.9 trillion. Meanwhile, business income taxes accounted for about $476 billion. Types of Taxable Income Many different types of income are taxable. In addition, different forms of income may be assessed at different tax rates. Generally speaking, there are two types of income: earned income and unearned income.  Earned income is income primarily generated by being employed by an employer, including if you are self-employed. The most common forms of earned income are: Wages, whether by salary or hourly payBusiness income or income from operationsPensions and other forms of retirement benefitsUnemployment benefitsSick pay and other forms of fringe benefitsSelf-employment income Unearned income is income primarily generated by more passive forms of activity, especially surrounding investing. The most common forms of unearned income are: Interest income or dividendsRoyalties or residual incomeStaking rewards or airdropped cryptocurrencySales of assets at a profit Gross Income vs. Net Income Workers receive their earnings either as net income, also known as take-home pay, or gross income. Net income is the total amount received after taxes, benefits, and voluntary contributions are deducted from the paycheck. When taxes are withheld, it means the company or payer has paid the tax to the government on the worker’s behalf. The amount your employer withholds for taxes depends on how much you earn and the information you gave your employer on Form W-4. All money earned, whether as a wage, salary, cash gift from an employer, business income, tips, gambling income, bonuses, or unemployment compensation, constitutes income for federal tax purposes. Filing Federal Income Taxes Federal income taxes are reported and remitted to the IRS through a series of forms created by the U.S. Department of Treasury. The primary form used to report Federal income taxes is Form 1040 which collects not only your personal information but your income and tax benefit activities for the year. There are several variations of Form 1040 based on the type of activity incurred by the taxpayer over the prior year; an example of the first page for Form 1040-SR is below. All pages of Form 1040-SR are available on the IRS website. Investopedia If a taxpayer has more information to submit to the IRS, they usually attach or provide additional forms. For example, if you decide to claim an itemized deduction (discussed below), you are required to submit Schedule A to support your return. Many tax credits (also discussed below) require additional forms. Federal Income Tax Brackets The federal income tax is built on a progressive tax system, where higher-income earners are taxed at higher rates. The tables below show the tax brackets and rates for 2023 and 2024. 2023 Tax Brackets and Rates 2023 Tax Rate Single Filers Married Filing Jointly Married Filing Separately Heads of Households 10% Up to $11,000 Up to $22,000 Up to $11,000 Up to $15,700 12%  $11,001 to $44,725 $22,001 to $89,450 $11,001 to $44,725 $15,701 to $59,850 22%  $44,726 to $95,375 $89,451 to $190,750 $44,726 to $95,375 $59,851 to $95,350 24%  $95,376 to $182,100 $190,751 to $364,200 $95,376 to $182,100 $95,351 to $182,100 32%  $182,101 to $231,250 $364,201 to $462,500 $182,101 to $231,250 $182,101 to $231,250 35%  $231,251 to $578,125 $462,501 to $693,750 $231,251 to $346,875 $231,251 to $578,100 37%  Over $578,125 Over $693,750 Over $346,875 Over $578,100 2024 Tax Brackets and Rates 2024 Tax Rate Single Filers Married Filing Jointly Married Filing Separately Heads of Households 10% Up to $11,600 Up to $23,200 Up to $11,600 Up to $16,550 12%  $11,601 to $47,150 $23,201 to $94,300 $11,601 to $47,150 $16,551 to $63,100 22%  $47,151 to $100,525 $94,301 to $201,050 $47,151 to $100,525 $63,101 to $100,500 24%  $100,526 to $191,950 $201,051 to $383,900 $100,526 to $191,950 $100,501 to $191,950 32%  $191,951 to $243,725 $383,901 to $487,450 $191,951 to $243,725 $191,951 to $243,700 35%  $243,726 to $609,350 $487,451 to $731,200 $243,726 to $365,600 $243,701 to $609,350 37%  Over $609,350 Over $731,200 Over $365,600 Over $609,350 How Tax Brackets Work The United States uses a progressive tax system, meaning taxpayers pay more incremental tax as they earn more income. This system aims to provide inherent tax benefits to lower-income individuals and collect more taxes from higher-income individuals. Tax brackets are often cited as a range of income with an associated percentage. For example, for 2023 federal income taxes, taxpayers who earn between $44,726 and $95,375 are “in the 22% tax bracket”. This means their earnings between these two amounts are assessed at a 22% tax rate. Earnings below $44,726 are assessed at a lower rate, and earnings above $95,375 are assessed at a higher rate.  Marginal Tax Rate vs. Effective Tax Rate As an example, an individual who is single and earns $80,000 annually falls into the 22% marginal tax bracket. This means the taxpayer would be responsible for $12,908 in taxes for 2023, the breakdown for which is illustrated in the chart below: Applying 2023 Tax Brackets and Rates to an Individual Earning $80,000 Dollars Amount Subject to Tax Tax Rate Tax at Each Rate $0~$11,000 $11,000 10% $1,100 $11,000 to $44,725 $33,725 12% $4,047 $44,725 to $95,375 $35,275 22% $7,761 Total $80,000 - $12,908 total tax bill Because of the varying tax brackets, a taxpayer will usually have an effective tax rate different from their highest tax bracket. The marginal tax rate is the additional tax paid for every extra dollar of income. For example, a 10% marginal tax rate means that $.10 of every next dollar earned will be taken as tax. However, note that while the marginal rate is 22%, the effective tax rate is 16.1%. This figure is arrived at by dividing the total tax bill ($12,908) by income ($80,000) and multiplying by 100. The effective tax rate is the actual rate the individual ends up paying in taxes to the government. How To Reduce Your Taxes: Tax Deductions There are two ways to pay less tax: make less money or earn more tax benefits. As it’s usually more advantageous to seek out tax benefits, there are several specific places taxpayers can look. Tax deductions are legislative enactments that allow a taxpayer to reduce the amount of income they are taxed on their return. Though tax deductions don’t directly reduce the amount of tax a taxpayer must pay, it does reduce the calculation basis for the taxpayer’s tax liability. For example, consider a taxpayer who contributes to a traditional IRA. In many situations, the taxpayer is allowed to deduct their contribution from their taxable income. Should the taxpayer have contributed the 2023 maximum amount, their taxable income would be reduced by $6,500. If the taxpayer is in the 22% marginal tax bracket, this would result in a potential $1,430 ($6,500 * 22%) tax savings. Examples of Tax Deductions The most common Federal tax deduction used to reduce your Federal income tax liability is the standard deduction. Each taxpayer may claim a standard deduction based on their filing status; this amount (which is reassessed annually) allows a taxpayer to reduce their taxable income by a set amount established by the Federal government. The alternative to a standard deduction is the itemized deduction. This option allows taxpayers to accumulate certain types of eligible expenses and opt to deduct the total allowable amount of these expenses instead of the standard deduction. These types of expenses include charitable contributions, mortgage interest payments, and medical expenses. Last, there are deductions exclusive of the standard deduction or itemized deduction. For example, as long as taxpayers meet specific contribution and income limit thresholds, certain types of retirement contributions may be deducted. Alternatively, taxpayers may receive deductions on other types of spending such as educational expenses. How To Reduce Your Taxes: Tax Credits Tax credits are legislative enactments that allow a taxpayer to reduce the amount of tax they owe. After a taxpayer’s tax liability is calculated, a taxpayer may then directly reduce their liability by tax credit amounts they are eligible for.  Take a taxpayer who has one child and is eligible for the Child Tax Credit. The taxpayer’s taxable income is $50,000, and the taxpayer’s tax liability is $4,500. The Child Tax Credit directly reduces the tax liability from $4,500 to $2,900. The Child Tax Credit is not applied to the $50,000 of taxable income; instead, it is directly applied to the tax liability amount. The largest tax credits are all associated with legislative incentive endeavors for specific types of taxpayers. For example, the Earned Income Tax Credit awards tax credits to those of low income, while the American Opportunity Tax Credit and Lifetime Learning Credit award those pursuing higher education. The Child and Dependent Care Credit benefits those with children/dependents. Refundable vs. Nonrefundable Tax Credits Some Federal tax credits are nonrefundable, meaning once they reduce your tax liability to $0, a taxpayer may not receive additional benefit nor receive a refund due to an unused portion of the credit. An example of a nonrefundable tax credit is the Adoption Tax Credit; once the credit reduces a taxpayer's tax liability to $0, the taxpayer will simply not pay tax. On the other hand, other credits may be refundable; not only can refundable tax credits reduce a taxpayer's liability to $0, but they may flip the taxpayer into receiving a tax refund. For example, if you owe $750 in taxes but qualify for a $1,000 refundable tax credit, you would ultimately receive a $250 tax refund. Be mindful that some credits are partially refundable. For example, in 2023, the Child Tax Credit of $1,600 is partially refundable; in 2024, up to $1,700 is refundable. State Income Tax vs. Federal Income Tax It is important to distinguish between the definition of income tax and federal income tax. In the U.S., governments at the state level may also levy income taxes in addition to federal income taxes. Not all states have state-level income taxes. As of 2023, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming don’t have an income tax. New Hampshire taxes dividends and interest income only, but the state will completely phase out these taxes by 2027. Individual vs. Other Federal Income Taxes The information above has been primarily informative regarding individual Federal income taxes. The IRS also collects tax revenue from other entities. Businesses must report income and receive tax benefits similar to individuals. Certain legal business forms, such as partnerships, have a different tax filing date compared to individual filers. In addition, businesses are subject to a wide range of tax credits only available to businesses; many credits derive from the General Business Credit filed using Form 3800. Charities and nonprofits that have received tax-exempt status must also usually file a Form 990 with the IRS to maintain their tax-free status. This information return does not result in any taxes owed from the nonprofit. However, information provided on the return may result in further evaluation or revocation of the tax-advantaged status. Last, international individuals or businesses may be required to file Federal taxes within the U.S. There are specific rules for foreign entities with income-generating activities within the United States and domestic entities with income-generating activities outside the United States. What Are the Federal Income Tax Brackets for 2023 and 2024? The U.S. federal income tax is a marginal tax rate system based on an individual's income and filing status. For the 2023 and 2024 tax years, the tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Does Social Security Count as Income? Social Security benefits are not counted as gross income. However, benefits are included in your combined income, which the IRS uses to determine if you should pay taxes on your benefits. Combined income is determined by totaling your adjusted gross income (AGI), nontaxable interest, and half of your Social Security benefits. If your combined income is between $25,000 and $34,000, you may be taxed on up to 50% of your benefits. If your combined income is more than $34,000, you may be taxed on up to 85% of your benefits. Which Country Has the Highest Federal Income Tax? Ivory Coast has the highest tax rate at 60%. Finland (56.95%), Denmark (56%), Japan (55.97%), Austria (55%), Sweden (52.3%), Aruba (52%), Belgium (50%), Israel (50%), and the Netherlands (49.5%) round out the top 10 as of 2023. Which U.S. President Imposed the First Federal Income Tax? President Abraham Lincoln was the president to impose the first federal income tax by signing the Revenue Act on Aug. 5, 1861. The reason he did so was to finance the Civil War. A 3% tax was imposed on all annual incomes over $800. When Is Federal Income Tax Due? Generally, federal income tax is due on April 15 of every year. The day can shift slightly if April 15 falls on a weekend or because of other factors. The Bottom Line Federal income taxes are considered a marginal tax or progressive tax and apply to all forms of earnings that make up a taxpayer's taxable income, including wages, salaries, commissions, bonuses, tips, investment income, and certain types of unearned income. Each year, the IRS releases updates to the tax brackets and rates that apply to single filers, married individuals filing joint returns or separately, and heads of households.

https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years.asp

Put $10,000 in the S&P 500 ETF and Wait 20 Years

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500 Index</a> has long been one of the best-known proxies for the U.S. stock market, and several mutual funds and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> that passively track the index have become popular investment vehicles. These funds do not seek to outperform the index through active trading, stock picking, or market timing; instead, relying on the inherent <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> of the broad index to generate returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Indeed, over long-term horizons, the index typically produces better returns than actively managed portfolios, especially after taking into account taxes and fees. So, what if you had just held the S&amp;P 500, using an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index fund</a> or some other means of holding the stocks in it? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The S&amp;P 500 Index is considered a gauge of the U.S. economy.</li><li>It is a broad-based measure of large corporations traded on U.S. stock markets.</li><li>Passively holding the index over longer periods of time often produces better results than actively trading or picking single stocks.</li><li>The index typically produces better returns over long-term horizons than actively managed portfolios.</li><li>Although past performance isn't an indicator of future results, investors can use historical data to come up with hypothetical scenarios.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <em>We recommend the best products through an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/review-process-4802351">independent review process</a>, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#advertising-disclosure">advertiser disclosure</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_9-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Compare the Best Online Brokers</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Company</b></td> <td><b>Category </b></td> <td><b>Investopedia Rating</b></td> <td><b>Account Minimum</b></td> <td><b>Basic Fee</b></td> </tr> <tr> <td><b><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1134&amp;type=3&amp;subid=0" rel="sponsored nofollow">Fidelity Investments</a></b></td> <td>Best Overall, Best for Low Costs, Best for ETFs</td> <td> 4.8</td> <td>$0 </td> <td> $0 for stock/ETF trades, $0 plus $0.65/contract for options trade</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N3941.investopedia.com/B26958620.323528883;dc_trk_aid=517538065;dc_trk_cid=67442974;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=" rel="sponsored nofollow">TD Ameritrade</a></b></td> <td>Best for Beginners and Best Mobile App</td> <td> 4.5</td> <td>$0 </td> <td> $0 for stock/ETF trades, $0 plus $0.65/contract for options trade</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" rel="sponsored nofollow">Tastyworks</a></b></td> <td>Best for Options</td> <td> 3.9</td> <td>$0 </td> <td> $0 stock/ETF trades, $1.00 to open options trades and $0 to close</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow">Interactive Brokers</a></b></td> <td>Best for Advanced Traders and Best for International Trading</td> <td> 4.2</td> <td>$0 </td> <td>$0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value </td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-what-if-you-had-invested-in-just-the-sp-500"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> What If You Had Invested in Just the S&amp;P 500? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> People often use the S&amp;P 500 as a yardstick for investing success. Active traders or stock-picking investors are often judged against this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> in hindsight to evaluate their savvy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Let's take a historical example: Soon after Donald Trump entered the race for the Republican nomination for president, the press zeroed in on his <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp">net worth</a>. Financial experts have pegged his net worth at $2.5 billion.<span class="ql-inline-citation" data-cite="8"></span> One of the cornerstones of Trump's campaign was his success as a businessperson and his ability to create such wealth. However, financial experts pointed out that if Trump liquidated his real estate holdings, which were estimated to be worth $500 million, back in 1987, and invested them in the S&amp;P 500 Index, his net worth would be as much as $13 billion in 2015.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> It is just one more example of how the S&amp;P 500 Index continues to be held up as the standard by which all investment performances are measured. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-manager.asp">Investment managers</a> are paid a lot of money to generate returns for their portfolios that beat the S&amp;P 500, yet on average, most don't.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This is the reason why an increasing number of investors are turning to index funds and ETFs that simply try to match the performance of this index. If Trump had done so back in 1987, he would have made 26 times his money for an average annualized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a> of 12.3% by the time he was inaugurated (from 1987 to 2015—the date of calculation for projected net worth). But hindsight is 20/20, and he could not have known that.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you invested $10,000 on the first trading day of January 2001 in the S&amp;P 500, it would have been worth around $45,227 by the end of 2022.<span class="ql-inline-citation" data-cite="14"></span></p></div></div></div> <span class="heading-toc" id="toc-using-hindsight-to-predict-future-performance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Using Hindsight to Predict Future Performance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Because past performance is no indication of future performance, no one can say whether the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a> will perform the same way in the next 20 years. However, you can use past performance to create some hypothetical scenarios that allow you to consider possible outcomes. To do that, look at the 20-year performance of the S&amp;P 500 at various intervals as an indication of how it might perform under similar circumstances in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> One of the biggest reasons why it is impossible to predict stock market returns over a long period of time is because of the existence of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blackswan.asp">black swans</a>. Black swans are catastrophic, unexpected events that can alter the course of the markets in an instant and whose impact may be felt for years to come. Such events are called black swans because they appear so rarely, but they appear often enough that they have to be accounted for when looking into the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The terrorist attacks on Sept. 11, 2001, were a black swan event that impacted the economy and the markets for years. Other examples of black swan events are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp">global financial crisis</a> of 2008 and the COVID-19 pandemic that erupted worldwide in March 2020. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> You also have to consider the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market_cycles.asp">market cycles</a> that can occur within a 20-year span. For example, in the 20-year span from 2001 to 2020, the S&amp;P 500 had three distinct bull markets and three bear markets.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Research from Invesco shows that from the period of November 1968 through December 2020—a span of more than 50 years—the average length of a bull market was 1,764 days (or approximately 58 months), while the average <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a> lasted 349 days (11.5 months). Over this period, the average gain in a bull market was +180.04%, while the average loss in a bear market was -36.34%.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A bull market is generally characterized by a market rise of at least 20% from its previous low. A bear market is defined by a market decline of at least 20% from its prior high.</p></div></div></div> <span class="heading-toc" id="toc-choosing-a-hypothetical-scenario"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Choosing a Hypothetical Scenario </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The most recent 20-year span, from 2001 to 2021, not only included three <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull markets</a> and three bear markets, but it also experienced a number of major black swans with the tech wreck and terrorist attacks in 2001, the financial crisis in 2008, and the COVID-19 pandemic.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Despite these unprecedented events, the S&amp;P 500 still managed to generate a total annual return of 8.06% with reinvested <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>. The total return over this period was 409.13%, which means that a $10,000 investment made at the beginning of 2001 would have been $50,913.05 by the end of 2021.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Taking a different 20-year span that also included three bull markets but only one bear market, the outcome is quite different. In the period from 1987 to 2006, the market suffered a steep crash in October 1987, followed by another severe crash in 2001 to 2002, but it still managed to return an average of 11.24% with dividends reinvested, which is an 8.10% <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation_adjusted_return.asp">inflation-adjusted return</a>. The total return of $10,000 invested in January 1987 would have been $84,227.27.<span class="ql-inline-citation" data-cite="11"></span> Likewise, the market roared back following the 2007-2008 <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp">financial crisis</a> to the longest bull run on record. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> You could repeat that exercise over and over to try to find a hypothetical scenario you expect to play out over the next 20 years, or you could simply apply the broader assumption of an average annual return since the stock market’s inception, which is 6.86% on an inflation-adjusted basis. With that, you could expect your $10,000 investment to grow to $34,000 in 20 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-why-is-the-sp-500-a-good-long-term-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is the S&amp;P 500 a Good Long-Term Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The S&amp;P 500 is one of the most widely followed proxies for the U.S. stock market. It's a bellwether and benchmark for many major funds and portfolio managers. From 1950 to 2022, the S&amp;P 500 yielded an annualized average return of 11.19%.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-what-is-an-inexpensive-way-to-invest-in-the-sp-500"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Inexpensive Way to Invest in the S&amp;P 500?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A cost-effective way to invest in the S&amp;P 500 is through an exchange-traded fund like the SPDR S&amp;P 500 ETF Trust (SPY), which has an expense ratio of 0.0945%.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-is-investing-in-the-sp-500-less-risky-than-buying-a-single-stock"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Investing in the S&amp;P 500 Less Risky Than Buying a Single Stock?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, yes. The S&amp;P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> You may not be able to predict the performance of the S&amp;P 500 Index for the next 20 years, but you are not alone. In one of his annual letters to shareholders, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp">Warren Buffett</a> included an excerpt from his will that ordered his children’s inheritance to be placed in an S&amp;P 500 Index fund because the “long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals who employ high-fee managers.”<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <em>Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document"> Characteristics and Risks of Standardized Options</a>. Supporting documentation for any claims, if applicable, will be furnished upon request.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <em>There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="http://fidelity.com/commissions]%28https://www.fidelity.com/trading/commissions-margin-rates%29">Fidelity.com/commissions</a> for details.</em> </p></div>

The [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp) has long been one of the best-known proxies for the U.S. stock market, and several mutual funds and [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) that passively track the index have become popular investment vehicles. These funds do not seek to outperform the index through active trading, stock picking, or market timing; instead, relying on the inherent [diversification](https://www.investopedia.com/terms/d/diversification.asp) of the broad index to generate returns. Indeed, over long-term horizons, the index typically produces better returns than actively managed portfolios, especially after taking into account taxes and fees. So, what if you had just held the S&P 500, using an [index fund](https://www.investopedia.com/terms/i/indexfund.asp) or some other means of holding the stocks in it? ### Key Takeaways * The S&P 500 Index is considered a gauge of the U.S. economy. * It is a broad-based measure of large corporations traded on U.S. stock markets. * Passively holding the index over longer periods of time often produces better results than actively trading or picking single stocks. * The index typically produces better returns over long-term horizons than actively managed portfolios. * Although past performance isn't an indicator of future results, investors can use historical data to come up with hypothetical scenarios. *We recommend the best products through an [independent review process](https://www.investopedia.com/review-process-4802351), and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our [advertiser disclosure](https://www.investopedia.com/legal-4768893#advertising-disclosure) for more info.* | Compare the Best Online Brokers | | | | | | --- | --- | --- | --- | --- | | **Company** | **Category** | **Investopedia Rating** | **Account Minimum** | **Basic Fee** | | **[Fidelity Investments](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1134&type=3&subid=0)** | Best Overall, Best for Low Costs, Best for ETFs | 4.8 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade | | **[TD Ameritrade](https://ad.doubleclick.net/ddm/trackclk/N3941.investopedia.com/B26958620.323528883;dc_trk_aid=517538065;dc_trk_cid=67442974;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=)** | Best for Beginners and Best Mobile App | 4.5 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade | | **[Tastyworks](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1)** | Best for Options | 3.9 | $0 | $0 stock/ETF trades, $1.00 to open options trades and $0 to close | | **[Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php)** | Best for Advanced Traders and Best for International Trading | 4.2 | $0 | $0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value | ## What If You Had Invested in Just the S&P 500? People often use the S&P 500 as a yardstick for investing success. Active traders or stock-picking investors are often judged against this [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) in hindsight to evaluate their savvy. Let's take a historical example: Soon after Donald Trump entered the race for the Republican nomination for president, the press zeroed in on his [net worth](https://www.investopedia.com/terms/n/networth.asp). Financial experts have pegged his net worth at $2.5 billion. One of the cornerstones of Trump's campaign was his success as a businessperson and his ability to create such wealth. However, financial experts pointed out that if Trump liquidated his real estate holdings, which were estimated to be worth $500 million, back in 1987, and invested them in the S&P 500 Index, his net worth would be as much as $13 billion in 2015. It is just one more example of how the S&P 500 Index continues to be held up as the standard by which all investment performances are measured. [Investment managers](https://www.investopedia.com/terms/i/investment-manager.asp) are paid a lot of money to generate returns for their portfolios that beat the S&P 500, yet on average, most don't. This is the reason why an increasing number of investors are turning to index funds and ETFs that simply try to match the performance of this index. If Trump had done so back in 1987, he would have made 26 times his money for an average annualized [return](https://www.investopedia.com/terms/r/return.asp) of 12.3% by the time he was inaugurated (from 1987 to 2015—the date of calculation for projected net worth). But hindsight is 20/20, and he could not have known that. ### If you invested $10,000 on the first trading day of January 2001 in the S&P 500, it would have been worth around $45,227 by the end of 2022. ## Using Hindsight to Predict Future Performance Because past performance is no indication of future performance, no one can say whether the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) will perform the same way in the next 20 years. However, you can use past performance to create some hypothetical scenarios that allow you to consider possible outcomes. To do that, look at the 20-year performance of the S&P 500 at various intervals as an indication of how it might perform under similar circumstances in the future. One of the biggest reasons why it is impossible to predict stock market returns over a long period of time is because of the existence of [black swans](https://www.investopedia.com/terms/b/blackswan.asp). Black swans are catastrophic, unexpected events that can alter the course of the markets in an instant and whose impact may be felt for years to come. Such events are called black swans because they appear so rarely, but they appear often enough that they have to be accounted for when looking into the future. The terrorist attacks on Sept. 11, 2001, were a black swan event that impacted the economy and the markets for years. Other examples of black swan events are the [global financial crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp) of 2008 and the COVID-19 pandemic that erupted worldwide in March 2020. You also have to consider the [market cycles](https://www.investopedia.com/terms/m/market_cycles.asp) that can occur within a 20-year span. For example, in the 20-year span from 2001 to 2020, the S&P 500 had three distinct bull markets and three bear markets. Research from Invesco shows that from the period of November 1968 through December 2020—a span of more than 50 years—the average length of a bull market was 1,764 days (or approximately 58 months), while the average [bear market](https://www.investopedia.com/terms/b/bearmarket.asp) lasted 349 days (11.5 months). Over this period, the average gain in a bull market was +180.04%, while the average loss in a bear market was -36.34%. ### A bull market is generally characterized by a market rise of at least 20% from its previous low. A bear market is defined by a market decline of at least 20% from its prior high. ## Choosing a Hypothetical Scenario The most recent 20-year span, from 2001 to 2021, not only included three [bull markets](https://www.investopedia.com/terms/b/bullmarket.asp) and three bear markets, but it also experienced a number of major black swans with the tech wreck and terrorist attacks in 2001, the financial crisis in 2008, and the COVID-19 pandemic. Despite these unprecedented events, the S&P 500 still managed to generate a total annual return of 8.06% with reinvested [dividends](https://www.investopedia.com/terms/d/dividend.asp). The total return over this period was 409.13%, which means that a $10,000 investment made at the beginning of 2001 would have been $50,913.05 by the end of 2021. Taking a different 20-year span that also included three bull markets but only one bear market, the outcome is quite different. In the period from 1987 to 2006, the market suffered a steep crash in October 1987, followed by another severe crash in 2001 to 2002, but it still managed to return an average of 11.24% with dividends reinvested, which is an 8.10% [inflation-adjusted return](https://www.investopedia.com/terms/i/inflation_adjusted_return.asp). The total return of $10,000 invested in January 1987 would have been $84,227.27. Likewise, the market roared back following the 2007-2008 [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp) to the longest bull run on record. You could repeat that exercise over and over to try to find a hypothetical scenario you expect to play out over the next 20 years, or you could simply apply the broader assumption of an average annual return since the stock market’s inception, which is 6.86% on an inflation-adjusted basis. With that, you could expect your $10,000 investment to grow to $34,000 in 20 years. ## Why Is the S&P 500 a Good Long-Term Investment? The S&P 500 is one of the most widely followed proxies for the U.S. stock market. It's a bellwether and benchmark for many major funds and portfolio managers. From 1950 to 2022, the S&P 500 yielded an annualized average return of 11.19%. ## What Is an Inexpensive Way to Invest in the S&P 500? A cost-effective way to invest in the S&P 500 is through an exchange-traded fund like the SPDR S&P 500 ETF Trust (SPY), which has an expense ratio of 0.0945%. ## Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors. ## The Bottom Line You may not be able to predict the performance of the S&P 500 Index for the next 20 years, but you are not alone. In one of his annual letters to shareholders, [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp) included an excerpt from his will that ordered his children’s inheritance to be placed in an S&P 500 Index fund because the “long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals who employ high-fee managers.” *Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read[Characteristics and Risks of Standardized Options](https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document). Supporting documentation for any claims, if applicable, will be furnished upon request.* *There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See [Fidelity.com/commissions](http://fidelity.com/commissions]%28https://www.fidelity.com/trading/commissions-margin-rates%29) for details.*

The S&P 500 Index has long been one of the best-known proxies for the U.S. stock market, and several mutual funds and exchange-traded funds (ETFs) that passively track the index have become popular investment vehicles. These funds do not seek to outperform the index through active trading, stock picking, or market timing; instead, relying on the inherent diversification of the broad index to generate returns. Indeed, over long-term horizons, the index typically produces better returns than actively managed portfolios, especially after taking into account taxes and fees. So, what if you had just held the S&P 500, using an index fund or some other means of holding the stocks in it? Key Takeaways The S&P 500 Index is considered a gauge of the U.S. economy.It is a broad-based measure of large corporations traded on U.S. stock markets.Passively holding the index over longer periods of time often produces better results than actively trading or picking single stocks.The index typically produces better returns over long-term horizons than actively managed portfolios.Although past performance isn't an indicator of future results, investors can use historical data to come up with hypothetical scenarios. We recommend the best products through an independent review process, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our advertiser disclosure for more info. Compare the Best Online Brokers Company Category  Investopedia Rating Account Minimum Basic Fee Fidelity Investments Best Overall, Best for Low Costs, Best for ETFs  4.8 $0   $0 for stock/ETF trades, $0 plus $0.65/contract for options trade TD Ameritrade Best for Beginners and Best Mobile App  4.5 $0   $0 for stock/ETF trades, $0 plus $0.65/contract for options trade Tastyworks Best for Options  3.9 $0   $0 stock/ETF trades, $1.00 to open options trades and $0 to close Interactive Brokers Best for Advanced Traders and Best for International Trading  4.2 $0  $0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value  What If You Had Invested in Just the S&P 500? People often use the S&P 500 as a yardstick for investing success. Active traders or stock-picking investors are often judged against this benchmark in hindsight to evaluate their savvy. Let's take a historical example: Soon after Donald Trump entered the race for the Republican nomination for president, the press zeroed in on his net worth. Financial experts have pegged his net worth at $2.5 billion. One of the cornerstones of Trump's campaign was his success as a businessperson and his ability to create such wealth. However, financial experts pointed out that if Trump liquidated his real estate holdings, which were estimated to be worth $500 million, back in 1987, and invested them in the S&P 500 Index, his net worth would be as much as $13 billion in 2015. It is just one more example of how the S&P 500 Index continues to be held up as the standard by which all investment performances are measured. Investment managers are paid a lot of money to generate returns for their portfolios that beat the S&P 500, yet on average, most don't. This is the reason why an increasing number of investors are turning to index funds and ETFs that simply try to match the performance of this index. If Trump had done so back in 1987, he would have made 26 times his money for an average annualized return of 12.3% by the time he was inaugurated (from 1987 to 2015—the date of calculation for projected net worth). But hindsight is 20/20, and he could not have known that. If you invested $10,000 on the first trading day of January 2001 in the S&P 500, it would have been worth around $45,227 by the end of 2022. Using Hindsight to Predict Future Performance Because past performance is no indication of future performance, no one can say whether the stock market will perform the same way in the next 20 years. However, you can use past performance to create some hypothetical scenarios that allow you to consider possible outcomes. To do that, look at the 20-year performance of the S&P 500 at various intervals as an indication of how it might perform under similar circumstances in the future. One of the biggest reasons why it is impossible to predict stock market returns over a long period of time is because of the existence of black swans. Black swans are catastrophic, unexpected events that can alter the course of the markets in an instant and whose impact may be felt for years to come. Such events are called black swans because they appear so rarely, but they appear often enough that they have to be accounted for when looking into the future. The terrorist attacks on Sept. 11, 2001, were a black swan event that impacted the economy and the markets for years. Other examples of black swan events are the global financial crisis of 2008 and the COVID-19 pandemic that erupted worldwide in March 2020. You also have to consider the market cycles that can occur within a 20-year span. For example, in the 20-year span from 2001 to 2020, the S&P 500 had three distinct bull markets and three bear markets. Research from Invesco shows that from the period of November 1968 through December 2020—a span of more than 50 years—the average length of a bull market was 1,764 days (or approximately 58 months), while the average bear market lasted 349 days (11.5 months). Over this period, the average gain in a bull market was +180.04%, while the average loss in a bear market was -36.34%. A bull market is generally characterized by a market rise of at least 20% from its previous low. A bear market is defined by a market decline of at least 20% from its prior high. Choosing a Hypothetical Scenario The most recent 20-year span, from 2001 to 2021, not only included three bull markets and three bear markets, but it also experienced a number of major black swans with the tech wreck and terrorist attacks in 2001, the financial crisis in 2008, and the COVID-19 pandemic. Despite these unprecedented events, the S&P 500 still managed to generate a total annual return of 8.06% with reinvested dividends. The total return over this period was 409.13%, which means that a $10,000 investment made at the beginning of 2001 would have been $50,913.05 by the end of 2021. Taking a different 20-year span that also included three bull markets but only one bear market, the outcome is quite different. In the period from 1987 to 2006, the market suffered a steep crash in October 1987, followed by another severe crash in 2001 to 2002, but it still managed to return an average of 11.24% with dividends reinvested, which is an 8.10% inflation-adjusted return. The total return of $10,000 invested in January 1987 would have been $84,227.27. Likewise, the market roared back following the 2007-2008 financial crisis to the longest bull run on record. You could repeat that exercise over and over to try to find a hypothetical scenario you expect to play out over the next 20 years, or you could simply apply the broader assumption of an average annual return since the stock market’s inception, which is 6.86% on an inflation-adjusted basis. With that, you could expect your $10,000 investment to grow to $34,000 in 20 years. Why Is the S&P 500 a Good Long-Term Investment? The S&P 500 is one of the most widely followed proxies for the U.S. stock market. It's a bellwether and benchmark for many major funds and portfolio managers. From 1950 to 2022, the S&P 500 yielded an annualized average return of 11.19%. What Is an Inexpensive Way to Invest in the S&P 500? A cost-effective way to invest in the S&P 500 is through an exchange-traded fund like the SPDR S&P 500 ETF Trust (SPY), which has an expense ratio of 0.0945%. Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors. The Bottom Line You may not be able to predict the performance of the S&P 500 Index for the next 20 years, but you are not alone. In one of his annual letters to shareholders, Warren Buffett included an excerpt from his will that ordered his children’s inheritance to be placed in an S&P 500 Index fund because the “long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals who employ high-fee managers.” Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request. There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See Fidelity.com/commissions for details.

https://www.investopedia.com/inflation-affects-student-loans-5323591

How Inflation Affects Student Loan Borrowers

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Many borrowers with student loans haven't made any payments for more than three years, and we certainly can't blame them. After all, the United States Department of Education put several relief measures for the COVID-19 pandemic into place in March of 2020, including pausing all payments on federal student loans and fixing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> at 0%.<span class="ql-inline-citation" data-cite="11"></span> Student loan payment relief was extended multiple times during 2021 and 2022, but hit a snag after President Biden's <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-loan-forgiveness.asp">student loan forgiveness plan</a> was halted by federal courts in 2022 and then <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/supreme-court-strikes-down-student-loan-forgiveness-7495780">struck down by the Supreme Court</a> in June 2023. In July 2023, the Biden Administration announced that it was <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-white-house-cancels-usd39-billion-in-student-debt-7561122">canceling $39 billion in student debt</a>.<span class="ql-inline-citation" data-cite="26"></span> Even if the new measures stand, many borrowers may still have additional balances to pay down.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Either way,<em> </em>a lot has happened with the economy over the last three years. One of the biggest changes has come in the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>, which is currently rising at a rapid pace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index (CPI)</a>, which is used to measure the price of various goods and services over time, increased 9.1% <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/year-over-year.asp">year-over-year (YOY)</a>. With that in mind, it's perfectly reasonable to wonder how inflation might affect student loans in general. Read on to learn why inflation matters when it comes to student debt, where problems may arise, and what you can do about it, if anything.<span class="ql-inline-citation" data-cite="27"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>In March of 2020, the U.S. Department of Education announced an emergency deferment of eligible federal student loans due to the pandemic. This emergency measure included paused payments on eligible federal student loans, as well as a fixed interest rate of 0%.<span class="ql-inline-citation" data-cite="11"></span></li> <li>The deferment period is currently paused until whichever of the following two dates happens first: 60 days after the Department of Education is allowed to implement the student loan forgiveness plan it proposed in August 2022 or the litigation regarding the forgiveness plan is resolved; or 60 days past June 30, 2023.<span class="ql-inline-citation" data-cite="28"></span></li> <li>In July 2023, the Biden Administration announced that it was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-white-house-cancels-usd39-billion-in-student-debt-7561122">canceling $39 billion in student debt</a>.<span class="ql-inline-citation" data-cite="29"></span></li> <li>Inflation increased dramatically in 2022, rising 6.5% in December 2022 compared to December 2021.<span class="ql-inline-citation" data-cite="25"></span></li> <li>Some borrowers are bracing for impacts on their student loans due to inflation, such as rising interest rates and having less disposable income to make payments.</li> </ul></div></div></div> <span class="heading-toc" id="toc-increasing-rates-for-federal-student-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Increasing Rates for Federal Student Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Fed increased rates in March, May, June, July, September, November and December of 2022 and again in January 2023.<span class="ql-inline-citation" data-cite="23"></span><span class="ql-inline-citation" data-cite="19"></span> These rate increases were explained as a way to help combat and ultimately stifle inflation. It is anticipated that the central bank may raise rates several more times in 2023 until its efforts begin to slow the rise of prices of goods and services in the economy.<span class="ql-inline-citation" data-cite="24"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> In the meantime, rising rates make borrowing more costly in general, whether you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-balance.asp">credit card balance</a> or you're taking out a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a>. Federal student loans with fixed interest rates will also feel the impact of this rate increase, although the rising rates will only affect borrowers who take out student loans in the future.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> How much are the rates for federal student loans going up? The chart below illustrates the current fixed interest rates for several types of federal student loans compared to what students will pay next year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_16-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Loan Type</b></td> <td><b>Borrower Type</b></td> <td><b>Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2021, and Before July 1, 2022</b></td> <td><b>Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2022, and Before July 1, 2023</b></td> </tr> <tr> <td>Direct subsidized loans and direct unsubsidized loans</td> <td>Undergraduate</td> <td>4.99%</td> <td>5.50%</td> </tr> <tr> <td>Direct unsubsidized loans</td> <td>Graduate or professional</td> <td>6.54%</td> <td>7.05%</td> </tr> <tr> <td>Direct PLUS loans</td> <td>Parents and graduate or professional students</td> <td>7.54%</td> <td>8.05%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <em>Source: U.S. Department of Education, Federal Student Aid</em><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-rising-rates-on-variable-rate-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Rising Rates on Variable Rate Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> While borrowers with existing federal student loans benefit from fixed interest rates that won't change based on market conditions, borrowers with private student loans may not be so lucky. The fact is, that many private student loans come with variable rates that can and often do go up over time.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Unfortunately, rates going up by as little as 0.5% or 1% can cause monthly payments and total interest charges to rise substantially. As an example, let's say you are beginning repayment on $20,000 in student loans with a current interest rate of 5%. In that case, the monthly payment on a 10-year <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402">repayment plan</a> would work out to $212.13. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When you play around with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-calculator-5104934">loan calculator</a>, however, you'll see that boosting the rate to 5.5% increases the monthly payment to $217.05, whereas increasing the rate to 6% makes the monthly payment jump to $222.04. With each of these payment amounts, the total interest paid over 10 years works out to $5,455.12, $6,046.31, and $6,644.92, respectively. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In other words, you'll pay almost $600 more in total interest charges if your rate increases from 5% to 5.5% or more than $1,189 extra in interest if your rate jumps from 5% to 6%. Of course, the impact only goes up from here if you owe more than $20,000 in student loans or your interest rate climbs higher than that. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-less-disposable-income-means-problems-making-payments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Less Disposable Income Means Problems Making Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Inflation means that nearly everything you buy costs more and this inevitably leads to having less disposable income in your pocket. Even if your monthly student loan payment is the same as it was before, you may still have less extra cash to make the required monthly payments as time goes by. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> With that in mind, it's a good idea to take stock of how much you'll owe on federal student loans once they resume in the second-half of 2023.<span class="ql-inline-citation" data-cite="21"></span> Doing so can help you decide if you will still be able to afford your monthly payment. If you're worried you won't be able to, now's the time to look into other student loan repayment options, such as income-driven repayment plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-increased-wages-could-impact-payments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Increased Wages Could Impact Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> If you're lucky enough to get a raise due to inflation, you should also know that the monthly payment on your federal student loans could rise as a result. This mostly applies to borrowers who participate in income-driven repayment plans that base their monthly payments on how much they earn. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> As an example, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pay-as-you-earn.asp">Pay As You Earn (PAYE)</a> repayment plan requires participants to pay 10% of their discretionary income toward their loans as long as it's not more than they would pay on a standard, 10-year repayment plan, according to Federal Student Aid. Also, note that the term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryincome.asp">discretionary income</a> is used to describe "the difference between your annual income and 150% of the poverty guideline for your family size and state of residence."<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you do get a big raise, but the poverty guidelines in your state of residence stay the same, there's a good chance the monthly payment on this plan and other income-driven plans could go up. If you're curious about what that change could look like, this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/loan-simulator/">loan simulator 403</a> from the U.S. Department of Education can give you an idea.<span class="ql-inline-citation" data-cite="30"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-will-rising-interest-rates-affect-student-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Rising Interest Rates Affect Student Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Rising interest rates mean that the fixed rates on federal student loans are going up for future borrowers. Higher rates also impact student loans with variable interest rates, which feature rates that fluctuate based on market conditions.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-should-i-refinance-my-student-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should I Refinance My Student Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The decision to refinance your student loans is a personal one, but you should know that you'll give up federal benefits if you refinance federal student loans with a private lender. For example, you'll give up the chance to apply for deferment or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forbearance.asp">forbearance</a>, in addition to your ability to participate in income-driven repayment plans.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-will-student-loan-debt-be-canceled"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Student Loan Debt Be Canceled?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Maybe. In August 2022, the Biden administration announced that it would forgive a portion of federal student loans based on income levels. According to the plan, for individuals making less than $125,000 ($250,000 for couples) and who had a Pell Grant at school, a total of $20,000 in loans would be forgiven. For those who did not have a Pell Grant, $10,000 would be forgiven.<span class="ql-inline-citation" data-cite="17"></span></p><p>However, a federal court blocked the plan, and as of Nov. 11, 2022, the Department of Education said it was no longer accepting applications for debt relief.<span class="ql-inline-citation" data-cite="31"></span> How this ultimately will play out in terms of loan forgiveness is unclear.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Inflation has a major impact on nearly every aspect of our lives and that's especially true for people with student loans and other types of debt. If you're worried inflation may impact your ability to repay your student loans, you should reach out to your loan servicer and consider switching repayment plans before payments resume. </p></div>

Many borrowers with student loans haven't made any payments for more than three years, and we certainly can't blame them. After all, the United States Department of Education put several relief measures for the COVID-19 pandemic into place in March of 2020, including pausing all payments on federal student loans and fixing [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) at 0%. Student loan payment relief was extended multiple times during 2021 and 2022, but hit a snag after President Biden's [student loan forgiveness plan](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp) was halted by federal courts in 2022 and then [struck down by the Supreme Court](https://www.investopedia.com/supreme-court-strikes-down-student-loan-forgiveness-7495780) in June 2023. In July 2023, the Biden Administration announced that it was [canceling $39 billion in student debt](https://www.investopedia.com/biden-white-house-cancels-usd39-billion-in-student-debt-7561122). Even if the new measures stand, many borrowers may still have additional balances to pay down. Either way,a lot has happened with the economy over the last three years. One of the biggest changes has come in the form of [inflation](https://www.investopedia.com/terms/i/inflation.asp), which is currently rising at a rapid pace. The [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp), which is used to measure the price of various goods and services over time, increased 9.1% [year-over-year (YOY)](https://www.investopedia.com/terms/y/year-over-year.asp). With that in mind, it's perfectly reasonable to wonder how inflation might affect student loans in general. Read on to learn why inflation matters when it comes to student debt, where problems may arise, and what you can do about it, if anything. ### Key Takeaways * In March of 2020, the U.S. Department of Education announced an emergency deferment of eligible federal student loans due to the pandemic. This emergency measure included paused payments on eligible federal student loans, as well as a fixed interest rate of 0%. * The deferment period is currently paused until whichever of the following two dates happens first: 60 days after the Department of Education is allowed to implement the student loan forgiveness plan it proposed in August 2022 or the litigation regarding the forgiveness plan is resolved; or 60 days past June 30, 2023. * In July 2023, the Biden Administration announced that it was [canceling $39 billion in student debt](https://www.investopedia.com/biden-white-house-cancels-usd39-billion-in-student-debt-7561122). * Inflation increased dramatically in 2022, rising 6.5% in December 2022 compared to December 2021. * Some borrowers are bracing for impacts on their student loans due to inflation, such as rising interest rates and having less disposable income to make payments. ## Increasing Rates for Federal Student Loans The Fed increased rates in March, May, June, July, September, November and December of 2022 and again in January 2023. These rate increases were explained as a way to help combat and ultimately stifle inflation. It is anticipated that the central bank may raise rates several more times in 2023 until its efforts begin to slow the rise of prices of goods and services in the economy. In the meantime, rising rates make borrowing more costly in general, whether you have a [credit card balance](https://www.investopedia.com/terms/c/credit-card-balance.asp) or you're taking out a [personal loan](https://www.investopedia.com/personal-loan-5076027). Federal student loans with fixed interest rates will also feel the impact of this rate increase, although the rising rates will only affect borrowers who take out student loans in the future.  How much are the rates for federal student loans going up? The chart below illustrates the current fixed interest rates for several types of federal student loans compared to what students will pay next year. | **Loan Type** | **Borrower Type** | **Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2021, and Before July 1, 2022** | **Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2022, and Before July 1, 2023** | | --- | --- | --- | --- | | Direct subsidized loans and direct unsubsidized loans | Undergraduate | 4.99% | 5.50% | | Direct unsubsidized loans | Graduate or professional | 6.54% | 7.05% | | Direct PLUS loans | Parents and graduate or professional students | 7.54% | 8.05% | *Source: U.S. Department of Education, Federal Student Aid* ## Rising Rates on Variable Rate Loans While borrowers with existing federal student loans benefit from fixed interest rates that won't change based on market conditions, borrowers with private student loans may not be so lucky. The fact is, that many private student loans come with variable rates that can and often do go up over time. Unfortunately, rates going up by as little as 0.5% or 1% can cause monthly payments and total interest charges to rise substantially. As an example, let's say you are beginning repayment on $20,000 in student loans with a current interest rate of 5%. In that case, the monthly payment on a 10-year [repayment plan](https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402) would work out to $212.13. When you play around with a [loan calculator](https://www.investopedia.com/loan-calculator-5104934), however, you'll see that boosting the rate to 5.5% increases the monthly payment to $217.05, whereas increasing the rate to 6% makes the monthly payment jump to $222.04. With each of these payment amounts, the total interest paid over 10 years works out to $5,455.12, $6,046.31, and $6,644.92, respectively. In other words, you'll pay almost $600 more in total interest charges if your rate increases from 5% to 5.5% or more than $1,189 extra in interest if your rate jumps from 5% to 6%. Of course, the impact only goes up from here if you owe more than $20,000 in student loans or your interest rate climbs higher than that. ## Less Disposable Income Means Problems Making Payments Inflation means that nearly everything you buy costs more and this inevitably leads to having less disposable income in your pocket. Even if your monthly student loan payment is the same as it was before, you may still have less extra cash to make the required monthly payments as time goes by. With that in mind, it's a good idea to take stock of how much you'll owe on federal student loans once they resume in the second-half of 2023. Doing so can help you decide if you will still be able to afford your monthly payment. If you're worried you won't be able to, now's the time to look into other student loan repayment options, such as income-driven repayment plans. ## Increased Wages Could Impact Payments If you're lucky enough to get a raise due to inflation, you should also know that the monthly payment on your federal student loans could rise as a result. This mostly applies to borrowers who participate in income-driven repayment plans that base their monthly payments on how much they earn. As an example, the [Pay As You Earn (PAYE)](https://www.investopedia.com/terms/p/pay-as-you-earn.asp) repayment plan requires participants to pay 10% of their discretionary income toward their loans as long as it's not more than they would pay on a standard, 10-year repayment plan, according to Federal Student Aid. Also, note that the term [discretionary income](https://www.investopedia.com/terms/d/discretionaryincome.asp) is used to describe "the difference between your annual income and 150% of the poverty guideline for your family size and state of residence." If you do get a big raise, but the poverty guidelines in your state of residence stay the same, there's a good chance the monthly payment on this plan and other income-driven plans could go up. If you're curious about what that change could look like, this [loan simulator 403](https://studentaid.gov/loan-simulator/) from the U.S. Department of Education can give you an idea. ## Will Rising Interest Rates Affect Student Loans? Rising interest rates mean that the fixed rates on federal student loans are going up for future borrowers. Higher rates also impact student loans with variable interest rates, which feature rates that fluctuate based on market conditions. ## Should I Refinance My Student Loans? The decision to refinance your student loans is a personal one, but you should know that you'll give up federal benefits if you refinance federal student loans with a private lender. For example, you'll give up the chance to apply for deferment or [forbearance](https://www.investopedia.com/terms/f/forbearance.asp), in addition to your ability to participate in income-driven repayment plans. ## Will Student Loan Debt Be Canceled? Maybe. In August 2022, the Biden administration announced that it would forgive a portion of federal student loans based on income levels. According to the plan, for individuals making less than $125,000 ($250,000 for couples) and who had a Pell Grant at school, a total of $20,000 in loans would be forgiven. For those who did not have a Pell Grant, $10,000 would be forgiven. However, a federal court blocked the plan, and as of Nov. 11, 2022, the Department of Education said it was no longer accepting applications for debt relief. How this ultimately will play out in terms of loan forgiveness is unclear. ## The Bottom Line Inflation has a major impact on nearly every aspect of our lives and that's especially true for people with student loans and other types of debt. If you're worried inflation may impact your ability to repay your student loans, you should reach out to your loan servicer and consider switching repayment plans before payments resume.

Many borrowers with student loans haven't made any payments for more than three years, and we certainly can't blame them. After all, the United States Department of Education put several relief measures for the COVID-19 pandemic into place in March of 2020, including pausing all payments on federal student loans and fixing interest rates at 0%. Student loan payment relief was extended multiple times during 2021 and 2022, but hit a snag after President Biden's student loan forgiveness plan was halted by federal courts in 2022 and then struck down by the Supreme Court in June 2023. In July 2023, the Biden Administration announced that it was canceling $39 billion in student debt. Even if the new measures stand, many borrowers may still have additional balances to pay down. Either way, a lot has happened with the economy over the last three years. One of the biggest changes has come in the form of inflation, which is currently rising at a rapid pace. The Consumer Price Index (CPI), which is used to measure the price of various goods and services over time, increased 9.1% year-over-year (YOY). With that in mind, it's perfectly reasonable to wonder how inflation might affect student loans in general. Read on to learn why inflation matters when it comes to student debt, where problems may arise, and what you can do about it, if anything. Key Takeaways In March of 2020, the U.S. Department of Education announced an emergency deferment of eligible federal student loans due to the pandemic. This emergency measure included paused payments on eligible federal student loans, as well as a fixed interest rate of 0%. The deferment period is currently paused until whichever of the following two dates happens first: 60 days after the Department of Education is allowed to implement the student loan forgiveness plan it proposed in August 2022 or the litigation regarding the forgiveness plan is resolved; or 60 days past June 30, 2023. In July 2023, the Biden Administration announced that it was canceling $39 billion in student debt. Inflation increased dramatically in 2022, rising 6.5% in December 2022 compared to December 2021. Some borrowers are bracing for impacts on their student loans due to inflation, such as rising interest rates and having less disposable income to make payments. Increasing Rates for Federal Student Loans The Fed increased rates in March, May, June, July, September, November and December of 2022 and again in January 2023. These rate increases were explained as a way to help combat and ultimately stifle inflation. It is anticipated that the central bank may raise rates several more times in 2023 until its efforts begin to slow the rise of prices of goods and services in the economy. In the meantime, rising rates make borrowing more costly in general, whether you have a credit card balance or you're taking out a personal loan. Federal student loans with fixed interest rates will also feel the impact of this rate increase, although the rising rates will only affect borrowers who take out student loans in the future.  How much are the rates for federal student loans going up? The chart below illustrates the current fixed interest rates for several types of federal student loans compared to what students will pay next year. Loan Type Borrower Type Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2021, and Before July 1, 2022 Fixed Interest Rate for Direct Loans First Disbursed on or After July 1, 2022, and Before July 1, 2023 Direct subsidized loans and direct unsubsidized loans Undergraduate 4.99% 5.50% Direct unsubsidized loans Graduate or professional 6.54% 7.05% Direct PLUS loans Parents and graduate or professional students 7.54% 8.05% Source: U.S. Department of Education, Federal Student Aid Rising Rates on Variable Rate Loans While borrowers with existing federal student loans benefit from fixed interest rates that won't change based on market conditions, borrowers with private student loans may not be so lucky. The fact is, that many private student loans come with variable rates that can and often do go up over time. Unfortunately, rates going up by as little as 0.5% or 1% can cause monthly payments and total interest charges to rise substantially. As an example, let's say you are beginning repayment on $20,000 in student loans with a current interest rate of 5%. In that case, the monthly payment on a 10-year repayment plan would work out to $212.13. When you play around with a loan calculator, however, you'll see that boosting the rate to 5.5% increases the monthly payment to $217.05, whereas increasing the rate to 6% makes the monthly payment jump to $222.04. With each of these payment amounts, the total interest paid over 10 years works out to $5,455.12, $6,046.31, and $6,644.92, respectively. In other words, you'll pay almost $600 more in total interest charges if your rate increases from 5% to 5.5% or more than $1,189 extra in interest if your rate jumps from 5% to 6%. Of course, the impact only goes up from here if you owe more than $20,000 in student loans or your interest rate climbs higher than that. Less Disposable Income Means Problems Making Payments Inflation means that nearly everything you buy costs more and this inevitably leads to having less disposable income in your pocket. Even if your monthly student loan payment is the same as it was before, you may still have less extra cash to make the required monthly payments as time goes by. With that in mind, it's a good idea to take stock of how much you'll owe on federal student loans once they resume in the second-half of 2023. Doing so can help you decide if you will still be able to afford your monthly payment. If you're worried you won't be able to, now's the time to look into other student loan repayment options, such as income-driven repayment plans. Increased Wages Could Impact Payments If you're lucky enough to get a raise due to inflation, you should also know that the monthly payment on your federal student loans could rise as a result. This mostly applies to borrowers who participate in income-driven repayment plans that base their monthly payments on how much they earn. As an example, the Pay As You Earn (PAYE) repayment plan requires participants to pay 10% of their discretionary income toward their loans as long as it's not more than they would pay on a standard, 10-year repayment plan, according to Federal Student Aid. Also, note that the term discretionary income is used to describe "the difference between your annual income and 150% of the poverty guideline for your family size and state of residence." If you do get a big raise, but the poverty guidelines in your state of residence stay the same, there's a good chance the monthly payment on this plan and other income-driven plans could go up. If you're curious about what that change could look like, this loan simulator 403 from the U.S. Department of Education can give you an idea. Will Rising Interest Rates Affect Student Loans? Rising interest rates mean that the fixed rates on federal student loans are going up for future borrowers. Higher rates also impact student loans with variable interest rates, which feature rates that fluctuate based on market conditions. Should I Refinance My Student Loans? The decision to refinance your student loans is a personal one, but you should know that you'll give up federal benefits if you refinance federal student loans with a private lender. For example, you'll give up the chance to apply for deferment or forbearance, in addition to your ability to participate in income-driven repayment plans. Will Student Loan Debt Be Canceled? Maybe. In August 2022, the Biden administration announced that it would forgive a portion of federal student loans based on income levels. According to the plan, for individuals making less than $125,000 ($250,000 for couples) and who had a Pell Grant at school, a total of $20,000 in loans would be forgiven. For those who did not have a Pell Grant, $10,000 would be forgiven.However, a federal court blocked the plan, and as of Nov. 11, 2022, the Department of Education said it was no longer accepting applications for debt relief. How this ultimately will play out in terms of loan forgiveness is unclear. The Bottom Line Inflation has a major impact on nearly every aspect of our lives and that's especially true for people with student loans and other types of debt. If you're worried inflation may impact your ability to repay your student loans, you should reach out to your loan servicer and consider switching repayment plans before payments resume.

https://www.investopedia.com/dow-jones-today-05162024-8649407

Markets News, May 16, 2024: Stocks Slip as Dow Retreats From 40K; Walmart Jumps

<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp liveblog mntl-block" id="liveblog_1-0"><div class="comp mntl-block article-content__description" id="mntl-block_12-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> U.S. stocks closed slightly lower on Thursday, retreating from yesterday's record highs reached amid optimism the Federal Reserve will cut interest rates later this year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">Nasdaq Composite</a> fell 0.3% Thursday, while the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> shed 0.2% and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a>, which crossed 40,000 for the first time early in the session, ticked down 0.1%.<br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Walmart (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>) was the best-performing stock in the S&amp;P 500 after the retail giant beat analysts' earnings estimates for the first quarter, with sales getting a boost from inflation-weary consumers. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Chubb (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB">CB</a>) shares jumped after Warren Buffett's Berkshire Hathaway (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B">BRK.B</a>) revealed it had amassed a roughly 6% stake in the insurer worth nearly $7 billion. The position was first revealed to regulators last year but kept confidential while Berkshire added to its stake, leading to plenty of speculation about the identity of Buffett's mystery stock. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The major stock indexes all <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dow-jones-today-05152024-8648735">closed at record highs Wednesday</a> after data showed core inflation was 3.6% in the 12 months ending in April, the slowest rate in three years. Retail sales data released yesterday also suggested that U.S. consumers are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/april-2024-retail-sales-soft-consumers-reaching-limit-8648861">finally moderating their spending</a> after a yearslong shopping spree fueled by pandemic-era savings. </p></div> <div class="comp liveblog__content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-rail-bp="mntl-bp-md" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[1, 3, 6, 9, 12, 15, 18]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="liveblog__content_1-0"><div class="comp finance-liveblog-content mntl-liveblog-content mntl-block" id="finance-liveblog-content_1-0"><div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_1-0"><span class="heading-toc" id="toc-2024-05-16t200908629z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_1-0"><p>Stock Indexes Wrap: Walmart Lifts Discount Stores, Staples; AI Plays Lag</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_1-0">May 16, 2024 04:09 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t200908629z" id="mntl-blogpost__copylink_1-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <strong><u>The Dow</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Walmart (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>) led the index, rising 7% after blowing past Wall Street’s expectations with its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391">first-quarter earnings report</a>.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Cisco (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>) shares fell 2.7% after its first-quarter earnings fell short of estimates despite <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cisco-q3-fy-2024-earnings-8649209">better-than-anticipated revenue</a>. <br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <strong><u>The S&amp;P 500</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Chubb (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB">CB</a>) gained 4.7% after it was revealed to be the company that Berkshire Hathaway (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B">BRK.B</a>) has been <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/berkshire-filing-reveals-insurer-chubb-as-buffetts-mystery-stock-8649210">confidentially building a stake</a> in since last year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Discount stores Dollar General (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DG">DG</a>) and Dollar Tree (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR">DLTR</a>) rode the wave of Walmart’s earnings beat. They advanced 3.9% and 2.1%, respectively. Target (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT">TGT</a>) climbed 2.6%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Big consumer staples brands like Campbell Soup (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CPB">CPB</a>) and General Mills (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GIS">GIS</a>) also rose.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Super Micro Computer (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI">SMCI</a>) slid 5% after surging yesterday as a group of senators unveiled a proposal to spend $32 billion annually on artificial intelligence.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Deere (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DE">DE</a>) fell 4.7% after the heavy machinery manufacturer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/deere-cuts-outlook-again-as-farm-equipment-demand-drops-8649416">cut its sales guidance</a> amid a slowdown in demand for farm equipment. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Homebuilders D.R. Horton (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHI">DHI</a>) and Lennar (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN">LEN</a>) slid 4.3% and 3.3%, respectively, after <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t130751258z">housing starts data</a> came in below expectations. <br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <strong><u>The Nasdaq 100</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Marvell Technologies (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRVL">MRVL</a>) climbed 4.1% after 13-F filings showed Dan Loeb’s Third Point opened a position in the company in the first quarter, while Stanley Druckenmiller’s firm doubled its stake.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> High-flying AI stocks slipped, including Constellation Energy (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CEG">CEG</a>), down 3.1%, and ASML Holding (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASML">ASML</a>), down 1.9%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Lululemon athletic (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LULU">LULU</a>) dipped 2.5% after peer Under Armor (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UAA">UAA</a>) warned North American sales could <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/under-armour-misses-profit-forecasts-announces-restructuring-plan-8649443">decline as much as 17%</a> this year.  </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_2-0"><span class="heading-toc" id="toc-2024-05-16t185919077z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_2-0"><p>Druckenmiller Bets on Reversal of Fortunes</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_2-0">May 16, 2024 02:59 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t185919077z" id="mntl-blogpost__copylink_2-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Stanley Druckenmiller’s Duquesne Family Office slashed its holdings of two of the market’s favorite stocks in the first quarter as it made a big bet on small-cap stocks.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The firm sold more than 930,000 Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) shares in the first quarter, shrinking its position by 84%. It also dumped 85% of its stake in Eli Lilly (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY">LLY</a>), which saw its stock soar 30% over the quarter. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> At the same time, the firm bought call options for more than 3 million shares of the iShares <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp">Russell 2000</a> ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IWM">IWM</a>), a bullish bet on small-cap stocks, which have underperformed the S&amp;P 500 so far this year. The position, valued at more than $650 million, was Druckenmiller’s largest position at the end of the quarter. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Other big bets included a sextupling of the firm's stake in cloud-based software company Zoominfo Technologies (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ZI">ZI</a>) and a near-tripling of its stake in mining firm Freeport-McMoRan (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FCX">FCX</a>). </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_2-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_3-0"><span class="heading-toc" id="toc-2024-05-16t174245507z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_3-0"><p>Canada Goose Sells More Winter Coats in North America and China, and Stock Jumps</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_3-0">May 16, 2024 01:42 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t174245507z" id="mntl-blogpost__copylink_3-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Shares of Canada Goose Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOS">GOOS</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/canada-goose-sells-more-winter-coats-in-north-america-and-china-and-shares-jump-8649481">soared in intraday trading</a> Thursday after the maker of winter outerwear posted better-than-expected results as demand rebounded in North America and grew strongly in China. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_25-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Jackets and parkas for sale at a Canada Goose store in the SoHo neighborhood of New York, on Jan. 26, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/9vEwkd-HV9VmwfhC6VqltTdIQns=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/9vEwkd-HV9VmwfhC6VqltTdIQns=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg" data-srcset="https://www.investopedia.com/thmb/ehLNLVoJaIlGJk7WRBiKn4zN93E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg 750w" data-tracking-container="true" height="2666" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Jackets and parkas for sale at a Canada Goose store in the SoHo neighborhood of New York, on Jan. 26, 2024" class="img--noscript universal-image__image" height="2666" sizes="750px" src="https://www.investopedia.com/thmb/9vEwkd-HV9VmwfhC6VqltTdIQns=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg" srcset="https://www.investopedia.com/thmb/ehLNLVoJaIlGJk7WRBiKn4zN93E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Bing Guan / Bloomberg via Getty Images</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The company reported fiscal 2024 fourth-quarter adjusted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS</a>) of 19 Canadian cents ($0.14), with revenue rising 22.1% to C$358.0 million. Both were better than forecasts.<span class="ql-inline-citation" data-cite="6"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Sales in North America jumped 24.5% to C$152.8 million after declining 13.6% in the previous quarter. Greater China sales climbed 29.7% to C$128.4 million. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossprofit.asp">Gross profit</a> climbed 22% to C$233.0 million, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossmargin.asp">gross margin</a> came in at 65.1%, up from 64.9% a year ago. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Canada Goose shares were up more than 15% Thursday afternoon, lifting them into positive territory for the year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bill-mccoll-5186338">Bill McColl</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_3-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_4-0"><span class="heading-toc" id="toc-2024-05-16t162823522z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_4-0"><p>Shoppers—and Investors—Flock to Discount Stores Amid Inflation Crunch</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_4-0">May 16, 2024 12:28 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t162823522z" id="mntl-blogpost__copylink_4-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A strong earnings report from retail giant Walmart (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>) on Thursday sent shares of competing discount retailers higher as investors bet low prices would continue to attract increasingly cost-conscious shoppers.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Walmart was the best-performing stock in the S&amp;P 500 on Thursday afternoon, rising 6%. It was followed closely behind by Dollar General (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DG">DG</a>), up 3.8%, Dollar Tree (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR">DLTR</a>), up 3%, and Target (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT">TGT</a>), up 2.8%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Walmart on Thursday morning reported <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391">revenue increased 6%</a> to $161.5 billion in the first quarter of its 2025 fiscal year. Worldwide e-commerce rose 21% in the quarter, driven by pick-up and delivery orders. In the U.S., where stubborn inflation has diminished pandemic-era savings and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/more-people-are-falling-behind-on-credit-card-bills-8648338">pressured household finances</a>, comparable store sales increased nearly 4%.<span class="ql-inline-citation" data-cite="5"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In its earnings release, the company highlighted that share gains in the U.S. had been driven by higher-income houses, evidence more and more Americans are feeling the pinch and turning to discount retailers. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_4-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_5-0"><span class="heading-toc" id="toc-2024-05-16t160221927z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_5-0"><p>Deere Slides After Cutting Outlook Again as Farm Equipment Demand Drops</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_5-0">May 16, 2024 12:02 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t160221927z" id="mntl-blogpost__copylink_5-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Shares of Deere &amp; Co. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DE">DE</a>) fell in intraday trading Thursday as the manufacturer of big farm and construction equipment <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/deere-cuts-outlook-again-as-farm-equipment-demand-drops-8649416">cut its profit forecast</a> for a second consecutive quarter on limited demand for its machines. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The company now predicts full-year net income of $7.0 billion, down from its February estimate of $7.5 billion to $7.75 billion, which itself had been lowered from the November outlook of $7.75 billion to $8.25 billion.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> It also sees sales of large agricultural equipment sinking 20% to 25%, versus its previous expectation of about a 20% drop. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_37-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="John Deere signage at the World Agriculture Expo in Tulare, California, on Feb. 13, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/OGqMH-qMsHvxfoxHE8bTqfvOlcA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/OGqMH-qMsHvxfoxHE8bTqfvOlcA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg" data-srcset="https://www.investopedia.com/thmb/qUooByxS2UtK8X3SFyyftqoo9a0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg 750w" data-tracking-container="true" height="5464" id="mntl-sc-block-image_2-0" width="8192"/> <noscript> <img alt="John Deere signage at the World Agriculture Expo in Tulare, California, on Feb. 13, 2024" class="img--noscript universal-image__image" height="5464" sizes="750px" src="https://www.investopedia.com/thmb/OGqMH-qMsHvxfoxHE8bTqfvOlcA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg" srcset="https://www.investopedia.com/thmb/qUooByxS2UtK8X3SFyyftqoo9a0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg 750w" width="8192"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-owner"><p>David Swanson / Bloomberg via Getty Images</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The guidance news offset better-than-anticipated fiscal second-quarter results. The company reported <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS</a>) of $8.53, with revenue down 12% year-over-year to $15.24 billion. Both exceeded the consensus estimate compiled by Visible Alpha. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Deere shares were down more than 3% midday Thursday, putting them right where they started the year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bill-mccoll-5186338">Bill McColl</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="5" id="mntl-sc-block-adslot_5-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_6-0"><span class="heading-toc" id="toc-2024-05-16t151721646z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_6-0"><p>Tepper’s Appaloosa Bets Big on China</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_6-0">May 16, 2024 11:17 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t151721646z" id="mntl-blogpost__copylink_6-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/david-tepper.asp">David Tepper’s</a> Appaloosa Management piled into Chinese tech stocks in the first quarter of the year while paring its exposure to major U.S. peers. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Appaloosa more than doubled its stakes in Alibaba (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA">BABA</a>), Baidu (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BIDU">BIDU</a>), and PDD Holdings (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PDD">PDD</a>). The first quarter's additions made Alibaba the firm's single largest position, valued at $959 million as of Thursday. Its stakes in Baidu and PDD Holdings were worth about $198 million and $300 million, respectively. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Appaloosa also entered a position in e-commerce company JD.com (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JD">JD</a>), buying more than 3.6 million shares valued at $122 million.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> At the same time, Tepper trimmed all of his <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/magnificent-seven-stocks-8402262">Magnificent Seven</a> holdings, selling 44% of his stake in Nvidia (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) and nearly 40% of his Meta (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) position. Still, Amazon (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>), Microsoft (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>), and Meta remain among the firm’s top holdings.  </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="6" id="mntl-sc-block-adslot_6-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_7-0"><span class="heading-toc" id="toc-2024-05-16t140437486z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_7-0"><p>Walmart Surges on Earnings Beat, Raised Guidance</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_7-0">May 16, 2024 10:04 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t140437486z" id="mntl-blogpost__copylink_7-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Walmart (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>) shares jumped in early trading Thursday following the release of a fiscal 2025 first-quarter earnings report that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391">surpassed analyst estimates</a> and included raised guidance for the full fiscal year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Revenue rose 6% year-over-year to $161.51 billion, above the $159.51 billion that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy-2025-earnings-preview-8646573">analysts had expected</a>, according to estimates compiled by Visible Alpha.<span class="ql-inline-citation" data-cite="1"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Walmart was also substantially more profitable than analysts expected, with the retailer reporting net income of $5.1 billion, or 63 cents per share, above estimates of $4.05 billion and 51 cents per share. Profits more than tripled last year's figures. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Walmart's U.S. locations and its members-only chain Sam's Club each reported a 4.6% year-over-year bump in revenue to $108.67 billion and $21.44 billion, respectively, while Walmart International's revenue jumped over 12% to $29.83 billion. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The retail giant didn't provide any new numbers for its guidance, but said it expects several metrics to be at the high end or above the original ranges they gave earlier this year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Walmart shares were up more than 6% Thursday morning, bringing their year-to-date gain to about 21%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/aaron-mcdade-8603749">Aaron McDade</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="7" id="mntl-sc-block-adslot_7-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_8-0"><span class="heading-toc" id="toc-2024-05-16t132707539z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_8-0"><p>Stocks Making the Biggest Moves Premarket</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_8-0">May 16, 2024 09:27 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t132707539z" id="mntl-blogpost__copylink_8-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <strong>Gains:</strong> </p> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li>Chubb (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB">CB</a>): Shares of the insurance company jumped 6% after Warren Buffett’s Berkshire Hathaway revealed a 6% stake in the company, a position it has been quietly building since last year. </li> <li>Walmart (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT">WMT</a>): Shares of the discount retailer climbed 6% after it <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391">reported better-than-anticipated earnings</a>, with net income exceeding expectations by more than 25%. </li> <li>Cisco (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>): Shares of the networking company gained about 2% after <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cisco-q3-fy-2024-earnings-8649209">beating quarterly revenue estimates</a> and raising its full-year sales guidance.<br/></li> </ul> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <strong>Losses:</strong> </p> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <li>GameStop (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>): Shares of the video game retailer slid 14%, continuing to fall as the meme stock frenzy that sent its shares soaring on Monday and Tuesday ran out of steam. </li> <li>Under Armor (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UA">UA</a>): Shares of the athletic apparel company tumbled 7% after warning North American sales would fall up to 17% in the current fiscal year.</li> <li>Novo Nordisk (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO">NVO</a>): Shares of the Wegovy and Ozempic maker slipped 1% after a fire broke out at a key manufacturing hub in Kalundborg, Denmark.</li> </ul></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="8" id="mntl-sc-block-adslot_8-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_9-0"><span class="heading-toc" id="toc-2024-05-16t123951620z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_9-0"><p>Stock Futures Tick Up, Extending Inflation Rally</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_9-0">May 16, 2024 08:39 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05162024-8649407#toc-2024-05-16t123951620z" id="mntl-blogpost__copylink_9-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Futures contracts connected to the Dow Jones Industrial Average were marginally higher in premarket trading. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_57-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Dow futures (May 16, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/d4wA3rbkuPxhjF0u8Co40XL62J8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/d4wA3rbkuPxhjF0u8Co40XL62J8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png" data-srcset="https://www.investopedia.com/thmb/JACpB4Xf1gd0qtPN7r50AFrCb_8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_3-0" width="2556"/> <noscript> <img alt="Dow futures (May 16, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/d4wA3rbkuPxhjF0u8Co40XL62J8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png" srcset="https://www.investopedia.com/thmb/JACpB4Xf1gd0qtPN7r50AFrCb_8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> S&amp;P 500 futures gained 0.1%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_59-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="S&amp;P 500 futures (May 16, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/OuBAcJkcTtrJIIJaz4i_34pjYFg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/OuBAcJkcTtrJIIJaz4i_34pjYFg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png" data-srcset="https://www.investopedia.com/thmb/ZIqJPTwY5jaYJmazM5FNaeBf8rk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_4-0" width="2556"/> <noscript> <img alt="S&amp;P 500 futures (May 16, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/OuBAcJkcTtrJIIJaz4i_34pjYFg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png" srcset="https://www.investopedia.com/thmb/ZIqJPTwY5jaYJmazM5FNaeBf8rk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Nasdaq 100 futures were up nearly 0.2%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_61-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Nasdaq 100 futures (May 16, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bb-2wd1vagE_QqOL1u5QZjj4CHs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-16_08-34-55-6ef3ead5ddd2415fb71e11d0754247ed.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bb-2wd1vagE_QqOL1u5QZjj4CHs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-16_08-34-55-6ef3ead5ddd2415fb71e11d0754247ed.png" data-srcset="https://www.investopedia.com/thmb/YWb72YI3I7afXWLg4jO2_QqoS0w=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-16_08-34-55-6ef3ead5ddd2415fb71e11d0754247ed.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_5-0" width="2556"/> <noscript> <img alt="Nasdaq 100 futures (May 16, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" 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U.S. stocks closed slightly lower on Thursday, retreating from yesterday's record highs reached amid optimism the Federal Reserve will cut interest rates later this year. The [Nasdaq Composite](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) fell 0.3% Thursday, while the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) shed 0.2% and the [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp), which crossed 40,000 for the first time early in the session, ticked down 0.1%. Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) was the best-performing stock in the S&P 500 after the retail giant beat analysts' earnings estimates for the first quarter, with sales getting a boost from inflation-weary consumers. Chubb ([CB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB)) shares jumped after Warren Buffett's Berkshire Hathaway ([BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B)) revealed it had amassed a roughly 6% stake in the insurer worth nearly $7 billion. The position was first revealed to regulators last year but kept confidential while Berkshire added to its stake, leading to plenty of speculation about the identity of Buffett's mystery stock. The major stock indexes all [closed at record highs Wednesday](https://www.investopedia.com/dow-jones-today-05152024-8648735) after data showed core inflation was 3.6% in the 12 months ending in April, the slowest rate in three years. Retail sales data released yesterday also suggested that U.S. consumers are [finally moderating their spending](https://www.investopedia.com/april-2024-retail-sales-soft-consumers-reaching-limit-8648861) after a yearslong shopping spree fueled by pandemic-era savings. ## Stock Indexes Wrap: Walmart Lifts Discount Stores, Staples; AI Plays Lag May 16, 2024 04:09 PM EDT **The Dow** Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) led the index, rising 7% after blowing past Wall Street’s expectations with its [first-quarter earnings report](https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391).  Cisco ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)) shares fell 2.7% after its first-quarter earnings fell short of estimates despite [better-than-anticipated revenue](https://www.investopedia.com/cisco-q3-fy-2024-earnings-8649209).  **The S&P 500** Chubb ([CB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB)) gained 4.7% after it was revealed to be the company that Berkshire Hathaway ([BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B)) has been [confidentially building a stake](https://www.investopedia.com/berkshire-filing-reveals-insurer-chubb-as-buffetts-mystery-stock-8649210) in since last year. Discount stores Dollar General ([DG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DG)) and Dollar Tree ([DLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR)) rode the wave of Walmart’s earnings beat. They advanced 3.9% and 2.1%, respectively. Target ([TGT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT)) climbed 2.6%. Big consumer staples brands like Campbell Soup ([CPB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CPB)) and General Mills ([GIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GIS)) also rose.  Super Micro Computer ([SMCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI)) slid 5% after surging yesterday as a group of senators unveiled a proposal to spend $32 billion annually on artificial intelligence.  Deere ([DE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DE)) fell 4.7% after the heavy machinery manufacturer [cut its sales guidance](https://www.investopedia.com/deere-cuts-outlook-again-as-farm-equipment-demand-drops-8649416) amid a slowdown in demand for farm equipment. Homebuilders D.R. Horton ([DHI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHI)) and Lennar ([LEN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN)) slid 4.3% and 3.3%, respectively, after [housing starts data](https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t130751258z) came in below expectations.  **The Nasdaq 100** Marvell Technologies ([MRVL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MRVL)) climbed 4.1% after 13-F filings showed Dan Loeb’s Third Point opened a position in the company in the first quarter, while Stanley Druckenmiller’s firm doubled its stake.  High-flying AI stocks slipped, including Constellation Energy ([CEG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CEG)), down 3.1%, and ASML Holding ([ASML](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASML)), down 1.9%.  Lululemon athletic ([LULU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LULU)) dipped 2.5% after peer Under Armor ([UAA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UAA)) warned North American sales could [decline as much as 17%](https://www.investopedia.com/under-armour-misses-profit-forecasts-announces-restructuring-plan-8649443) this year.  ## Druckenmiller Bets on Reversal of Fortunes May 16, 2024 02:59 PM EDT Stanley Druckenmiller’s Duquesne Family Office slashed its holdings of two of the market’s favorite stocks in the first quarter as it made a big bet on small-cap stocks.  The firm sold more than 930,000 Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) shares in the first quarter, shrinking its position by 84%. It also dumped 85% of its stake in Eli Lilly ([LLY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY)), which saw its stock soar 30% over the quarter. At the same time, the firm bought call options for more than 3 million shares of the iShares [Russell 2000](https://www.investopedia.com/terms/r/russell2000.asp) ETF ([IWM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IWM)), a bullish bet on small-cap stocks, which have underperformed the S&P 500 so far this year. The position, valued at more than $650 million, was Druckenmiller’s largest position at the end of the quarter. Other big bets included a sextupling of the firm's stake in cloud-based software company Zoominfo Technologies ([ZI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ZI)) and a near-tripling of its stake in mining firm Freeport-McMoRan ([FCX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FCX)). ## Canada Goose Sells More Winter Coats in North America and China, and Stock Jumps May 16, 2024 01:42 PM EDT Shares of Canada Goose Holdings ([GOOS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOS)) [soared in intraday trading](https://www.investopedia.com/canada-goose-sells-more-winter-coats-in-north-america-and-china-and-shares-jump-8649481) Thursday after the maker of winter outerwear posted better-than-expected results as demand rebounded in North America and grew strongly in China. ![Jackets and parkas for sale at a Canada Goose store in the SoHo neighborhood of New York, on Jan. 26, 2024]() :max_bytes(150000):strip_icc()/GettyImages-1970007685-71cfd2f5fa10411da867bf7a05c7253b.jpg) Bing Guan / Bloomberg via Getty Images The company reported fiscal 2024 fourth-quarter adjusted [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of 19 Canadian cents ($0.14), with revenue rising 22.1% to C$358.0 million. Both were better than forecasts. Sales in North America jumped 24.5% to C$152.8 million after declining 13.6% in the previous quarter. Greater China sales climbed 29.7% to C$128.4 million. [Gross profit](https://www.investopedia.com/terms/g/grossprofit.asp) climbed 22% to C$233.0 million, and [gross margin](https://www.investopedia.com/terms/g/grossmargin.asp) came in at 65.1%, up from 64.9% a year ago. Canada Goose shares were up more than 15% Thursday afternoon, lifting them into positive territory for the year. *-[Bill McColl](https://www.investopedia.com/bill-mccoll-5186338)* ## Shoppers—and Investors—Flock to Discount Stores Amid Inflation Crunch May 16, 2024 12:28 PM EDT A strong earnings report from retail giant Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) on Thursday sent shares of competing discount retailers higher as investors bet low prices would continue to attract increasingly cost-conscious shoppers.  Walmart was the best-performing stock in the S&P 500 on Thursday afternoon, rising 6%. It was followed closely behind by Dollar General ([DG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DG)), up 3.8%, Dollar Tree ([DLTR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DLTR)), up 3%, and Target ([TGT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT)), up 2.8%.  Walmart on Thursday morning reported [revenue increased 6%](https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391) to $161.5 billion in the first quarter of its 2025 fiscal year. Worldwide e-commerce rose 21% in the quarter, driven by pick-up and delivery orders. In the U.S., where stubborn inflation has diminished pandemic-era savings and [pressured household finances](https://www.investopedia.com/more-people-are-falling-behind-on-credit-card-bills-8648338), comparable store sales increased nearly 4%. In its earnings release, the company highlighted that share gains in the U.S. had been driven by higher-income houses, evidence more and more Americans are feeling the pinch and turning to discount retailers. ## Deere Slides After Cutting Outlook Again as Farm Equipment Demand Drops May 16, 2024 12:02 PM EDT Shares of Deere & Co. ([DE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DE)) fell in intraday trading Thursday as the manufacturer of big farm and construction equipment [cut its profit forecast](https://www.investopedia.com/deere-cuts-outlook-again-as-farm-equipment-demand-drops-8649416) for a second consecutive quarter on limited demand for its machines. The company now predicts full-year net income of $7.0 billion, down from its February estimate of $7.5 billion to $7.75 billion, which itself had been lowered from the November outlook of $7.75 billion to $8.25 billion. It also sees sales of large agricultural equipment sinking 20% to 25%, versus its previous expectation of about a 20% drop. ![John Deere signage at the World Agriculture Expo in Tulare, California, on Feb. 13, 2024]() :max_bytes(150000):strip_icc()/GettyImages-2002918904-a90f37d54fc74c03ae76eeb2624723f4.jpg) David Swanson / Bloomberg via Getty Images The guidance news offset better-than-anticipated fiscal second-quarter results. The company reported [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of $8.53, with revenue down 12% year-over-year to $15.24 billion. Both exceeded the consensus estimate compiled by Visible Alpha. Deere shares were down more than 3% midday Thursday, putting them right where they started the year. *-[Bill McColl](https://www.investopedia.com/bill-mccoll-5186338)* ## Tepper’s Appaloosa Bets Big on China May 16, 2024 11:17 AM EDT [David Tepper’s](https://www.investopedia.com/terms/d/david-tepper.asp) Appaloosa Management piled into Chinese tech stocks in the first quarter of the year while paring its exposure to major U.S. peers. Appaloosa more than doubled its stakes in Alibaba ([BABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA)), Baidu ([BIDU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BIDU)), and PDD Holdings ([PDD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PDD)). The first quarter's additions made Alibaba the firm's single largest position, valued at $959 million as of Thursday. Its stakes in Baidu and PDD Holdings were worth about $198 million and $300 million, respectively. Appaloosa also entered a position in e-commerce company JD.com ([JD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JD)), buying more than 3.6 million shares valued at $122 million.  At the same time, Tepper trimmed all of his [Magnificent Seven](https://www.investopedia.com/magnificent-seven-stocks-8402262) holdings, selling 44% of his stake in Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) and nearly 40% of his Meta ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) position. Still, Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)), Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)), and Meta remain among the firm’s top holdings.  ## Walmart Surges on Earnings Beat, Raised Guidance May 16, 2024 10:04 AM EDT Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) shares jumped in early trading Thursday following the release of a fiscal 2025 first-quarter earnings report that [surpassed analyst estimates](https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391) and included raised guidance for the full fiscal year. Revenue rose 6% year-over-year to $161.51 billion, above the $159.51 billion that [analysts had expected](https://www.investopedia.com/walmart-q1-fy-2025-earnings-preview-8646573), according to estimates compiled by Visible Alpha. Walmart was also substantially more profitable than analysts expected, with the retailer reporting net income of $5.1 billion, or 63 cents per share, above estimates of $4.05 billion and 51 cents per share. Profits more than tripled last year's figures. Walmart's U.S. locations and its members-only chain Sam's Club each reported a 4.6% year-over-year bump in revenue to $108.67 billion and $21.44 billion, respectively, while Walmart International's revenue jumped over 12% to $29.83 billion. The retail giant didn't provide any new numbers for its guidance, but said it expects several metrics to be at the high end or above the original ranges they gave earlier this year. Walmart shares were up more than 6% Thursday morning, bringing their year-to-date gain to about 21%. *-[Aaron McDade](https://www.investopedia.com/aaron-mcdade-8603749)* ## Stocks Making the Biggest Moves Premarket May 16, 2024 09:27 AM EDT **Gains:** * Chubb ([CB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CB)): Shares of the insurance company jumped 6% after Warren Buffett’s Berkshire Hathaway revealed a 6% stake in the company, a position it has been quietly building since last year. * Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)): Shares of the discount retailer climbed 6% after it [reported better-than-anticipated earnings](https://www.investopedia.com/walmart-q1-fy25-earnings-beat-raised-guidance-8649391), with net income exceeding expectations by more than 25%. * Cisco ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)): Shares of the networking company gained about 2% after [beating quarterly revenue estimates](https://www.investopedia.com/cisco-q3-fy-2024-earnings-8649209) and raising its full-year sales guidance. **Losses:** * GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)): Shares of the video game retailer slid 14%, continuing to fall as the meme stock frenzy that sent its shares soaring on Monday and Tuesday ran out of steam. * Under Armor ([UA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UA)): Shares of the athletic apparel company tumbled 7% after warning North American sales would fall up to 17% in the current fiscal year. * Novo Nordisk ([NVO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVO)): Shares of the Wegovy and Ozempic maker slipped 1% after a fire broke out at a key manufacturing hub in Kalundborg, Denmark. ## Stock Futures Tick Up, Extending Inflation Rally May 16, 2024 08:39 AM EDT Futures contracts connected to the Dow Jones Industrial Average were marginally higher in premarket trading. ![Dow futures (May 16, 2024)]() :max_bytes(150000):strip_icc()/YM1_2024-05-16_08-34-48-8932c6c3c3ef4bbfb19f91e3ce9d93c8.png) S&P 500 futures gained 0.1%. ![S&P 500 futures (May 16, 2024)]() :max_bytes(150000):strip_icc()/ES1_2024-05-16_08-34-51-3aa17b04458b4fb5b1bbdb9b855e88c6.png) Nasdaq 100 futures were up nearly 0.2%. ![Nasdaq 100 futures (May 16, 2024)]() :max_bytes(150000):strip_icc()/NQ1_2024-05-16_08-34-55-6ef3ead5ddd2415fb71e11d0754247ed.png)

U.S. stocks closed slightly lower on Thursday, retreating from yesterday's record highs reached amid optimism the Federal Reserve will cut interest rates later this year. The Nasdaq Composite fell 0.3% Thursday, while the S&P 500 shed 0.2% and the Dow Jones Industrial Average, which crossed 40,000 for the first time early in the session, ticked down 0.1%. Walmart (WMT) was the best-performing stock in the S&P 500 after the retail giant beat analysts' earnings estimates for the first quarter, with sales getting a boost from inflation-weary consumers. Chubb (CB) shares jumped after Warren Buffett's Berkshire Hathaway (BRK.B) revealed it had amassed a roughly 6% stake in the insurer worth nearly $7 billion. The position was first revealed to regulators last year but kept confidential while Berkshire added to its stake, leading to plenty of speculation about the identity of Buffett's mystery stock. The major stock indexes all closed at record highs Wednesday after data showed core inflation was 3.6% in the 12 months ending in April, the slowest rate in three years. Retail sales data released yesterday also suggested that U.S. consumers are finally moderating their spending after a yearslong shopping spree fueled by pandemic-era savings. Stock Indexes Wrap: Walmart Lifts Discount Stores, Staples; AI Plays Lag May 16, 2024 04:09 PM EDT The Dow Walmart (WMT) led the index, rising 7% after blowing past Wall Street’s expectations with its first-quarter earnings report.  Cisco (CSCO) shares fell 2.7% after its first-quarter earnings fell short of estimates despite better-than-anticipated revenue.  The S&P 500 Chubb (CB) gained 4.7% after it was revealed to be the company that Berkshire Hathaway (BRK.B) has been confidentially building a stake in since last year. Discount stores Dollar General (DG) and Dollar Tree (DLTR) rode the wave of Walmart’s earnings beat. They advanced 3.9% and 2.1%, respectively. Target (TGT) climbed 2.6%. Big consumer staples brands like Campbell Soup (CPB) and General Mills (GIS) also rose.  Super Micro Computer (SMCI) slid 5% after surging yesterday as a group of senators unveiled a proposal to spend $32 billion annually on artificial intelligence.  Deere (DE) fell 4.7% after the heavy machinery manufacturer cut its sales guidance amid a slowdown in demand for farm equipment. Homebuilders D.R. Horton (DHI) and Lennar (LEN) slid 4.3% and 3.3%, respectively, after housing starts data came in below expectations.  The Nasdaq 100 Marvell Technologies (MRVL) climbed 4.1% after 13-F filings showed Dan Loeb’s Third Point opened a position in the company in the first quarter, while Stanley Druckenmiller’s firm doubled its stake.  High-flying AI stocks slipped, including Constellation Energy (CEG), down 3.1%, and ASML Holding (ASML), down 1.9%.  Lululemon athletic (LULU) dipped 2.5% after peer Under Armor (UAA) warned North American sales could decline as much as 17% this year.  Druckenmiller Bets on Reversal of Fortunes May 16, 2024 02:59 PM EDT Stanley Druckenmiller’s Duquesne Family Office slashed its holdings of two of the market’s favorite stocks in the first quarter as it made a big bet on small-cap stocks.  The firm sold more than 930,000 Nvidia (NVDA) shares in the first quarter, shrinking its position by 84%. It also dumped 85% of its stake in Eli Lilly (LLY), which saw its stock soar 30% over the quarter. At the same time, the firm bought call options for more than 3 million shares of the iShares Russell 2000 ETF (IWM), a bullish bet on small-cap stocks, which have underperformed the S&P 500 so far this year. The position, valued at more than $650 million, was Druckenmiller’s largest position at the end of the quarter. Other big bets included a sextupling of the firm's stake in cloud-based software company Zoominfo Technologies (ZI) and a near-tripling of its stake in mining firm Freeport-McMoRan (FCX). Canada Goose Sells More Winter Coats in North America and China, and Stock Jumps May 16, 2024 01:42 PM EDT Shares of Canada Goose Holdings (GOOS) soared in intraday trading Thursday after the maker of winter outerwear posted better-than-expected results as demand rebounded in North America and grew strongly in China. Bing Guan / Bloomberg via Getty Images The company reported fiscal 2024 fourth-quarter adjusted earnings per share (EPS) of 19 Canadian cents ($0.14), with revenue rising 22.1% to C$358.0 million. Both were better than forecasts. Sales in North America jumped 24.5% to C$152.8 million after declining 13.6% in the previous quarter. Greater China sales climbed 29.7% to C$128.4 million. Gross profit climbed 22% to C$233.0 million, and gross margin came in at 65.1%, up from 64.9% a year ago. Canada Goose shares were up more than 15% Thursday afternoon, lifting them into positive territory for the year. -Bill McColl Shoppers—and Investors—Flock to Discount Stores Amid Inflation Crunch May 16, 2024 12:28 PM EDT A strong earnings report from retail giant Walmart (WMT) on Thursday sent shares of competing discount retailers higher as investors bet low prices would continue to attract increasingly cost-conscious shoppers.  Walmart was the best-performing stock in the S&P 500 on Thursday afternoon, rising 6%. It was followed closely behind by Dollar General (DG), up 3.8%, Dollar Tree (DLTR), up 3%, and Target (TGT), up 2.8%.  Walmart on Thursday morning reported revenue increased 6% to $161.5 billion in the first quarter of its 2025 fiscal year. Worldwide e-commerce rose 21% in the quarter, driven by pick-up and delivery orders. In the U.S., where stubborn inflation has diminished pandemic-era savings and pressured household finances, comparable store sales increased nearly 4%. In its earnings release, the company highlighted that share gains in the U.S. had been driven by higher-income houses, evidence more and more Americans are feeling the pinch and turning to discount retailers. Deere Slides After Cutting Outlook Again as Farm Equipment Demand Drops May 16, 2024 12:02 PM EDT Shares of Deere & Co. (DE) fell in intraday trading Thursday as the manufacturer of big farm and construction equipment cut its profit forecast for a second consecutive quarter on limited demand for its machines. The company now predicts full-year net income of $7.0 billion, down from its February estimate of $7.5 billion to $7.75 billion, which itself had been lowered from the November outlook of $7.75 billion to $8.25 billion. It also sees sales of large agricultural equipment sinking 20% to 25%, versus its previous expectation of about a 20% drop. David Swanson / Bloomberg via Getty Images The guidance news offset better-than-anticipated fiscal second-quarter results. The company reported earnings per share (EPS) of $8.53, with revenue down 12% year-over-year to $15.24 billion. Both exceeded the consensus estimate compiled by Visible Alpha. Deere shares were down more than 3% midday Thursday, putting them right where they started the year. -Bill McColl Tepper’s Appaloosa Bets Big on China May 16, 2024 11:17 AM EDT David Tepper’s Appaloosa Management piled into Chinese tech stocks in the first quarter of the year while paring its exposure to major U.S. peers. Appaloosa more than doubled its stakes in Alibaba (BABA), Baidu (BIDU), and PDD Holdings (PDD). The first quarter's additions made Alibaba the firm's single largest position, valued at $959 million as of Thursday. Its stakes in Baidu and PDD Holdings were worth about $198 million and $300 million, respectively. Appaloosa also entered a position in e-commerce company JD.com (JD), buying more than 3.6 million shares valued at $122 million.  At the same time, Tepper trimmed all of his Magnificent Seven holdings, selling 44% of his stake in Nvidia (NVDA) and nearly 40% of his Meta (META) position. Still, Amazon (AMZN), Microsoft (MSFT), and Meta remain among the firm’s top holdings.  Walmart Surges on Earnings Beat, Raised Guidance May 16, 2024 10:04 AM EDT Walmart (WMT) shares jumped in early trading Thursday following the release of a fiscal 2025 first-quarter earnings report that surpassed analyst estimates and included raised guidance for the full fiscal year. Revenue rose 6% year-over-year to $161.51 billion, above the $159.51 billion that analysts had expected, according to estimates compiled by Visible Alpha. Walmart was also substantially more profitable than analysts expected, with the retailer reporting net income of $5.1 billion, or 63 cents per share, above estimates of $4.05 billion and 51 cents per share. Profits more than tripled last year's figures. Walmart's U.S. locations and its members-only chain Sam's Club each reported a 4.6% year-over-year bump in revenue to $108.67 billion and $21.44 billion, respectively, while Walmart International's revenue jumped over 12% to $29.83 billion. The retail giant didn't provide any new numbers for its guidance, but said it expects several metrics to be at the high end or above the original ranges they gave earlier this year. Walmart shares were up more than 6% Thursday morning, bringing their year-to-date gain to about 21%. -Aaron McDade Stocks Making the Biggest Moves Premarket May 16, 2024 09:27 AM EDT Gains: Chubb (CB): Shares of the insurance company jumped 6% after Warren Buffett’s Berkshire Hathaway revealed a 6% stake in the company, a position it has been quietly building since last year.  Walmart (WMT): Shares of the discount retailer climbed 6% after it reported better-than-anticipated earnings, with net income exceeding expectations by more than 25%.  Cisco (CSCO): Shares of the networking company gained about 2% after beating quarterly revenue estimates and raising its full-year sales guidance. Losses: GameStop (GME): Shares of the video game retailer slid 14%, continuing to fall as the meme stock frenzy that sent its shares soaring on Monday and Tuesday ran out of steam.  Under Armor (UA): Shares of the athletic apparel company tumbled 7% after warning North American sales would fall up to 17% in the current fiscal year. Novo Nordisk (NVO): Shares of the Wegovy and Ozempic maker slipped 1% after a fire broke out at a key manufacturing hub in Kalundborg, Denmark. Stock Futures Tick Up, Extending Inflation Rally May 16, 2024 08:39 AM EDT Futures contracts connected to the Dow Jones Industrial Average were marginally higher in premarket trading. S&P 500 futures gained 0.1%. Nasdaq 100 futures were up nearly 0.2%.

https://www.investopedia.com/how-to-find-bipoc-financial-advisor-5271050

How to Find a BIPOC Financial Advisor or Planner

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The relationship between a client and a financial advisor must be based on trust. Clients need to feel that their advisor intimately understands their perspective, goals, challenges, and overall financial situation. And starting with some shared cultural experiences can help build that trust. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Black, Indigenous, and people of color, or BIPOC, may find it easier to speak openly with a financial advisor who shares some heritage because they may have faced the same unconscious or conscious bias in the financial sector. That could include getting blocked from accessing traditional debt options for small business owners, a lack of financial education, or financial responsibilities to families located in other parts of the world. Luckily, it can be somewhat easier today than in decades past to find a BIPOC financial advisor, but the gap is far from closed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Locating a financial advisor or planner of your own ethnicity is easier these days.</li><li>Though the majority of Certified Financial Planners (CFPs) are White, virtually all ethnic groups are represented in the profession.<span class="ql-inline-citation" data-cite="4"></span></li><li>Organizations exist that represent CFPs of different ethnic groups.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Though 82.5% of (or nearly 79,600) Certified Financial Planners identify as White in the latest reckoning of professionals from the Certified Professional Planners Board of Standards, about 4.1%, or some 3,950, are of Asian or Pacific Islander heritage; 2.9%, or 2,815, are of Hispanic or Latino descent; more than 1,800, close to 2%, are Black or African American; and 0.2%, or 234, are American Indian or Alaskan Native.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> By comparison, the U.S. population is 75.8% White, 18.9% Hispanic or Latino, 13.6% Black, and 6.1% Asian, according to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bureauofcensus.asp">U.S. Census Bureau</a> data.<span class="ql-inline-citation" data-cite="3"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-what-credentials-should-a-financial-planner-have"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> What Credentials Should a Financial Planner Have? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> There are three designations a qualified financial planner might have, but the first one—<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner (CFP)</a>—is the most important. A CFP is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement (such as with <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a>). Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams and then continue ongoing annual education programs to sustain their skills and certification.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A better-prepared financial advisor has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">chartered financial analyst (CFA)</a> designation. A CFA is a globally recognized professional designation given by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfainstitute.asp">CFA Institute</a> (formerly the Association for Investment Management and Research) that measures and certifies the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> If you have a situation that deals particularly with taxes and accounting, you may want an advisor who is also a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cpa.asp">certified public accountant (CPA)</a>. A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources on obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ca.asp">chartered accountant (CA)</a> designation.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-tips-for-narrowing-down-your-search"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Tips for Narrowing Down Your Search </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As with any financial advisor search, start by checking credentials. The National Association of Personal Financial Advisors (NAPFA) offers a checklist on how to evaluate any financial advisor:<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>Talk with your loved ones about what you want to accomplish by working with an advisor.</li> <li>Create a list of advisors compiled through word-of-mouth advice, professional organizations, or lists.</li> <li>Do homework on your candidates and come up with a top three by reviewing websites, and check for any disciplinary actions. Shortcuts for that include the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority (FINRA)</a> BrokerCheck tool and the CFP site, both of which help evaluate brokers.<span class="ql-inline-citation" data-cite="10"></span></li> <li>Devise a list of questions to ask the candidates, starting with asking them their approach.</li> <li>Meet them face to face, if possible, or by videoconferencing.</li> <li>Make sure that you feel confident about their experience and credentials and comfortable talking with them.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> To find a Black financial advisor, you may want to check out the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.aaafainc.com/find-a-financial-advisor" rel="nofollow">Association of African American Financial Advisors' Find a Financial Advisor tool</a>. You'll need to enter your contact info, including a ZIP code, email, and phone number. Plus, you should think about what you need an advisor's help with comprehensive financial planning, insurance, estate planning, taxes, etc. If no Black advisors are physically in your area, there is a virtual advisement option.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Or the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.xyplanningnetwork.com/">XY Planning Network’s</a> Find an Advisor feature can help you search for a financial advisor by specialty, as well as by ethnicity, language, and gender/identity.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> You may also want to reach out to professional organizations such as the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://nativefinance.org/" rel="nofollow"> Native American Financial Services Association (NAFSA)</a>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.alpfa.org/#" rel="nofollow">Association of Latino Professionals for America (ALPFA)</a>, or the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://aaaim.org/" rel="nofollow">Association of Asian American Investment Managers (AAAIM)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-what-percentage-of-financial-advisors-are-black"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Percentage of Financial Advisors Are Black?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Nearly 2% of Certified Financial Planners are Black, according to the Certified Professional Planners Board of Standards, making it the smallest percentage of non-White advisors available.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-what-is-a-certified-public-accountant-cpa"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Certified Public Accountant (CPA)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources for obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the chartered accountant (CA) designation.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-how-do-i-find-free-financial-advice"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Find Free Financial Advice?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In many major cities, you can now get free one-on-one professional financial coaching through organizations such as the NYC Financial Empowerment Centers.<span class="ql-inline-citation" data-cite="11"></span> Their counselors are not necessarily CFPs, but they can help with budgeting, debt management, dealing with creditors, access to emergency resources, banking assistance, and navigating the IRS.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Having a financial advisor or planner who shares your culture may add a level of comfort to working out your present and future finances. However, it is important to do your due diligence first and evaluate their credentials and experience before beginning your working relationship. </p></div>

The relationship between a client and a financial advisor must be based on trust. Clients need to feel that their advisor intimately understands their perspective, goals, challenges, and overall financial situation. And starting with some shared cultural experiences can help build that trust. Black, Indigenous, and people of color, or BIPOC, may find it easier to speak openly with a financial advisor who shares some heritage because they may have faced the same unconscious or conscious bias in the financial sector. That could include getting blocked from accessing traditional debt options for small business owners, a lack of financial education, or financial responsibilities to families located in other parts of the world. Luckily, it can be somewhat easier today than in decades past to find a BIPOC financial advisor, but the gap is far from closed. ### Key Takeaways * Locating a financial advisor or planner of your own ethnicity is easier these days. * Though the majority of Certified Financial Planners (CFPs) are White, virtually all ethnic groups are represented in the profession. * Organizations exist that represent CFPs of different ethnic groups. Though 82.5% of (or nearly 79,600) Certified Financial Planners identify as White in the latest reckoning of professionals from the Certified Professional Planners Board of Standards, about 4.1%, or some 3,950, are of Asian or Pacific Islander heritage; 2.9%, or 2,815, are of Hispanic or Latino descent; more than 1,800, close to 2%, are Black or African American; and 0.2%, or 234, are American Indian or Alaskan Native. By comparison, the U.S. population is 75.8% White, 18.9% Hispanic or Latino, 13.6% Black, and 6.1% Asian, according to [U.S. Census Bureau](https://www.investopedia.com/terms/b/bureauofcensus.asp) data. ## What Credentials Should a Financial Planner Have? There are three designations a qualified financial planner might have, but the first one—[Certified Financial Planner (CFP)](https://www.investopedia.com/terms/c/cfp.asp)—is the most important. A CFP is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement (such as with [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp)). Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams and then continue ongoing annual education programs to sustain their skills and certification. A better-prepared financial advisor has a [chartered financial analyst (CFA)](https://www.investopedia.com/terms/c/cfa.asp) designation. A CFA is a globally recognized professional designation given by the [CFA Institute](https://www.investopedia.com/terms/c/cfainstitute.asp) (formerly the Association for Investment Management and Research) that measures and certifies the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis. If you have a situation that deals particularly with taxes and accounting, you may want an advisor who is also a [certified public accountant (CPA)](https://www.investopedia.com/terms/c/cpa.asp). A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources on obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the [chartered accountant (CA)](https://www.investopedia.com/terms/c/ca.asp) designation. ## Tips for Narrowing Down Your Search As with any financial advisor search, start by checking credentials. The National Association of Personal Financial Advisors (NAPFA) offers a checklist on how to evaluate any financial advisor: * Talk with your loved ones about what you want to accomplish by working with an advisor. * Create a list of advisors compiled through word-of-mouth advice, professional organizations, or lists. * Do homework on your candidates and come up with a top three by reviewing websites, and check for any disciplinary actions. Shortcuts for that include the [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) BrokerCheck tool and the CFP site, both of which help evaluate brokers. * Devise a list of questions to ask the candidates, starting with asking them their approach. * Meet them face to face, if possible, or by videoconferencing. * Make sure that you feel confident about their experience and credentials and comfortable talking with them. To find a Black financial advisor, you may want to check out the [Association of African American Financial Advisors' Find a Financial Advisor tool](https://www.aaafainc.com/find-a-financial-advisor). You'll need to enter your contact info, including a ZIP code, email, and phone number. Plus, you should think about what you need an advisor's help with comprehensive financial planning, insurance, estate planning, taxes, etc. If no Black advisors are physically in your area, there is a virtual advisement option. Or the [XY Planning Network’s](https://www.xyplanningnetwork.com/) Find an Advisor feature can help you search for a financial advisor by specialty, as well as by ethnicity, language, and gender/identity.  You may also want to reach out to professional organizations such as the [Native American Financial Services Association (NAFSA)](https://nativefinance.org/), the [Association of Latino Professionals for America (ALPFA)](https://www.alpfa.org/#), or the [Association of Asian American Investment Managers (AAAIM)](https://aaaim.org/). ## What Percentage of Financial Advisors Are Black? Nearly 2% of Certified Financial Planners are Black, according to the Certified Professional Planners Board of Standards, making it the smallest percentage of non-White advisors available. ## What Is a Certified Public Accountant (CPA)? A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources for obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the chartered accountant (CA) designation. ## How Do I Find Free Financial Advice? In many major cities, you can now get free one-on-one professional financial coaching through organizations such as the NYC Financial Empowerment Centers. Their counselors are not necessarily CFPs, but they can help with budgeting, debt management, dealing with creditors, access to emergency resources, banking assistance, and navigating the IRS. ## The Bottom Line Having a financial advisor or planner who shares your culture may add a level of comfort to working out your present and future finances. However, it is important to do your due diligence first and evaluate their credentials and experience before beginning your working relationship.

The relationship between a client and a financial advisor must be based on trust. Clients need to feel that their advisor intimately understands their perspective, goals, challenges, and overall financial situation. And starting with some shared cultural experiences can help build that trust. Black, Indigenous, and people of color, or BIPOC, may find it easier to speak openly with a financial advisor who shares some heritage because they may have faced the same unconscious or conscious bias in the financial sector. That could include getting blocked from accessing traditional debt options for small business owners, a lack of financial education, or financial responsibilities to families located in other parts of the world. Luckily, it can be somewhat easier today than in decades past to find a BIPOC financial advisor, but the gap is far from closed. Key Takeaways Locating a financial advisor or planner of your own ethnicity is easier these days.Though the majority of Certified Financial Planners (CFPs) are White, virtually all ethnic groups are represented in the profession.Organizations exist that represent CFPs of different ethnic groups. Though 82.5% of (or nearly 79,600) Certified Financial Planners identify as White in the latest reckoning of professionals from the Certified Professional Planners Board of Standards, about 4.1%, or some 3,950, are of Asian or Pacific Islander heritage; 2.9%, or 2,815, are of Hispanic or Latino descent; more than 1,800, close to 2%, are Black or African American; and 0.2%, or 234, are American Indian or Alaskan Native. By comparison, the U.S. population is 75.8% White, 18.9% Hispanic or Latino, 13.6% Black, and 6.1% Asian, according to U.S. Census Bureau data. What Credentials Should a Financial Planner Have? There are three designations a qualified financial planner might have, but the first one—Certified Financial Planner (CFP)—is the most important. A CFP is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement (such as with 401(k)s). Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams and then continue ongoing annual education programs to sustain their skills and certification. A better-prepared financial advisor has a chartered financial analyst (CFA) designation. A CFA is a globally recognized professional designation given by the CFA Institute (formerly the Association for Investment Management and Research) that measures and certifies the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis. If you have a situation that deals particularly with taxes and accounting, you may want an advisor who is also a certified public accountant (CPA). A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources on obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the chartered accountant (CA) designation. Tips for Narrowing Down Your Search As with any financial advisor search, start by checking credentials. The National Association of Personal Financial Advisors (NAPFA) offers a checklist on how to evaluate any financial advisor: Talk with your loved ones about what you want to accomplish by working with an advisor. Create a list of advisors compiled through word-of-mouth advice, professional organizations, or lists. Do homework on your candidates and come up with a top three by reviewing websites, and check for any disciplinary actions. Shortcuts for that include the Financial Industry Regulatory Authority (FINRA) BrokerCheck tool and the CFP site, both of which help evaluate brokers. Devise a list of questions to ask the candidates, starting with asking them their approach. Meet them face to face, if possible, or by videoconferencing. Make sure that you feel confident about their experience and credentials and comfortable talking with them. To find a Black financial advisor, you may want to check out the Association of African American Financial Advisors' Find a Financial Advisor tool. You'll need to enter your contact info, including a ZIP code, email, and phone number. Plus, you should think about what you need an advisor's help with comprehensive financial planning, insurance, estate planning, taxes, etc. If no Black advisors are physically in your area, there is a virtual advisement option. Or the XY Planning Network’s Find an Advisor feature can help you search for a financial advisor by specialty, as well as by ethnicity, language, and gender/identity.  You may also want to reach out to professional organizations such as the Native American Financial Services Association (NAFSA), the Association of Latino Professionals for America (ALPFA), or the Association of Asian American Investment Managers (AAAIM). What Percentage of Financial Advisors Are Black? Nearly 2% of Certified Financial Planners are Black, according to the Certified Professional Planners Board of Standards, making it the smallest percentage of non-White advisors available. What Is a Certified Public Accountant (CPA)? A CPA is a designation provided to licensed accounting professionals. The CPA license is provided by the board of accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources for obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably the chartered accountant (CA) designation. How Do I Find Free Financial Advice? In many major cities, you can now get free one-on-one professional financial coaching through organizations such as the NYC Financial Empowerment Centers. Their counselors are not necessarily CFPs, but they can help with budgeting, debt management, dealing with creditors, access to emergency resources, banking assistance, and navigating the IRS. The Bottom Line Having a financial advisor or planner who shares your culture may add a level of comfort to working out your present and future finances. However, it is important to do your due diligence first and evaluate their credentials and experience before beginning your working relationship.

https://www.investopedia.com/investing/pitfalls-of-discounted-cash-flow-analysis/

Top 3 Pitfalls of Discounted Cash Flow Analysis

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Most finance courses espouse the gospel of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dcf.asp">discounted cash flow</a> (DCF) analysis as the preferred valuation methodology for all cash flow-generating <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a>. In theory (and in college final examinations), this technique works great. In practice, however, DCF can be difficult to apply in evaluating <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equities</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Even if one believes the gospel of DCF, other approaches are useful to help generate a complete valuation picture of a stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The discounted cash flow (DCF) model is a way of estimating the present value of an asset based on its stream of future cash flows.</li><li>The model relies on the concept of the time value of money, whereby a dollar paid in the future is less valuable than a dollar today.</li><li>While good in theory, it is often difficult to accurately predict the correct inputs for the model.</li></ul></div></div></div> <span class="heading-toc" id="toc-basics-of-dcf-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Basics of DCF Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> DCF analysis seeks to establish, through projections of a company's future earnings, the company's real current value. DCF theory holds that the value of all cash flow–generating assets—from fixed-income bonds to stocks to an entire company—is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/presentvalue.asp">present value</a> of the expected cash flow stream given some appropriate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountrate.asp">discount rate</a>.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Basically, DCF is a calculation of a company's current and future available cash, designated as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freecashflow.asp">free cash flow</a>, determined as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating_profit.asp">operating profit</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciation</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amortization.asp">amortization</a>, minus <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a> and <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating_expense.asp">operational expenses</a> and <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxes.asp">taxes</a>. These year-by-year projected amounts are then discounted using the company's <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wacc.asp">weighted average cost of capital</a> to finally obtain a current value estimate of the company's future growth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The formula for this is usually given something like this: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <span data-value="\begin{aligned} &amp;PV = \frac{CF_1}{(1+k)^1} + \frac{CF_2}{(1+k)^2} + \cdots + \frac{CF_n}{(k-g)(1+k)^{n-1}}\\ \\ &amp;\textbf{where:}\\ &amp;PV = \text{present value}\\ &amp;CF_i = \text{cash flow in the } i^{th} \text{ period}\\ &amp;CF_n = \text{cash flow in the terminal period}\\ &amp;k = \text{discount rate}\\ &amp;g = \text{assumed growth rate in perpetuity beyond the terminal period}\\ &amp;n = \text{the number of periods in the valuation model}\\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> P </mi> <mi> V </mi> <mo> = </mo> <mfrac> <mrow> <mi> C </mi> <msub> <mi> F </mi> <mn> 1 </mn> </msub> </mrow> <mrow> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mi> k </mi> <msup> <mo> ) </mo> <mn> 1 </mn> </msup> </mrow> </mfrac> <mo> + </mo> <mfrac> <mrow> <mi> C </mi> <msub> <mi> F </mi> <mn> 2 </mn> </msub> </mrow> <mrow> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mi> k </mi> <msup> <mo> ) </mo> <mn> 2 </mn> </msup> </mrow> </mfrac> <mo> + </mo> <mo> ⋯ </mo> <mo> + </mo> <mfrac> <mrow> <mi> C </mi> <msub> <mi> F </mi> <mi> n </mi> </msub> </mrow> <mrow> <mo> ( </mo> <mi> k </mi> <mo> − </mo> <mi> g </mi> <mo> ) </mo> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mi> k </mi> <msup> <mo> ) </mo> <mrow> <mi> n </mi> <mo> − </mo> <mn> 1 </mn> </mrow> </msup> </mrow> </mfrac> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> P </mi> <mi> V </mi> <mo> = </mo> <mtext> present value </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> C </mi> <msub> <mi> F </mi> <mi> i </mi> </msub> <mo> = </mo> <mtext> cash flow in the  </mtext> <msup> <mi> i </mi> <mrow> <mi> t </mi> <mi> h </mi> </mrow> </msup> <mtext>  period </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> C </mi> <msub> <mi> F </mi> <mi> n </mi> </msub> <mo> = </mo> <mtext> cash flow in the terminal period </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> k </mi> <mo> = </mo> <mtext> discount rate </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> g </mi> <mo> = </mo> <mtext> assumed growth rate in perpetuity beyond the terminal period </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> the number of periods in the valuation model </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;PV = \frac{CF_1}{(1+k)^1} + \frac{CF_2}{(1+k)^2} + \cdots + \frac{CF_n}{(k-g)(1+k)^{n-1}}\\ \\ &amp;\textbf{where:}\\ &amp;PV = \text{present value}\\ &amp;CF_i = \text{cash flow in the } i^{th} \text{ period}\\ &amp;CF_n = \text{cash flow in the terminal period}\\ &amp;k = \text{discount rate}\\ &amp;g = \text{assumed growth rate in perpetuity beyond the terminal period}\\ &amp;n = \text{the number of periods in the valuation model}\\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">P</span><span class="mord mathdefault">V</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mopen">(</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord mathdefault">k</span><span class="mclose"><span class="mclose">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">C</span><span class="mord"><span class="mord mathdefault">F</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mopen">(</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord mathdefault">k</span><span class="mclose"><span class="mclose">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">C</span><span class="mord"><span class="mord mathdefault">F</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">2</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="minner">⋯</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mopen">(</span><span class="mord mathdefault">k</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord mathdefault">g</span><span class="mclose">)</span><span class="mopen">(</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord mathdefault">k</span><span class="mclose"><span class="mclose">)</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathdefault mtight">n</span><span class="mbin mtight">−</span><span class="mord mtight">1</span></span></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">C</span><span class="mord"><span class="mord mathdefault">F</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">P</span><span class="mord mathdefault">V</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">present value</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">C</span><span class="mord"><span class="mord mathdefault">F</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">cash flow in the </span></span><span class="mord"><span class="mord mathdefault">i</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathdefault mtight">t</span><span class="mord mathdefault mtight">h</span></span></span></span></span></span></span></span></span><span class="mord text"><span class="mord"> period</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">C</span><span class="mord"><span class="mord mathdefault">F</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">cash flow in the terminal period</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">k</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">discount rate</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">g</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">assumed growth rate in perpetuity beyond the terminal period</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathdefault">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">the number of periods in the valuation model</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For equity valuation, analysts most often use some form of free cash flow for the valuation model cash flows.<span class="ql-inline-citation" data-cite="4"></span> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freecashflow.asp">Free cash flows</a> (FCF) is usually calculated as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operatingcashflow.asp">operating cash flow</a> less <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalexpenditure.asp">capital expenditures</a> (CapEx). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Note that the PV has to be divided by the current number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp">shares outstanding</a> to arrive at a per share valuation. Sometimes analysts will use an adjusted <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unlevered-free-cash-flow-ufcf.asp">unlevered free cash flow</a> to calculate a present value of cash flows to all firm <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stakeholder.asp">stakeholders</a>. They will then subtract the current value of claims senior to equity to calculate the equity DCF value and arrive at an equity value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The rule of thumb for investors is that a stock is considered to have good potential if the DCF analysis value is higher than the current value, or price, of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shares.asp">shares</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-problems-with-dcf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Problems With DCF </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> DCF models are powerful, but they do have shortcomings.<span class="ql-inline-citation" data-cite="3"></span> Moreover, they often work better for some sectors than others. Here, we took a look at some of the possible pitfalls. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Operating Cash Flow Projections </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The first and most important factor in calculating the DCF value of a stock is estimating the series of operating cash flow projections. There are a number of inherent problems with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">earnings</a> and cash flow <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forecasting.asp">forecasting</a> that can generate problems with DCF analysis.<span class="ql-inline-citation" data-cite="1"></span> The most prevalent is that the uncertainty with cash flow projection increases for each year in the forecast—and DCF models often use five or even 10 years' worth of estimates. The outer years of the model can be total shots in the dark. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Analysts may have a good idea of what operating cash flow will be for the current year and the following year, but beyond that, the ability to project earnings and cash flow diminishes rapidly. To make matters worse, cash flow projections in any given year will most likely be based largely on results for the preceding years. Small, erroneous assumptions in the first couple of years of a model can amplify <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variance.asp">variances</a> in operating cash flow projections in the later years of the model. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Capital Expenditure Projections </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Free cash flow projection involves projecting capital expenditures for each model year. Again, the degree of uncertainty increases with each additional year in the model.<span class="ql-inline-citation" data-cite="1"></span> Capital expenditures can be largely discretionary; in a down year, a company's management may rein in capital-expenditure plans (the inverse may also be true). Capital expenditure assumptions are thus usually quite risky. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> While there are a number of techniques to calculate capital expenditures, such as using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedasset.asp">fixed asset</a> turnover ratios or even a percentage of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenues</a> method, small changes in model assumptions can widely affect the result of the DCF calculation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Discount Rate and Growth Rate </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Perhaps the most contentious assumptions in a DCF model are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountrate.asp">discount rate</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthrates.asp">growth rate</a> assumptions.<span class="ql-inline-citation" data-cite="1"></span> There are many ways to approach the discount rate in an equity DCF model. Analysts might use the Markowitzian R = R_f + β(R_m - R_f) or maybe the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wacc.asp">weighted average cost of capital</a> of the firm as the discount rate in the DCF model. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Both approaches are quite theoretical and may not work well in real-world investing applications. Other investors may choose to use an arbitrary standard <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hurdlerate.asp">hurdle rate</a> to evaluate all equity investments. In this way, all investments are evaluated against each other on the same footing. When choosing a method to estimate the discount rate, there are typically no surefire (or easy) answers. Perhaps the biggest problem with growth rate assumptions is when they are used as a perpetual growth rate assumption. Assuming that anything will hold in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/perpetuity.asp">perpetuity</a> is highly theoretical. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Many analysts contend that all <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goingconcern.asp">going concern</a> companies mature in such a way that their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sustainablegrowthrate.asp">sustainable growth rates</a> will gravitate toward the long-term rate of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economicgrowth.asp">economic growth</a> in the long run. It is therefore common to see a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longtermgrowth.asp">long-term growth</a> rate assumption of around 4%, based on the long-term track record of economic growth in the United States. In addition, a company's growth rate will change, sometimes dramatically, from year to year or even decade to decade. Seldom does a growth rate gravitate to a mature company growth rate and then sit there forever. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Due to the nature of DCF calculation, the method is extremely sensitive to small changes in the discount rate and the growth rate assumption. For example, assume that an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/analyst.asp">analyst</a> projects company X's free cash flow as follows: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In this case, given standard DCF methodology, a 12% discount rate and a 4% terminal growth rate generates a per-share valuation of $12.73. Changing only the discount rate to 10% and leaving all other variables the same, the value is $16.21. That's a 27% change based on a 200 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basispoint.asp">basis point</a> change in the discount rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_46-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:27.5%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/sQ986vO2DBSj0fEhPVGn6ED0Mr8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/sQ986vO2DBSj0fEhPVGn6ED0Mr8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg" data-srcset="https://www.investopedia.com/thmb/HdmTpGwSOrLlzg-Bt-Blu4Hwf88=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg 750w" data-tracking-container="true" height="1719" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1719" sizes="750px" src="https://www.investopedia.com/thmb/sQ986vO2DBSj0fEhPVGn6ED0Mr8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg" srcset="https://www.investopedia.com/thmb/HdmTpGwSOrLlzg-Bt-Blu4Hwf88=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-alternative-methodologies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Alternative Methodologies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Even if one believes that DCF is the be-all and end-all in assessing the value of an equity investment, it is very useful to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/09/reverse-discount-cash-flow.asp">supplement the approach</a> with multiples-based target price approaches. If you are going to project income and cash flows, it is easy to use the supplementary approaches. It is important to assess which trading <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/multiple.asp">multiples</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">P/E</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-cash-flowratio.asp">price/cash flow</a>, etc.) are applicable based on the company's history and its sector. Choosing a target multiple range is where it gets tricky. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> While this is analogous to arbitrary <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountrate.asp">discount rate</a> selection, using a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trailing.asp">trailing</a> earnings number two years out and an appropriate P/E multiple to calculate a target price will entail far fewer assumptions to "value" the stock than under the DCF scenario. This improves the reliability of the conclusion relative to the DCF approach. Because we know what a company's P/E or price/cash flow multiple is after every trade, we have a lot of historical data from which to assess the future multiple possibilities. In contrast, the DCF model discount rate is always theoretical and we do not really have any historical data to draw from when calculating it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> DCF analysis has increased in popularity as more analysts focus on corporate cash flow as a key determinant in whether a company is able to do things to enhance share value. It is one of the few equity valuation tools that can provide a real, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intrinsicvalue.asp">intrinsic value</a> against which to compare current stock price as opposed to a relative value comparing one stock to other stocks in the same sector or to the market's overall performance. Market analysts observe that it is hard to fake cash flow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> While most investors probably agree that the value of a stock is related to the present value of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/010715/how-do-you-use-dcf-real-estate-valuation.asp">future stream of free cash flow</a>, the DCF approach can be difficult to apply in real-world scenarios. Its potential weaknesses come from the fact that there are numerous variations analysts can select for the values of free cash flow and the discount rate for capital. With even slightly different inputs, widely varying value figures can result. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Thus, DCF analysis is perhaps best considered over a range of values arrived at by different analysts using varying inputs. Also, since the very focus of DCF analysis is long-term growth, it is not an appropriate tool for evaluating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortterm.asp">short-term</a> profit potential. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Besides, as an investor, it's wise to avoid being too reliant on one method over another when assessing the value of stocks. Supplementing the DCF approach with multiple-based target price approaches is useful in developing a full understanding of the value of a stock. </p></div>

Most finance courses espouse the gospel of [discounted cash flow](https://www.investopedia.com/terms/d/dcf.asp) (DCF) analysis as the preferred valuation methodology for all cash flow-generating [assets](https://www.investopedia.com/terms/a/asset.asp). In theory (and in college final examinations), this technique works great. In practice, however, DCF can be difficult to apply in evaluating [equities](https://www.investopedia.com/terms/e/equity.asp). Even if one believes the gospel of DCF, other approaches are useful to help generate a complete valuation picture of a stock. ### Key Takeaways * The discounted cash flow (DCF) model is a way of estimating the present value of an asset based on its stream of future cash flows. * The model relies on the concept of the time value of money, whereby a dollar paid in the future is less valuable than a dollar today. * While good in theory, it is often difficult to accurately predict the correct inputs for the model. ## Basics of DCF Analysis DCF analysis seeks to establish, through projections of a company's future earnings, the company's real current value. DCF theory holds that the value of all cash flow–generating assets—from fixed-income bonds to stocks to an entire company—is the [present value](https://www.investopedia.com/terms/p/presentvalue.asp) of the expected cash flow stream given some appropriate [discount rate](https://www.investopedia.com/terms/d/discountrate.asp). Basically, DCF is a calculation of a company's current and future available cash, designated as [free cash flow](https://www.investopedia.com/terms/f/freecashflow.asp), determined as [operating profit](https://www.investopedia.com/terms/o/operating_profit.asp), [depreciation](https://www.investopedia.com/terms/d/depreciation.asp), and [amortization](https://www.investopedia.com/terms/a/amortization.asp), minus [capital](https://www.investopedia.com/terms/c/capital.asp) and [operational expenses](https://www.investopedia.com/terms/o/operating_expense.asp) and [taxes](https://www.investopedia.com/terms/t/taxes.asp). These year-by-year projected amounts are then discounted using the company's [weighted average cost of capital](https://www.investopedia.com/terms/w/wacc.asp) to finally obtain a current value estimate of the company's future growth. The formula for this is usually given something like this: > P > > > V > > > = > > > > > C > > > > F > > > 1 > > > > > > ( > > > 1 > > > + > > > k > > > > ) > > > 1 > > > > > > + > > > > > C > > > > F > > > 2 > > > > > > ( > > > 1 > > > + > > > k > > > > ) > > > 2 > > > > > > + > > > ⋯ > > > + > > > > > C > > > > F > > > n > > > > > > ( > > > k > > > − > > > g > > > ) > > > ( > > > 1 > > > + > > > k > > > > ) > > > > n > > > − > > > 1 > > > > > > > > > > > > > > > > > > > > > > > > > > > > where: > > > > > > > > > > > > > > > > > P > > > V > > > = > > > present value > > > > > > > > > > > > > > > > > C > > > > F > > > i > > > > = > > > cash flow in the  > > > > i > > > > t > > > h > > > > >  period > > > > > > > > > > > > > > > > > C > > > > F > > > n > > > > = > > > cash flow in the terminal period > > > > > > > > > > > > > > > > > k > > > = > > > discount rate > > > > > > > > > > > > > > > > > g > > > = > > > assumed growth rate in perpetuity beyond the terminal period > > > > > > > > > > > > > > > > > n > > > = > > > the number of periods in the valuation model > > > > > > > > \begin{aligned} &PV = \frac{CF\_1}{(1+k)^1} + \frac{CF\_2}{(1+k)^2} + \cdots + \frac{CF\_n}{(k-g)(1+k)^{n-1}}\\ \\ &\textbf{where:}\\ &PV = \text{present value}\\ &CF\_i = \text{cash flow in the } i^{th} \text{ period}\\ &CF\_n = \text{cash flow in the terminal period}\\ &k = \text{discount rate}\\ &g = \text{assumed growth rate in perpetuity beyond the terminal period}\\ &n = \text{the number of periods in the valuation model}\\ \end{aligned} > > > ​PV=(1+k)1CF1​​+(1+k)2CF2​​+⋯+(k−g)(1+k)n−1CFn​​where:PV=present valueCFi​=cash flow in the ith periodCFn​=cash flow in the terminal periodk=discount rateg=assumed growth rate in perpetuity beyond the terminal periodn=the number of periods in the valuation model​ For equity valuation, analysts most often use some form of free cash flow for the valuation model cash flows. [Free cash flows](https://www.investopedia.com/terms/f/freecashflow.asp) (FCF) is usually calculated as [operating cash flow](https://www.investopedia.com/terms/o/operatingcashflow.asp) less [capital expenditures](https://www.investopedia.com/terms/c/capitalexpenditure.asp) (CapEx). Note that the PV has to be divided by the current number of [shares outstanding](https://www.investopedia.com/terms/o/outstandingshares.asp) to arrive at a per share valuation. Sometimes analysts will use an adjusted [unlevered free cash flow](https://www.investopedia.com/terms/u/unlevered-free-cash-flow-ufcf.asp) to calculate a present value of cash flows to all firm [stakeholders](https://www.investopedia.com/terms/s/stakeholder.asp). They will then subtract the current value of claims senior to equity to calculate the equity DCF value and arrive at an equity value. The rule of thumb for investors is that a stock is considered to have good potential if the DCF analysis value is higher than the current value, or price, of the [shares](https://www.investopedia.com/terms/s/shares.asp). ## Problems With DCF DCF models are powerful, but they do have shortcomings. Moreover, they often work better for some sectors than others. Here, we took a look at some of the possible pitfalls. ### Operating Cash Flow Projections The first and most important factor in calculating the DCF value of a stock is estimating the series of operating cash flow projections. There are a number of inherent problems with [earnings](https://www.investopedia.com/terms/e/earnings.asp) and cash flow [forecasting](https://www.investopedia.com/terms/f/forecasting.asp) that can generate problems with DCF analysis. The most prevalent is that the uncertainty with cash flow projection increases for each year in the forecast—and DCF models often use five or even 10 years' worth of estimates. The outer years of the model can be total shots in the dark. Analysts may have a good idea of what operating cash flow will be for the current year and the following year, but beyond that, the ability to project earnings and cash flow diminishes rapidly. To make matters worse, cash flow projections in any given year will most likely be based largely on results for the preceding years. Small, erroneous assumptions in the first couple of years of a model can amplify [variances](https://www.investopedia.com/terms/v/variance.asp) in operating cash flow projections in the later years of the model. ### Capital Expenditure Projections Free cash flow projection involves projecting capital expenditures for each model year. Again, the degree of uncertainty increases with each additional year in the model. Capital expenditures can be largely discretionary; in a down year, a company's management may rein in capital-expenditure plans (the inverse may also be true). Capital expenditure assumptions are thus usually quite risky. While there are a number of techniques to calculate capital expenditures, such as using [fixed asset](https://www.investopedia.com/terms/f/fixedasset.asp) turnover ratios or even a percentage of [revenues](https://www.investopedia.com/terms/r/revenue.asp) method, small changes in model assumptions can widely affect the result of the DCF calculation. ### Discount Rate and Growth Rate Perhaps the most contentious assumptions in a DCF model are the [discount rate](https://www.investopedia.com/terms/d/discountrate.asp) and [growth rate](https://www.investopedia.com/terms/g/growthrates.asp) assumptions. There are many ways to approach the discount rate in an equity DCF model. Analysts might use the Markowitzian R = Rf + β(Rm - Rf) or maybe the [weighted average cost of capital](https://www.investopedia.com/terms/w/wacc.asp) of the firm as the discount rate in the DCF model. Both approaches are quite theoretical and may not work well in real-world investing applications. Other investors may choose to use an arbitrary standard [hurdle rate](https://www.investopedia.com/terms/h/hurdlerate.asp) to evaluate all equity investments. In this way, all investments are evaluated against each other on the same footing. When choosing a method to estimate the discount rate, there are typically no surefire (or easy) answers. Perhaps the biggest problem with growth rate assumptions is when they are used as a perpetual growth rate assumption. Assuming that anything will hold in [perpetuity](https://www.investopedia.com/terms/p/perpetuity.asp) is highly theoretical. Many analysts contend that all [going concern](https://www.investopedia.com/terms/g/goingconcern.asp) companies mature in such a way that their [sustainable growth rates](https://www.investopedia.com/terms/s/sustainablegrowthrate.asp) will gravitate toward the long-term rate of [economic growth](https://www.investopedia.com/terms/e/economicgrowth.asp) in the long run. It is therefore common to see a [long-term growth](https://www.investopedia.com/terms/l/longtermgrowth.asp) rate assumption of around 4%, based on the long-term track record of economic growth in the United States. In addition, a company's growth rate will change, sometimes dramatically, from year to year or even decade to decade. Seldom does a growth rate gravitate to a mature company growth rate and then sit there forever. Due to the nature of DCF calculation, the method is extremely sensitive to small changes in the discount rate and the growth rate assumption. For example, assume that an [analyst](https://www.investopedia.com/terms/a/analyst.asp) projects company X's free cash flow as follows: In this case, given standard DCF methodology, a 12% discount rate and a 4% terminal growth rate generates a per-share valuation of $12.73. Changing only the discount rate to 10% and leaving all other variables the same, the value is $16.21. That's a 27% change based on a 200 [basis point](https://www.investopedia.com/terms/b/basispoint.asp) change in the discount rate. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Top_3_Pitfalls_Of_Discounted_Cash_Flow_Analysis_Feb_2020-01-a5c2306a3b294872a505aa63bd2cea7e.jpg) Image by Sabrina Jiang © Investopedia 2020 ## Alternative Methodologies Even if one believes that DCF is the be-all and end-all in assessing the value of an equity investment, it is very useful to [supplement the approach](https://www.investopedia.com/articles/fundamental-analysis/09/reverse-discount-cash-flow.asp) with multiples-based target price approaches. If you are going to project income and cash flows, it is easy to use the supplementary approaches. It is important to assess which trading [multiples](https://www.investopedia.com/terms/m/multiple.asp) ([P/E](https://www.investopedia.com/terms/p/price-earningsratio.asp), [price/cash flow](https://www.investopedia.com/terms/p/price-to-cash-flowratio.asp), etc.) are applicable based on the company's history and its sector. Choosing a target multiple range is where it gets tricky. While this is analogous to arbitrary [discount rate](https://www.investopedia.com/terms/d/discountrate.asp) selection, using a [trailing](https://www.investopedia.com/terms/t/trailing.asp) earnings number two years out and an appropriate P/E multiple to calculate a target price will entail far fewer assumptions to "value" the stock than under the DCF scenario. This improves the reliability of the conclusion relative to the DCF approach. Because we know what a company's P/E or price/cash flow multiple is after every trade, we have a lot of historical data from which to assess the future multiple possibilities. In contrast, the DCF model discount rate is always theoretical and we do not really have any historical data to draw from when calculating it. ## The Bottom Line DCF analysis has increased in popularity as more analysts focus on corporate cash flow as a key determinant in whether a company is able to do things to enhance share value. It is one of the few equity valuation tools that can provide a real, [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp) against which to compare current stock price as opposed to a relative value comparing one stock to other stocks in the same sector or to the market's overall performance. Market analysts observe that it is hard to fake cash flow. While most investors probably agree that the value of a stock is related to the present value of the [future stream of free cash flow](https://www.investopedia.com/ask/answers/010715/how-do-you-use-dcf-real-estate-valuation.asp), the DCF approach can be difficult to apply in real-world scenarios. Its potential weaknesses come from the fact that there are numerous variations analysts can select for the values of free cash flow and the discount rate for capital. With even slightly different inputs, widely varying value figures can result. Thus, DCF analysis is perhaps best considered over a range of values arrived at by different analysts using varying inputs. Also, since the very focus of DCF analysis is long-term growth, it is not an appropriate tool for evaluating [short-term](https://www.investopedia.com/terms/s/shortterm.asp) profit potential. Besides, as an investor, it's wise to avoid being too reliant on one method over another when assessing the value of stocks. Supplementing the DCF approach with multiple-based target price approaches is useful in developing a full understanding of the value of a stock.

Most finance courses espouse the gospel of discounted cash flow (DCF) analysis as the preferred valuation methodology for all cash flow-generating assets. In theory (and in college final examinations), this technique works great. In practice, however, DCF can be difficult to apply in evaluating equities. Even if one believes the gospel of DCF, other approaches are useful to help generate a complete valuation picture of a stock. Key Takeaways The discounted cash flow (DCF) model is a way of estimating the present value of an asset based on its stream of future cash flows.The model relies on the concept of the time value of money, whereby a dollar paid in the future is less valuable than a dollar today.While good in theory, it is often difficult to accurately predict the correct inputs for the model. Basics of DCF Analysis DCF analysis seeks to establish, through projections of a company's future earnings, the company's real current value. DCF theory holds that the value of all cash flow–generating assets—from fixed-income bonds to stocks to an entire company—is the present value of the expected cash flow stream given some appropriate discount rate. Basically, DCF is a calculation of a company's current and future available cash, designated as free cash flow, determined as operating profit, depreciation, and amortization, minus capital and operational expenses and taxes. These year-by-year projected amounts are then discounted using the company's weighted average cost of capital to finally obtain a current value estimate of the company's future growth. The formula for this is usually given something like this: P V = C F 1 ( 1 + k ) 1 + C F 2 ( 1 + k ) 2 + ⋯ + C F n ( k − g ) ( 1 + k ) n − 1 where: P V = present value C F i = cash flow in the  i t h  period C F n = cash flow in the terminal period k = discount rate g = assumed growth rate in perpetuity beyond the terminal period n = the number of periods in the valuation model \begin{aligned} &PV = \frac{CF_1}{(1+k)^1} + \frac{CF_2}{(1+k)^2} + \cdots + \frac{CF_n}{(k-g)(1+k)^{n-1}}\\ \\ &\textbf{where:}\\ &PV = \text{present value}\\ &CF_i = \text{cash flow in the } i^{th} \text{ period}\\ &CF_n = \text{cash flow in the terminal period}\\ &k = \text{discount rate}\\ &g = \text{assumed growth rate in perpetuity beyond the terminal period}\\ &n = \text{the number of periods in the valuation model}\\ \end{aligned} ​PV=(1+k)1CF1​​+(1+k)2CF2​​+⋯+(k−g)(1+k)n−1CFn​​where:PV=present valueCFi​=cash flow in the ith periodCFn​=cash flow in the terminal periodk=discount rateg=assumed growth rate in perpetuity beyond the terminal periodn=the number of periods in the valuation model​ For equity valuation, analysts most often use some form of free cash flow for the valuation model cash flows. Free cash flows (FCF) is usually calculated as operating cash flow less capital expenditures (CapEx). Note that the PV has to be divided by the current number of shares outstanding to arrive at a per share valuation. Sometimes analysts will use an adjusted unlevered free cash flow to calculate a present value of cash flows to all firm stakeholders. They will then subtract the current value of claims senior to equity to calculate the equity DCF value and arrive at an equity value. The rule of thumb for investors is that a stock is considered to have good potential if the DCF analysis value is higher than the current value, or price, of the shares. Problems With DCF DCF models are powerful, but they do have shortcomings. Moreover, they often work better for some sectors than others. Here, we took a look at some of the possible pitfalls. Operating Cash Flow Projections The first and most important factor in calculating the DCF value of a stock is estimating the series of operating cash flow projections. There are a number of inherent problems with earnings and cash flow forecasting that can generate problems with DCF analysis. The most prevalent is that the uncertainty with cash flow projection increases for each year in the forecast—and DCF models often use five or even 10 years' worth of estimates. The outer years of the model can be total shots in the dark. Analysts may have a good idea of what operating cash flow will be for the current year and the following year, but beyond that, the ability to project earnings and cash flow diminishes rapidly. To make matters worse, cash flow projections in any given year will most likely be based largely on results for the preceding years. Small, erroneous assumptions in the first couple of years of a model can amplify variances in operating cash flow projections in the later years of the model. Capital Expenditure Projections Free cash flow projection involves projecting capital expenditures for each model year. Again, the degree of uncertainty increases with each additional year in the model. Capital expenditures can be largely discretionary; in a down year, a company's management may rein in capital-expenditure plans (the inverse may also be true). Capital expenditure assumptions are thus usually quite risky. While there are a number of techniques to calculate capital expenditures, such as using fixed asset turnover ratios or even a percentage of revenues method, small changes in model assumptions can widely affect the result of the DCF calculation. Discount Rate and Growth Rate Perhaps the most contentious assumptions in a DCF model are the discount rate and growth rate assumptions. There are many ways to approach the discount rate in an equity DCF model. Analysts might use the Markowitzian R = Rf + β(Rm - Rf) or maybe the weighted average cost of capital of the firm as the discount rate in the DCF model. Both approaches are quite theoretical and may not work well in real-world investing applications. Other investors may choose to use an arbitrary standard hurdle rate to evaluate all equity investments. In this way, all investments are evaluated against each other on the same footing. When choosing a method to estimate the discount rate, there are typically no surefire (or easy) answers. Perhaps the biggest problem with growth rate assumptions is when they are used as a perpetual growth rate assumption. Assuming that anything will hold in perpetuity is highly theoretical. Many analysts contend that all going concern companies mature in such a way that their sustainable growth rates will gravitate toward the long-term rate of economic growth in the long run. It is therefore common to see a long-term growth rate assumption of around 4%, based on the long-term track record of economic growth in the United States. In addition, a company's growth rate will change, sometimes dramatically, from year to year or even decade to decade. Seldom does a growth rate gravitate to a mature company growth rate and then sit there forever. Due to the nature of DCF calculation, the method is extremely sensitive to small changes in the discount rate and the growth rate assumption. For example, assume that an analyst projects company X's free cash flow as follows: In this case, given standard DCF methodology, a 12% discount rate and a 4% terminal growth rate generates a per-share valuation of $12.73. Changing only the discount rate to 10% and leaving all other variables the same, the value is $16.21. That's a 27% change based on a 200 basis point change in the discount rate. Image by Sabrina Jiang © Investopedia 2020 Alternative Methodologies Even if one believes that DCF is the be-all and end-all in assessing the value of an equity investment, it is very useful to supplement the approach with multiples-based target price approaches. If you are going to project income and cash flows, it is easy to use the supplementary approaches. It is important to assess which trading multiples (P/E, price/cash flow, etc.) are applicable based on the company's history and its sector. Choosing a target multiple range is where it gets tricky. While this is analogous to arbitrary discount rate selection, using a trailing earnings number two years out and an appropriate P/E multiple to calculate a target price will entail far fewer assumptions to "value" the stock than under the DCF scenario. This improves the reliability of the conclusion relative to the DCF approach. Because we know what a company's P/E or price/cash flow multiple is after every trade, we have a lot of historical data from which to assess the future multiple possibilities. In contrast, the DCF model discount rate is always theoretical and we do not really have any historical data to draw from when calculating it. The Bottom Line DCF analysis has increased in popularity as more analysts focus on corporate cash flow as a key determinant in whether a company is able to do things to enhance share value. It is one of the few equity valuation tools that can provide a real, intrinsic value against which to compare current stock price as opposed to a relative value comparing one stock to other stocks in the same sector or to the market's overall performance. Market analysts observe that it is hard to fake cash flow. While most investors probably agree that the value of a stock is related to the present value of the future stream of free cash flow, the DCF approach can be difficult to apply in real-world scenarios. Its potential weaknesses come from the fact that there are numerous variations analysts can select for the values of free cash flow and the discount rate for capital. With even slightly different inputs, widely varying value figures can result. Thus, DCF analysis is perhaps best considered over a range of values arrived at by different analysts using varying inputs. Also, since the very focus of DCF analysis is long-term growth, it is not an appropriate tool for evaluating short-term profit potential. Besides, as an investor, it's wise to avoid being too reliant on one method over another when assessing the value of stocks. Supplementing the DCF approach with multiple-based target price approaches is useful in developing a full understanding of the value of a stock.

https://www.investopedia.com/ask/answers/012615/whats-difference-between-rsquared-and-correlation.asp

R-Squared vs. Beta: What's the Difference?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-r-squared-vs-beta-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> R-Squared vs. Beta: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Most stock investors are familiar with the use of beta and alpha coefficients to understand how particular securities performed against a market index, but R-squared is also a useful tool for the investor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <li>Beta is an estimate of the marginal effect of a unit change in the return on a market index on the return of the chose security.</li><li>R-squared (R²) is an estimate of how much beta and alpha together help to explain the return on a security, versus how much is random variation.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> These statistics can both indicate how closely the movement of one investment parallels the movement of an index over time. Beta can be used to estimate the size of the direct relationship between the market and the security. R-squared is used to determine the reliability of the relationship between the index on one hand and alpha and beta on the other. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A stock's beta indicates how closely its price follows the same pattern as a relevant index over time.</li><li>R-squared indicates how closely alpha and beta reflect a stock's return as opposed to how much is random or due to other unobserved factors.</li><li>Both statistics are useful for understanding the relative risk and return on a security.</li></ul></div></div></div> <span class="heading-toc" id="toc-beta"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Beta </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp" rel="noopener noreferrer">Beta </a>is a numerical representation of how much the return of an overall market index impacts the return on a chosen security. A beta of 1 indicates that an increase (or decrease) in the market index return is associated with an equal increase (or decrease) in the return on the selected security. Beta greater than 1 means that the chosen security is more sensitive to the return on its general market index, and beta less than one is relatively insensitive to overall market returns. Negative values on beta mean that the selected security tend to have an inverse relationship to its overall market rate of return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Finding two perfectly related (beta equal to 1) securities is highly unusual. Readings below 1 indicate the security is less volatile than the benchmark, while readings of exactly 1 indicate its price should move with the benchmark. Readings greater than 1 indicate the asset is more volatile than the benchmark. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> On the other hand, the alpha coefficient is often viewed as a key performance indicator for stock funds. Alpha is a measure of the risk-adjusted performance of a fund or asset compared to a benchmark index. An alpha of 1.0 indicates that the investment outperformed the index by 1%. An alpha of less than 0 indicates that the investment returned less than the benchmark, adjusted for their respective volatility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-r-squared"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> R-squared </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/r-squared.asp" rel="noopener noreferrer">R-squared</a> (R²) is a method an investor or analyst can use to see how well alpha and beta capture the relationship between the return on a security and the return on the overall market. R²is also called the coefficient of determination, or the proportion of the variation in the security's return that is determined by the market return given the estimated values of alpha and beta. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> As an investor, you want to know how your holding is doing over time against the benchmark index (shown by the size of alpha and beta), but you also want to know how reliable the relationship (expressed by alpha and beta) is between that security and the overall market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> R²defines the practical value of alpha and beta on a scale from 0 to 1. A high R-squared number (from .85 to 1) indicates that alpha and beta together explain much of the variation in the returns on a security. A low R² (anything below .7, though this is arbitrary) indicates that there is little relationship between the performance pattern of the security as estimated by alpha and beta and that of the index. Instead the returns on the security may be more random, or may be explained by unobserved factors other than the market index return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> You can determine R² by using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/r-squared.asp" rel="noopener noreferrer">standard formula</a>. Some mutual fund companies report the R² of their funds in their advertising literature, but others do not. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/" rel="noopener noreferrer">Yahoo Finance</a> and Morningstar calculate and publish R² data as well as beta figures daily. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In general, investments with a high beta reading are seen as relatively risky. Stocks with a high beta will tend to rise more quickly than their benchmarks in bull markets and fall more quickly in bear markets. However, one should also consider R², because it indicates the reliability of alpha and beta, because high (or low) beta with a low R² may not be all that meaningful, or may even be deceptive to the unwary. On the other hand a high R² suggests that the given estimates of alpha and beta should be taken more seriously. </p></div>

## R-Squared vs. Beta: An Overview Most stock investors are familiar with the use of beta and alpha coefficients to understand how particular securities performed against a market index, but R-squared is also a useful tool for the investor. * Beta is an estimate of the marginal effect of a unit change in the return on a market index on the return of the chose security. * R-squared (R2) is an estimate of how much beta and alpha together help to explain the return on a security, versus how much is random variation. These statistics can both indicate how closely the movement of one investment parallels the movement of an index over time. Beta can be used to estimate the size of the direct relationship between the market and the security. R-squared is used to determine the reliability of the relationship between the index on one hand and alpha and beta on the other. ### Key Takeaways * A stock's beta indicates how closely its price follows the same pattern as a relevant index over time. * R-squared indicates how closely alpha and beta reflect a stock's return as opposed to how much is random or due to other unobserved factors. * Both statistics are useful for understanding the relative risk and return on a security. ## Beta [Beta](https://www.investopedia.com/terms/b/beta.asp)is a numerical representation of how much the return of an overall market index impacts the return on a chosen security. A beta of 1 indicates that an increase (or decrease) in the market index return is associated with an equal increase (or decrease) in the return on the selected security. Beta greater than 1 means that the chosen security is more sensitive to the return on its general market index, and beta less than one is relatively insensitive to overall market returns. Negative values on beta mean that the selected security tend to have an inverse relationship to its overall market rate of return. Finding two perfectly related (beta equal to 1) securities is highly unusual. Readings below 1 indicate the security is less volatile than the benchmark, while readings of exactly 1 indicate its price should move with the benchmark. Readings greater than 1 indicate the asset is more volatile than the benchmark. On the other hand, the alpha coefficient is often viewed as a key performance indicator for stock funds. Alpha is a measure of the risk-adjusted performance of a fund or asset compared to a benchmark index. An alpha of 1.0 indicates that the investment outperformed the index by 1%. An alpha of less than 0 indicates that the investment returned less than the benchmark, adjusted for their respective volatility. ## R-squared [R-squared](https://www.investopedia.com/terms/r/r-squared.asp) (R2) is a method an investor or analyst can use to see how well alpha and beta capture the relationship between the return on a security and the return on the overall market. R2 is also called the coefficient of determination, or the proportion of the variation in the security's return that is determined by the market return given the estimated values of alpha and beta. As an investor, you want to know how your holding is doing over time against the benchmark index (shown by the size of alpha and beta), but you also want to know how reliable the relationship (expressed by alpha and beta) is between that security and the overall market. R2 defines the practical value of alpha and beta on a scale from 0 to 1. A high R-squared number (from .85 to 1) indicates that alpha and beta together explain much of the variation in the returns on a security. A low R2 (anything below .7, though this is arbitrary) indicates that there is little relationship between the performance pattern of the security as estimated by alpha and beta and that of the index. Instead the returns on the security may be more random, or may be explained by unobserved factors other than the market index return. You can determine R2 by using a [standard formula](https://www.investopedia.com/terms/r/r-squared.asp). Some mutual fund companies report the R2 of their funds in their advertising literature, but others do not. [Yahoo Finance](https://www.investopedia.com/markets/) and Morningstar calculate and publish R2 data as well as beta figures daily. ## Special Considerations In general, investments with a high beta reading are seen as relatively risky. Stocks with a high beta will tend to rise more quickly than their benchmarks in bull markets and fall more quickly in bear markets. However, one should also consider R2, because it indicates the reliability of alpha and beta, because high (or low) beta with a low R2 may not be all that meaningful, or may even be deceptive to the unwary. On the other hand a high R2 suggests that the given estimates of alpha and beta should be taken more seriously.

R-Squared vs. Beta: An Overview Most stock investors are familiar with the use of beta and alpha coefficients to understand how particular securities performed against a market index, but R-squared is also a useful tool for the investor. Beta is an estimate of the marginal effect of a unit change in the return on a market index on the return of the chose security.R-squared (R2) is an estimate of how much beta and alpha together help to explain the return on a security, versus how much is random variation. These statistics can both indicate how closely the movement of one investment parallels the movement of an index over time. Beta can be used to estimate the size of the direct relationship between the market and the security. R-squared is used to determine the reliability of the relationship between the index on one hand and alpha and beta on the other. Key Takeaways A stock's beta indicates how closely its price follows the same pattern as a relevant index over time.R-squared indicates how closely alpha and beta reflect a stock's return as opposed to how much is random or due to other unobserved factors.Both statistics are useful for understanding the relative risk and return on a security. Beta Beta is a numerical representation of how much the return of an overall market index impacts the return on a chosen security. A beta of 1 indicates that an increase (or decrease) in the market index return is associated with an equal increase (or decrease) in the return on the selected security. Beta greater than 1 means that the chosen security is more sensitive to the return on its general market index, and beta less than one is relatively insensitive to overall market returns. Negative values on beta mean that the selected security tend to have an inverse relationship to its overall market rate of return. Finding two perfectly related (beta equal to 1) securities is highly unusual. Readings below 1 indicate the security is less volatile than the benchmark, while readings of exactly 1 indicate its price should move with the benchmark. Readings greater than 1 indicate the asset is more volatile than the benchmark. On the other hand, the alpha coefficient is often viewed as a key performance indicator for stock funds. Alpha is a measure of the risk-adjusted performance of a fund or asset compared to a benchmark index. An alpha of 1.0 indicates that the investment outperformed the index by 1%. An alpha of less than 0 indicates that the investment returned less than the benchmark, adjusted for their respective volatility. R-squared R-squared (R2) is a method an investor or analyst can use to see how well alpha and beta capture the relationship between the return on a security and the return on the overall market. R2 is also called the coefficient of determination, or the proportion of the variation in the security's return that is determined by the market return given the estimated values of alpha and beta. As an investor, you want to know how your holding is doing over time against the benchmark index (shown by the size of alpha and beta), but you also want to know how reliable the relationship (expressed by alpha and beta) is between that security and the overall market. R2 defines the practical value of alpha and beta on a scale from 0 to 1. A high R-squared number (from .85 to 1) indicates that alpha and beta together explain much of the variation in the returns on a security. A low R2 (anything below .7, though this is arbitrary) indicates that there is little relationship between the performance pattern of the security as estimated by alpha and beta and that of the index. Instead the returns on the security may be more random, or may be explained by unobserved factors other than the market index return. You can determine R2 by using a standard formula. Some mutual fund companies report the R2 of their funds in their advertising literature, but others do not. Yahoo Finance and Morningstar calculate and publish R2 data as well as beta figures daily. Special Considerations In general, investments with a high beta reading are seen as relatively risky. Stocks with a high beta will tend to rise more quickly than their benchmarks in bull markets and fall more quickly in bear markets. However, one should also consider R2, because it indicates the reliability of alpha and beta, because high (or low) beta with a low R2 may not be all that meaningful, or may even be deceptive to the unwary. On the other hand a high R2 suggests that the given estimates of alpha and beta should be taken more seriously.

https://www.investopedia.com/personal-finance-guide-for-military-service-members-and-families-5194899

Personal Finance Guide for Military Service Members and Families

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Whether you’re in the military or a civilian, you need to spend less than you earn, stash money in your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/">emergency fund</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/061113/breaking-down-tsp-investment-funds.asp">invest for your retirement</a>. You also need to take out insurance to protect your assets and loved ones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> But there are a lot of specific things about personal finance that relate specifically to being a military service member, partner, or spouse that don't apply to others. For instance, most people don’t have to move frequently, and they don’t have access to things like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/military-housing-should-you-live-on-base-or-rent-off-base-5194842">housing</a> and higher education benefits or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-free.asp">tax-free</a> forms of pay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> That’s why we’ve put together this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance-4427760">personal finance</a> guide for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/enlisting-how-pay-and-benefits-work-5195383">military service</a> members and their families. By following our guide, you can learn more about the resources that can help you solve specific problems, such as deciding where to live, making the most of your insurance benefits, and saving for retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Military service members and their families face unique financial challenges and have access to help for them.</li><li>A dislocation allowance is based on your rank and family status.</li><li>The temporary lodging allowance reimburses you for temporary housing and meals during a move.</li><li>The military will pay to move your household goods, including your vehicle if you are moving outside the continental United States.</li><li>The IRS publishes an Armed Forces Tax Guide that covers all tax situations related to military service.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-costs-of-moving"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> The Costs of Moving </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Moving is a major part of military life and orders (referred to as a permanent change of station) mean packing up all your belongings, finding a new place to live, and transporting everything there—usually just when you’re starting to feel settled in your current location. While the military helps with most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingexpenses.asp">moving expenses</a>, you still need to manage things carefully to limit or avoid out-of-pocket costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> You'll generally have to pay for certain things yourself if you have a lower rank or end up with a lower dislocation allowance, which the military provides to help offset moving costs. Some of these additional costs include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <li>Clothing for a new climate</li><li>Moving expenses for your pet</li><li>Costs associated with lost or broken belongings<span class="ql-inline-citation" data-cite="30"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Homeowners or moving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance.asp">insurance</a> may cover the last item on the list even though getting reimbursed can be a challenge. On the other hand, some members report coming out ahead by accepting a reimbursement of 95% of what the government move would have cost, then doing the work themselves.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Some costs are covered by the military, which we list below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li><strong>Dislocation Allowance: </strong>Your rank and family status determine how much of a dislocation allowance you receive. The allowance ranges between $892.96 for 2023 ($939.39 for 2024) for an E-1 without dependents to $5,595.91 for an O-10 and above with dependents for fiscal year 2023 ($5,886.90 for 2024).<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="40"></span></li> <li><strong>Temporary Lodging Expense:</strong> This allowance for temporary living expenses reimburses you for up to 14 days of temporary lodging and meals during your move within and out of the continental United States. Temporary lodging expenses are capped at $290 per day.<span class="ql-inline-citation" data-cite="47"></span></li> <li><strong>Moving Household Goods: </strong>The military pays you to move a certain weight of goods, which depends on your rank and dependent status.<span class="ql-inline-citation" data-cite="22"></span></li> <li><strong>Per Diems:</strong> Members of the military receive a maximum <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/per-diem-payments.asp">per diem</a> of $157 for 2023 ($166 for 2024) for meals and lodging during their move within the continental U.S.<span class="ql-inline-citation" data-cite="41"></span><span class="ql-inline-citation" data-cite="2"></span> An additional per diem is provided for each dependent—75% for children 12 and over and 50% of the rate for children under 12.<span class="ql-inline-citation" data-cite="21"></span></li> <li><strong>Vehicles:</strong> The military reimburses you per mile if you drive during your move.<span class="ql-inline-citation" data-cite="31"></span> If you ship your vehicle within the continental United States, the expense is your responsibility. For moves outside the continental United States, the military pays to ship one personal vehicle, subject to size limits.<span class="ql-inline-citation" data-cite="37"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>It is up to you to deal with the specifics of car and homeowners insurance when you move.</p></div></div></div> <span class="heading-toc" id="toc-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The military has your health and dental insurance covered through TRICARE and its Active Duty Dental Plan, so you won’t have to worry about those when moving out of state as civilians often do.<span class="ql-inline-citation" data-cite="32"></span> But if you own a home or vehicle, you have to deal with some insurance issues. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-military-and-veteran-car-insurance-4847242">Car insurance rates</a> vary significantly by state, so you could find yourself paying much higher (or lower) premiums after a move. If you are deployed and no one will be driving your vehicle, you may be able to save money by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/liability-insurance-how-to-stay-protected-5088593">dropping your auto liability insurance</a> if your state allows it. You may want to keep your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/comprehensive-insurance.asp">comprehensive coverage</a> in case your vehicle is damaged or stolen while you’re away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If your home will be vacant for an extended period or you plan on renting it out, you may need to adjust your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insurance/homeowners-insurance-guide/">homeowner's insurance</a> policy. You should also be aware of what personal property coverage your insurance and movers provide for your items during a move and during deployment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-spousal-employment"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Spousal Employment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Frequent moves can represent a major challenge for military spouses who want and need to work, especially when it comes to career advancement. The high cost of childcare also keeps many military spouses from working, as does the unpredictability of the service member’s schedule. In some cases, couples end up living apart to allow both the service member and their partner to work.<span class="ql-inline-citation" data-cite="33"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Becoming injured or disabled during combat can also be a factor. The intense caregiving responsibilities involved can make it a challenge for the partners of service members to work and advance in their careers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Saving for retirement can be a challenge for spouses who can't work or are underemployed. Couples may want to establish a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spousal-ira.asp">spousal individual retirement account (IRA)</a>. This tax-advantaged IRA allows the working service member to contribute up to $6,500 in 2023 and $7,000 in 2024 to a traditional or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth IRA</a> in their spouse's name. The IRS allows taxpayers to set aside an additional $1,000 catch-up contribution each year if they're 50 or older.<span class="ql-inline-citation" data-cite="38"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-taxes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Working in more than one state or country can make <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/special-tax-breaks-for-members-of-the-military-5191746">tax filing</a> more complicated for civilians. But frequent moves, deployments, and special types of pay, such as combat pay, make things even more complex for service members. The Department of Defense offers free, military-specific online tax preparation and electronic filing software called MilTax, available through your Military OneSource account.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As a service member, the state to which you pay income taxes depends on your established <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/domicile.asp">domicile</a>. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> defines domicile as “the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It isn't always where you presently live.”<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The state you owe income taxes to is also the state in which you may: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>Register your vehicle</li><li>Have a driver's license</li><li>Register to vote<span class="ql-inline-citation" data-cite="34"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Some states have no state income tax or do not tax military pay. Military.com has a comprehensive list of which areas fit the bill.<span class="ql-inline-citation" data-cite="35"></span> Military spouses may be able to claim the same domicile as their service member spouse under the Military Spouse Residency Relief Act, but in some cases, they may have to pay state taxes where they presently live.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Serving in the U.S. military can create so many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/special-tax-breaks-for-members-of-the-military-5191746">tailored tax situations</a> that the IRS has an entire publication devoted to them. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs-pub-3.asp">Publication 3, Armed Forces Tax Guide</a> discusses military-specific topics, such as which types of pay are not taxable. It also covers general issues, such as information about the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childtaxcredit.asp">Child Tax Credit</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnedincomecredit.asp">Earned Income Tax Credit (EITC)</a>, and the deductibility of moving expenses, but it aims to include all the information most military service members will need to know in a single publication.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-can-i-get-a-financial-advisor-through-the-military"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Get a Financial Advisor Through the Military?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You, your family, and survivors are eligible for free financial counseling through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.militaryonesource.mil">Military OneSource</a>, which is a Department of Defense program. This service is available to active-duty service, National Guard, and reserve members. Advisors are available to provide you with advice about setting and sticking to budgets, how to manage your money, and how to reduce your debt.<span class="ql-inline-citation" data-cite="42"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-how-can-i-be-financially-stable-while-in-the-military"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Be Financially Stable While in the Military?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Securing your financial future while in the military shouldn't be any different than if you followed another career path. Regardless of whether you serve or not, there are some basics to which you should adhere. For instance, come up with a monthly budget and spending plan, set up a rainy day/emergency fund, save for your retirement, and keep your debt level low. If your liabilities are high, come up with a realistic repayment plan that can help ease you out of debt quickly.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-retirement-investment-options-are-available-for-military-members"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Retirement Investment Options Are Available for Military Members?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Military members have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-saving-and-investing-for-military-personnel-5193117">different options to save for retirement</a>. Service members can choose to participate in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thrift_savings_plan.asp">Thrift Savings Plan (TSP)</a>, which is like a 401(k). This plan allows individuals to set aside a percentage of their base pay to the plan on a pre-tax or after-tax basis.</p><p>There are two additional options for retirement benefits through the federal military: the Legacy Retirement System (for service members who enlisted on or before Dec. 31, 2017) and the Blended Retirement System (for members who enlist on or after Jan. 1, 2018).<span class="ql-inline-citation" data-cite="46"></span><span class="ql-inline-citation" data-cite="45"></span></p><p>Service members may choose to invest their money in an IRA—the same way civilians invest in these accounts.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> As a military service member or spouse, you will experience <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/army-emergency-relief-aer-fund-5225124">personal financial challenges</a> related to frequent, mandatory moves, from moving expenses to challenges with spousal employment and child care to insurance and taxes. If you arm yourself with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/12-financial-tips-for-military-families-5194431">knowledge</a> beforehand, you'll learn more about how to limit the struggles and become financially successful by taking full advantage of all the pay and benefits to which you’re entitled, from basic training through retirement. </p></div>

Whether you’re in the military or a civilian, you need to spend less than you earn, stash money in your [emergency fund](https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/), and [invest for your retirement](https://www.investopedia.com/articles/investing/061113/breaking-down-tsp-investment-funds.asp). You also need to take out insurance to protect your assets and loved ones. But there are a lot of specific things about personal finance that relate specifically to being a military service member, partner, or spouse that don't apply to others. For instance, most people don’t have to move frequently, and they don’t have access to things like [housing](https://www.investopedia.com/military-housing-should-you-live-on-base-or-rent-off-base-5194842) and higher education benefits or [tax-free](https://www.investopedia.com/terms/t/tax-free.asp) forms of pay. That’s why we’ve put together this [personal finance](https://www.investopedia.com/personal-finance-4427760) guide for [military service](https://www.investopedia.com/enlisting-how-pay-and-benefits-work-5195383) members and their families. By following our guide, you can learn more about the resources that can help you solve specific problems, such as deciding where to live, making the most of your insurance benefits, and saving for retirement. ### Key Takeaways * Military service members and their families face unique financial challenges and have access to help for them. * A dislocation allowance is based on your rank and family status. * The temporary lodging allowance reimburses you for temporary housing and meals during a move. * The military will pay to move your household goods, including your vehicle if you are moving outside the continental United States. * The IRS publishes an Armed Forces Tax Guide that covers all tax situations related to military service. ## The Costs of Moving Moving is a major part of military life and orders (referred to as a permanent change of station) mean packing up all your belongings, finding a new place to live, and transporting everything there—usually just when you’re starting to feel settled in your current location. While the military helps with most [moving expenses](https://www.investopedia.com/terms/m/movingexpenses.asp), you still need to manage things carefully to limit or avoid out-of-pocket costs. You'll generally have to pay for certain things yourself if you have a lower rank or end up with a lower dislocation allowance, which the military provides to help offset moving costs. Some of these additional costs include: * Clothing for a new climate * Moving expenses for your pet * Costs associated with lost or broken belongings Homeowners or moving [insurance](https://www.investopedia.com/terms/i/insurance.asp) may cover the last item on the list even though getting reimbursed can be a challenge. On the other hand, some members report coming out ahead by accepting a reimbursement of 95% of what the government move would have cost, then doing the work themselves. Some costs are covered by the military, which we list below. * **Dislocation Allowance:** Your rank and family status determine how much of a dislocation allowance you receive. The allowance ranges between $892.96 for 2023 ($939.39 for 2024) for an E-1 without dependents to $5,595.91 for an O-10 and above with dependents for fiscal year 2023 ($5,886.90 for 2024). * **Temporary Lodging Expense:** This allowance for temporary living expenses reimburses you for up to 14 days of temporary lodging and meals during your move within and out of the continental United States. Temporary lodging expenses are capped at $290 per day. * **Moving Household Goods:** The military pays you to move a certain weight of goods, which depends on your rank and dependent status. * **Per Diems:** Members of the military receive a maximum [per diem](https://www.investopedia.com/terms/p/per-diem-payments.asp) of $157 for 2023 ($166 for 2024) for meals and lodging during their move within the continental U.S. An additional per diem is provided for each dependent—75% for children 12 and over and 50% of the rate for children under 12. * **Vehicles:** The military reimburses you per mile if you drive during your move. If you ship your vehicle within the continental United States, the expense is your responsibility. For moves outside the continental United States, the military pays to ship one personal vehicle, subject to size limits. ### It is up to you to deal with the specifics of car and homeowners insurance when you move. ## Insurance The military has your health and dental insurance covered through TRICARE and its Active Duty Dental Plan, so you won’t have to worry about those when moving out of state as civilians often do. But if you own a home or vehicle, you have to deal with some insurance issues. [Car insurance rates](https://www.investopedia.com/best-military-and-veteran-car-insurance-4847242) vary significantly by state, so you could find yourself paying much higher (or lower) premiums after a move. If you are deployed and no one will be driving your vehicle, you may be able to save money by [dropping your auto liability insurance](https://www.investopedia.com/liability-insurance-how-to-stay-protected-5088593) if your state allows it. You may want to keep your [comprehensive coverage](https://www.investopedia.com/terms/c/comprehensive-insurance.asp) in case your vehicle is damaged or stolen while you’re away. If your home will be vacant for an extended period or you plan on renting it out, you may need to adjust your [homeowner's insurance](https://www.investopedia.com/insurance/homeowners-insurance-guide/) policy. You should also be aware of what personal property coverage your insurance and movers provide for your items during a move and during deployment. ## Spousal Employment Frequent moves can represent a major challenge for military spouses who want and need to work, especially when it comes to career advancement. The high cost of childcare also keeps many military spouses from working, as does the unpredictability of the service member’s schedule. In some cases, couples end up living apart to allow both the service member and their partner to work. Becoming injured or disabled during combat can also be a factor. The intense caregiving responsibilities involved can make it a challenge for the partners of service members to work and advance in their careers. Saving for retirement can be a challenge for spouses who can't work or are underemployed. Couples may want to establish a [spousal individual retirement account (IRA)](https://www.investopedia.com/terms/s/spousal-ira.asp). This tax-advantaged IRA allows the working service member to contribute up to $6,500 in 2023 and $7,000 in 2024 to a traditional or [Roth IRA](https://www.investopedia.com/terms/r/rothira.asp) in their spouse's name. The IRS allows taxpayers to set aside an additional $1,000 catch-up contribution each year if they're 50 or older. ## Taxes Working in more than one state or country can make [tax filing](https://www.investopedia.com/special-tax-breaks-for-members-of-the-military-5191746) more complicated for civilians. But frequent moves, deployments, and special types of pay, such as combat pay, make things even more complex for service members. The Department of Defense offers free, military-specific online tax preparation and electronic filing software called MilTax, available through your Military OneSource account. As a service member, the state to which you pay income taxes depends on your established [domicile](https://www.investopedia.com/terms/d/domicile.asp). The [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) defines domicile as “the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It isn't always where you presently live.” The state you owe income taxes to is also the state in which you may: * Register your vehicle * Have a driver's license * Register to vote Some states have no state income tax or do not tax military pay. Military.com has a comprehensive list of which areas fit the bill. Military spouses may be able to claim the same domicile as their service member spouse under the Military Spouse Residency Relief Act, but in some cases, they may have to pay state taxes where they presently live. Serving in the U.S. military can create so many [tailored tax situations](https://www.investopedia.com/special-tax-breaks-for-members-of-the-military-5191746) that the IRS has an entire publication devoted to them. [Publication 3, Armed Forces Tax Guide](https://www.investopedia.com/terms/i/irs-pub-3.asp) discusses military-specific topics, such as which types of pay are not taxable. It also covers general issues, such as information about the [Child Tax Credit](https://www.investopedia.com/terms/c/childtaxcredit.asp), [Earned Income Tax Credit (EITC)](https://www.investopedia.com/terms/e/earnedincomecredit.asp), and the deductibility of moving expenses, but it aims to include all the information most military service members will need to know in a single publication. ## Can I Get a Financial Advisor Through the Military? You, your family, and survivors are eligible for free financial counseling through [Military OneSource](https://www.militaryonesource.mil), which is a Department of Defense program. This service is available to active-duty service, National Guard, and reserve members. Advisors are available to provide you with advice about setting and sticking to budgets, how to manage your money, and how to reduce your debt. ## How Can I Be Financially Stable While in the Military? Securing your financial future while in the military shouldn't be any different than if you followed another career path. Regardless of whether you serve or not, there are some basics to which you should adhere. For instance, come up with a monthly budget and spending plan, set up a rainy day/emergency fund, save for your retirement, and keep your debt level low. If your liabilities are high, come up with a realistic repayment plan that can help ease you out of debt quickly. ## What Retirement Investment Options Are Available for Military Members? Military members have [different options to save for retirement](https://www.investopedia.com/retirement-saving-and-investing-for-military-personnel-5193117). Service members can choose to participate in a [Thrift Savings Plan (TSP)](https://www.investopedia.com/terms/t/thrift_savings_plan.asp), which is like a 401(k). This plan allows individuals to set aside a percentage of their base pay to the plan on a pre-tax or after-tax basis. There are two additional options for retirement benefits through the federal military: the Legacy Retirement System (for service members who enlisted on or before Dec. 31, 2017) and the Blended Retirement System (for members who enlist on or after Jan. 1, 2018). Service members may choose to invest their money in an IRA—the same way civilians invest in these accounts. ## The Bottom Line As a military service member or spouse, you will experience [personal financial challenges](https://www.investopedia.com/army-emergency-relief-aer-fund-5225124) related to frequent, mandatory moves, from moving expenses to challenges with spousal employment and child care to insurance and taxes. If you arm yourself with the [knowledge](https://www.investopedia.com/12-financial-tips-for-military-families-5194431) beforehand, you'll learn more about how to limit the struggles and become financially successful by taking full advantage of all the pay and benefits to which you’re entitled, from basic training through retirement.

Whether you’re in the military or a civilian, you need to spend less than you earn, stash money in your emergency fund, and invest for your retirement. You also need to take out insurance to protect your assets and loved ones. But there are a lot of specific things about personal finance that relate specifically to being a military service member, partner, or spouse that don't apply to others. For instance, most people don’t have to move frequently, and they don’t have access to things like housing and higher education benefits or tax-free forms of pay. That’s why we’ve put together this personal finance guide for military service members and their families. By following our guide, you can learn more about the resources that can help you solve specific problems, such as deciding where to live, making the most of your insurance benefits, and saving for retirement. Key Takeaways Military service members and their families face unique financial challenges and have access to help for them.A dislocation allowance is based on your rank and family status.The temporary lodging allowance reimburses you for temporary housing and meals during a move.The military will pay to move your household goods, including your vehicle if you are moving outside the continental United States.The IRS publishes an Armed Forces Tax Guide that covers all tax situations related to military service. The Costs of Moving Moving is a major part of military life and orders (referred to as a permanent change of station) mean packing up all your belongings, finding a new place to live, and transporting everything there—usually just when you’re starting to feel settled in your current location. While the military helps with most moving expenses, you still need to manage things carefully to limit or avoid out-of-pocket costs. You'll generally have to pay for certain things yourself if you have a lower rank or end up with a lower dislocation allowance, which the military provides to help offset moving costs. Some of these additional costs include: Clothing for a new climateMoving expenses for your petCosts associated with lost or broken belongings Homeowners or moving insurance may cover the last item on the list even though getting reimbursed can be a challenge. On the other hand, some members report coming out ahead by accepting a reimbursement of 95% of what the government move would have cost, then doing the work themselves. Some costs are covered by the military, which we list below. Dislocation Allowance: Your rank and family status determine how much of a dislocation allowance you receive. The allowance ranges between $892.96 for 2023 ($939.39 for 2024) for an E-1 without dependents to $5,595.91 for an O-10 and above with dependents for fiscal year 2023 ($5,886.90 for 2024). Temporary Lodging Expense: This allowance for temporary living expenses reimburses you for up to 14 days of temporary lodging and meals during your move within and out of the continental United States. Temporary lodging expenses are capped at $290 per day. Moving Household Goods: The military pays you to move a certain weight of goods, which depends on your rank and dependent status. Per Diems: Members of the military receive a maximum per diem of $157 for 2023 ($166 for 2024) for meals and lodging during their move within the continental U.S. An additional per diem is provided for each dependent—75% for children 12 and over and 50% of the rate for children under 12. Vehicles: The military reimburses you per mile if you drive during your move. If you ship your vehicle within the continental United States, the expense is your responsibility. For moves outside the continental United States, the military pays to ship one personal vehicle, subject to size limits. It is up to you to deal with the specifics of car and homeowners insurance when you move. Insurance The military has your health and dental insurance covered through TRICARE and its Active Duty Dental Plan, so you won’t have to worry about those when moving out of state as civilians often do. But if you own a home or vehicle, you have to deal with some insurance issues. Car insurance rates vary significantly by state, so you could find yourself paying much higher (or lower) premiums after a move. If you are deployed and no one will be driving your vehicle, you may be able to save money by dropping your auto liability insurance if your state allows it. You may want to keep your comprehensive coverage in case your vehicle is damaged or stolen while you’re away. If your home will be vacant for an extended period or you plan on renting it out, you may need to adjust your homeowner's insurance policy. You should also be aware of what personal property coverage your insurance and movers provide for your items during a move and during deployment. Spousal Employment Frequent moves can represent a major challenge for military spouses who want and need to work, especially when it comes to career advancement. The high cost of childcare also keeps many military spouses from working, as does the unpredictability of the service member’s schedule. In some cases, couples end up living apart to allow both the service member and their partner to work. Becoming injured or disabled during combat can also be a factor. The intense caregiving responsibilities involved can make it a challenge for the partners of service members to work and advance in their careers. Saving for retirement can be a challenge for spouses who can't work or are underemployed. Couples may want to establish a spousal individual retirement account (IRA). This tax-advantaged IRA allows the working service member to contribute up to $6,500 in 2023 and $7,000 in 2024 to a traditional or Roth IRA in their spouse's name. The IRS allows taxpayers to set aside an additional $1,000 catch-up contribution each year if they're 50 or older. Taxes Working in more than one state or country can make tax filing more complicated for civilians. But frequent moves, deployments, and special types of pay, such as combat pay, make things even more complex for service members. The Department of Defense offers free, military-specific online tax preparation and electronic filing software called MilTax, available through your Military OneSource account. As a service member, the state to which you pay income taxes depends on your established domicile. The Internal Revenue Service (IRS) defines domicile as “the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It isn't always where you presently live.” The state you owe income taxes to is also the state in which you may: Register your vehicleHave a driver's licenseRegister to vote Some states have no state income tax or do not tax military pay. Military.com has a comprehensive list of which areas fit the bill. Military spouses may be able to claim the same domicile as their service member spouse under the Military Spouse Residency Relief Act, but in some cases, they may have to pay state taxes where they presently live. Serving in the U.S. military can create so many tailored tax situations that the IRS has an entire publication devoted to them. Publication 3, Armed Forces Tax Guide discusses military-specific topics, such as which types of pay are not taxable. It also covers general issues, such as information about the Child Tax Credit, Earned Income Tax Credit (EITC), and the deductibility of moving expenses, but it aims to include all the information most military service members will need to know in a single publication. Can I Get a Financial Advisor Through the Military? You, your family, and survivors are eligible for free financial counseling through Military OneSource, which is a Department of Defense program. This service is available to active-duty service, National Guard, and reserve members. Advisors are available to provide you with advice about setting and sticking to budgets, how to manage your money, and how to reduce your debt. How Can I Be Financially Stable While in the Military? Securing your financial future while in the military shouldn't be any different than if you followed another career path. Regardless of whether you serve or not, there are some basics to which you should adhere. For instance, come up with a monthly budget and spending plan, set up a rainy day/emergency fund, save for your retirement, and keep your debt level low. If your liabilities are high, come up with a realistic repayment plan that can help ease you out of debt quickly. What Retirement Investment Options Are Available for Military Members? Military members have different options to save for retirement. Service members can choose to participate in a Thrift Savings Plan (TSP), which is like a 401(k). This plan allows individuals to set aside a percentage of their base pay to the plan on a pre-tax or after-tax basis.There are two additional options for retirement benefits through the federal military: the Legacy Retirement System (for service members who enlisted on or before Dec. 31, 2017) and the Blended Retirement System (for members who enlist on or after Jan. 1, 2018).Service members may choose to invest their money in an IRA—the same way civilians invest in these accounts. The Bottom Line As a military service member or spouse, you will experience personal financial challenges related to frequent, mandatory moves, from moving expenses to challenges with spousal employment and child care to insurance and taxes. If you arm yourself with the knowledge beforehand, you'll learn more about how to limit the struggles and become financially successful by taking full advantage of all the pay and benefits to which you’re entitled, from basic training through retirement.

https://www.investopedia.com/terms/m/mortgage-fraud.asp

Mortgage Fraud: What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-definition-of-mortgage-fraud"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Definition of Mortgage Fraud </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The intention of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/10/how-mortgage-fraud-affects-markets.asp" rel="noopener noreferrer">mortgage fraud</a> is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. For example, by intentionally falsifying information on a mortgage application. Mortgage fraud schemes include straw buying, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/air-loan.asp" rel="noopener noreferrer">air loans</a>, and double-sales. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In addition to individuals committing mortgage fraud, large scale mortgage fraud schemes are not uncommon. In 2008, the U.S. Department of Justice and Federal Bureau of Investigation (FBI) initiated "Operation Malicious Mortgage" as a special operation to investigate and prosecute 144 cases of mortgage fraud.<span class="ql-inline-citation" data-cite="1"></span> Penalties for mortgage fraud include fines, restitution and prison time with sentences of 28 months on average.<span class="ql-inline-citation" data-cite="2"></span> There are two distinct areas of mortgage fraud. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-subheading__text"> Fraud for profit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Perpetrators of this type of fraud are often industry insiders using their specialized knowledge or authority. These insiders include bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the mortgage industry. Fraud for profit aims not to secure housing, but rather to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. The FBI prioritizes fraud for profit cases.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-subheading__text"> Fraud for housing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> This type of fraud is typically represented by illegal actions taken by a borrower motivated to acquire or maintain ownership of a house. For example, the borrower may misrepresent income and asset information on a loan application or entice an appraiser to manipulate a property's appraised value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-breaking-down-mortgage-fraud"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Breaking Down Mortgage Fraud </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Mortgage fraud is a financial crime that entrails the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/040115/top-10-common-mortgage-scams-avoid.asp">falsifying of loan documents</a> or otherwise trying to illegally profit from the mortgage loan process. The FBI considers fraud to be a material misstatement, misrepresentation, or omission in relation to a mortgage loan, which is then relied upon by a lender. A lie that influences a bank's decision—for example, about whether to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms—is mortgage fraud. The FBI and other enforcement agencies charged with investigating mortgage fraud, particularly in the wake of the 2008 housing market collapse, have broadened the definition to include fraud targeting distressed homeowners.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Aside from lying on a loan application, other types of mortgage fraud include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/straw-buyer.asp">Straw buyers</a> are loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer or the true nature of the transaction.</li> <li>An air loan is a loan to a straw or non-existent buyer on a non-existent property.</li> <li>A double sale is the sale of one mortgage note to more than one investor.</li> <li>Illegal property <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flipping.asp">flipping</a> occurs when property is purchased and resold quickly at an artificially inflated price, using a fraudulently inflated appraisal.</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/ponzischeme.asp">Ponzi</a>, investment club, or chunking schemes involve the sale of properties at artificially inflated prices, pitched as investment opportunities to naïve real estate investors who are promised improbably high returns and low risks.</li> <li>A builder bailout is when a seller pays large financial incentives to the buyer and facilitates an inflated loan amount by increasing the sales price, concealing the incentive, and using a fraudulently inflated <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisalfraud.asp">appraisal</a>.</li> <li>A buy-and-bail is when the homeowner is current on the mortgage, but the value of the home has fallen below the amount owed (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwater-mortgage.asp">underwater</a>), so they apply for a <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/purchase-money_mortgage.asp">purchase-money mortgage</a> on another home. After the new property has been secured, the buy and bail borrower will allow the first home to go into <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclosure</a>.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li>A foreclosure rescue scheme involves foreclosure "specialists" who promise to help the borrower avoid foreclosure. Borrowers often pays for services they never receive and, ultimately, lose their homes.</li> <li>In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision.</li> <li>A non-arm's length short sale scheme involves a fictitious purchase offer made by the homeowner's accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home.</li> <li>In a short sale flip scheme, the perpetrator manipulates the short sale lender into approving a short payoff and conceals an immediate contingent sale to a pre-arranged end buyer at a significantly higher sales price.</li> <li>In a <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proprietary-reverse-mortgage.asp">reverse mortgage</a> fraud, the perpetrator manipulates a senior citizen into obtaining a reverse mortgage and then pockets the victim's proceeds.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li>In <a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affinityfraud.asp">affinity fraud</a>, perpetrators exploit the trust and friendship that exist in groups held together by a common bond. Ethnic, religious, professional or age-related groups are often targeted.</li> <li>In reverse <a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/occupancyfraud.asp">occupancy fraud</a>, a borrower buys a home as an investment property and lists rent proceeds as income to qualify for the mortgage. Then, instead of renting the home, the borrower occupies the premises as a primary residence.</li> </ul></div>

## Definition of Mortgage Fraud The intention of [mortgage fraud](https://www.investopedia.com/articles/mortgages-real-estate/10/how-mortgage-fraud-affects-markets.asp) is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. For example, by intentionally falsifying information on a mortgage application. Mortgage fraud schemes include straw buying, [air loans](https://www.investopedia.com/terms/a/air-loan.asp), and double-sales. In addition to individuals committing mortgage fraud, large scale mortgage fraud schemes are not uncommon. In 2008, the U.S. Department of Justice and Federal Bureau of Investigation (FBI) initiated "Operation Malicious Mortgage" as a special operation to investigate and prosecute 144 cases of mortgage fraud. Penalties for mortgage fraud include fines, restitution and prison time with sentences of 28 months on average. There are two distinct areas of mortgage fraud. ### Fraud for profit Perpetrators of this type of fraud are often industry insiders using their specialized knowledge or authority. These insiders include bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the mortgage industry. Fraud for profit aims not to secure housing, but rather to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. The FBI prioritizes fraud for profit cases. ### Fraud for housing This type of fraud is typically represented by illegal actions taken by a borrower motivated to acquire or maintain ownership of a house. For example, the borrower may misrepresent income and asset information on a loan application or entice an appraiser to manipulate a property's appraised value. ## Breaking Down Mortgage Fraud Mortgage fraud is a financial crime that entrails the [falsifying of loan documents](https://www.investopedia.com/articles/personal-finance/040115/top-10-common-mortgage-scams-avoid.asp) or otherwise trying to illegally profit from the mortgage loan process. The FBI considers fraud to be a material misstatement, misrepresentation, or omission in relation to a mortgage loan, which is then relied upon by a lender. A lie that influences a bank's decision—for example, about whether to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms—is mortgage fraud. The FBI and other enforcement agencies charged with investigating mortgage fraud, particularly in the wake of the 2008 housing market collapse, have broadened the definition to include fraud targeting distressed homeowners. Aside from lying on a loan application, other types of mortgage fraud include: * [Straw buyers](https://www.investopedia.com/terms/s/straw-buyer.asp) are loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer or the true nature of the transaction. * An air loan is a loan to a straw or non-existent buyer on a non-existent property. * A double sale is the sale of one mortgage note to more than one investor. * Illegal property [flipping](https://www.investopedia.com/terms/f/flipping.asp) occurs when property is purchased and resold quickly at an artificially inflated price, using a fraudulently inflated appraisal. * [Ponzi](https://www.investopedia.com/terms/p/ponzischeme.asp), investment club, or chunking schemes involve the sale of properties at artificially inflated prices, pitched as investment opportunities to naïve real estate investors who are promised improbably high returns and low risks. * A builder bailout is when a seller pays large financial incentives to the buyer and facilitates an inflated loan amount by increasing the sales price, concealing the incentive, and using a fraudulently inflated [appraisal](https://www.investopedia.com/terms/a/appraisalfraud.asp). * A buy-and-bail is when the homeowner is current on the mortgage, but the value of the home has fallen below the amount owed ([underwater](https://www.investopedia.com/terms/u/underwater-mortgage.asp)), so they apply for a [purchase-money mortgage](https://www.investopedia.com/terms/p/purchase-money_mortgage.asp) on another home. After the new property has been secured, the buy and bail borrower will allow the first home to go into [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp). * A foreclosure rescue scheme involves foreclosure "specialists" who promise to help the borrower avoid foreclosure. Borrowers often pays for services they never receive and, ultimately, lose their homes. * In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision. * A non-arm's length short sale scheme involves a fictitious purchase offer made by the homeowner's accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home. * In a short sale flip scheme, the perpetrator manipulates the short sale lender into approving a short payoff and conceals an immediate contingent sale to a pre-arranged end buyer at a significantly higher sales price. * In a [reverse mortgage](https://www.investopedia.com/terms/p/proprietary-reverse-mortgage.asp) fraud, the perpetrator manipulates a senior citizen into obtaining a reverse mortgage and then pockets the victim's proceeds. * In [affinity fraud](https://www.investopedia.com/terms/a/affinityfraud.asp), perpetrators exploit the trust and friendship that exist in groups held together by a common bond. Ethnic, religious, professional or age-related groups are often targeted. * In reverse [occupancy fraud](https://www.investopedia.com/terms/o/occupancyfraud.asp), a borrower buys a home as an investment property and lists rent proceeds as income to qualify for the mortgage. Then, instead of renting the home, the borrower occupies the premises as a primary residence.

Definition of Mortgage Fraud The intention of mortgage fraud is typically to receive a larger loan amount than would have been permitted if the application had been made honestly. For example, by intentionally falsifying information on a mortgage application. Mortgage fraud schemes include straw buying, air loans, and double-sales. In addition to individuals committing mortgage fraud, large scale mortgage fraud schemes are not uncommon. In 2008, the U.S. Department of Justice and Federal Bureau of Investigation (FBI) initiated "Operation Malicious Mortgage" as a special operation to investigate and prosecute 144 cases of mortgage fraud. Penalties for mortgage fraud include fines, restitution and prison time with sentences of 28 months on average. There are two distinct areas of mortgage fraud. Fraud for profit Perpetrators of this type of fraud are often industry insiders using their specialized knowledge or authority. These insiders include bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals engaged in the mortgage industry. Fraud for profit aims not to secure housing, but rather to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. The FBI prioritizes fraud for profit cases. Fraud for housing This type of fraud is typically represented by illegal actions taken by a borrower motivated to acquire or maintain ownership of a house. For example, the borrower may misrepresent income and asset information on a loan application or entice an appraiser to manipulate a property's appraised value. Breaking Down Mortgage Fraud Mortgage fraud is a financial crime that entrails the falsifying of loan documents or otherwise trying to illegally profit from the mortgage loan process. The FBI considers fraud to be a material misstatement, misrepresentation, or omission in relation to a mortgage loan, which is then relied upon by a lender. A lie that influences a bank's decision—for example, about whether to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms—is mortgage fraud. The FBI and other enforcement agencies charged with investigating mortgage fraud, particularly in the wake of the 2008 housing market collapse, have broadened the definition to include fraud targeting distressed homeowners. Aside from lying on a loan application, other types of mortgage fraud include: Straw buyers are loan applicants used by fraud perpetrators to obtain mortgages and are used to disguise the true buyer or the true nature of the transaction. An air loan is a loan to a straw or non-existent buyer on a non-existent property. A double sale is the sale of one mortgage note to more than one investor. Illegal property flipping occurs when property is purchased and resold quickly at an artificially inflated price, using a fraudulently inflated appraisal. Ponzi, investment club, or chunking schemes involve the sale of properties at artificially inflated prices, pitched as investment opportunities to naïve real estate investors who are promised improbably high returns and low risks. A builder bailout is when a seller pays large financial incentives to the buyer and facilitates an inflated loan amount by increasing the sales price, concealing the incentive, and using a fraudulently inflated appraisal. A buy-and-bail is when the homeowner is current on the mortgage, but the value of the home has fallen below the amount owed (underwater), so they apply for a purchase-money mortgage on another home. After the new property has been secured, the buy and bail borrower will allow the first home to go into foreclosure. A foreclosure rescue scheme involves foreclosure "specialists" who promise to help the borrower avoid foreclosure. Borrowers often pays for services they never receive and, ultimately, lose their homes. In short sale fraud, the perpetrator profits by concealing contingent transactions or falsifying material information, including the true value of the property, so the servicer cannot make an informed short sale decision. A non-arm's length short sale scheme involves a fictitious purchase offer made by the homeowner's accomplice (straw buyer) in an attempt to fraudulently reduce the indebtedness on the property and allow the borrower to remain in their home. In a short sale flip scheme, the perpetrator manipulates the short sale lender into approving a short payoff and conceals an immediate contingent sale to a pre-arranged end buyer at a significantly higher sales price. In a reverse mortgage fraud, the perpetrator manipulates a senior citizen into obtaining a reverse mortgage and then pockets the victim's proceeds. In affinity fraud, perpetrators exploit the trust and friendship that exist in groups held together by a common bond. Ethnic, religious, professional or age-related groups are often targeted. In reverse occupancy fraud, a borrower buys a home as an investment property and lists rent proceeds as income to qualify for the mortgage. Then, instead of renting the home, the borrower occupies the premises as a primary residence.

https://www.investopedia.com/how-to-talk-about-money-with-partner-8612447

How to Talk About Money with Your Partner

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Having open conversations about finances is essential for any healthy romantic relationship. But no matter how long you’ve been lovebirds, bringing up money can feel awkward and uncomfortable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> A February 2023 study by Bread Financial found that baby boomers tend to discuss finances with their partners the least of any generation—only 13% of those surveyed admitted to talking about finances daily. Millennials were a different story; 39% claimed to discuss money daily with their partners. Yet, the study also found that “58% of millennials and 57% of Gen Z’ers report arguments with their partner over finances at least occasionally, whereas only 30% of boomers do the same.”<span class="ql-inline-citation" data-cite="1"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Open communication about money is crucial for a healthy relationship.</li><li>Building trust about money matters and setting shared financial goals can strengthen your relationship.</li><li>Approach the conversation about money with empathy and understanding.</li><li>Create financial transparency by discussing income, expenses, and budgeting.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Not all money conversations are good ones, and there is such a thing as talking about the topic <em>too much</em>. Rather than prioritize frequency, it is best to focus on quality. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Certified financial planner <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.thewaystowealth.com/author/rjweiss/" rel="nofollow">R.J. Weiss</a> says one of the easiest ways to start is to “Concentrate on future goals instead of past spending habits. Start with a question like, ‘What do we want our finances to look like in three years?’” This kind of open-ended question avoids finger pointing and provides a neutral starting point to discuss how each of you values money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Regular and healthy talks about money can help you and your partner unpack financial fears and money scripts, as well as plan for financial independence and shared milestones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-talking-about-money-matters"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Talking About Money Matters </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A recent Forbes Advisor survey of 1,000 divorcees found that their number one reason for getting married was financial security (42%). Although finances didn’t top the reasons why they divorced, money matters played a significant role in common conflicts among couples who wound up divorcing. Forty-six percent reported career choices as the most prevalent topic of disagreement, while 43% said the division of household labor, and 28% named finances.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> If not addressed proactively, money issues like conflicting spending habits, opposing views on saving and investing, and dead-end jobs can breed resentment over time. Keeping lines of communication open within couples is essential to the overall solvency of a committed relationship, but it is just the first step. Discussing spending priorities, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/">savings goals</a>, and debt management can help you find compromises and solutions as a team. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Next, you may need to have financial conversations with children, aging parents, ex-spouses, co-parents, business partners, and anyone else who relies on your household income. Setting priorities within your partnership can help you speak with one voice when discussing boundaries with dependents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-establish-a-foundation-of-trust"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Establish a Foundation of Trust </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Many people were raised to believe that talking about money is rude or taboo. Raising the topic of money before your relationship is on solid emotional ground can feel like a recipe for disaster. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Yet, early transparency around money can help you determine if this partnership is going to work in the long term. It is less about how much money is in each bank account and more about whether you both see eye to eye about how you spend, save, and value money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Starting these conversations from a nonjudgmental place helps both partners feel safe to reveal the emotions behind their money habits and to shift to more sustainable patterns in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Weiss says it’s best to make financial discussions a regular part of your relationship routine, at least monthly. This normalizes conversations—rather than arguments—about money. You can use a common monthly billing cycle as the anchor to review your numbers. If you want to dig deeper into concepts, you can agree to read a personal finance book or listen to a money-focused podcast and discuss it monthly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> These periodic check-ins are opportunities to disclose money woes and craft strategies together. There are also times to acknowledge wins like promotions, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investment</a> growth, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a> paydown. Knowing your partner can handle the good and the bad is really what healthy relationships are made of. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> However, you must expect that these conversations are going to be emotional. Try not to lash out in fear or anger when gathering new information about your partner’s money hygiene. Also, don’t beat yourself up about any slip-ups throughout the month. Listen with empathy and devise a plan to set things right. The intention is to build a culture of accountability and discipline, not one of extreme austerity or shame. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>It may take time and care, but openly sharing money experiences without blame ultimately builds trust and strengthens intimacy.</p></div></div></div> <span class="heading-toc" id="toc-get-excited-about-shared-financial-goals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Get Excited About Shared Financial Goals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The best part of sharing a life with someone is the prospect of doing <em>what</em> you love <em>with</em> someone you love. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Chances are, shared interests are what brought you and your partner together in the first place. Hone in on the meaningful life events and accomplishments you’d like to share with each other, and build conversations around the part each of you will play in ensuring that those milestones come to pass. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Once you get past the initial awkwardness, setting shared money goals can be incredibly bonding. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> “Couples should set goals both individually and together and should understand what each of them is trying to accomplish and work towards,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.mitlinfinancial.com/team-members/lawrence-sprung/" rel="nofollow">Lawrence D. Sprung</a>, a wealth advisor and the host of the Mitlin Money Mindset podcast. “Although income and salaries may be different, as long as your goals are aligned, the combined incomes should be viewed as being available towards both your individual goals [and your goals] as a couple.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Talking about money with your partner ensures that you both have a solid game plan to advance your lives as a couple. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-use-these-tips-to-talk-to-your-partner-about-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> Use These Tips to Talk to Your Partner About Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <br/>Choosing the right time and place for money discussions ensures a nonconfrontational and supportive environment to tackle what could be a sensitive topic for you or your partner. These are effective strategies for initiating a conversation about money with your partner: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Work Through the Details </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> At first glance, figuring out the nitty-gritty of budgeting and expenses together can feel really overwhelming. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> To make combining your finances more manageable, both partners have to be honest about their incomes, debts, and other financial obligations. Excessive privacy or vagueness breeds mistrust. Trust that you can share the details with your partner and that they won’t judge you but instead serve as a supportive sounding board. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_54-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_55-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Married couples can file their U.S. taxes jointly or separately. While filing jointly is most common, filing separately can be advantageous if there are large differences in medical bills, debts, and income between partners. The details matter.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Discuss Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> “The important thing here is to have an honest and transparent conversation about your respective debt,” Sprung says. “Put it all on the table and begin to have a conversation about who is going to take care of the debt, one of you or both, and put a plan together to start extinguishing it immediately so you can start off on a clean slate as a couple.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Couples approach debt in various ways. Some combine finances and include premarital debt in their joint financial goals, while others choose not to work together to pay off individual debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> “Another approach I’ve seen work is to split debt repayment based on each partner’s income level,” Weiss says. “This method makes a lot of sense when the partner with higher debt, often due to student loans, also has a higher income.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> If either of you is carrying debt from a prior relationship, expect that these discussions might be more heated than those related to the debt you accumulate together. Rely on the foundation of trust to create a plan that you both can commit to. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-subheading__text"> Use Technology </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Gone are the days of spreadsheets and shoe boxes full of receipts. Instead, you can use trackers on your credit and bank cards to closely monitor spending. If you share cards, all the transactions will be visible and accessible to discuss at your monthly money meeting. If you want to combine your finances, try apps that combine bank accounts and track spending as you swipe.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> The budgeting app Mint switched to Credit Karma in 2024 and no longer offers the same budgeting features. However, it will keep past data around net worth and add new finance trackers.<span class="ql-inline-citation" data-cite="3"></span> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ramseysolutions.com/ramseyplus/everydollar" rel="nofollow">EveryDollar</a> app and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.ynab.com/" rel="nofollow">YNAB</a> (You Need a Budget) are paid alternatives. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> To curb frivolous spending or celebrate debt paydown, you can agree to set spending alerts on your accounts. Establish autopay to avoid any penalties or late fees. Don’t rely solely on memory and willpower to reach your collective goals, especially long-term ones like retiring, buying a house, or paying off student loans and consumer debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-subheading__text"> Swap ‘Shoulds’ for ‘Coulds’ </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Personal finance conversations are often laden with regret, no matter how much or how little money a person has. Hindsight is 20/20, and most people recognize that they could have made smarter money decisions at some point. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Rather than focus on what you or your partner should have done in the past, focus on the future. Consider what you could do now and which strategies resonate most with your financial goals. When talking about money, trade past-oriented <em>shoulds</em> with forward-thinking <em>coulds</em>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_77-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_78-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>For example, instead of criticizing yourself (or your partner) for not sticking to the budget last month, focus on adjustments that will help you stay on track next month. Keep a positive and hopeful attitude when addressing household finances.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-subheading__text"> Don’t Wait </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> It is easy to put off money conversations, but don’t wait too long. It’s better to have early and regular communication about finances in flux than to wait for a perfect moment that isn’t likely to come. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> There will always be a payment that hasn’t cleared or an account issue to troubleshoot. That’s the very purpose of having these conversations regularly. Together, you can build solid money habits within your partnership and share oversight of your financial life. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-subheading__text"> Make It an Occasion </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> “Make these conversations something you look forward to. I’ve seen couples order takeout from one of their favorite restaurants, get dressed up, or open a bottle of wine,” Weiss says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> These money chats on a date night can be great for confirming if your timeline for the future will match up with the growth of your savings and investment accounts. They can also mark money wins for one or both of you. And these enjoyable settings can mute the blow of financial setbacks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> However, these occasions aren’t ideal for crunching numbers or tackling highly sensitive points of contention. In both cases, you should work with a professional. Accountants, couples counselors, and even tax preparers should be consulted in their offices or in a quiet, private setting where you can get the most value from their expertise. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_91-0"> <span class="mntl-sc-block-subheading__text"> Seek Outside Help When Needed </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Sometimes, you and your partner might feel stuck on money issues even after repeated constructive attempts to work through things together. To get unstuck, consider getting unbiased guidance from a financial professional. Certified experts are required to stay abreast of the latest trends, tools, and tactics to make the most of any situation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> If talks consistently get heated and communication breaks down, try couples counseling to have a neutral party on hand to moderate difficult conversations. A therapist can help reveal the root issues driving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-stop-fighting-about-money-4687199">money conflicts</a> and provide tools to discuss finances in a healthy manner. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Meeting with a couples financial advisor can offer an impartial outside perspective. An expert can assess your complete financial picture collaboratively and map out customized strategies to help you gain clarity on financial decisions or overcome hurdles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Other professionals you should seek include career counselors, headhunters, investment advisors, bank account managers, and more. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_100-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_101-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_5-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://debtorsanonymous.org/">Debtors Anonymous</a> offers free in-person, online, and phone-based fellowship for singles and couples looking to change their mindset about money.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_102-0"><span class="heading-toc" id="toc-how-can-i-start-the-money-talk-without-causing-a-fight"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Start the Money Talk without Causing a Fight?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Don’t spring it on your spouse or partner suddenly, and don’t come on too strong. Ease into it by mentioning that you’d like to set aside time to casually discuss your hopes and goals related to money. Pick a relaxed day without distractions. Frame it as a chance to dream together, not point fingers.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_104-0"><span class="heading-toc" id="toc-what-are-some-usual-challenges-that-couples-have-with-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Usual Challenges That Couples Have with Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some of the most common money issues between couples include fears about the economy, saving vs. spending, and how to communicate about money, according to an Orion survey. Nearly half of couples surveyed said that they considered dishonesty about money a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-avoid-financial-infidelity-in-your-relationship-4687135">form of infidelity</a>.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_106-0"><span class="heading-toc" id="toc-how-can-shared-goals-help"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can Shared Goals Help?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Having a common vision to work toward builds unity and teamwork. It motivates you to compromise or make sacrifices for each other’s benefit. Having a singular and shared goal can also highlight your money strengths and weaknesses. Together, you can improve habits that will sustain your relationship.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_108-0"><span class="heading-toc" id="toc-are-there-resources-for-managing-money-as-a-couple"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Resources for Managing Money as a Couple?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Try apps like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.honeydue.com/" rel="nofollow">Honeydue</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.askzeta.com/" rel="nofollow">Zeta</a>. They help couples budget and track finances together. Sites like <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://couplewise.com/" rel="nofollow">CoupleWise</a> offer courses and tips. Or meet with a financial advisor or counselor for personalized guidance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_110-0"><span class="heading-toc" id="toc-when-should-we-seek-outside-help-with-money-issues"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Should We Seek Outside Help with Money Issues?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you constantly argue about the same topics, don’t struggle alone. Seek counseling or financial help. Money is a top cause of relationship problems, but professionals can help.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_112-0"><span class="heading-toc" id="toc-what-are-financial-red-flags-in-a-partner-that-i-shouldnt-ignore"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Financial Red Flags in a Partner That I Shouldn’t Ignore?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Secrecy about money, uncontrolled spending, reckless gambling or investing, avoiding paying debts, and repeated unwillingness to discuss finances openly can be problematic. Use caution if these are ongoing concerns.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_114-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_115-0"> Transparent communication is crucial for a healthy relationship, money talks included. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> Start with trust and empathy. These early discussions can focus on establishing a baseline of understanding about how your individual money scripts need to change if you’re going to share a future. Raising financial matters with your partner isn’t just about discussing debt. You also need to set shared financial goals, discuss career and income changes, and adjust budgets to suit your needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_119-0"> Since financial plans change over a lifetime, expect that the discussion will always continue. Pace yourself. If some topics are heavier than others, give it time and patience before revisiting intractable issues with the help of experts. Whether you combine finances or keep them separate, neither partner should be kept in the dark. Financial transparency is a pillar of a successful relationship.<br/> </p></div>

Having open conversations about finances is essential for any healthy romantic relationship. But no matter how long you’ve been lovebirds, bringing up money can feel awkward and uncomfortable. A February 2023 study by Bread Financial found that baby boomers tend to discuss finances with their partners the least of any generation—only 13% of those surveyed admitted to talking about finances daily. Millennials were a different story; 39% claimed to discuss money daily with their partners. Yet, the study also found that “58% of millennials and 57% of Gen Z’ers report arguments with their partner over finances at least occasionally, whereas only 30% of boomers do the same.”  ### Key Takeaways * Open communication about money is crucial for a healthy relationship. * Building trust about money matters and setting shared financial goals can strengthen your relationship. * Approach the conversation about money with empathy and understanding. * Create financial transparency by discussing income, expenses, and budgeting. Not all money conversations are good ones, and there is such a thing as talking about the topic *too much*. Rather than prioritize frequency, it is best to focus on quality. Certified financial planner [R.J. Weiss](https://www.thewaystowealth.com/author/rjweiss/) says one of the easiest ways to start is to “Concentrate on future goals instead of past spending habits. Start with a question like, ‘What do we want our finances to look like in three years?’” This kind of open-ended question avoids finger pointing and provides a neutral starting point to discuss how each of you values money. Regular and healthy talks about money can help you and your partner unpack financial fears and money scripts, as well as plan for financial independence and shared milestones. ## Talking About Money Matters A recent Forbes Advisor survey of 1,000 divorcees found that their number one reason for getting married was financial security (42%). Although finances didn’t top the reasons why they divorced, money matters played a significant role in common conflicts among couples who wound up divorcing. Forty-six percent reported career choices as the most prevalent topic of disagreement, while 43% said the division of household labor, and 28% named finances. If not addressed proactively, money issues like conflicting spending habits, opposing views on saving and investing, and dead-end jobs can breed resentment over time. Keeping lines of communication open within couples is essential to the overall solvency of a committed relationship, but it is just the first step. Discussing spending priorities, [savings goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/), and debt management can help you find compromises and solutions as a team. Next, you may need to have financial conversations with children, aging parents, ex-spouses, co-parents, business partners, and anyone else who relies on your household income. Setting priorities within your partnership can help you speak with one voice when discussing boundaries with dependents. ## Establish a Foundation of Trust Many people were raised to believe that talking about money is rude or taboo. Raising the topic of money before your relationship is on solid emotional ground can feel like a recipe for disaster. Yet, early transparency around money can help you determine if this partnership is going to work in the long term. It is less about how much money is in each bank account and more about whether you both see eye to eye about how you spend, save, and value money. Starting these conversations from a nonjudgmental place helps both partners feel safe to reveal the emotions behind their money habits and to shift to more sustainable patterns in the future. Weiss says it’s best to make financial discussions a regular part of your relationship routine, at least monthly. This normalizes conversations—rather than arguments—about money. You can use a common monthly billing cycle as the anchor to review your numbers. If you want to dig deeper into concepts, you can agree to read a personal finance book or listen to a money-focused podcast and discuss it monthly. These periodic check-ins are opportunities to disclose money woes and craft strategies together. There are also times to acknowledge wins like promotions, [investment](https://www.investopedia.com/terms/i/investment.asp) growth, and [debt](https://www.investopedia.com/terms/d/debt.asp) paydown. Knowing your partner can handle the good and the bad is really what healthy relationships are made of. However, you must expect that these conversations are going to be emotional. Try not to lash out in fear or anger when gathering new information about your partner’s money hygiene. Also, don’t beat yourself up about any slip-ups throughout the month. Listen with empathy and devise a plan to set things right. The intention is to build a culture of accountability and discipline, not one of extreme austerity or shame. ### Tip It may take time and care, but openly sharing money experiences without blame ultimately builds trust and strengthens intimacy. ## Get Excited About Shared Financial Goals The best part of sharing a life with someone is the prospect of doing *what* you love *with* someone you love. Chances are, shared interests are what brought you and your partner together in the first place. Hone in on the meaningful life events and accomplishments you’d like to share with each other, and build conversations around the part each of you will play in ensuring that those milestones come to pass. Once you get past the initial awkwardness, setting shared money goals can be incredibly bonding. “Couples should set goals both individually and together and should understand what each of them is trying to accomplish and work towards,” says [Lawrence D. Sprung](https://www.mitlinfinancial.com/team-members/lawrence-sprung/), a wealth advisor and the host of the Mitlin Money Mindset podcast. “Although income and salaries may be different, as long as your goals are aligned, the combined incomes should be viewed as being available towards both your individual goals [and your goals] as a couple.” Talking about money with your partner ensures that you both have a solid game plan to advance your lives as a couple. ## Use These Tips to Talk to Your Partner About Money Choosing the right time and place for money discussions ensures a nonconfrontational and supportive environment to tackle what could be a sensitive topic for you or your partner. These are effective strategies for initiating a conversation about money with your partner: ### Work Through the Details At first glance, figuring out the nitty-gritty of budgeting and expenses together can feel really overwhelming. To make combining your finances more manageable, both partners have to be honest about their incomes, debts, and other financial obligations. Excessive privacy or vagueness breeds mistrust. Trust that you can share the details with your partner and that they won’t judge you but instead serve as a supportive sounding board. ### Married couples can file their U.S. taxes jointly or separately. While filing jointly is most common, filing separately can be advantageous if there are large differences in medical bills, debts, and income between partners. The details matter. ### Discuss Debt “The important thing here is to have an honest and transparent conversation about your respective debt,” Sprung says. “Put it all on the table and begin to have a conversation about who is going to take care of the debt, one of you or both, and put a plan together to start extinguishing it immediately so you can start off on a clean slate as a couple.” Couples approach debt in various ways. Some combine finances and include premarital debt in their joint financial goals, while others choose not to work together to pay off individual debt. “Another approach I’ve seen work is to split debt repayment based on each partner’s income level,” Weiss says. “This method makes a lot of sense when the partner with higher debt, often due to student loans, also has a higher income.” If either of you is carrying debt from a prior relationship, expect that these discussions might be more heated than those related to the debt you accumulate together. Rely on the foundation of trust to create a plan that you both can commit to. ### Use Technology Gone are the days of spreadsheets and shoe boxes full of receipts. Instead, you can use trackers on your credit and bank cards to closely monitor spending. If you share cards, all the transactions will be visible and accessible to discuss at your monthly money meeting. If you want to combine your finances, try apps that combine bank accounts and track spending as you swipe.  The budgeting app Mint switched to Credit Karma in 2024 and no longer offers the same budgeting features. However, it will keep past data around net worth and add new finance trackers. The [EveryDollar](https://www.ramseysolutions.com/ramseyplus/everydollar) app and [YNAB](https://www.ynab.com/) (You Need a Budget) are paid alternatives. To curb frivolous spending or celebrate debt paydown, you can agree to set spending alerts on your accounts. Establish autopay to avoid any penalties or late fees. Don’t rely solely on memory and willpower to reach your collective goals, especially long-term ones like retiring, buying a house, or paying off student loans and consumer debt. ### Swap ‘Shoulds’ for ‘Coulds’ Personal finance conversations are often laden with regret, no matter how much or how little money a person has. Hindsight is 20/20, and most people recognize that they could have made smarter money decisions at some point. Rather than focus on what you or your partner should have done in the past, focus on the future. Consider what you could do now and which strategies resonate most with your financial goals. When talking about money, trade past-oriented *shoulds* with forward-thinking *coulds*. ### For example, instead of criticizing yourself (or your partner) for not sticking to the budget last month, focus on adjustments that will help you stay on track next month. Keep a positive and hopeful attitude when addressing household finances. ### Don’t Wait It is easy to put off money conversations, but don’t wait too long. It’s better to have early and regular communication about finances in flux than to wait for a perfect moment that isn’t likely to come. There will always be a payment that hasn’t cleared or an account issue to troubleshoot. That’s the very purpose of having these conversations regularly. Together, you can build solid money habits within your partnership and share oversight of your financial life. ### Make It an Occasion “Make these conversations something you look forward to. I’ve seen couples order takeout from one of their favorite restaurants, get dressed up, or open a bottle of wine,” Weiss says. These money chats on a date night can be great for confirming if your timeline for the future will match up with the growth of your savings and investment accounts. They can also mark money wins for one or both of you. And these enjoyable settings can mute the blow of financial setbacks. However, these occasions aren’t ideal for crunching numbers or tackling highly sensitive points of contention. In both cases, you should work with a professional. Accountants, couples counselors, and even tax preparers should be consulted in their offices or in a quiet, private setting where you can get the most value from their expertise. ### Seek Outside Help When Needed Sometimes, you and your partner might feel stuck on money issues even after repeated constructive attempts to work through things together. To get unstuck, consider getting unbiased guidance from a financial professional. Certified experts are required to stay abreast of the latest trends, tools, and tactics to make the most of any situation. If talks consistently get heated and communication breaks down, try couples counseling to have a neutral party on hand to moderate difficult conversations. A therapist can help reveal the root issues driving [money conflicts](https://www.investopedia.com/how-to-stop-fighting-about-money-4687199) and provide tools to discuss finances in a healthy manner. Meeting with a couples financial advisor can offer an impartial outside perspective. An expert can assess your complete financial picture collaboratively and map out customized strategies to help you gain clarity on financial decisions or overcome hurdles. Other professionals you should seek include career counselors, headhunters, investment advisors, bank account managers, and more. ### Tip [Debtors Anonymous](https://debtorsanonymous.org/) offers free in-person, online, and phone-based fellowship for singles and couples looking to change their mindset about money. ## How Can I Start the Money Talk without Causing a Fight? Don’t spring it on your spouse or partner suddenly, and don’t come on too strong. Ease into it by mentioning that you’d like to set aside time to casually discuss your hopes and goals related to money. Pick a relaxed day without distractions. Frame it as a chance to dream together, not point fingers. ## What Are Some Usual Challenges That Couples Have with Money? Some of the most common money issues between couples include fears about the economy, saving vs. spending, and how to communicate about money, according to an Orion survey. Nearly half of couples surveyed said that they considered dishonesty about money a [form of infidelity](https://www.investopedia.com/how-to-avoid-financial-infidelity-in-your-relationship-4687135). ## How Can Shared Goals Help? Having a common vision to work toward builds unity and teamwork. It motivates you to compromise or make sacrifices for each other’s benefit. Having a singular and shared goal can also highlight your money strengths and weaknesses. Together, you can improve habits that will sustain your relationship. ## Are There Resources for Managing Money as a Couple? Yes. Try apps like [Honeydue](https://www.honeydue.com/) or [Zeta](https://www.askzeta.com/). They help couples budget and track finances together. Sites like [CoupleWise](https://couplewise.com/) offer courses and tips. Or meet with a financial advisor or counselor for personalized guidance. ## When Should We Seek Outside Help with Money Issues? If you constantly argue about the same topics, don’t struggle alone. Seek counseling or financial help. Money is a top cause of relationship problems, but professionals can help. ## What Are Financial Red Flags in a Partner That I Shouldn’t Ignore? Secrecy about money, uncontrolled spending, reckless gambling or investing, avoiding paying debts, and repeated unwillingness to discuss finances openly can be problematic. Use caution if these are ongoing concerns. ## The Bottom Line Transparent communication is crucial for a healthy relationship, money talks included. Start with trust and empathy. These early discussions can focus on establishing a baseline of understanding about how your individual money scripts need to change if you’re going to share a future. Raising financial matters with your partner isn’t just about discussing debt. You also need to set shared financial goals, discuss career and income changes, and adjust budgets to suit your needs. Since financial plans change over a lifetime, expect that the discussion will always continue. Pace yourself. If some topics are heavier than others, give it time and patience before revisiting intractable issues with the help of experts. Whether you combine finances or keep them separate, neither partner should be kept in the dark. Financial transparency is a pillar of a successful relationship.

Having open conversations about finances is essential for any healthy romantic relationship. But no matter how long you’ve been lovebirds, bringing up money can feel awkward and uncomfortable. A February 2023 study by Bread Financial found that baby boomers tend to discuss finances with their partners the least of any generation—only 13% of those surveyed admitted to talking about finances daily. Millennials were a different story; 39% claimed to discuss money daily with their partners. Yet, the study also found that “58% of millennials and 57% of Gen Z’ers report arguments with their partner over finances at least occasionally, whereas only 30% of boomers do the same.”  Key Takeaways Open communication about money is crucial for a healthy relationship.Building trust about money matters and setting shared financial goals can strengthen your relationship.Approach the conversation about money with empathy and understanding.Create financial transparency by discussing income, expenses, and budgeting. Not all money conversations are good ones, and there is such a thing as talking about the topic too much. Rather than prioritize frequency, it is best to focus on quality. Certified financial planner R.J. Weiss says one of the easiest ways to start is to “Concentrate on future goals instead of past spending habits. Start with a question like, ‘What do we want our finances to look like in three years?’” This kind of open-ended question avoids finger pointing and provides a neutral starting point to discuss how each of you values money. Regular and healthy talks about money can help you and your partner unpack financial fears and money scripts, as well as plan for financial independence and shared milestones. Talking About Money Matters A recent Forbes Advisor survey of 1,000 divorcees found that their number one reason for getting married was financial security (42%). Although finances didn’t top the reasons why they divorced, money matters played a significant role in common conflicts among couples who wound up divorcing. Forty-six percent reported career choices as the most prevalent topic of disagreement, while 43% said the division of household labor, and 28% named finances. If not addressed proactively, money issues like conflicting spending habits, opposing views on saving and investing, and dead-end jobs can breed resentment over time. Keeping lines of communication open within couples is essential to the overall solvency of a committed relationship, but it is just the first step. Discussing spending priorities, savings goals, and debt management can help you find compromises and solutions as a team. Next, you may need to have financial conversations with children, aging parents, ex-spouses, co-parents, business partners, and anyone else who relies on your household income. Setting priorities within your partnership can help you speak with one voice when discussing boundaries with dependents. Establish a Foundation of Trust Many people were raised to believe that talking about money is rude or taboo. Raising the topic of money before your relationship is on solid emotional ground can feel like a recipe for disaster. Yet, early transparency around money can help you determine if this partnership is going to work in the long term. It is less about how much money is in each bank account and more about whether you both see eye to eye about how you spend, save, and value money. Starting these conversations from a nonjudgmental place helps both partners feel safe to reveal the emotions behind their money habits and to shift to more sustainable patterns in the future. Weiss says it’s best to make financial discussions a regular part of your relationship routine, at least monthly. This normalizes conversations—rather than arguments—about money. You can use a common monthly billing cycle as the anchor to review your numbers. If you want to dig deeper into concepts, you can agree to read a personal finance book or listen to a money-focused podcast and discuss it monthly. These periodic check-ins are opportunities to disclose money woes and craft strategies together. There are also times to acknowledge wins like promotions, investment growth, and debt paydown. Knowing your partner can handle the good and the bad is really what healthy relationships are made of. However, you must expect that these conversations are going to be emotional. Try not to lash out in fear or anger when gathering new information about your partner’s money hygiene. Also, don’t beat yourself up about any slip-ups throughout the month. Listen with empathy and devise a plan to set things right. The intention is to build a culture of accountability and discipline, not one of extreme austerity or shame. Tip It may take time and care, but openly sharing money experiences without blame ultimately builds trust and strengthens intimacy. Get Excited About Shared Financial Goals The best part of sharing a life with someone is the prospect of doing what you love with someone you love. Chances are, shared interests are what brought you and your partner together in the first place. Hone in on the meaningful life events and accomplishments you’d like to share with each other, and build conversations around the part each of you will play in ensuring that those milestones come to pass. Once you get past the initial awkwardness, setting shared money goals can be incredibly bonding. “Couples should set goals both individually and together and should understand what each of them is trying to accomplish and work towards,” says Lawrence D. Sprung, a wealth advisor and the host of the Mitlin Money Mindset podcast. “Although income and salaries may be different, as long as your goals are aligned, the combined incomes should be viewed as being available towards both your individual goals [and your goals] as a couple.” Talking about money with your partner ensures that you both have a solid game plan to advance your lives as a couple. Use These Tips to Talk to Your Partner About Money Choosing the right time and place for money discussions ensures a nonconfrontational and supportive environment to tackle what could be a sensitive topic for you or your partner. These are effective strategies for initiating a conversation about money with your partner: Work Through the Details At first glance, figuring out the nitty-gritty of budgeting and expenses together can feel really overwhelming. To make combining your finances more manageable, both partners have to be honest about their incomes, debts, and other financial obligations. Excessive privacy or vagueness breeds mistrust. Trust that you can share the details with your partner and that they won’t judge you but instead serve as a supportive sounding board. Married couples can file their U.S. taxes jointly or separately. While filing jointly is most common, filing separately can be advantageous if there are large differences in medical bills, debts, and income between partners. The details matter. Discuss Debt “The important thing here is to have an honest and transparent conversation about your respective debt,” Sprung says. “Put it all on the table and begin to have a conversation about who is going to take care of the debt, one of you or both, and put a plan together to start extinguishing it immediately so you can start off on a clean slate as a couple.” Couples approach debt in various ways. Some combine finances and include premarital debt in their joint financial goals, while others choose not to work together to pay off individual debt. “Another approach I’ve seen work is to split debt repayment based on each partner’s income level,” Weiss says. “This method makes a lot of sense when the partner with higher debt, often due to student loans, also has a higher income.” If either of you is carrying debt from a prior relationship, expect that these discussions might be more heated than those related to the debt you accumulate together. Rely on the foundation of trust to create a plan that you both can commit to. Use Technology Gone are the days of spreadsheets and shoe boxes full of receipts. Instead, you can use trackers on your credit and bank cards to closely monitor spending. If you share cards, all the transactions will be visible and accessible to discuss at your monthly money meeting. If you want to combine your finances, try apps that combine bank accounts and track spending as you swipe.  The budgeting app Mint switched to Credit Karma in 2024 and no longer offers the same budgeting features. However, it will keep past data around net worth and add new finance trackers. The EveryDollar app and YNAB (You Need a Budget) are paid alternatives. To curb frivolous spending or celebrate debt paydown, you can agree to set spending alerts on your accounts. Establish autopay to avoid any penalties or late fees. Don’t rely solely on memory and willpower to reach your collective goals, especially long-term ones like retiring, buying a house, or paying off student loans and consumer debt. Swap ‘Shoulds’ for ‘Coulds’ Personal finance conversations are often laden with regret, no matter how much or how little money a person has. Hindsight is 20/20, and most people recognize that they could have made smarter money decisions at some point. Rather than focus on what you or your partner should have done in the past, focus on the future. Consider what you could do now and which strategies resonate most with your financial goals. When talking about money, trade past-oriented shoulds with forward-thinking coulds. For example, instead of criticizing yourself (or your partner) for not sticking to the budget last month, focus on adjustments that will help you stay on track next month. Keep a positive and hopeful attitude when addressing household finances. Don’t Wait It is easy to put off money conversations, but don’t wait too long. It’s better to have early and regular communication about finances in flux than to wait for a perfect moment that isn’t likely to come. There will always be a payment that hasn’t cleared or an account issue to troubleshoot. That’s the very purpose of having these conversations regularly. Together, you can build solid money habits within your partnership and share oversight of your financial life. Make It an Occasion “Make these conversations something you look forward to. I’ve seen couples order takeout from one of their favorite restaurants, get dressed up, or open a bottle of wine,” Weiss says. These money chats on a date night can be great for confirming if your timeline for the future will match up with the growth of your savings and investment accounts. They can also mark money wins for one or both of you. And these enjoyable settings can mute the blow of financial setbacks. However, these occasions aren’t ideal for crunching numbers or tackling highly sensitive points of contention. In both cases, you should work with a professional. Accountants, couples counselors, and even tax preparers should be consulted in their offices or in a quiet, private setting where you can get the most value from their expertise. Seek Outside Help When Needed Sometimes, you and your partner might feel stuck on money issues even after repeated constructive attempts to work through things together. To get unstuck, consider getting unbiased guidance from a financial professional. Certified experts are required to stay abreast of the latest trends, tools, and tactics to make the most of any situation. If talks consistently get heated and communication breaks down, try couples counseling to have a neutral party on hand to moderate difficult conversations. A therapist can help reveal the root issues driving money conflicts and provide tools to discuss finances in a healthy manner. Meeting with a couples financial advisor can offer an impartial outside perspective. An expert can assess your complete financial picture collaboratively and map out customized strategies to help you gain clarity on financial decisions or overcome hurdles. Other professionals you should seek include career counselors, headhunters, investment advisors, bank account managers, and more. Tip Debtors Anonymous offers free in-person, online, and phone-based fellowship for singles and couples looking to change their mindset about money. How Can I Start the Money Talk without Causing a Fight? Don’t spring it on your spouse or partner suddenly, and don’t come on too strong. Ease into it by mentioning that you’d like to set aside time to casually discuss your hopes and goals related to money. Pick a relaxed day without distractions. Frame it as a chance to dream together, not point fingers. What Are Some Usual Challenges That Couples Have with Money? Some of the most common money issues between couples include fears about the economy, saving vs. spending, and how to communicate about money, according to an Orion survey. Nearly half of couples surveyed said that they considered dishonesty about money a form of infidelity. How Can Shared Goals Help? Having a common vision to work toward builds unity and teamwork. It motivates you to compromise or make sacrifices for each other’s benefit. Having a singular and shared goal can also highlight your money strengths and weaknesses. Together, you can improve habits that will sustain your relationship. Are There Resources for Managing Money as a Couple? Yes. Try apps like Honeydue or Zeta. They help couples budget and track finances together. Sites like CoupleWise offer courses and tips. Or meet with a financial advisor or counselor for personalized guidance. When Should We Seek Outside Help with Money Issues? If you constantly argue about the same topics, don’t struggle alone. Seek counseling or financial help. Money is a top cause of relationship problems, but professionals can help. What Are Financial Red Flags in a Partner That I Shouldn’t Ignore? Secrecy about money, uncontrolled spending, reckless gambling or investing, avoiding paying debts, and repeated unwillingness to discuss finances openly can be problematic. Use caution if these are ongoing concerns. The Bottom Line Transparent communication is crucial for a healthy relationship, money talks included. Start with trust and empathy. These early discussions can focus on establishing a baseline of understanding about how your individual money scripts need to change if you’re going to share a future. Raising financial matters with your partner isn’t just about discussing debt. You also need to set shared financial goals, discuss career and income changes, and adjust budgets to suit your needs. Since financial plans change over a lifetime, expect that the discussion will always continue. Pace yourself. If some topics are heavier than others, give it time and patience before revisiting intractable issues with the help of experts. Whether you combine finances or keep them separate, neither partner should be kept in the dark. Financial transparency is a pillar of a successful relationship.

https://www.investopedia.com/terms/s/sustainable-business-20.asp

Sustainable Business 20 (SB20)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-sustainable-business-20-sb20"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Sustainable Business 20 (SB20)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A group of stocks that are chosen according to the companies' ability to provide products and services while contributing to a sustainable economy. The SB20 are selected yearly by a panel of judges with experience in analyzing sustainable stocks. The list attempts to identify innovative and progressive companies with the potential to positively affect the goal of a more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sustainability.asp">sustainable</a> society. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <span class="heading-toc" id="toc-understanding-sustainable-business-20-sb20"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-heading__text"> Understanding Sustainable Business 20 (SB20) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The SB20 is not a list of top buys. Rather, it is a list of companies that are both financially strong and sustainable. The stock list comprises companies of various sizes, locations and industries, but it doesn't create a well-diversified portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Two main criteria are used when picking a SB20 stock: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <li><strong>Sustainable:</strong> The company must be exciting and must excel in solving social or environmental problems.</li><li><strong>Financial:</strong> The company must be profitable (or close to it) and have a stock trading over $1.00.</li> </ul></div>

## What Is Sustainable Business 20 (SB20)? A group of stocks that are chosen according to the companies' ability to provide products and services while contributing to a sustainable economy. The SB20 are selected yearly by a panel of judges with experience in analyzing sustainable stocks. The list attempts to identify innovative and progressive companies with the potential to positively affect the goal of a more [sustainable](https://www.investopedia.com/terms/s/sustainability.asp) society. ## Understanding Sustainable Business 20 (SB20) The SB20 is not a list of top buys. Rather, it is a list of companies that are both financially strong and sustainable. The stock list comprises companies of various sizes, locations and industries, but it doesn't create a well-diversified portfolio. Two main criteria are used when picking a SB20 stock: * **Sustainable:** The company must be exciting and must excel in solving social or environmental problems. * **Financial:** The company must be profitable (or close to it) and have a stock trading over $1.00.

What Is Sustainable Business 20 (SB20)? A group of stocks that are chosen according to the companies' ability to provide products and services while contributing to a sustainable economy. The SB20 are selected yearly by a panel of judges with experience in analyzing sustainable stocks. The list attempts to identify innovative and progressive companies with the potential to positively affect the goal of a more sustainable society. Understanding Sustainable Business 20 (SB20) The SB20 is not a list of top buys. Rather, it is a list of companies that are both financially strong and sustainable. The stock list comprises companies of various sizes, locations and industries, but it doesn't create a well-diversified portfolio. Two main criteria are used when picking a SB20 stock: Sustainable: The company must be exciting and must excel in solving social or environmental problems.Financial: The company must be profitable (or close to it) and have a stock trading over $1.00.

https://www.investopedia.com/ask/answers/052615/how-can-i-calculate-convexity-excel.asp

How Do I Calculate Convexity in Excel?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> In the bond market, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convexity.asp">convexity</a> refers to the relationship between price and yield. When graphed, this relationship is non-linear and forms a long-sloping U-shaped curve. A bond with a high degree of convexity will experience relatively dramatic fluctuations when <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> move. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Convexity is the relationship between price and yield and is non-linear and U-shaped (convex).</li><li>Bonds with high convexity experience large moves when interest rates move. </li><li>There is no bond convexity function in Excel, but it can be approximated via a multi-variable formula. </li><li>It is considered to be a better measure of interest rate risk than duration.</li></ul></div></div></div> <span class="heading-toc" id="toc-bond-duration-vs-convexity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Bond Duration vs. Convexity  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duration.asp">Bond duration</a> is the change in a bond’s price relative to a change in interest rates. A higher duration means a bond’s price will move to a greater degree in the opposite direction that interest rates move. If the duration is low, the bond will show less movement.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Convexity measures the sensitivity of the duration of a bond as rates change. Convexity is considered a better measure of interest rate risk. Duration assumes the relationship between bond prices and interest rates is linear, while convexity incorporates other factors, producing a slope.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Negative convexity occurs when a bond’s duration increases as rates increase. This means the bond price will fall by a greater rate if rates rise than if they had fallen. A bond has positive convexity if its duration rises and rates fall.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> While there is no bond convexity function in Microsoft Excel, it can be approximated through a multi-variable formula. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-simplifying-convexity-formulas"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Simplifying Convexity Formulas </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The standard convexity formula involves a time series of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flows</a> and rather complicated calculus. This cannot be easily replicated in Excel, so a simpler formula is necessary: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Convexity = ((P+) + (P-) - (2Po)) / (2 x ((Po)(change in Y)²))) </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Where: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>(P+) is the bond price when the interest rate is decremented.</li> <li>(P-) is the bond price when the interest rate is incremented.</li> <li>(Po) is the current bond price.</li> <li>Change in Y is the change in interest rate represented in decimal form. The change in Y can also be described as the bond's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp">effective duration</a>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> This may not seem simple on the surface, but this is the easiest formula to use in Excel. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-how-to-calculate-convexity-in-excel"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> How to Calculate Convexity in Excel </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> To calculate convexity in Excel, begin by designating a different pair of cells for each of the variables identified in the formula. The first cell acts as the title (P+, P-, Po, and Effective Duration), and the second carries the price, which is information you have to gather or calculate from another source. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Suppose that (Po) value is in cell C2, (P+) is in C3, and (P-) is in C4. The effective duration is in cell B5. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In a separate cell, enter the following formula: =(C3 + C4 - 2*C2) / (2*C2*(B5^2)) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> This should provide an effective convexity for the bond. A higher result means that the price is more sensitive to changes in interest rates. Increasing convexity means the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systemic-risk.asp">systemic risk</a> a portfolio is exposed to increases. </p></div>

In the bond market, [convexity](https://www.investopedia.com/terms/c/convexity.asp) refers to the relationship between price and yield. When graphed, this relationship is non-linear and forms a long-sloping U-shaped curve. A bond with a high degree of convexity will experience relatively dramatic fluctuations when [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) move. ### Key Takeaways * Convexity is the relationship between price and yield and is non-linear and U-shaped (convex). * Bonds with high convexity experience large moves when interest rates move. * There is no bond convexity function in Excel, but it can be approximated via a multi-variable formula. * It is considered to be a better measure of interest rate risk than duration. ## Bond Duration vs. Convexity [Bond duration](https://www.investopedia.com/terms/d/duration.asp) is the change in a bond’s price relative to a change in interest rates. A higher duration means a bond’s price will move to a greater degree in the opposite direction that interest rates move. If the duration is low, the bond will show less movement. Convexity measures the sensitivity of the duration of a bond as rates change. Convexity is considered a better measure of interest rate risk. Duration assumes the relationship between bond prices and interest rates is linear, while convexity incorporates other factors, producing a slope. Negative convexity occurs when a bond’s duration increases as rates increase. This means the bond price will fall by a greater rate if rates rise than if they had fallen. A bond has positive convexity if its duration rises and rates fall.  While there is no bond convexity function in Microsoft Excel, it can be approximated through a multi-variable formula. ## Simplifying Convexity Formulas The standard convexity formula involves a time series of [cash flows](https://www.investopedia.com/terms/c/cashflow.asp) and rather complicated calculus. This cannot be easily replicated in Excel, so a simpler formula is necessary: > Convexity = ((P+) + (P-) - (2Po)) / (2 x ((Po)(change in Y)²))) Where: * (P+) is the bond price when the interest rate is decremented. * (P-) is the bond price when the interest rate is incremented. * (Po) is the current bond price. * Change in Y is the change in interest rate represented in decimal form. The change in Y can also be described as the bond's [effective duration](https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp). This may not seem simple on the surface, but this is the easiest formula to use in Excel. ## How to Calculate Convexity in Excel To calculate convexity in Excel, begin by designating a different pair of cells for each of the variables identified in the formula. The first cell acts as the title (P+, P-, Po, and Effective Duration), and the second carries the price, which is information you have to gather or calculate from another source. Suppose that (Po) value is in cell C2, (P+) is in C3, and (P-) is in C4. The effective duration is in cell B5. In a separate cell, enter the following formula: =(C3 + C4 - 2\*C2) / (2\*C2\*(B5^2)) This should provide an effective convexity for the bond. A higher result means that the price is more sensitive to changes in interest rates. Increasing convexity means the [systemic risk](https://www.investopedia.com/terms/s/systemic-risk.asp) a portfolio is exposed to increases.

In the bond market, convexity refers to the relationship between price and yield. When graphed, this relationship is non-linear and forms a long-sloping U-shaped curve. A bond with a high degree of convexity will experience relatively dramatic fluctuations when interest rates move. Key Takeaways Convexity is the relationship between price and yield and is non-linear and U-shaped (convex).Bonds with high convexity experience large moves when interest rates move. There is no bond convexity function in Excel, but it can be approximated via a multi-variable formula. It is considered to be a better measure of interest rate risk than duration. Bond Duration vs. Convexity  Bond duration is the change in a bond’s price relative to a change in interest rates. A higher duration means a bond’s price will move to a greater degree in the opposite direction that interest rates move. If the duration is low, the bond will show less movement. Convexity measures the sensitivity of the duration of a bond as rates change. Convexity is considered a better measure of interest rate risk. Duration assumes the relationship between bond prices and interest rates is linear, while convexity incorporates other factors, producing a slope. Negative convexity occurs when a bond’s duration increases as rates increase. This means the bond price will fall by a greater rate if rates rise than if they had fallen. A bond has positive convexity if its duration rises and rates fall.  While there is no bond convexity function in Microsoft Excel, it can be approximated through a multi-variable formula. Simplifying Convexity Formulas The standard convexity formula involves a time series of cash flows and rather complicated calculus. This cannot be easily replicated in Excel, so a simpler formula is necessary: Convexity = ((P+) + (P-) - (2Po)) / (2 x ((Po)(change in Y)²))) Where: (P+) is the bond price when the interest rate is decremented. (P-) is the bond price when the interest rate is incremented. (Po) is the current bond price. Change in Y is the change in interest rate represented in decimal form. The change in Y can also be described as the bond's effective duration. This may not seem simple on the surface, but this is the easiest formula to use in Excel. How to Calculate Convexity in Excel To calculate convexity in Excel, begin by designating a different pair of cells for each of the variables identified in the formula. The first cell acts as the title (P+, P-, Po, and Effective Duration), and the second carries the price, which is information you have to gather or calculate from another source. Suppose that (Po) value is in cell C2, (P+) is in C3, and (P-) is in C4. The effective duration is in cell B5. In a separate cell, enter the following formula: =(C3 + C4 - 2*C2) / (2*C2*(B5^2)) This should provide an effective convexity for the bond. A higher result means that the price is more sensitive to changes in interest rates. Increasing convexity means the systemic risk a portfolio is exposed to increases.

https://www.investopedia.com/terms/i/interest.asp

Interest: Definition and Types of Fees For Borrowing Money

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Interest? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Interest is the monetary charge for the privilege of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/07/financing-options.asp">borrowing money</a>. Interest expense or revenue is often expressed as a dollar amount, while the interest rate used to calculate interest is typically expressed as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate</a> (APR). Interest is the amount of money a lender or financial institution receives for lending out money. Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Interest is the monetary charge for borrowing money—generally expressed as a percentage, such as an annual percentage rate (APR).</li><li>Interest may be earned by lenders for the use of their funds or paid by borrowers for the use of those funds.</li><li>Interest is often considered simple interest (based on the principal amount) or compound interest (based on principal and previously-earned interest).</li><li>Interest is often associated with credit cards, mortgages, car loans, private loans, savings accounts, or penalty assessments.</li><li>Interest is highly dependent on macroeconomic policy dictated by the Federal Reserve's Federal funds rate.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Interest" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/DY_T0jX3-mroBigUhecxB304mFo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/DY_T0jX3-mroBigUhecxB304mFo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png" data-srcset="https://www.investopedia.com/thmb/O84gWBc9RLDchl451VDOAqtuda8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Interest" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/DY_T0jX3-mroBigUhecxB304mFo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png" srcset="https://www.investopedia.com/thmb/O84gWBc9RLDchl451VDOAqtuda8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / NoNo Flores</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Interest is the concept of compensating one party for incurring risk and sacrificing the opportunity to use funds while penalizing another party for the use of someone else's funds. The person temporarily parting ways with their money is entitled to compensation, and the person temporarily using those funds is often required to pay this compensation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> When you leave money in your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a>, your account is credited interest. This is because the bank uses your money and loans it out to other clients, resulting in you earning interest revenue. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The amount of interest a person must pay is often tied to their creditworthiness, the length of the loan, or the nature of the loan. All else being equal, interest and interest rates are higher when there is greater risk; as the lender faces a greater risk in the borrower not being able to make their payments, the lender may charge more interest to incentivize them to make the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>APR includes the loan's interest rate, as well as other charges, such as origination fees, closing costs, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp" rel="noopener noreferrer">discount points</a>.</p></div></div></div> <span class="heading-toc" id="toc-history-of-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> History of Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> This cost of borrowing money is considered commonplace today. However, the wide acceptability of interest became common only during the Renaissance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Interest is an ancient practice; however, social norms from ancient Middle Eastern civilizations, to Medieval times regarded charging interest on loans as a kind of sin. This was due, in part because loans were made to people in need, and there was no product other than money being made in the act of loaning <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> with interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The moral dubiousness of charging interest on loans fell away during the Renaissance. People began borrowing money to grow businesses in an attempt to improve their own station. Growing markets and relative economic mobility made loans more common and made charging interest more acceptable. It was during this time that money began to be considered a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodity</a>, and the opportunity cost of lending it was seen as worth charging for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Political philosophers in the 1700s and 1800s elucidated the economic theory behind charging interest rates for lent money, authors included Adam Smith, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frederic-bastiat.asp">Frédéric Bastiat</a>, and Carl Menger. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Iran, Sudan, and Pakistan use interest-free banking systems. Iran is completely interest-free, while Sudan and Pakistan have partial measures.<span class="ql-inline-citation" data-cite="4"></span> With this, lenders partner in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profitsharingplan.asp">profit and loss sharing</a> instead of charging interest on the money they lend. This trend in Islamic banking—refusing to take interest on loans—became more common toward the end of the 20th century, regardless of <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032715/what-difference-between-ebitda-margin-and-profit-margin.asp">profit margins</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Today, interest rates can be applied to various financial products including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgages</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp">credit</a> cards, car loans, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loans</a>. Interest rates started to fall in 2019 and were brought to near zero in 2020. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-formula-and-calculation-for-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Formula and Calculation for Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In its most basic form, interest is calculated by multiplying the outstanding principal by the interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <strong>Interest = Interest Rate * Principal or Balance</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The more complex aspect of calculating interest is often determining the correct interest rate. The interest rate is often expressed as a percentage and is usually designated as the APR. However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yearly-rate-of-return-method.asp">calculating the APR</a> often does not reflect any effects of <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a>. Instead, the effective annual rate is used to express the actual rate of interest to be paid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Often, an annual rate must be converted to calculate the applicable interest earned in a given period. For example, if a savings account is to pay 3% interest on the average balance, the account may award 0.25% (3% / 12 months) each month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The applicable interest rate is then multiplied against the outstanding amount of money related to the interest assessment. For loans, this is the outstanding principal balance. For savings this is often the average balance of savings for a given period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> In either case, the amount of interest assessed each period will likely change. For loans, borrowers will have likely made payments that reduce the principal balance, resulting in lower interest. For savers, general activity (including the addition of last month's interest) often changes the applicable balance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Your credit score has the most impact on the interest rate you are offered when it comes to various loans and lines of credit.</p></div></div></div> <span class="heading-toc" id="toc-simple-interest-vs-compound-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Simple Interest vs. Compound Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Two main types of interest can be applied to loans—<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/simple_interest.asp">simple</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compound</a>. Simple interest is a set rate on the principal originally lent to the borrower that the borrower has to pay for the ability to use the money. Compound interest is interest on both the principal and the compounding interest paid on that loan. The latter of the two types of interest is the most common. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> For obvious reasons, individuals attempting to earn interest prefer compound interest agreements. This agreement results in interest being earned on interest and results in more total earnings. Savings accounts with banks often earn compound interest; any prior interest earned on your savings is deposited into your account, and this new balance is what earns interest in future periods. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> On the other hand, compound interest is extremely concerning for borrowers especially if their accrued compound interest is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040915/what-does-it-mean-capitalize-accrued-interest.asp">capitalized</a> into their outstanding principal. This means the borrower's monthly payment will actually increase due to now having a greater loan than what they started with. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-common-applications-of-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> Common Applications of Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> There's countless ways a person can charge or be charged interest. Below are some common examples of where interest may be earned by one party and paid by another. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li><strong>Credit cards:</strong> Among the methods of borrowing money that incurs the highest amount of interest, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-card-4689721">credit cards</a> are known for having a high APR. Consumers may make minimum monthly installment payments; in return, interest expense may accumulate and is earned by the credit card providers/underlying financial institutions.</li> <li><strong>Mortgages:</strong> Among the longest-term loans, mortgages often incur interest over the entirety of their potential 30-year term. Though interest may be assessed as a fixed or variable rate, it is theoretically reduced over time as the borrower pays down the original loan principal amount.</li> <li><strong>Auto loans:</strong> An example of a shorter-term loan, auto loans are often awarded for terms up to six years. Interest is often charged as a fixed rate, and the dealership extending credit may have an in-house financing department that collects the interest revenue.</li> <li><strong>Student loans:</strong> During COVID-19, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loan</a> payments were paused, and prevailing loan rates were dropped to 0%.<span class="ql-inline-citation" data-cite="5"></span> This meant that for a while, all loans incurred no interest assessments.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Savings accounts: </strong>Often a positive type of interest for most consumers, savings accounts earn monthly interest assessments. Also called dividends, consumers have these deposits are automatically credited to your account.</li> <li><strong>Invoices: </strong>Though many companies may assess a late fee, some companies choose to assess an interest charge on outstanding and late invoices. The idea is since the late payer is technically borrowing money from the invoice holder, the invoice holder is due interest.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_56-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_57-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>A quick way to get a rough understanding of how long it will take for an interest-bearing account to double is to use the so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/ruleof72.asp">rule of 72</a>. Simply divide the number 72 by the applicable interest rate. At 4% interest, for instance, and you’ll double your investment in around 18 years (i.e., 72/4).</p></div></div></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-paying-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Paying Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Imagine a situation where you absolutely need reliable transportation to get to work. There is no public transit system, you do not own a car, work is far away, and you can't afford to buy an entire car outright. The largest advantage of paying interest is it is a relatively low expense compared to alternatives. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Paying interest also means a payer is holding debt, building their credit history, and potentially effectively using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a>. For example, real estate developers often borrow money to construct and rent buildings. If the rate of return on the building is greater than the interest rate they are charged, the company is successfully using someone else's money to make money for themselves. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> On the downside, interest is a recurring cash expense. Payers are often contractually obligated to pay interest, and monthly payments are typically applied to interest assessments before paying down the principal. Consumers may find interest assessments overwhelming. In addition, having too many loans and too high of monthly payments may restrict a borrower from being able to take out more credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_66-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Interest for Borrowers</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>May be the result of much-needed capital; relatively-speaking, it may be worth the small expense during emergencies.</p></li> <li><p>Is a result of building a strong credit history</p></li> <li><p>May be used to leverage returns and generate higher profits</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Is a real, often monthly expense requiring cash outlay</p></li> <li><p>Is usually paid before any principal balance can be paid down</p></li> <li><p>May compound and become overwhelming for a borrower to overcome</p></li> <li><p>Are contractually obligated to be paid</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-collecting-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Collecting Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> A strategy for many investors is to collect interest. Often a fixed amount (or at least consistent), interest often provides positive cash flow that is a reliable source of income depending on the creditworthiness of the person borrowing the money. Instead of having capital sitting around and not being used, lending money to others is a more efficient way of deploying capital, especially in the short term when the lender may need that money for a specific reason in the longer term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Interest is also touted as one of the simplest forms of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveincome.asp">passive income</a>. Loans may require little to no administration or maintenance after the agreement is signed. Lenders may simply collect interest and principal payments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> There are some downsides to collecting interest. First, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/high-yield-interest-impact-on-taxes-8414834">interest revenue is taxable</a>; even a small amount may push a taxpayer into a higher tax bracket. Next, because you are collecting interest, this means you are allowing someone else to use your capital. Though you may be satisfied collecting interest, there will often be greater earning potential had you utilized the capital yourself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Also, collecting interest may have philosophical opponents. Consider student loan debt assessments. While some say interest rates near 10% are reasonable for the amount of risk these lenders are incurring, others claim these rates are predatory to young adults and should not be assessed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_77-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_78-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Interest for Lenders</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>May provide source of cash flow if interest payments are collected monthly/frequently</p></li> <li><p>May be a passive source of income</p></li> <li><p>May provide a consistent stream of income if the borrower is reliable in their payments</p></li> <li><p>Is a more efficient use of capital instead of not loaning it out</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Will increase a taxpayers tax liability</p></li> <li><p>May be lower than what could have been earned had the lender deployed capital for their own investment purpose</p></li> <li><p>May attract negative attention in some situations depending on the borrower, rate of interest, and circumstance</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-interest-and-macroeconomics"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> Interest and Macroeconomics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> A low-interest-rate environment is intended to stimulate economic growth so that it is cheaper to borrow money. This is beneficial for those who are shopping for new homes, simply because it lowers their monthly payment and means cheaper costs. When the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> lowers rates, it means more money in consumers' pockets, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071715/how-do-changes-interest-rates-affect-spending-habits-economy.asp">to spend in other areas</a>, and more large purchases of items, such as houses. Banks also benefit from this environment because they can lend more money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> However, low-interest rates aren't always ideal. A high-interest rate typically tells us that the economy is strong and doing well. In a low-interest-rate environment, there are lower returns on investments and in savings accounts, and of course, an increase in debt which could mean more of a chance of default when rates go back up. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> In response to COVID-19, the Federal Reserve began enacting monetary policy as early as March 2020.<span class="ql-inline-citation" data-cite="6"></span> Then, as the pandemic eased, the Federal Reserve began raising the Federal funds rate.<span class="ql-inline-citation" data-cite="7"></span> As this Federal funds rate influences the interest rate on many other types of loans, borrowers soon found it to be more expensive to incur debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_87-0"><span class="heading-toc" id="toc-what-is-accrued-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Accrued Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Accrued interest is interest that has been incurred but not paid. For a borrower, this is interest that is due for payment, but cash has not been remit to the lender. For a lender, this is interest that has been earned that they have not yet been paid for. Interest is often accrued as part of a company's financial statements.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_89-0"><span class="heading-toc" id="toc-what-is-the-best-way-to-earn-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Way to Earn Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are now many ways investors can deposit funds into alternative investments that generate interest. This also means investors must take care in selecting borrowers. The best way to earn interest is to property research the risk profile of your borrower; should they default on the loan, you may not have recourse to recover your lost principal.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_91-0"><span class="heading-toc" id="toc-how-much-interest-do-bank-accounts-pay"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Interest Do Bank Accounts Pay?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The amount of interest paid by bank accounts will widely vary based on prevailing government rates and macroeconomic conditions. For example, during the COVID-19 pandemic, while the Federal funds rate was low, interest rates on bank accounts was near 0%. Then, as the pandemic eased, bank accounts began paying interest greater than 2% on bank deposits.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> Interest is a critical part of our high-functioning society. By allowing individuals to borrower and lend money, society has greater economic prosperity by encouraging spending. As a result, capital likely does not sit around idly; it is borrowed by some and lent by others. Through the payment of interest, individuals are encouraged to always be putting money to use. </p></div>

## What Is Interest? Interest is the monetary charge for the privilege of [borrowing money](https://www.investopedia.com/articles/basics/07/financing-options.asp). Interest expense or revenue is often expressed as a dollar amount, while the interest rate used to calculate interest is typically expressed as an [annual percentage rate](https://www.investopedia.com/terms/a/apr.asp) (APR). Interest is the amount of money a lender or financial institution receives for lending out money. Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage. ### Key Takeaways * Interest is the monetary charge for borrowing money—generally expressed as a percentage, such as an annual percentage rate (APR). * Interest may be earned by lenders for the use of their funds or paid by borrowers for the use of those funds. * Interest is often considered simple interest (based on the principal amount) or compound interest (based on principal and previously-earned interest). * Interest is often associated with credit cards, mortgages, car loans, private loans, savings accounts, or penalty assessments. * Interest is highly dependent on macroeconomic policy dictated by the Federal Reserve's Federal funds rate. ![Interest]() :max_bytes(150000):strip_icc()/interest.asp-final-c3fdffd368294a708ea21ff11cd4df06.png) Investopedia / NoNo Flores ## Understanding Interest Interest is the concept of compensating one party for incurring risk and sacrificing the opportunity to use funds while penalizing another party for the use of someone else's funds. The person temporarily parting ways with their money is entitled to compensation, and the person temporarily using those funds is often required to pay this compensation. When you leave money in your [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp), your account is credited interest. This is because the bank uses your money and loans it out to other clients, resulting in you earning interest revenue. The amount of interest a person must pay is often tied to their creditworthiness, the length of the loan, or the nature of the loan. All else being equal, interest and interest rates are higher when there is greater risk; as the lender faces a greater risk in the borrower not being able to make their payments, the lender may charge more interest to incentivize them to make the loan. ### APR includes the loan's interest rate, as well as other charges, such as origination fees, closing costs, or [discount points](https://www.investopedia.com/terms/d/discountpoints.asp). ## History of Interest Rates This cost of borrowing money is considered commonplace today. However, the wide acceptability of interest became common only during the Renaissance. Interest is an ancient practice; however, social norms from ancient Middle Eastern civilizations, to Medieval times regarded charging interest on loans as a kind of sin. This was due, in part because loans were made to people in need, and there was no product other than money being made in the act of loaning [assets](https://www.investopedia.com/terms/a/asset.asp) with interest. The moral dubiousness of charging interest on loans fell away during the Renaissance. People began borrowing money to grow businesses in an attempt to improve their own station. Growing markets and relative economic mobility made loans more common and made charging interest more acceptable. It was during this time that money began to be considered a [commodity](https://www.investopedia.com/terms/c/commodity.asp), and the opportunity cost of lending it was seen as worth charging for. Political philosophers in the 1700s and 1800s elucidated the economic theory behind charging interest rates for lent money, authors included Adam Smith, [Frédéric Bastiat](https://www.investopedia.com/terms/f/frederic-bastiat.asp), and Carl Menger. Iran, Sudan, and Pakistan use interest-free banking systems. Iran is completely interest-free, while Sudan and Pakistan have partial measures. With this, lenders partner in [profit and loss sharing](https://www.investopedia.com/terms/p/profitsharingplan.asp) instead of charging interest on the money they lend. This trend in Islamic banking—refusing to take interest on loans—became more common toward the end of the 20th century, regardless of [profit margins](https://www.investopedia.com/ask/answers/032715/what-difference-between-ebitda-margin-and-profit-margin.asp). Today, interest rates can be applied to various financial products including [mortgages](https://www.investopedia.com/terms/m/mortgage.asp), [credit](https://www.investopedia.com/terms/c/credit.asp) cards, car loans, and [personal loans](https://www.investopedia.com/best-personal-loans-4773300). Interest rates started to fall in 2019 and were brought to near zero in 2020. ## Formula and Calculation for Interest In its most basic form, interest is calculated by multiplying the outstanding principal by the interest rate. **Interest = Interest Rate \* Principal or Balance** The more complex aspect of calculating interest is often determining the correct interest rate. The interest rate is often expressed as a percentage and is usually designated as the APR. However, [calculating the APR](https://www.investopedia.com/terms/y/yearly-rate-of-return-method.asp) often does not reflect any effects of [compounding](https://www.investopedia.com/terms/c/compounding.asp). Instead, the effective annual rate is used to express the actual rate of interest to be paid. Often, an annual rate must be converted to calculate the applicable interest earned in a given period. For example, if a savings account is to pay 3% interest on the average balance, the account may award 0.25% (3% / 12 months) each month. The applicable interest rate is then multiplied against the outstanding amount of money related to the interest assessment. For loans, this is the outstanding principal balance. For savings this is often the average balance of savings for a given period. In either case, the amount of interest assessed each period will likely change. For loans, borrowers will have likely made payments that reduce the principal balance, resulting in lower interest. For savers, general activity (including the addition of last month's interest) often changes the applicable balance. ### Your credit score has the most impact on the interest rate you are offered when it comes to various loans and lines of credit. ## Simple Interest vs. Compound Interest Two main types of interest can be applied to loans—[simple](https://www.investopedia.com/terms/s/simple_interest.asp) and [compound](https://www.investopedia.com/terms/c/compoundinterest.asp). Simple interest is a set rate on the principal originally lent to the borrower that the borrower has to pay for the ability to use the money. Compound interest is interest on both the principal and the compounding interest paid on that loan. The latter of the two types of interest is the most common. For obvious reasons, individuals attempting to earn interest prefer compound interest agreements. This agreement results in interest being earned on interest and results in more total earnings. Savings accounts with banks often earn compound interest; any prior interest earned on your savings is deposited into your account, and this new balance is what earns interest in future periods. On the other hand, compound interest is extremely concerning for borrowers especially if their accrued compound interest is [capitalized](https://www.investopedia.com/ask/answers/040915/what-does-it-mean-capitalize-accrued-interest.asp) into their outstanding principal. This means the borrower's monthly payment will actually increase due to now having a greater loan than what they started with. ## Common Applications of Interest There's countless ways a person can charge or be charged interest. Below are some common examples of where interest may be earned by one party and paid by another. * **Credit cards:** Among the methods of borrowing money that incurs the highest amount of interest, [credit cards](https://www.investopedia.com/credit-card-4689721) are known for having a high APR. Consumers may make minimum monthly installment payments; in return, interest expense may accumulate and is earned by the credit card providers/underlying financial institutions. * **Mortgages:** Among the longest-term loans, mortgages often incur interest over the entirety of their potential 30-year term. Though interest may be assessed as a fixed or variable rate, it is theoretically reduced over time as the borrower pays down the original loan principal amount. * **Auto loans:** An example of a shorter-term loan, auto loans are often awarded for terms up to six years. Interest is often charged as a fixed rate, and the dealership extending credit may have an in-house financing department that collects the interest revenue. * **Student loans:** During COVID-19, [student loan](https://www.investopedia.com/student-loans-4689727) payments were paused, and prevailing loan rates were dropped to 0%. This meant that for a while, all loans incurred no interest assessments. * **Savings accounts:** Often a positive type of interest for most consumers, savings accounts earn monthly interest assessments. Also called dividends, consumers have these deposits are automatically credited to your account. * **Invoices:** Though many companies may assess a late fee, some companies choose to assess an interest charge on outstanding and late invoices. The idea is since the late payer is technically borrowing money from the invoice holder, the invoice holder is due interest. ### A quick way to get a rough understanding of how long it will take for an interest-bearing account to double is to use the so-called [rule of 72](https://www.investopedia.com/terms/r/ruleof72.asp). Simply divide the number 72 by the applicable interest rate. At 4% interest, for instance, and you’ll double your investment in around 18 years (i.e., 72/4). ## Advantages and Disadvantages of Paying Interest Imagine a situation where you absolutely need reliable transportation to get to work. There is no public transit system, you do not own a car, work is far away, and you can't afford to buy an entire car outright. The largest advantage of paying interest is it is a relatively low expense compared to alternatives. Paying interest also means a payer is holding debt, building their credit history, and potentially effectively using [leverage](https://www.investopedia.com/terms/l/leverage.asp). For example, real estate developers often borrow money to construct and rent buildings. If the rate of return on the building is greater than the interest rate they are charged, the company is successfully using someone else's money to make money for themselves. On the downside, interest is a recurring cash expense. Payers are often contractually obligated to pay interest, and monthly payments are typically applied to interest assessments before paying down the principal. Consumers may find interest assessments overwhelming. In addition, having too many loans and too high of monthly payments may restrict a borrower from being able to take out more credit. ### Interest for Borrowers Pros * May be the result of much-needed capital; relatively-speaking, it may be worth the small expense during emergencies. * Is a result of building a strong credit history * May be used to leverage returns and generate higher profits Cons * Is a real, often monthly expense requiring cash outlay * Is usually paid before any principal balance can be paid down * May compound and become overwhelming for a borrower to overcome * Are contractually obligated to be paid ## Advantages and Disadvantages of Collecting Interest A strategy for many investors is to collect interest. Often a fixed amount (or at least consistent), interest often provides positive cash flow that is a reliable source of income depending on the creditworthiness of the person borrowing the money. Instead of having capital sitting around and not being used, lending money to others is a more efficient way of deploying capital, especially in the short term when the lender may need that money for a specific reason in the longer term. Interest is also touted as one of the simplest forms of [passive income](https://www.investopedia.com/terms/p/passiveincome.asp). Loans may require little to no administration or maintenance after the agreement is signed. Lenders may simply collect interest and principal payments. There are some downsides to collecting interest. First, [interest revenue is taxable](https://www.investopedia.com/high-yield-interest-impact-on-taxes-8414834); even a small amount may push a taxpayer into a higher tax bracket. Next, because you are collecting interest, this means you are allowing someone else to use your capital. Though you may be satisfied collecting interest, there will often be greater earning potential had you utilized the capital yourself. Also, collecting interest may have philosophical opponents. Consider student loan debt assessments. While some say interest rates near 10% are reasonable for the amount of risk these lenders are incurring, others claim these rates are predatory to young adults and should not be assessed. ### Interest for Lenders Pros * May provide source of cash flow if interest payments are collected monthly/frequently * May be a passive source of income * May provide a consistent stream of income if the borrower is reliable in their payments * Is a more efficient use of capital instead of not loaning it out Cons * Will increase a taxpayers tax liability * May be lower than what could have been earned had the lender deployed capital for their own investment purpose * May attract negative attention in some situations depending on the borrower, rate of interest, and circumstance ## Interest and Macroeconomics A low-interest-rate environment is intended to stimulate economic growth so that it is cheaper to borrow money. This is beneficial for those who are shopping for new homes, simply because it lowers their monthly payment and means cheaper costs. When the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) lowers rates, it means more money in consumers' pockets, [to spend in other areas](https://www.investopedia.com/ask/answers/071715/how-do-changes-interest-rates-affect-spending-habits-economy.asp), and more large purchases of items, such as houses. Banks also benefit from this environment because they can lend more money. However, low-interest rates aren't always ideal. A high-interest rate typically tells us that the economy is strong and doing well. In a low-interest-rate environment, there are lower returns on investments and in savings accounts, and of course, an increase in debt which could mean more of a chance of default when rates go back up. In response to COVID-19, the Federal Reserve began enacting monetary policy as early as March 2020. Then, as the pandemic eased, the Federal Reserve began raising the Federal funds rate. As this Federal funds rate influences the interest rate on many other types of loans, borrowers soon found it to be more expensive to incur debt. ## What Is Accrued Interest? Accrued interest is interest that has been incurred but not paid. For a borrower, this is interest that is due for payment, but cash has not been remit to the lender. For a lender, this is interest that has been earned that they have not yet been paid for. Interest is often accrued as part of a company's financial statements. ## What Is the Best Way to Earn Interest? There are now many ways investors can deposit funds into alternative investments that generate interest. This also means investors must take care in selecting borrowers. The best way to earn interest is to property research the risk profile of your borrower; should they default on the loan, you may not have recourse to recover your lost principal. ## How Much Interest Do Bank Accounts Pay? The amount of interest paid by bank accounts will widely vary based on prevailing government rates and macroeconomic conditions. For example, during the COVID-19 pandemic, while the Federal funds rate was low, interest rates on bank accounts was near 0%. Then, as the pandemic eased, bank accounts began paying interest greater than 2% on bank deposits. ## The Bottom Line Interest is a critical part of our high-functioning society. By allowing individuals to borrower and lend money, society has greater economic prosperity by encouraging spending. As a result, capital likely does not sit around idly; it is borrowed by some and lent by others. Through the payment of interest, individuals are encouraged to always be putting money to use.

What Is Interest? Interest is the monetary charge for the privilege of borrowing money. Interest expense or revenue is often expressed as a dollar amount, while the interest rate used to calculate interest is typically expressed as an annual percentage rate (APR). Interest is the amount of money a lender or financial institution receives for lending out money. Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage. Key Takeaways Interest is the monetary charge for borrowing money—generally expressed as a percentage, such as an annual percentage rate (APR).Interest may be earned by lenders for the use of their funds or paid by borrowers for the use of those funds.Interest is often considered simple interest (based on the principal amount) or compound interest (based on principal and previously-earned interest).Interest is often associated with credit cards, mortgages, car loans, private loans, savings accounts, or penalty assessments.Interest is highly dependent on macroeconomic policy dictated by the Federal Reserve's Federal funds rate. Investopedia / NoNo Flores Understanding Interest Interest is the concept of compensating one party for incurring risk and sacrificing the opportunity to use funds while penalizing another party for the use of someone else's funds. The person temporarily parting ways with their money is entitled to compensation, and the person temporarily using those funds is often required to pay this compensation. When you leave money in your savings account, your account is credited interest. This is because the bank uses your money and loans it out to other clients, resulting in you earning interest revenue. The amount of interest a person must pay is often tied to their creditworthiness, the length of the loan, or the nature of the loan. All else being equal, interest and interest rates are higher when there is greater risk; as the lender faces a greater risk in the borrower not being able to make their payments, the lender may charge more interest to incentivize them to make the loan. APR includes the loan's interest rate, as well as other charges, such as origination fees, closing costs, or discount points. History of Interest Rates This cost of borrowing money is considered commonplace today. However, the wide acceptability of interest became common only during the Renaissance. Interest is an ancient practice; however, social norms from ancient Middle Eastern civilizations, to Medieval times regarded charging interest on loans as a kind of sin. This was due, in part because loans were made to people in need, and there was no product other than money being made in the act of loaning assets with interest. The moral dubiousness of charging interest on loans fell away during the Renaissance. People began borrowing money to grow businesses in an attempt to improve their own station. Growing markets and relative economic mobility made loans more common and made charging interest more acceptable. It was during this time that money began to be considered a commodity, and the opportunity cost of lending it was seen as worth charging for. Political philosophers in the 1700s and 1800s elucidated the economic theory behind charging interest rates for lent money, authors included Adam Smith, Frédéric Bastiat, and Carl Menger. Iran, Sudan, and Pakistan use interest-free banking systems. Iran is completely interest-free, while Sudan and Pakistan have partial measures. With this, lenders partner in profit and loss sharing instead of charging interest on the money they lend. This trend in Islamic banking—refusing to take interest on loans—became more common toward the end of the 20th century, regardless of profit margins. Today, interest rates can be applied to various financial products including mortgages, credit cards, car loans, and personal loans. Interest rates started to fall in 2019 and were brought to near zero in 2020. Formula and Calculation for Interest In its most basic form, interest is calculated by multiplying the outstanding principal by the interest rate. Interest = Interest Rate * Principal or Balance The more complex aspect of calculating interest is often determining the correct interest rate. The interest rate is often expressed as a percentage and is usually designated as the APR. However, calculating the APR often does not reflect any effects of compounding. Instead, the effective annual rate is used to express the actual rate of interest to be paid. Often, an annual rate must be converted to calculate the applicable interest earned in a given period. For example, if a savings account is to pay 3% interest on the average balance, the account may award 0.25% (3% / 12 months) each month. The applicable interest rate is then multiplied against the outstanding amount of money related to the interest assessment. For loans, this is the outstanding principal balance. For savings this is often the average balance of savings for a given period. In either case, the amount of interest assessed each period will likely change. For loans, borrowers will have likely made payments that reduce the principal balance, resulting in lower interest. For savers, general activity (including the addition of last month's interest) often changes the applicable balance. Your credit score has the most impact on the interest rate you are offered when it comes to various loans and lines of credit. Simple Interest vs. Compound Interest Two main types of interest can be applied to loans—simple and compound. Simple interest is a set rate on the principal originally lent to the borrower that the borrower has to pay for the ability to use the money. Compound interest is interest on both the principal and the compounding interest paid on that loan. The latter of the two types of interest is the most common. For obvious reasons, individuals attempting to earn interest prefer compound interest agreements. This agreement results in interest being earned on interest and results in more total earnings. Savings accounts with banks often earn compound interest; any prior interest earned on your savings is deposited into your account, and this new balance is what earns interest in future periods. On the other hand, compound interest is extremely concerning for borrowers especially if their accrued compound interest is capitalized into their outstanding principal. This means the borrower's monthly payment will actually increase due to now having a greater loan than what they started with. Common Applications of Interest There's countless ways a person can charge or be charged interest. Below are some common examples of where interest may be earned by one party and paid by another. Credit cards: Among the methods of borrowing money that incurs the highest amount of interest, credit cards are known for having a high APR. Consumers may make minimum monthly installment payments; in return, interest expense may accumulate and is earned by the credit card providers/underlying financial institutions. Mortgages: Among the longest-term loans, mortgages often incur interest over the entirety of their potential 30-year term. Though interest may be assessed as a fixed or variable rate, it is theoretically reduced over time as the borrower pays down the original loan principal amount. Auto loans: An example of a shorter-term loan, auto loans are often awarded for terms up to six years. Interest is often charged as a fixed rate, and the dealership extending credit may have an in-house financing department that collects the interest revenue. Student loans: During COVID-19, student loan payments were paused, and prevailing loan rates were dropped to 0%. This meant that for a while, all loans incurred no interest assessments. Savings accounts: Often a positive type of interest for most consumers, savings accounts earn monthly interest assessments. Also called dividends, consumers have these deposits are automatically credited to your account. Invoices: Though many companies may assess a late fee, some companies choose to assess an interest charge on outstanding and late invoices. The idea is since the late payer is technically borrowing money from the invoice holder, the invoice holder is due interest. A quick way to get a rough understanding of how long it will take for an interest-bearing account to double is to use the so-called rule of 72. Simply divide the number 72 by the applicable interest rate. At 4% interest, for instance, and you’ll double your investment in around 18 years (i.e., 72/4). Advantages and Disadvantages of Paying Interest Imagine a situation where you absolutely need reliable transportation to get to work. There is no public transit system, you do not own a car, work is far away, and you can't afford to buy an entire car outright. The largest advantage of paying interest is it is a relatively low expense compared to alternatives. Paying interest also means a payer is holding debt, building their credit history, and potentially effectively using leverage. For example, real estate developers often borrow money to construct and rent buildings. If the rate of return on the building is greater than the interest rate they are charged, the company is successfully using someone else's money to make money for themselves. On the downside, interest is a recurring cash expense. Payers are often contractually obligated to pay interest, and monthly payments are typically applied to interest assessments before paying down the principal. Consumers may find interest assessments overwhelming. In addition, having too many loans and too high of monthly payments may restrict a borrower from being able to take out more credit. Interest for Borrowers Pros May be the result of much-needed capital; relatively-speaking, it may be worth the small expense during emergencies. Is a result of building a strong credit history May be used to leverage returns and generate higher profits Cons Is a real, often monthly expense requiring cash outlay Is usually paid before any principal balance can be paid down May compound and become overwhelming for a borrower to overcome Are contractually obligated to be paid Advantages and Disadvantages of Collecting Interest A strategy for many investors is to collect interest. Often a fixed amount (or at least consistent), interest often provides positive cash flow that is a reliable source of income depending on the creditworthiness of the person borrowing the money. Instead of having capital sitting around and not being used, lending money to others is a more efficient way of deploying capital, especially in the short term when the lender may need that money for a specific reason in the longer term. Interest is also touted as one of the simplest forms of passive income. Loans may require little to no administration or maintenance after the agreement is signed. Lenders may simply collect interest and principal payments. There are some downsides to collecting interest. First, interest revenue is taxable; even a small amount may push a taxpayer into a higher tax bracket. Next, because you are collecting interest, this means you are allowing someone else to use your capital. Though you may be satisfied collecting interest, there will often be greater earning potential had you utilized the capital yourself. Also, collecting interest may have philosophical opponents. Consider student loan debt assessments. While some say interest rates near 10% are reasonable for the amount of risk these lenders are incurring, others claim these rates are predatory to young adults and should not be assessed. Interest for Lenders Pros May provide source of cash flow if interest payments are collected monthly/frequently May be a passive source of income May provide a consistent stream of income if the borrower is reliable in their payments Is a more efficient use of capital instead of not loaning it out Cons Will increase a taxpayers tax liability May be lower than what could have been earned had the lender deployed capital for their own investment purpose May attract negative attention in some situations depending on the borrower, rate of interest, and circumstance Interest and Macroeconomics A low-interest-rate environment is intended to stimulate economic growth so that it is cheaper to borrow money. This is beneficial for those who are shopping for new homes, simply because it lowers their monthly payment and means cheaper costs. When the Federal Reserve lowers rates, it means more money in consumers' pockets, to spend in other areas, and more large purchases of items, such as houses. Banks also benefit from this environment because they can lend more money. However, low-interest rates aren't always ideal. A high-interest rate typically tells us that the economy is strong and doing well. In a low-interest-rate environment, there are lower returns on investments and in savings accounts, and of course, an increase in debt which could mean more of a chance of default when rates go back up. In response to COVID-19, the Federal Reserve began enacting monetary policy as early as March 2020. Then, as the pandemic eased, the Federal Reserve began raising the Federal funds rate. As this Federal funds rate influences the interest rate on many other types of loans, borrowers soon found it to be more expensive to incur debt. What Is Accrued Interest? Accrued interest is interest that has been incurred but not paid. For a borrower, this is interest that is due for payment, but cash has not been remit to the lender. For a lender, this is interest that has been earned that they have not yet been paid for. Interest is often accrued as part of a company's financial statements. What Is the Best Way to Earn Interest? There are now many ways investors can deposit funds into alternative investments that generate interest. This also means investors must take care in selecting borrowers. The best way to earn interest is to property research the risk profile of your borrower; should they default on the loan, you may not have recourse to recover your lost principal. How Much Interest Do Bank Accounts Pay? The amount of interest paid by bank accounts will widely vary based on prevailing government rates and macroeconomic conditions. For example, during the COVID-19 pandemic, while the Federal funds rate was low, interest rates on bank accounts was near 0%. Then, as the pandemic eased, bank accounts began paying interest greater than 2% on bank deposits. The Bottom Line Interest is a critical part of our high-functioning society. By allowing individuals to borrower and lend money, society has greater economic prosperity by encouraging spending. As a result, capital likely does not sit around idly; it is borrowed by some and lent by others. Through the payment of interest, individuals are encouraged to always be putting money to use.

https://www.investopedia.com/terms/s/serieseebond.asp

Series EE Bond: Definition, How It Works, Maturity

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-series-ee-bond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Series EE Bond? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Series EE Bond (often referred to as a "Patriot Bond") is a non-marketable, interest-bearing U.S. government savings bond. These bonds are guaranteed to at least double in value over the typical 20-year initial term. Some Series EE bonds have total interest-paying lives that extend beyond the original maturity date, up to 30 years from issuance. Coupon rates for Series EE Bonds are determined at the time of issuance and are based on the percentage of the long-term Treasury rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Series EE Bonds are interest-bearing U.S. government savings bonds guaranteed to at least double in value over their typical 20-year initial terms.</li><li>Some Series EE bonds pay interest beyond the original maturity date, up to 30 years from issuance. </li><li>There is a $25 minimum investment requirement for EE bonds. </li><li>Every investor may purchase up to $10,000 in these bonds each calendar year. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-series-ee-bond-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How a Series EE Bond Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Along with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seriesibond.asp">Series I bond</a>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-bonds-5196440">Series EE bond is one of the two types of savings bonds issued by the US Treasury</a>. Series EE bonds cannot be bought or sold in the open market, and are hence classified as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-marketable_securities.asp">non-marketable securities</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Series EE bonds issued after May 2005 are assigned semi-annual fixed coupon rates on May 1 and November 1. The rates apply to all issuances for the ensuing six months. Bonds issued after each date increase in value monthly, but interest payments are handed out semiannually. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Series EE bonds are considered ultra-safe, low-risk investments, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/high-yield-interest-impact-on-taxes-8414834">whose interest is typically exempt</a> from state and local taxes. However, they are subject to federal taxes, but only in the year in which the bond matures or is redeemed. EE Bonds may be purchased by U.S. citizens, official U.S. residents, minors, and all U.S. government employees—regardless of their citizenship status. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Paper EE bonds were re-issued as "Patriot Bonds" after the Sept. 11, 2001, terrorist attacks. They are identical in every way to the paper Series EE Bonds except that any paper bonds purchased through a financial institution after Dec. 10, 2001, have the words "Patriot Bond" printed on the top half of the bond certificate, situated between the Social Security Number (SSN) and the issue date. Financial institutions no longer issue Series EE bonds in paper form, but the paper Patriot Bonds can still be cashed or converted into electronic bonds.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Series EE bonds don't need to be reissued to correct small typographical errors in names, addresses, or Social Security numbers.</p></div></div></div> <span class="heading-toc" id="toc-requirements-for-a-series-ee-bond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Requirements for a Series EE Bond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> There is a $25 minimum investment requirement for EE bonds, and each investor may purchase up to $10,000 in these bonds each calendar year. Furthermore, bondholders must hold onto these investments for at least twelve months, before they can redeem the bonds. Those who redeem bonds within five years will be docked three months of accrued interest payments. Since EE bonds earn interest for up to 30 years, the longer they're held, the more they're worth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Paper bonds were issued at a 50% discount to par, while bonds electronically sourced through TreasuryDirect are purchased at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a>. The latter is still guaranteed to be worth twice their original value at first <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a> after 20 years while paying interest the same way as paper EE bonds. </p></div>

## What Is a Series EE Bond? The Series EE Bond (often referred to as a "Patriot Bond") is a non-marketable, interest-bearing U.S. government savings bond. These bonds are guaranteed to at least double in value over the typical 20-year initial term. Some Series EE bonds have total interest-paying lives that extend beyond the original maturity date, up to 30 years from issuance. Coupon rates for Series EE Bonds are determined at the time of issuance and are based on the percentage of the long-term Treasury rates. ### Key Takeaways * Series EE Bonds are interest-bearing U.S. government savings bonds guaranteed to at least double in value over their typical 20-year initial terms. * Some Series EE bonds pay interest beyond the original maturity date, up to 30 years from issuance. * There is a $25 minimum investment requirement for EE bonds. * Every investor may purchase up to $10,000 in these bonds each calendar year. ## How a Series EE Bond Works Along with the [Series I bond](https://www.investopedia.com/terms/s/seriesibond.asp), the [Series EE bond is one of the two types of savings bonds issued by the US Treasury](https://www.investopedia.com/best-savings-bonds-5196440). Series EE bonds cannot be bought or sold in the open market, and are hence classified as [non-marketable securities](https://www.investopedia.com/terms/n/non-marketable_securities.asp). Series EE bonds issued after May 2005 are assigned semi-annual fixed coupon rates on May 1 and November 1. The rates apply to all issuances for the ensuing six months. Bonds issued after each date increase in value monthly, but interest payments are handed out semiannually. Series EE bonds are considered ultra-safe, low-risk investments, [whose interest is typically exempt](https://www.investopedia.com/high-yield-interest-impact-on-taxes-8414834) from state and local taxes. However, they are subject to federal taxes, but only in the year in which the bond matures or is redeemed. EE Bonds may be purchased by U.S. citizens, official U.S. residents, minors, and all U.S. government employees—regardless of their citizenship status. ## Special Considerations Paper EE bonds were re-issued as "Patriot Bonds" after the Sept. 11, 2001, terrorist attacks. They are identical in every way to the paper Series EE Bonds except that any paper bonds purchased through a financial institution after Dec. 10, 2001, have the words "Patriot Bond" printed on the top half of the bond certificate, situated between the Social Security Number (SSN) and the issue date. Financial institutions no longer issue Series EE bonds in paper form, but the paper Patriot Bonds can still be cashed or converted into electronic bonds.  ### Series EE bonds don't need to be reissued to correct small typographical errors in names, addresses, or Social Security numbers. ## Requirements for a Series EE Bond There is a $25 minimum investment requirement for EE bonds, and each investor may purchase up to $10,000 in these bonds each calendar year. Furthermore, bondholders must hold onto these investments for at least twelve months, before they can redeem the bonds. Those who redeem bonds within five years will be docked three months of accrued interest payments. Since EE bonds earn interest for up to 30 years, the longer they're held, the more they're worth. Paper bonds were issued at a 50% discount to par, while bonds electronically sourced through TreasuryDirect are purchased at [face value](https://www.investopedia.com/terms/f/facevalue.asp). The latter is still guaranteed to be worth twice their original value at first [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) after 20 years while paying interest the same way as paper EE bonds.

What Is a Series EE Bond? The Series EE Bond (often referred to as a "Patriot Bond") is a non-marketable, interest-bearing U.S. government savings bond. These bonds are guaranteed to at least double in value over the typical 20-year initial term. Some Series EE bonds have total interest-paying lives that extend beyond the original maturity date, up to 30 years from issuance. Coupon rates for Series EE Bonds are determined at the time of issuance and are based on the percentage of the long-term Treasury rates. Key Takeaways Series EE Bonds are interest-bearing U.S. government savings bonds guaranteed to at least double in value over their typical 20-year initial terms.Some Series EE bonds pay interest beyond the original maturity date, up to 30 years from issuance. There is a $25 minimum investment requirement for EE bonds. Every investor may purchase up to $10,000 in these bonds each calendar year.  How a Series EE Bond Works Along with the Series I bond, the Series EE bond is one of the two types of savings bonds issued by the US Treasury. Series EE bonds cannot be bought or sold in the open market, and are hence classified as non-marketable securities. Series EE bonds issued after May 2005 are assigned semi-annual fixed coupon rates on May 1 and November 1. The rates apply to all issuances for the ensuing six months. Bonds issued after each date increase in value monthly, but interest payments are handed out semiannually. Series EE bonds are considered ultra-safe, low-risk investments, whose interest is typically exempt from state and local taxes. However, they are subject to federal taxes, but only in the year in which the bond matures or is redeemed. EE Bonds may be purchased by U.S. citizens, official U.S. residents, minors, and all U.S. government employees—regardless of their citizenship status. Special Considerations Paper EE bonds were re-issued as "Patriot Bonds" after the Sept. 11, 2001, terrorist attacks. They are identical in every way to the paper Series EE Bonds except that any paper bonds purchased through a financial institution after Dec. 10, 2001, have the words "Patriot Bond" printed on the top half of the bond certificate, situated between the Social Security Number (SSN) and the issue date. Financial institutions no longer issue Series EE bonds in paper form, but the paper Patriot Bonds can still be cashed or converted into electronic bonds.  Series EE bonds don't need to be reissued to correct small typographical errors in names, addresses, or Social Security numbers. Requirements for a Series EE Bond There is a $25 minimum investment requirement for EE bonds, and each investor may purchase up to $10,000 in these bonds each calendar year. Furthermore, bondholders must hold onto these investments for at least twelve months, before they can redeem the bonds. Those who redeem bonds within five years will be docked three months of accrued interest payments. Since EE bonds earn interest for up to 30 years, the longer they're held, the more they're worth. Paper bonds were issued at a 50% discount to par, while bonds electronically sourced through TreasuryDirect are purchased at face value. The latter is still guaranteed to be worth twice their original value at first maturity date after 20 years while paying interest the same way as paper EE bonds.

https://www.investopedia.com/mortgage-process-explained-5213694

Mortgage Process Explained

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Getting a mortgage can be a complex, daunting task. There is a wide range of mortgages to choose from, you will need to gather a lot of documents to apply for them, and even working out the monthly cost of your future mortgage can be difficult. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Nevertheless, the mortgage process can be broken into a number of well-defined steps. Most people go through six distinct stages when they are looking for a new mortgage: pre-approval, house shopping, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apply-for-mortgage-loan-5213910">mortgage application</a>, loan processing, underwriting, and closing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> In this guide, we’ll explain everything you need to know about each of these steps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The mortgage process is complicated but can be broken into a number of steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing.</li><li>It’s a good idea to get pre-approval for a mortgage before you start looking for a property, so you know what you can afford.</li><li>Once you’ve found a property and put in an offer, expect the mortgage closing process to take up to 45 days to complete.</li><li>Check all of your paperwork carefully. You will be paying for your mortgage for a long time, so the small print can end up costing you a lot of money.<br/></li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_9-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="How to Get a Mortgage" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/eDdV-ZyV4iGg6yfg1IXsvYKLXeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/eDdV-ZyV4iGg6yfg1IXsvYKLXeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg" data-srcset="https://www.investopedia.com/thmb/-vZMv_r_php5o0XT23ZBSBuc7KU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="How to Get a Mortgage" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/eDdV-ZyV4iGg6yfg1IXsvYKLXeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg" srcset="https://www.investopedia.com/thmb/-vZMv_r_php5o0XT23ZBSBuc7KU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Candra Huff</p></span> </figcaption></figure> <span class="heading-toc" id="toc-1-get-your-pre-approval"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> 1. Get Your Pre-Approval </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The first steps in getting a mortgage are to work out what kind of mortgage is best for you, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/05/030905.asp">how much you can afford to pay</a>, and to obtain pre-approval for this loan. In order to find the right type of mortgage, familiarize yourself with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/">different types of mortgage</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/how-to-choose-best-mortgage/">find the one that is right for you</a>. You’ll need to take into account a number of factors when it comes to choosing a mortgage, but the most important is to have an accurate idea of your monthly costs. This will include not just paying back the “principal” loan, but also interest payments. And if you aren’t able to make a 20% downpayment on a property, you’ll also need to pay for <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/mortgage-insurance/">private mortgage insurance (PMI)</a>.<span class="ql-inline-citation" data-cite="1"></span> A <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">mortgage calculator</a> can show you the impact of different rates on your monthly payment.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_13-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Once you have an idea of the type of mortgage you would like, you can approach <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders</a> for pre-approval. A pre-approval is a document that states the maximum amount your mortgage lender is willing to loan to you. You can get pre-approved quite quickly—your mortgage lender will just need to run a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">credit bureaus</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A pre-approval is valuable when it comes to looking for a property. It indicates you are a serious buyer and means that you are ready to move quickly on a property when you find one you love.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Warning</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><br/><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/housing-discrimination-what-can-you-do-5074478">Mortgage lending discrimination is illegal</a>. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/complaint/">Consumer Financial Protection Bureau (CFPB)</a> or with the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.hud.gov/program_offices/housing/mfh/hc/complaint">U.S. Department of Housing and Urban Development (HUD)</a>.<span class="ql-inline-citation" data-cite="2"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-2-find-a-property"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> 2. Find a Property </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Most people start looking for properties long before they are pre-approved for a mortgage, and perhaps before they are even thinking of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-does-it-take-to-buy-a-house-5191136">buying a home</a>. But if you’ve followed the steps above, and so have your pre-approval, you’re now ready to begin looking in earnest.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> There are many ways of doing this. You can use online real estate portals like Zillow or Trulia, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/10/should-you-buy-at-an-auction.asp">buy a house at auction</a>, or even look for an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/121415/how-find-and-buy-offmarket-homes.asp">off-market home</a>. Just make sure you don’t fall into some of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgage-real-estate/09/buy-house-emotion-free.asp">common mistakes</a> people make when house-hunting. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-subheading__text"> Making an offer </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Once you’ve found a suitable property, you’ll need to put in an offer on it. Your real estate agent should help you to do this, as different sellers and properties require different sorts of offers.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> At this stage, you’ll normally have to put down <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnest-money.asp">earnest money</a>, a deposit that indicates you are seriously interested in a property. Typical earnest money deposits are 1% to 2% of the sale price.<span class="ql-inline-citation" data-cite="16"></span> If you close on a property, this money is put towards the downpayment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Normally, your offer will also contain contingencies that allow you to pull out of the deal. These are designed to protect you and your money if the house you’ve chosen is not quite what it seems. Common contingencies include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li>Appraisals must come in close to the loan amount, not lower</li><li>Home inspections do not find major issues with the property<br/></li><li>You are able to secure final mortgage approval</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-3-apply-for-a-mortgage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> 3. Apply for a Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> At this stage, you are ready to apply for a final mortgage. To do this, you’ll need to approach a mortgage lender—most likely the one that gave you pre-approval, but <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/credit-loans-mortgages/091016/how-many-mortgage-lenders-should-you-apply-fico.asp">you should also shop around</a> to make sure you get the best deal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Each mortgage lender will need information in order to give you an offer. They may have some of this information already but they may need to collect more. But you will also need to give your lender a pack of documents. Your real estate agent may be able to grab some of the harder-to-find items, such as property taxes.<br><br/>Your lender should guide you as to what to send and when, but they are likely to need:<br/><br/><strong>Employment</strong><br/>   • Name of current employer, phone, and street address<br/>   • Length of time at current employer<br/>   • Position/title<br/>   • Salary including overtime, bonuses, or commissions<br/> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <strong>Income</strong><br/>   • Two years of W-2s<br/>   • Profit and loss statement if self-employed<br/>   • Pensions, Social Security<br/>   • Public assistance<br/>   • Child support<br/>   • Alimony<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <strong>Assets</strong><br/>   • Bank accounts (savings, checking, brokerage accounts)<br/>   • Real property<br/>   • Investments (stocks, bonds, retirement accounts)<br/>   • Proceeds from the sale of your current home<br/>   • Gifted funds from relatives (e.g. a down payment gift for an FHA loan)<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <strong>Debts</strong><br/>   • Current mortgage<br/>   • Liens<br/>   • Alimony<br/>   • Child support<br/>   • Car loans<br/>   • Credit cards<br/>   • Real property<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <strong>Property information </strong><br/>   • Street address<br/>   • Expected sales price<br/>   • Type of home (single-family residence, condo, etc.)<br/>   • Size of property<br/>   • Real estate taxes (annual)<br/>   • Homeowner’s association dues (HOA)<br/>   • Estimated closing date<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <strong>Credit history</strong><br/>   • Bankruptcies<br/>   • Collections<br/>   • Foreclosures<br/>   • Delinquencies </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> This last item—your credit history—is one of the most important elements in getting your mortgage approved. Because of this, it’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year.<span class="ql-inline-citation" data-cite="15"></span>Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts, and causes for any of these parts of your history.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_52-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_53-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Check Your Credit Score</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p><br/>It’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-4-complete-loan-processing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> 4. Complete Loan Processing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The next step is for the lenders you've approached to pull together all the information you’ve provided into a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-estimate-5120625">loan estimate</a>. A loan estimate is a three-page form that presents home loan information in an easy-to-read format, complete with explanations. This standardization not only makes the information easy to digest; it also makes it easy to compare offers among lenders to see which one is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-the-best-mortgage-lender-5194993">offering you the best deal</a>.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> You’ll get a loan estimate within three business days of applying for a mortgage unless you don’t meet the lender’s basic qualifications and your application is rejected.<span class="ql-inline-citation" data-cite="6"></span> If that happens, the lender must give you a written notice within 30 days stating why your application was rejected.<span class="ql-inline-citation" data-cite="7"></span> The only fee you may have to pay to get a loan estimate is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a> fee.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> When you receive a loan estimate, it’s valid for 10 business days. If you want to accept a loan offer, try to do it within that time frame; the lender may change the terms and issue a new loan estimate if you take more time to decide.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> If you accept a loan estimate, your loan will start to be processed. At this stage, your mortgage lender will start to go through and verify the information you’ve provided to them. This includes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> <li>Ordering a credit report (if not already done as part of your pre-approval)</li><li>Verifying employment (VOE) and bank deposits (VOD)</li><li>Order a property inspection and appraisal</li><li>Order a title search<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <span class="heading-toc" id="toc-5-go-through-underwriting-process"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-heading__text"> 5. Go Through Underwriting Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The next stage is for your application to be assessed by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriter.asp">underwriters</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Though you are unlikely to deal with them directly, mortgage underwriters are actually the key decision-makers in the mortgage approval process and are the people who will give final approval for your mortgage.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Underwriters will check every aspect of your mortgage application and carry out a number of other steps. For instance, borrowers are required to have an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisal.asp">appraisal</a> conducted on any property they take out a mortgage against. The underwriter orders this appraisal and uses it to determine if the funds from the sale of the property are enough to cover the amount you will be lent in your mortgage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Once underwriters have assessed your application, they will give you their decision. This will either be to accept the loan as it is proposed, reject it, or approve it with conditions. Your mortgage might be approved, for instance, on the condition that you supply more information about your credit history. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> If your application is approved, you will then <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/locked_in_interest_rate.asp">lock in your interest rate</a> with your lender. This is the final interest rate you will pay for the remainder of your mortgage term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_76-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_77-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Closing Costs</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p><br/>Closing costs typically range from 2% to 5% of the home’s purchase price.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-6-close-on-the-property"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_78-0"> <span class="mntl-sc-block-heading__text"> 6. Close on the Property </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> If your mortgage application is approved, it’s now time for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp">closing</a>. At this stage, a large stack of documents will be printed out and you’ll be invited to the title company (or attorney's office) for a closing meeting. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> One of the most important documents you’ll see at this meeting is your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hud-1.asp">closing disclosure form</a>. On this form, you’ll see a column showing the original estimated closing costs and final closing costs, along with another column indicating the difference if costs rose.<span class="ql-inline-citation" data-cite="17"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Closing costs typically range from 2% to 5% of the home’s purchase price. Thus, if you buy a $200,000 house, your closing costs could range from $4,000 to $10,000. Closing fees vary depending on your state, loan type, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/mortgage-lenders/">mortgage lender</a>, so it’s important to pay close attention to these fees.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> If you see new fees that were not on the original loan estimate or notice that your closing costs are significantly higher, immediately seek clarification with your lender and/or real estate agent.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> If everything looks to be in order, you will sign to accept the mortgage and you will leave the office with the keys to your new home. Well done!<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-subheading__text"> Three-day review period and final walk-through </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> At this point, a countdown begins. If no further action is taken, your mortgage will become active in three days' time. However, at this stage, you have the right to spend three days reviewing your documents to make sure everything is in order.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> You should compare your closing disclosure to the loan estimate you received in stage 4 above. Small changes, discrepancies, or typos are allowed, but if you see anything you don’t understand, you should seek clarification immediately. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> In addition, there are certain changes that can cause your mortgage agreement to be put on hold. This will happen if: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> <li>The APR on the loan changes by more than one-eighth of a percent (most fixed loans) or one-quarter of a percent (most adjustable rate loans).<br/></li><li>A prepayment penalty is added to the mortgage.<br/></li><li>There's a change of loan products (for example, a change from a fixed-rate loan to an adjustable-rate loan).<span class="ql-inline-citation" data-cite="19"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Assuming everything is in order, your mortgage will automatically go live after the three days are up.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> Typically, mortgage contracts give you the right to a final walk-through of the property at least 24 hours before your closing. You can use this visit to check that the previous tenant has vacated the property and that they have carried out any repairs that were required. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_102-0"><span class="heading-toc" id="toc-who-approves-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Approves a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Though you will normally deal with a mortgage lender such as a bank, the final decision as to approval for your mortgage rests with underwriters.<span class="ql-inline-citation" data-cite="20"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_104-0"><span class="heading-toc" id="toc-how-long-does-it-take-to-close-on-a-house"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take To Close On a House?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Typically it takes 30 to 45 days to close on a house, depending on a few factors like how fast it takes to get a home inspection and whether or not you are pre-approved for a mortgage.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_106-0"><span class="heading-toc" id="toc-how-much-are-closing-costs-when-you-buy-a-house"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Are Closing Costs When You Buy a House?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are many fees associated with closing costs, from appraisal fees to the fees you pay the lawyer who draws up your contract. These costs can add as much as 2% to 5% of the home's purchase price and are typically due at the closing.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_108-0"> <span class="mntl-sc-block-subheading__text"> The Bottom Line </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> The process of applying for a mortgage can be complicated, but there are a number of distinct steps involved. Most people will go through these six steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> The process can be long and stressful, but make sure you don’t rush it. Check all of your documents carefully, make sure you understand the mortgage you are being sold, and seek expert help if you are unsure about anything. You’ll be paying your mortgage for a long time, so it makes sense to get it right. </p> <div class="comp nativemortgage native mm-ads-native" data-selector=".mntl-sc-block--mortgage-loan-calculator + .mntl-sc-block" id="nativemortgage_1-0" style="--native-ad-height: auto"><div class="comp mm-ads-native__adunit mm-ads-gpt-dynamic-adunit mm-ads-gpt-adunit scads-to-load gpt nativemortgage dynamic" id="mm-ads-native__adunit_1-0"> <div class="wrapper" data-pos="nativemortgage" data-priority="4" data-rtb="false" data-sizes='[[1, 3],"fluid"]' data-targeting="{}" data-type="nativemortgage" data-wait-for-third-party="false" id="nativemortgage"></div> </div></div></div>

Getting a mortgage can be a complex, daunting task. There is a wide range of mortgages to choose from, you will need to gather a lot of documents to apply for them, and even working out the monthly cost of your future mortgage can be difficult. Nevertheless, the mortgage process can be broken into a number of well-defined steps. Most people go through six distinct stages when they are looking for a new mortgage: pre-approval, house shopping, [mortgage application](https://www.investopedia.com/apply-for-mortgage-loan-5213910), loan processing, underwriting, and closing. In this guide, we’ll explain everything you need to know about each of these steps. ### Key Takeaways * The mortgage process is complicated but can be broken into a number of steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. * It’s a good idea to get pre-approval for a mortgage before you start looking for a property, so you know what you can afford. * Once you’ve found a property and put in an offer, expect the mortgage closing process to take up to 45 days to complete. * Check all of your paperwork carefully. You will be paying for your mortgage for a long time, so the small print can end up costing you a lot of money. ![How to Get a Mortgage]() :max_bytes(150000):strip_icc()/mortgage-process-explained-5213694_final-a7545c4d1aaf4d9bb09c48611b16e9c3.jpg) Investopedia / Candra Huff ## 1. Get Your Pre-Approval The first steps in getting a mortgage are to work out what kind of mortgage is best for you, [how much you can afford to pay](https://www.investopedia.com/articles/pf/05/030905.asp), and to obtain pre-approval for this loan. In order to find the right type of mortgage, familiarize yourself with the [different types of mortgage](https://www.investopedia.com/mortgage/mortgage-guide/) and [find the one that is right for you](https://www.investopedia.com/mortgage/mortgage-guide/how-to-choose-best-mortgage/). You’ll need to take into account a number of factors when it comes to choosing a mortgage, but the most important is to have an accurate idea of your monthly costs. This will include not just paying back the “principal” loan, but also interest payments. And if you aren’t able to make a 20% downpayment on a property, you’ll also need to pay for [private mortgage insurance (PMI)](https://www.investopedia.com/mortgage/mortgage-guide/mortgage-insurance/). A [mortgage calculator](https://www.investopedia.com/mortgage-calculator-5084794) can show you the impact of different rates on your monthly payment.  Once you have an idea of the type of mortgage you would like, you can approach [mortgage lenders](https://www.investopedia.com/best-mortgage-lenders-5076852) for pre-approval. A pre-approval is a document that states the maximum amount your mortgage lender is willing to loan to you. You can get pre-approved quite quickly—your mortgage lender will just need to run a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party [credit bureaus](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/). A pre-approval is valuable when it comes to looking for a property. It indicates you are a serious buyer and means that you are ready to move quickly on a property when you find one you love. ### Warning [Mortgage lending discrimination is illegal](https://www.investopedia.com/housing-discrimination-what-can-you-do-5074478). If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the [Consumer Financial Protection Bureau (CFPB)](https://www.consumerfinance.gov/complaint/) or with the [U.S. Department of Housing and Urban Development (HUD)](https://www.hud.gov/program_offices/housing/mfh/hc/complaint). ## 2. Find a Property Most people start looking for properties long before they are pre-approved for a mortgage, and perhaps before they are even thinking of [buying a home](https://www.investopedia.com/how-long-does-it-take-to-buy-a-house-5191136). But if you’ve followed the steps above, and so have your pre-approval, you’re now ready to begin looking in earnest. There are many ways of doing this. You can use online real estate portals like Zillow or Trulia, [buy a house at auction](https://www.investopedia.com/articles/mortgages-real-estate/10/should-you-buy-at-an-auction.asp), or even look for an [off-market home](https://www.investopedia.com/articles/personal-finance/121415/how-find-and-buy-offmarket-homes.asp). Just make sure you don’t fall into some of the [common mistakes](https://www.investopedia.com/articles/mortgage-real-estate/09/buy-house-emotion-free.asp) people make when house-hunting. ### Making an offer Once you’ve found a suitable property, you’ll need to put in an offer on it. Your real estate agent should help you to do this, as different sellers and properties require different sorts of offers. At this stage, you’ll normally have to put down [earnest money](https://www.investopedia.com/terms/e/earnest-money.asp), a deposit that indicates you are seriously interested in a property. Typical earnest money deposits are 1% to 2% of the sale price. If you close on a property, this money is put towards the downpayment. Normally, your offer will also contain contingencies that allow you to pull out of the deal. These are designed to protect you and your money if the house you’ve chosen is not quite what it seems. Common contingencies include: * Appraisals must come in close to the loan amount, not lower * Home inspections do not find major issues with the property * You are able to secure final mortgage approval ## 3. Apply for a Mortgage At this stage, you are ready to apply for a final mortgage. To do this, you’ll need to approach a mortgage lender—most likely the one that gave you pre-approval, but [you should also shop around](https://www.investopedia.com/articles/credit-loans-mortgages/091016/how-many-mortgage-lenders-should-you-apply-fico.asp) to make sure you get the best deal. Each mortgage lender will need information in order to give you an offer. They may have some of this information already but they may need to collect more. But you will also need to give your lender a pack of documents. Your real estate agent may be able to grab some of the harder-to-find items, such as property taxes. **Income**    • Two years of W-2s    • Profit and loss statement if self-employed    • Pensions, Social Security    • Public assistance    • Child support    • Alimony **Assets**    • Bank accounts (savings, checking, brokerage accounts)    • Real property    • Investments (stocks, bonds, retirement accounts)    • Proceeds from the sale of your current home    • Gifted funds from relatives (e.g. a down payment gift for an FHA loan) **Debts**    • Current mortgage    • Liens    • Alimony    • Child support    • Car loans    • Credit cards    • Real property **Property information**    • Street address    • Expected sales price    • Type of home (single-family residence, condo, etc.)    • Size of property    • Real estate taxes (annual)    • Homeowner’s association dues (HOA)    • Estimated closing date **Credit history**    • Bankruptcies    • Collections    • Foreclosures    • Delinquencies This last item—your credit history—is one of the most important elements in getting your mortgage approved. Because of this, it’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year.Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts, and causes for any of these parts of your history. ### Check Your Credit Score It’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year. ## 4. Complete Loan Processing The next step is for the lenders you've approached to pull together all the information you’ve provided into a [loan estimate](https://www.investopedia.com/loan-estimate-5120625). A loan estimate is a three-page form that presents home loan information in an easy-to-read format, complete with explanations. This standardization not only makes the information easy to digest; it also makes it easy to compare offers among lenders to see which one is [offering you the best deal](https://www.investopedia.com/how-to-find-the-best-mortgage-lender-5194993). You’ll get a loan estimate within three business days of applying for a mortgage unless you don’t meet the lender’s basic qualifications and your application is rejected. If that happens, the lender must give you a written notice within 30 days stating why your application was rejected. The only fee you may have to pay to get a loan estimate is a [credit report](https://www.investopedia.com/terms/c/creditreport.asp) fee. When you receive a loan estimate, it’s valid for 10 business days. If you want to accept a loan offer, try to do it within that time frame; the lender may change the terms and issue a new loan estimate if you take more time to decide. If you accept a loan estimate, your loan will start to be processed. At this stage, your mortgage lender will start to go through and verify the information you’ve provided to them. This includes: * Ordering a credit report (if not already done as part of your pre-approval) * Verifying employment (VOE) and bank deposits (VOD) * Order a property inspection and appraisal * Order a title search ## 5. Go Through Underwriting Process The next stage is for your application to be assessed by [underwriters](https://www.investopedia.com/terms/u/underwriter.asp). Though you are unlikely to deal with them directly, mortgage underwriters are actually the key decision-makers in the mortgage approval process and are the people who will give final approval for your mortgage. Underwriters will check every aspect of your mortgage application and carry out a number of other steps. For instance, borrowers are required to have an [appraisal](https://www.investopedia.com/terms/a/appraisal.asp) conducted on any property they take out a mortgage against. The underwriter orders this appraisal and uses it to determine if the funds from the sale of the property are enough to cover the amount you will be lent in your mortgage. Once underwriters have assessed your application, they will give you their decision. This will either be to accept the loan as it is proposed, reject it, or approve it with conditions. Your mortgage might be approved, for instance, on the condition that you supply more information about your credit history. If your application is approved, you will then [lock in your interest rate](https://www.investopedia.com/terms/locked_in_interest_rate.asp) with your lender. This is the final interest rate you will pay for the remainder of your mortgage term. ### Closing Costs Closing costs typically range from 2% to 5% of the home’s purchase price. ## 6. Close on the Property If your mortgage application is approved, it’s now time for [closing](https://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp). At this stage, a large stack of documents will be printed out and you’ll be invited to the title company (or attorney's office) for a closing meeting. One of the most important documents you’ll see at this meeting is your [closing disclosure form](https://www.investopedia.com/terms/h/hud-1.asp). On this form, you’ll see a column showing the original estimated closing costs and final closing costs, along with another column indicating the difference if costs rose. Closing costs typically range from 2% to 5% of the home’s purchase price. Thus, if you buy a $200,000 house, your closing costs could range from $4,000 to $10,000. Closing fees vary depending on your state, loan type, and [mortgage lender](https://www.investopedia.com/mortgage/mortgage-guide/mortgage-lenders/), so it’s important to pay close attention to these fees. If you see new fees that were not on the original loan estimate or notice that your closing costs are significantly higher, immediately seek clarification with your lender and/or real estate agent. If everything looks to be in order, you will sign to accept the mortgage and you will leave the office with the keys to your new home. Well done! ### Three-day review period and final walk-through At this point, a countdown begins. If no further action is taken, your mortgage will become active in three days' time. However, at this stage, you have the right to spend three days reviewing your documents to make sure everything is in order. You should compare your closing disclosure to the loan estimate you received in stage 4 above. Small changes, discrepancies, or typos are allowed, but if you see anything you don’t understand, you should seek clarification immediately. In addition, there are certain changes that can cause your mortgage agreement to be put on hold. This will happen if: * The APR on the loan changes by more than one-eighth of a percent (most fixed loans) or one-quarter of a percent (most adjustable rate loans). * A prepayment penalty is added to the mortgage. * There's a change of loan products (for example, a change from a fixed-rate loan to an adjustable-rate loan). Assuming everything is in order, your mortgage will automatically go live after the three days are up. Typically, mortgage contracts give you the right to a final walk-through of the property at least 24 hours before your closing. You can use this visit to check that the previous tenant has vacated the property and that they have carried out any repairs that were required. ## Who Approves a Mortgage? Though you will normally deal with a mortgage lender such as a bank, the final decision as to approval for your mortgage rests with underwriters. ## How Long Does It Take To Close On a House? Typically it takes 30 to 45 days to close on a house, depending on a few factors like how fast it takes to get a home inspection and whether or not you are pre-approved for a mortgage. ## How Much Are Closing Costs When You Buy a House? There are many fees associated with closing costs, from appraisal fees to the fees you pay the lawyer who draws up your contract. These costs can add as much as 2% to 5% of the home's purchase price and are typically due at the closing. ### The Bottom Line The process of applying for a mortgage can be complicated, but there are a number of distinct steps involved. Most people will go through these six steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. The process can be long and stressful, but make sure you don’t rush it. Check all of your documents carefully, make sure you understand the mortgage you are being sold, and seek expert help if you are unsure about anything. You’ll be paying your mortgage for a long time, so it makes sense to get it right.

Getting a mortgage can be a complex, daunting task. There is a wide range of mortgages to choose from, you will need to gather a lot of documents to apply for them, and even working out the monthly cost of your future mortgage can be difficult. Nevertheless, the mortgage process can be broken into a number of well-defined steps. Most people go through six distinct stages when they are looking for a new mortgage: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. In this guide, we’ll explain everything you need to know about each of these steps. Key Takeaways The mortgage process is complicated but can be broken into a number of steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing.It’s a good idea to get pre-approval for a mortgage before you start looking for a property, so you know what you can afford.Once you’ve found a property and put in an offer, expect the mortgage closing process to take up to 45 days to complete.Check all of your paperwork carefully. You will be paying for your mortgage for a long time, so the small print can end up costing you a lot of money. Investopedia / Candra Huff 1. Get Your Pre-Approval The first steps in getting a mortgage are to work out what kind of mortgage is best for you, how much you can afford to pay, and to obtain pre-approval for this loan. In order to find the right type of mortgage, familiarize yourself with the different types of mortgage and find the one that is right for you. You’ll need to take into account a number of factors when it comes to choosing a mortgage, but the most important is to have an accurate idea of your monthly costs. This will include not just paying back the “principal” loan, but also interest payments. And if you aren’t able to make a 20% downpayment on a property, you’ll also need to pay for private mortgage insurance (PMI). A mortgage calculator can show you the impact of different rates on your monthly payment.  Once you have an idea of the type of mortgage you would like, you can approach mortgage lenders for pre-approval. A pre-approval is a document that states the maximum amount your mortgage lender is willing to loan to you. You can get pre-approved quite quickly—your mortgage lender will just need to run a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party credit bureaus. A pre-approval is valuable when it comes to looking for a property. It indicates you are a serious buyer and means that you are ready to move quickly on a property when you find one you love. Warning Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau (CFPB) or with the U.S. Department of Housing and Urban Development (HUD). 2. Find a Property Most people start looking for properties long before they are pre-approved for a mortgage, and perhaps before they are even thinking of buying a home. But if you’ve followed the steps above, and so have your pre-approval, you’re now ready to begin looking in earnest. There are many ways of doing this. You can use online real estate portals like Zillow or Trulia, buy a house at auction, or even look for an off-market home. Just make sure you don’t fall into some of the common mistakes people make when house-hunting. Making an offer Once you’ve found a suitable property, you’ll need to put in an offer on it. Your real estate agent should help you to do this, as different sellers and properties require different sorts of offers. At this stage, you’ll normally have to put down earnest money, a deposit that indicates you are seriously interested in a property. Typical earnest money deposits are 1% to 2% of the sale price. If you close on a property, this money is put towards the downpayment. Normally, your offer will also contain contingencies that allow you to pull out of the deal. These are designed to protect you and your money if the house you’ve chosen is not quite what it seems. Common contingencies include: Appraisals must come in close to the loan amount, not lowerHome inspections do not find major issues with the propertyYou are able to secure final mortgage approval 3. Apply for a Mortgage At this stage, you are ready to apply for a final mortgage. To do this, you’ll need to approach a mortgage lender—most likely the one that gave you pre-approval, but you should also shop around to make sure you get the best deal. Each mortgage lender will need information in order to give you an offer. They may have some of this information already but they may need to collect more. But you will also need to give your lender a pack of documents. Your real estate agent may be able to grab some of the harder-to-find items, such as property taxes.Your lender should guide you as to what to send and when, but they are likely to need:Employment   • Name of current employer, phone, and street address   • Length of time at current employer   • Position/title   • Salary including overtime, bonuses, or commissions Income   • Two years of W-2s   • Profit and loss statement if self-employed   • Pensions, Social Security   • Public assistance   • Child support   • Alimony Assets   • Bank accounts (savings, checking, brokerage accounts)   • Real property   • Investments (stocks, bonds, retirement accounts)   • Proceeds from the sale of your current home   • Gifted funds from relatives (e.g. a down payment gift for an FHA loan) Debts   • Current mortgage   • Liens   • Alimony   • Child support   • Car loans   • Credit cards   • Real property Property information    • Street address   • Expected sales price   • Type of home (single-family residence, condo, etc.)   • Size of property   • Real estate taxes (annual)   • Homeowner’s association dues (HOA)   • Estimated closing date Credit history   • Bankruptcies   • Collections   • Foreclosures   • Delinquencies This last item—your credit history—is one of the most important elements in getting your mortgage approved. Because of this, it’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year.Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts, and causes for any of these parts of your history. Check Your Credit Score It’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year. 4. Complete Loan Processing The next step is for the lenders you've approached to pull together all the information you’ve provided into a loan estimate. A loan estimate is a three-page form that presents home loan information in an easy-to-read format, complete with explanations. This standardization not only makes the information easy to digest; it also makes it easy to compare offers among lenders to see which one is offering you the best deal. You’ll get a loan estimate within three business days of applying for a mortgage unless you don’t meet the lender’s basic qualifications and your application is rejected. If that happens, the lender must give you a written notice within 30 days stating why your application was rejected. The only fee you may have to pay to get a loan estimate is a credit report fee. When you receive a loan estimate, it’s valid for 10 business days. If you want to accept a loan offer, try to do it within that time frame; the lender may change the terms and issue a new loan estimate if you take more time to decide. If you accept a loan estimate, your loan will start to be processed. At this stage, your mortgage lender will start to go through and verify the information you’ve provided to them. This includes: Ordering a credit report (if not already done as part of your pre-approval)Verifying employment (VOE) and bank deposits (VOD)Order a property inspection and appraisalOrder a title search 5. Go Through Underwriting Process The next stage is for your application to be assessed by underwriters. Though you are unlikely to deal with them directly, mortgage underwriters are actually the key decision-makers in the mortgage approval process and are the people who will give final approval for your mortgage. Underwriters will check every aspect of your mortgage application and carry out a number of other steps. For instance, borrowers are required to have an appraisal conducted on any property they take out a mortgage against. The underwriter orders this appraisal and uses it to determine if the funds from the sale of the property are enough to cover the amount you will be lent in your mortgage. Once underwriters have assessed your application, they will give you their decision. This will either be to accept the loan as it is proposed, reject it, or approve it with conditions. Your mortgage might be approved, for instance, on the condition that you supply more information about your credit history. If your application is approved, you will then lock in your interest rate with your lender. This is the final interest rate you will pay for the remainder of your mortgage term. Closing Costs Closing costs typically range from 2% to 5% of the home’s purchase price. 6. Close on the Property If your mortgage application is approved, it’s now time for closing. At this stage, a large stack of documents will be printed out and you’ll be invited to the title company (or attorney's office) for a closing meeting. One of the most important documents you’ll see at this meeting is your closing disclosure form. On this form, you’ll see a column showing the original estimated closing costs and final closing costs, along with another column indicating the difference if costs rose. Closing costs typically range from 2% to 5% of the home’s purchase price. Thus, if you buy a $200,000 house, your closing costs could range from $4,000 to $10,000. Closing fees vary depending on your state, loan type, and mortgage lender, so it’s important to pay close attention to these fees. If you see new fees that were not on the original loan estimate or notice that your closing costs are significantly higher, immediately seek clarification with your lender and/or real estate agent. If everything looks to be in order, you will sign to accept the mortgage and you will leave the office with the keys to your new home. Well done! Three-day review period and final walk-through At this point, a countdown begins. If no further action is taken, your mortgage will become active in three days' time. However, at this stage, you have the right to spend three days reviewing your documents to make sure everything is in order. You should compare your closing disclosure to the loan estimate you received in stage 4 above. Small changes, discrepancies, or typos are allowed, but if you see anything you don’t understand, you should seek clarification immediately. In addition, there are certain changes that can cause your mortgage agreement to be put on hold. This will happen if: The APR on the loan changes by more than one-eighth of a percent (most fixed loans) or one-quarter of a percent (most adjustable rate loans).A prepayment penalty is added to the mortgage.There's a change of loan products (for example, a change from a fixed-rate loan to an adjustable-rate loan). Assuming everything is in order, your mortgage will automatically go live after the three days are up. Typically, mortgage contracts give you the right to a final walk-through of the property at least 24 hours before your closing. You can use this visit to check that the previous tenant has vacated the property and that they have carried out any repairs that were required. Who Approves a Mortgage? Though you will normally deal with a mortgage lender such as a bank, the final decision as to approval for your mortgage rests with underwriters. How Long Does It Take To Close On a House? Typically it takes 30 to 45 days to close on a house, depending on a few factors like how fast it takes to get a home inspection and whether or not you are pre-approved for a mortgage. How Much Are Closing Costs When You Buy a House? There are many fees associated with closing costs, from appraisal fees to the fees you pay the lawyer who draws up your contract. These costs can add as much as 2% to 5% of the home's purchase price and are typically due at the closing. The Bottom Line The process of applying for a mortgage can be complicated, but there are a number of distinct steps involved. Most people will go through these six steps: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. The process can be long and stressful, but make sure you don’t rush it. Check all of your documents carefully, make sure you understand the mortgage you are being sold, and seek expert help if you are unsure about anything. You’ll be paying your mortgage for a long time, so it makes sense to get it right.

https://www.investopedia.com/terms/n/nav.asp

Net Asset Value (NAV): Definition, Formula, Example, and Uses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-net-asset-value-nav"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Net Asset Value (NAV)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Most commonly used in the context of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a> or an exchange-traded fund (ETF), NAV is the price at which the shares of the funds registered with the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> are traded. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding.</li><li>NAV is commonly used as a per-share value calculated for a mutual fund or ETF.</li><li>NAV is calculated at the end of each trading day based on the closing market prices of the portfolio's securities. </li></ul><p><br/></p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Net Asset Value" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bqfvA0ChDHdiQSXZN2pBM6cX8gc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bqfvA0ChDHdiQSXZN2pBM6cX8gc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg" data-srcset="https://www.investopedia.com/thmb/-CqW5BIxBJSHXAMWqkIzFGlsdFs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Net Asset Value" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/bqfvA0ChDHdiQSXZN2pBM6cX8gc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg" srcset="https://www.investopedia.com/thmb/-CqW5BIxBJSHXAMWqkIzFGlsdFs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Nez Riaz</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-net-asset-value-nav"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Net Asset Value (NAV) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> For companies and business entities, the difference between the assets and the liabilities is known as the net assets or the net worth or the capital of the company. The term NAV is applied to the fund valuation and pricing, which is arrived at by dividing the difference between assets and liabilities by the number of shares held by the investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The fund’s NAV represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting the fund shares.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">NAV Formula</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>NAV = (Assets - Liabilities) / Total number of outstanding shares<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> NAV is often close to or equal to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/07/book_value.asp">book value</a> per share of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest. For closed-end funds, NAV is most frequently compared to the stock price (market value per share) to find undervalued or overvalued investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-mutual-funds-and-nav"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Mutual Funds and NAV </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Mutual funds collect money from a large number of investors, then use that money to invest in securities, such as stocks, bonds, and money market instruments. Each investor gets a specified number of shares in proportion to their invested amount. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/021015/what-difference-between-book-value-common-share-and-nav-net-asset-value.asp">pricing of each share is based on NAV</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Unlike a stock whose price changes are posted throughout the day, mutual fund pricing is based on the end-of-the-day methodology based on the activity of the securities in the fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> At the end of the trading day, managers of a mutual fund compute the closing price of all the securities within its portfolio, adds the value of any additional assets, accounts for liabilities, and calculate NAV based on the number of outstanding shares.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-nav-in-closed-end-funds-vs-open-end-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> NAV in Closed-End Funds vs. Open-End Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> An open-end fund can issue an unlimited number of shares, does not trade on exchanges, and is priced each day at the close of trading at their NAV price. Most mutual funds, such as those in 401k plans, are open-end funds.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Closed-end funds are listed on a stock exchange, trade similarly to securities, and can trade at a price that's not equal to their NAV.<span class="ql-inline-citation" data-cite="5"></span> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> trade like stocks and their market value can differ from their actual NAV. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> This allows for profitable trading opportunities for active ETF traders who can spot timely opportunities. Similar to mutual funds, ETFs also calculate their NAV daily at the close of the market for reporting purposes but also calculate and disseminate intra-day NAV multiple times per minute in real-time.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-nav-and-fund-performance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> NAV and Fund Performance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Fund investors often try to assess the performance of a mutual fund based on their NAV differentials between two dates. An investor may compare the NAV on January 1 to the NAV on December 31, and see the difference in the two values as a gauge of the fund’s performance. However, changes in NAV between two dates aren’t the best representation of mutual fund performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Mutual funds commonly pay out all of their income like dividends and interest earned to their shareholders. Additionally, mutual funds are also obligated to distribute the accumulated realized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> to the shareholders.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> As these two components, income, and gains, are regularly paid out, the NAV decreases accordingly. Therefore, though a mutual fund investor earns income and returns, individual earnings are not reflected in the absolute NAV values when compared between two dates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> A reliable measure of mutual fund performance is the annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a>, which is the actual rate of return of an investment or a pool of investments over a given evaluation period. Investors and analysts also look at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cagr.asp">compounded annual growth rate (CAGR)</a>, which represents the mean annual growth rate of an investment over a specified period longer than one year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-example-of-nav-calculation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> Example of NAV Calculation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Assume that a mutual fund has $100 million worth of total investments in different securities, which is calculated based on the day's closing prices for each asset. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> It also has $7 million of cash and cash equivalents on hand, as well as $4 million in total receivables. Accrued income for the day is $75,000. The fund has $13 million in short-term liabilities and $2 million in long-term liabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Accrued expenses for the day are $10,000. The fund has 5 million shares outstanding. Using the above formula, the NAV is calculated as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> NAV = [($100,000,000 + $7,000,000 + $4,000,000 + $75,000) - ($13,000,000 + $2,000,000 + $10,000)] / 5,000,000 = ($111,075,000 - $15,010,000) / 5,000,000 = $19.21 </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> For the given day, the mutual fund shares will be traded at $19.21 per share. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-what-is-navps"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is NAVPS?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The net asset value per share (NAVPS) of a fund is reported with its price quote with a broker or online financial portal. This value differs slightly from the fund's actual market price since NAVPS is calculated once per day, while the assets held by a fund may change in price throughout the day.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-are-the-trading-timelines-for-nav"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Trading Timelines for NAV?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While NAV is computed and reported as of a particular business date, all of the buys and sell orders for mutual funds are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp">processed based on the cutoff time</a> at the NAV of the trade date. If regulators mandate a cutoff time of 1:30 p.m., then buy and sell orders received before 1:30 p.m. will be executed at the NAV of that particular date. Any orders received after the cutoff time will be processed based on the NAV of the next business day.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-what-is-the-difference-between-nav-and-shareholder-equity"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between NAV and Shareholder Equity?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Funds can be open or closed and the pricing of each share is based on NAV. The price of each fund share is reflected as the NAVPS or per-share value.<br/> </p></div>

## What Is Net Asset Value (NAV)? Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Most commonly used in the context of a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) or an exchange-traded fund (ETF), NAV is the price at which the shares of the funds registered with the U.S. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) are traded. ### Key Takeaways * Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. * NAV is commonly used as a per-share value calculated for a mutual fund or ETF. * NAV is calculated at the end of each trading day based on the closing market prices of the portfolio's securities. ![Net Asset Value]() :max_bytes(150000):strip_icc()/NetAssetValue-84797ac430ce4c948f0c60649846a204.jpg) Investopedia / Nez Riaz ## Understanding Net Asset Value (NAV) For companies and business entities, the difference between the assets and the liabilities is known as the net assets or the net worth or the capital of the company. The term NAV is applied to the fund valuation and pricing, which is arrived at by dividing the difference between assets and liabilities by the number of shares held by the investors. The fund’s NAV represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting the fund shares. ### NAV Formula NAV = (Assets - Liabilities) / Total number of outstanding shares NAV is often close to or equal to the [book value](https://www.investopedia.com/articles/stocks/07/book_value.asp) per share of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest. For closed-end funds, NAV is most frequently compared to the stock price (market value per share) to find undervalued or overvalued investments. ## Mutual Funds and NAV Mutual funds collect money from a large number of investors, then use that money to invest in securities, such as stocks, bonds, and money market instruments. Each investor gets a specified number of shares in proportion to their invested amount. The [pricing of each share is based on NAV](https://www.investopedia.com/ask/answers/021015/what-difference-between-book-value-common-share-and-nav-net-asset-value.asp). Unlike a stock whose price changes are posted throughout the day, mutual fund pricing is based on the end-of-the-day methodology based on the activity of the securities in the fund. At the end of the trading day, managers of a mutual fund compute the closing price of all the securities within its portfolio, adds the value of any additional assets, accounts for liabilities, and calculate NAV based on the number of outstanding shares. ## NAV in Closed-End Funds vs. Open-End Funds An open-end fund can issue an unlimited number of shares, does not trade on exchanges, and is priced each day at the close of trading at their NAV price. Most mutual funds, such as those in 401k plans, are open-end funds. Closed-end funds are listed on a stock exchange, trade similarly to securities, and can trade at a price that's not equal to their NAV. [ETFs](https://www.investopedia.com/terms/e/etf.asp) trade like stocks and their market value can differ from their actual NAV. This allows for profitable trading opportunities for active ETF traders who can spot timely opportunities. Similar to mutual funds, ETFs also calculate their NAV daily at the close of the market for reporting purposes but also calculate and disseminate intra-day NAV multiple times per minute in real-time. ## NAV and Fund Performance Fund investors often try to assess the performance of a mutual fund based on their NAV differentials between two dates. An investor may compare the NAV on January 1 to the NAV on December 31, and see the difference in the two values as a gauge of the fund’s performance. However, changes in NAV between two dates aren’t the best representation of mutual fund performance. Mutual funds commonly pay out all of their income like dividends and interest earned to their shareholders. Additionally, mutual funds are also obligated to distribute the accumulated realized [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) to the shareholders. As these two components, income, and gains, are regularly paid out, the NAV decreases accordingly. Therefore, though a mutual fund investor earns income and returns, individual earnings are not reflected in the absolute NAV values when compared between two dates. A reliable measure of mutual fund performance is the annual [total return](https://www.investopedia.com/terms/t/totalreturn.asp), which is the actual rate of return of an investment or a pool of investments over a given evaluation period. Investors and analysts also look at [compounded annual growth rate (CAGR)](https://www.investopedia.com/terms/c/cagr.asp), which represents the mean annual growth rate of an investment over a specified period longer than one year. ## Example of NAV Calculation Assume that a mutual fund has $100 million worth of total investments in different securities, which is calculated based on the day's closing prices for each asset. It also has $7 million of cash and cash equivalents on hand, as well as $4 million in total receivables. Accrued income for the day is $75,000. The fund has $13 million in short-term liabilities and $2 million in long-term liabilities. Accrued expenses for the day are $10,000. The fund has 5 million shares outstanding. Using the above formula, the NAV is calculated as: > NAV = [($100,000,000 + $7,000,000 + $4,000,000 + $75,000) - ($13,000,000 + $2,000,000 + $10,000)] / 5,000,000 = ($111,075,000 - $15,010,000) / 5,000,000 = $19.21 For the given day, the mutual fund shares will be traded at $19.21 per share. ## What Is NAVPS? The net asset value per share (NAVPS) of a fund is reported with its price quote with a broker or online financial portal. This value differs slightly from the fund's actual market price since NAVPS is calculated once per day, while the assets held by a fund may change in price throughout the day. ## What Are the Trading Timelines for NAV? While NAV is computed and reported as of a particular business date, all of the buys and sell orders for mutual funds are [processed based on the cutoff time](https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp) at the NAV of the trade date. If regulators mandate a cutoff time of 1:30 p.m., then buy and sell orders received before 1:30 p.m. will be executed at the NAV of that particular date. Any orders received after the cutoff time will be processed based on the NAV of the next business day. ## What Is the Difference Between NAV and Shareholder Equity? Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets. ## The Bottom Line Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Funds can be open or closed and the pricing of each share is based on NAV. The price of each fund share is reflected as the NAVPS or per-share value.

What Is Net Asset Value (NAV)? Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), NAV is the price at which the shares of the funds registered with the U.S. Securities and Exchange Commission (SEC) are traded. Key Takeaways Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding.NAV is commonly used as a per-share value calculated for a mutual fund or ETF.NAV is calculated at the end of each trading day based on the closing market prices of the portfolio's securities. Investopedia / Nez Riaz Understanding Net Asset Value (NAV) For companies and business entities, the difference between the assets and the liabilities is known as the net assets or the net worth or the capital of the company. The term NAV is applied to the fund valuation and pricing, which is arrived at by dividing the difference between assets and liabilities by the number of shares held by the investors. The fund’s NAV represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting the fund shares. NAV Formula NAV = (Assets - Liabilities) / Total number of outstanding shares NAV is often close to or equal to the book value per share of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest. For closed-end funds, NAV is most frequently compared to the stock price (market value per share) to find undervalued or overvalued investments. Mutual Funds and NAV Mutual funds collect money from a large number of investors, then use that money to invest in securities, such as stocks, bonds, and money market instruments. Each investor gets a specified number of shares in proportion to their invested amount. The pricing of each share is based on NAV. Unlike a stock whose price changes are posted throughout the day, mutual fund pricing is based on the end-of-the-day methodology based on the activity of the securities in the fund. At the end of the trading day, managers of a mutual fund compute the closing price of all the securities within its portfolio, adds the value of any additional assets, accounts for liabilities, and calculate NAV based on the number of outstanding shares. NAV in Closed-End Funds vs. Open-End Funds An open-end fund can issue an unlimited number of shares, does not trade on exchanges, and is priced each day at the close of trading at their NAV price. Most mutual funds, such as those in 401k plans, are open-end funds. Closed-end funds are listed on a stock exchange, trade similarly to securities, and can trade at a price that's not equal to their NAV. ETFs trade like stocks and their market value can differ from their actual NAV. This allows for profitable trading opportunities for active ETF traders who can spot timely opportunities. Similar to mutual funds, ETFs also calculate their NAV daily at the close of the market for reporting purposes but also calculate and disseminate intra-day NAV multiple times per minute in real-time. NAV and Fund Performance Fund investors often try to assess the performance of a mutual fund based on their NAV differentials between two dates. An investor may compare the NAV on January 1 to the NAV on December 31, and see the difference in the two values as a gauge of the fund’s performance. However, changes in NAV between two dates aren’t the best representation of mutual fund performance. Mutual funds commonly pay out all of their income like dividends and interest earned to their shareholders. Additionally, mutual funds are also obligated to distribute the accumulated realized capital gains to the shareholders. As these two components, income, and gains, are regularly paid out, the NAV decreases accordingly. Therefore, though a mutual fund investor earns income and returns, individual earnings are not reflected in the absolute NAV values when compared between two dates. A reliable measure of mutual fund performance is the annual total return, which is the actual rate of return of an investment or a pool of investments over a given evaluation period. Investors and analysts also look at compounded annual growth rate (CAGR), which represents the mean annual growth rate of an investment over a specified period longer than one year. Example of NAV Calculation Assume that a mutual fund has $100 million worth of total investments in different securities, which is calculated based on the day's closing prices for each asset. It also has $7 million of cash and cash equivalents on hand, as well as $4 million in total receivables. Accrued income for the day is $75,000. The fund has $13 million in short-term liabilities and $2 million in long-term liabilities. Accrued expenses for the day are $10,000. The fund has 5 million shares outstanding. Using the above formula, the NAV is calculated as: NAV = [($100,000,000 + $7,000,000 + $4,000,000 + $75,000) - ($13,000,000 + $2,000,000 + $10,000)] / 5,000,000 = ($111,075,000 - $15,010,000) / 5,000,000 = $19.21 For the given day, the mutual fund shares will be traded at $19.21 per share. What Is NAVPS? The net asset value per share (NAVPS) of a fund is reported with its price quote with a broker or online financial portal. This value differs slightly from the fund's actual market price since NAVPS is calculated once per day, while the assets held by a fund may change in price throughout the day. What Are the Trading Timelines for NAV? While NAV is computed and reported as of a particular business date, all of the buys and sell orders for mutual funds are processed based on the cutoff time at the NAV of the trade date. If regulators mandate a cutoff time of 1:30 p.m., then buy and sell orders received before 1:30 p.m. will be executed at the NAV of that particular date. Any orders received after the cutoff time will be processed based on the NAV of the next business day. What Is the Difference Between NAV and Shareholder Equity? Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets. The Bottom Line Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding. Funds can be open or closed and the pricing of each share is based on NAV. The price of each fund share is reflected as the NAVPS or per-share value.

https://www.investopedia.com/ask/answers/070915/how-can-i-access-companys-earnings-report.asp

How Do I Access a Company's Earnings Report?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/10/decoding-earnings-reports.asp">earnings report</a> is a public display of profitability, financial standing, and the official word on recent overall business performance. All publicly traded companies in the U.S. are legally required to file <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earningsreport.asp">quarterly reports</a>, annual reports, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10q.asp">10-Q</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10-k.asp">10-K</a> reports.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A company's earnings report is a public display of profitability, financial standing, and the official word on recent overall business performance.</li><li>All publicly traded companies in the U.S. are legally required to file quarterly reports, annual reports, and 10-Q and 10-K reports.<span class="ql-inline-citation" data-cite="3"></span></li><li>The most authoritative and complete resource for all earnings reports is the SEC's EDGAR system.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Current and potential shareholders can track upcoming earnings releases through online resources such as the Nasdaq online earnings calendar.<span class="ql-inline-citation" data-cite="4"></span> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/03/080103.asp">Earnings reports that have already been released</a> can be found through the Securities and Exchange Commission's (SEC) website—<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.sec.gov/">SEC.gov</a>—and other publications, such as Morningstar (as well as on a company's website). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> These earnings reports, which all come out at around the same time, serve as public balance sheets. As a result, during this time period stocks may go up and down with each new announcement. However, an earnings report doesn't necessarily disclose anything about a stock's long-term viability. It's important to be prudent with the information that is made available in an earnings release. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-how-to-track-earnings-reports-through-nasdaq"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How to Track Earnings Reports Through Nasdaq </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Nasdaq online earnings calendar presents a collection of coming earnings reports. You can search for a company based on a specific release date or by ticker symbol to receive a brief overview of key information.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> For example, you can see reports released on the current day, and these reports include fundamental data points, such as market capitalization, consensus <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS)</a> forecasts as well as last year's EPS.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-how-to-track-earnings-reports-using-the-secs-edgar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> How to Track Earnings Reports Using the SEC's EDGAR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The most authoritative and complete resource for all earnings reports is located on the Securities and Exchange Commission's (SEC) website (SEC.gov). Using their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/edgar.asp">EDGAR</a> system, you can search for any publicly traded company and read quarterly, annual, and 10-Q and 10-K reports.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Many people confuse the quarterly earnings report with the 10-Q form. This is understandable because they are both based on quarterly data. However, the 10-Q is a much longer document that is filled with black-and-white financial information. While this can make it tedious to read, it allows investors to avoid some of the extraneous information that is often found in the official earnings report. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-listen-to-earnings-conference-calls"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Listen to Earnings Conference Calls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings-call.asp">Earnings calls</a> are generally available to the entire public to listen to. If you keep track of when earnings calls are scheduled to take place, you can often listen to the call live via a telephone or cellular device. These earnings calls can provide an even better insight into the financial health of a company than quarterly earnings reports. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Earnings conference calls can also be accessed online; they are often found in the investor relations section of a company's website. Many companies provide access to the earnings calls on their corporate websites for some time after the actual call, making it possible for investors to access and analyze valuable information. </p></div>

A company's [earnings report](https://www.investopedia.com/articles/fundamental-analysis/10/decoding-earnings-reports.asp) is a public display of profitability, financial standing, and the official word on recent overall business performance. All publicly traded companies in the U.S. are legally required to file [quarterly reports](https://www.investopedia.com/terms/e/earningsreport.asp), annual reports, and [10-Q](https://www.investopedia.com/terms/1/10q.asp) and [10-K](https://www.investopedia.com/terms/1/10-k.asp) reports. ### Key Takeaways * A company's earnings report is a public display of profitability, financial standing, and the official word on recent overall business performance. * All publicly traded companies in the U.S. are legally required to file quarterly reports, annual reports, and 10-Q and 10-K reports. * The most authoritative and complete resource for all earnings reports is the SEC's EDGAR system. Current and potential shareholders can track upcoming earnings releases through online resources such as the Nasdaq online earnings calendar. [Earnings reports that have already been released](https://www.investopedia.com/ask/answers/03/080103.asp) can be found through the Securities and Exchange Commission's (SEC) website—[SEC.gov](https://www.sec.gov/)—and other publications, such as Morningstar (as well as on a company's website). These earnings reports, which all come out at around the same time, serve as public balance sheets. As a result, during this time period stocks may go up and down with each new announcement. However, an earnings report doesn't necessarily disclose anything about a stock's long-term viability. It's important to be prudent with the information that is made available in an earnings release. ## How to Track Earnings Reports Through Nasdaq The Nasdaq online earnings calendar presents a collection of coming earnings reports. You can search for a company based on a specific release date or by ticker symbol to receive a brief overview of key information. For example, you can see reports released on the current day, and these reports include fundamental data points, such as market capitalization, consensus [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) forecasts as well as last year's EPS. ## How to Track Earnings Reports Using the SEC's EDGAR The most authoritative and complete resource for all earnings reports is located on the Securities and Exchange Commission's (SEC) website (SEC.gov). Using their [EDGAR](https://www.investopedia.com/terms/e/edgar.asp) system, you can search for any publicly traded company and read quarterly, annual, and 10-Q and 10-K reports. Many people confuse the quarterly earnings report with the 10-Q form. This is understandable because they are both based on quarterly data. However, the 10-Q is a much longer document that is filled with black-and-white financial information. While this can make it tedious to read, it allows investors to avoid some of the extraneous information that is often found in the official earnings report. ## Listen to Earnings Conference Calls [Earnings calls](https://www.investopedia.com/terms/e/earnings-call.asp) are generally available to the entire public to listen to. If you keep track of when earnings calls are scheduled to take place, you can often listen to the call live via a telephone or cellular device. These earnings calls can provide an even better insight into the financial health of a company than quarterly earnings reports. Earnings conference calls can also be accessed online; they are often found in the investor relations section of a company's website. Many companies provide access to the earnings calls on their corporate websites for some time after the actual call, making it possible for investors to access and analyze valuable information.

A company's earnings report is a public display of profitability, financial standing, and the official word on recent overall business performance. All publicly traded companies in the U.S. are legally required to file quarterly reports, annual reports, and 10-Q and 10-K reports. Key Takeaways A company's earnings report is a public display of profitability, financial standing, and the official word on recent overall business performance.All publicly traded companies in the U.S. are legally required to file quarterly reports, annual reports, and 10-Q and 10-K reports.The most authoritative and complete resource for all earnings reports is the SEC's EDGAR system. Current and potential shareholders can track upcoming earnings releases through online resources such as the Nasdaq online earnings calendar. Earnings reports that have already been released can be found through the Securities and Exchange Commission's (SEC) website—SEC.gov—and other publications, such as Morningstar (as well as on a company's website). These earnings reports, which all come out at around the same time, serve as public balance sheets. As a result, during this time period stocks may go up and down with each new announcement. However, an earnings report doesn't necessarily disclose anything about a stock's long-term viability. It's important to be prudent with the information that is made available in an earnings release. How to Track Earnings Reports Through Nasdaq The Nasdaq online earnings calendar presents a collection of coming earnings reports. You can search for a company based on a specific release date or by ticker symbol to receive a brief overview of key information. For example, you can see reports released on the current day, and these reports include fundamental data points, such as market capitalization, consensus earnings per share (EPS) forecasts as well as last year's EPS. How to Track Earnings Reports Using the SEC's EDGAR The most authoritative and complete resource for all earnings reports is located on the Securities and Exchange Commission's (SEC) website (SEC.gov). Using their EDGAR system, you can search for any publicly traded company and read quarterly, annual, and 10-Q and 10-K reports. Many people confuse the quarterly earnings report with the 10-Q form. This is understandable because they are both based on quarterly data. However, the 10-Q is a much longer document that is filled with black-and-white financial information. While this can make it tedious to read, it allows investors to avoid some of the extraneous information that is often found in the official earnings report. Listen to Earnings Conference Calls Earnings calls are generally available to the entire public to listen to. If you keep track of when earnings calls are scheduled to take place, you can often listen to the call live via a telephone or cellular device. These earnings calls can provide an even better insight into the financial health of a company than quarterly earnings reports. Earnings conference calls can also be accessed online; they are often found in the investor relations section of a company's website. Many companies provide access to the earnings calls on their corporate websites for some time after the actual call, making it possible for investors to access and analyze valuable information.

https://www.investopedia.com/high-yield-interest-impact-on-taxes-8414834

What a High-Yield Year Means for Your Taxes

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Interest rates were volatile in 2023, and anyone who has credit card debt or took out a loan recently has felt the pinch in their wallet. But there has also been a silver lining: As interest rates have climbed, banks have started offering <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">higher interest on savings vehicles</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If you jumped at the chance to earn more in savings this past year, you’ll want to keep as much of the extra cash as you can. And that means knowing what the federal government’s share is and planning for it, since <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> earned on savings accounts is taxable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Interest earned on savings accounts is taxable at ordinary income tax rates.</li><li>With a few exceptions, interest earned on savings is taxable in the year when it becomes available to you.</li><li>Treasury bill (T-bill) interest is taxed in the year when the bill matures, but it is not subject to state taxes.</li><li>Interest from Series EE and Series I bonds isn’t taxed until you redeem them or they mature.</li><li>If your savings account earned $10 or more during the year, you’ll receive Form 1099-INT from your bank or credit union (or the federal government, if you invested in Treasury bills) early in the upcoming year.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-you-have-to-pay-taxes-on"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What You Have to Pay Taxes on </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Earning more on savings accounts is a welcome change. Not so welcome: The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> requires a cut of that high-yield savings account interest. In fact, it gets a percentage of all your savings interest, including that paid on certificates of deposit (CDs). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The bad news is that the interest is taxed along with your other, ordinary <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> according to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">tax bracket</a> you fall into this year. (Brackets are updated annually to keep pace with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>.) And those rates can be far less kind than the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains tax</a> rate for stocks and real estate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> “When we’re in a good market, with high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">returns</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a>, that income is taxable,” says <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://chipcapelli.com/" rel="nofollow">Chip Capelli</a>, an accountant in Provincetown, Massachusetts. “For small <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a>, the amount is usually not significant. However, with the return of high-yield savings accounts and good market returns, some people may be in for a shock.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Here’s an example: Let’s say you’re a single taxpayer with ordinary income of $100,000 in tax year 2023. You would be required to pay an ordinary income tax rate of 24% on the amount over $95,375 if $4,625 of that $100,000 derived from interest earned on money you plunked into a savings account. That works out to $1,110 that the IRS will want of your $4,625 gain.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Compare this to the 0%, 15%, or 20% rates payable on most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a>.<span class="ql-inline-citation" data-cite="5"></span> It’s something to keep in mind as you determine your savings strategy, because various types of savings vehicles are taxed differently. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Savings Account Interest and Earnings </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Taxable interest, according to the IRS, is interest earned on money in an account that you can withdraw from without penalty. This includes savings accounts and distributions in the form of dividends, as well as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ussavingsbonds.asp">savings bond</a> interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Interest is usually taxable in the year when it becomes available to you, with a couple of exceptions. Interest earned on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111414/what-difference-between-ee-and-i-bonds.asp">Series EE or Series I</a> savings bonds, for example, isn’t taxable until they <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">mature</a> or you <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/redemption.asp">redeem</a> them.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Keep in mind that you’ll pay taxes only on the account’s earnings, not the principal balance you saved, and again, the rate is the same as it is for ordinary income.<span class="ql-inline-citation" data-cite="6"></span><br/></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Money Market Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">money market account</a> is another type of popular, interest-earning savings vehicle. It is an interest-bearing account at a bank or a credit union account, typically with a higher interest rate than a regular savings account. Money market accounts may include check-writing and debit card options, but also usage restrictions that may vary based on the institution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Overall, they are more of an investment than a traditional savings account that you can dip into whenever you want or need to without penalty.<span class="ql-inline-citation" data-cite="7"></span> This earned interest is also taxed as ordinary income.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Treasury Bill Earnings </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">Treasury bills, or T-bills</a>, are a type of time deposit. You commit your savings dollars for a period of time that can be as short as one month or as long as a year. You buy the bill, then the Treasury purchases it back again at the end of your term, referred to as its maturity date. The difference between what you paid and what you receive at maturity is the interest payment.<span class="ql-inline-citation" data-cite="8"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Treasury bill interest is also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/013015/how-are-treasury-bills-taxed.asp">taxed</a> at ordinary income rates, but these investments aren’t subject to state taxes, so you can at least dodge that bullet. The interest is taxed in the year when the bill matures.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit (CDs) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> is effectively a savings account that comes with an agreement that you won’t take any withdrawals for an agreed-upon and contracted period of time. The period can be anywhere from one month to five years or even longer. You’ll pay a penalty to the bank or credit union if you do take a withdrawal during this time.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> You purchase the CD for a fixed deposit amount, so in most cases, you would not make additional deposits over that time. You’ll receive your deposit back plus interest at the end of the term.<span class="ql-inline-citation" data-cite="15"></span> The interest rate is typically <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-savings-accounts-5270287">superior to that of a traditional savings account</a>. It averaged 1.36% for a 12-month CD in February 2023, when traditional savings accounts were paying an average of 0.35%.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The IRS treats this interest earned as ordinary income as well, so it’s taxed according to your marginal tax bracket rate. Here’s the downside: You could pay tax on this interest income before you can withdraw any of it or your original deposit without penalty.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>CD interest is taxable in the year when it’s earned. So, you’ll pay taxes on interest from a CD bought in 2023, even if it’s a multiyear CD that doesn’t mature until 2025. Keep in mind that you can’t access the interest without penalty until then.<span class="ql-inline-citation" data-cite="17"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> High-Yield Savings Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">These savings accounts</a> are distinguished from traditional savings accounts in that they pay a more generous interest rate. They can be a sweet deal because you’re generally not limited as to when or how you access the money you’ve saved. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_47-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/K3EvI/132/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Top Savings Account Rate: January 2022 to Present"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The downside is that you’re not guaranteed that higher interest rate throughout the entire time period that you hold the account. The rate can fluctuate, going up and down as influenced by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a> and, yes, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a>.<span class="ql-inline-citation" data-cite="1"></span> But even if the rate plummets, the interest would most likely be more than you would earn on a traditional savings account because those traditional rates would drop, too. However, other investment options could earn more. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_52-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Reminder: The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</a> guarantees deposits up to $250,000, for each depositor, at each FDIC-insured bank.</p></div></div></div> <span class="heading-toc" id="toc-preparing-for-tax-season"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> Preparing for Tax Season </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> “I recommend that folks monitor their accounts on a quarterly basis and consider either making quarterly payments in anticipation of the taxes that they may owe, or think about investing in an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA (individual retirement account)</a>, which would reduce their taxable income, if they’re noticing significant increases,” Capelli says. “The good news is that you can make a deposit in an IRA for the current year until April 15 (or whatever the tax filing deadline is) of the following year.” So you have until April 15, 2024, to make any last-minute adjustments.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> In any event, the amount of interest you received during the tax year shouldn’t come as a big surprise on tax day. You should receive a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form-1099-int.asp">Form 1099-INT</a> from your bank or credit union early in the year if your account earned $10 or more.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> It will tell you—and the IRS—how much interest you earned. This gives you a period of time to dispute the amount with your bank or credit union if it doesn’t seem right, or to at least ask for clarification. Your bank or credit union can then file an amended form. This is the amount that you’re obligated to report as interest on your tax return so it can be included in your total income. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> You’ll receive a Form 1099-INT from the federal government as well if you’ve invested your money in Treasury bills. You can elect to have taxes withheld from these earnings. The amount that you’ve paid into the IRS through withholding will appear on the form in the box labeled “Federal Income Tax Withheld.”<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> You should also be prepared to deal with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netinvestmentincome.asp">net investment income</a> tax (NIIT) in addition to your regular income tax bill if you’ve saved a significant amount of money and you’re a high-income earner. This “extra” tax has been in place since 2013 and applies to “interest, dividends, capital gains, rental and royalty income, and non-qualified annuities,” according to the IRS.<span class="ql-inline-citation" data-cite="13"></span> The NIIT rate is 3.8%, and it’s levied on either your investment income or the amount by which your overall <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/magi.asp">modified adjusted gross income (MAGI)</a> exceeds certain limits, whichever is less. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> For the 2023 tax year, these income limits are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <li>$250,000 (married filing jointly, or qualifying widow or widower with a child)</li><li>$200,000 (single or head of household)</li><li>$125,000 (married filing a separate return)<span class="ql-inline-citation" data-cite="13"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-reducing-the-amount-you-owe"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Reducing the Amount You Owe </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> You have other savings and investment options if you’re concerned with that extra tax bill that might come due simply because you popped your spare money into a high-interest savings account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> You might want to look into tax-free or tax-deferred savings methods instead, such as Series EE and Series I bonds on which you won’t pay taxes on interest until you redeem them or they mature. And interest earned on state bonds and municipal bonds that raise money to fund government operations isn’t taxable at the federal level at all, although it may be taxable at the state level.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> This tax provision varies from state to state, although you typically won’t pay tax to the state, county, or municipality that issued the bond.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_75-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_76-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Keep in mind that capital gains rates for earnings on stocks or mutual funds tend to be much kinder if you choose to invest in them. But stocks are a far riskier place to plant your money.</p></div></div></div> <span class="heading-toc" id="toc-are-high-yield-savings-accounts-still-worth-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-heading__text"> Are High-Yield Savings Accounts Still Worth It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Yes, the tax man cometh, but the bite shouldn’t be horribly painful if you prepare. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> High-yield savings accounts are safe, and this can be an especially important factor if you’re retired or nearing retirement. They’re <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC-insured</a> for $250,000 per depositor, per FDIC-insured bank, for each account ownership category. That means your money is safe even if your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-failure.asp">bank goes toes-up</a>, as happened five times in the United States in 2023.<span class="ql-inline-citation" data-cite="21"></span><span class="ql-inline-citation" data-cite="22"></span> Plus, your money isn’t locked up and inaccessible under penalty for withdrawals, making it a good place for an emergency cash fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-do-you-have-to-pay-taxes-on-your-high-yield-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Have to Pay Taxes on Your High-Yield Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You only have to pay taxes on the interest you earn on a high-yield savings account—not on the principal balance. High-yield savings account interest is taxed at ordinary income tax rates.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-how-much-will-1000-make-in-a-high-yield-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Will $1,000 Make in a High-Yield Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The amount of interest $1,000 will earn in a high-yield savings account depends on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a> and whether the interest is compounded or not.</p><p>Let’s say you put $1,000 into an account that has a 5.00% APY. After one year, your money would have earned $50 if the bank pays simple interest. But if the interest is compounded quarterly, for example, your money would have earned $50.95 after a year.</p><p>Keeping your money in an account that earns <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compound interest</a>—that is, interest on the interest you’ve already earned—is a good way to make your savings grow faster.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_86-0"><span class="heading-toc" id="toc-how-long-will-high-interest-rates-on-savings-accounts-last"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Will High Interest Rates on Savings Accounts Last?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It’s impossible to say how long interest rates on savings accounts will remain high. But there’s reason to believe that rates are unlikely to go much higher, and they could start to drop in 2024.</p><p>Interest rates are high now because the Federal Reserve has raised the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> numerous times in order to tame inflation, which has largely been successful. If the Fed cuts the funds rate next year, that will likely lower interest rates paid out on savings accounts, since commercial interest rates tend to move in the same direction as the federal funds rate.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Where you save your money depends a great deal on what you want to do with it and when. Do you have a long-term window, such as saving for retirement or funding your child’s college education, or are you saving for a wedding within the tax year? There’s not much argument that a high-yield savings account is a better option than a garden-variety traditional savings account, but other types of investment and savings options might be more beneficial for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> Consider talking to an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountant.asp">accountant</a> so you have a firm grasp of what your decision will cost you tax-wise, and perhaps a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-advisor.asp">financial advisor</a> as well to explore other options. </p></div>

Interest rates were volatile in 2023, and anyone who has credit card debt or took out a loan recently has felt the pinch in their wallet. But there has also been a silver lining: As interest rates have climbed, banks have started offering [higher interest on savings vehicles](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). If you jumped at the chance to earn more in savings this past year, you’ll want to keep as much of the extra cash as you can. And that means knowing what the federal government’s share is and planning for it, since [interest](https://www.investopedia.com/terms/i/interest.asp) earned on savings accounts is taxable. ### Key Takeaways * Interest earned on savings accounts is taxable at ordinary income tax rates. * With a few exceptions, interest earned on savings is taxable in the year when it becomes available to you. * Treasury bill (T-bill) interest is taxed in the year when the bill matures, but it is not subject to state taxes. * Interest from Series EE and Series I bonds isn’t taxed until you redeem them or they mature. * If your savings account earned $10 or more during the year, you’ll receive Form 1099-INT from your bank or credit union (or the federal government, if you invested in Treasury bills) early in the upcoming year. ## What You Have to Pay Taxes on Earning more on savings accounts is a welcome change. Not so welcome: The [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) requires a cut of that high-yield savings account interest. In fact, it gets a percentage of all your savings interest, including that paid on certificates of deposit (CDs). The bad news is that the interest is taxed along with your other, ordinary [income](https://www.investopedia.com/terms/i/income.asp) according to the [tax bracket](https://www.investopedia.com/terms/t/taxbracket.asp) you fall into this year. (Brackets are updated annually to keep pace with [inflation](https://www.investopedia.com/terms/i/inflation.asp).) And those rates can be far less kind than the [capital gains tax](https://www.investopedia.com/terms/c/capital_gains_tax.asp) rate for stocks and real estate. “When we’re in a good market, with high [returns](https://www.investopedia.com/terms/r/return.asp) and [interest rates](https://www.investopedia.com/terms/i/interestrate.asp), that income is taxable,” says [Chip Capelli](https://chipcapelli.com/), an accountant in Provincetown, Massachusetts. “For small [investors](https://www.investopedia.com/terms/i/investor.asp), the amount is usually not significant. However, with the return of high-yield savings accounts and good market returns, some people may be in for a shock.” Here’s an example: Let’s say you’re a single taxpayer with ordinary income of $100,000 in tax year 2023. You would be required to pay an ordinary income tax rate of 24% on the amount over $95,375 if $4,625 of that $100,000 derived from interest earned on money you plunked into a savings account. That works out to $1,110 that the IRS will want of your $4,625 gain. Compare this to the 0%, 15%, or 20% rates payable on most [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp). It’s something to keep in mind as you determine your savings strategy, because various types of savings vehicles are taxed differently. ### Savings Account Interest and Earnings Taxable interest, according to the IRS, is interest earned on money in an account that you can withdraw from without penalty. This includes savings accounts and distributions in the form of dividends, as well as [savings bond](https://www.investopedia.com/terms/u/ussavingsbonds.asp) interest. Interest is usually taxable in the year when it becomes available to you, with a couple of exceptions. Interest earned on [Series EE or Series I](https://www.investopedia.com/ask/answers/111414/what-difference-between-ee-and-i-bonds.asp) savings bonds, for example, isn’t taxable until they [mature](https://www.investopedia.com/terms/m/maturity.asp) or you [redeem](https://www.investopedia.com/terms/r/redemption.asp) them. ### Keep in mind that you’ll pay taxes only on the account’s earnings, not the principal balance you saved, and again, the rate is the same as it is for ordinary income. ### Money Market Accounts A [money market account](https://www.investopedia.com/terms/m/moneymarketaccount.asp) is another type of popular, interest-earning savings vehicle. It is an interest-bearing account at a bank or a credit union account, typically with a higher interest rate than a regular savings account. Money market accounts may include check-writing and debit card options, but also usage restrictions that may vary based on the institution. Overall, they are more of an investment than a traditional savings account that you can dip into whenever you want or need to without penalty. This earned interest is also taxed as ordinary income. ### Treasury Bill Earnings [Treasury bills, or T-bills](https://www.investopedia.com/terms/t/treasurybill.asp), are a type of time deposit. You commit your savings dollars for a period of time that can be as short as one month or as long as a year. You buy the bill, then the Treasury purchases it back again at the end of your term, referred to as its maturity date. The difference between what you paid and what you receive at maturity is the interest payment.  Treasury bill interest is also [taxed](https://www.investopedia.com/ask/answers/013015/how-are-treasury-bills-taxed.asp) at ordinary income rates, but these investments aren’t subject to state taxes, so you can at least dodge that bullet. The interest is taxed in the year when the bill matures. ### Certificates of Deposit (CDs) A [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) is effectively a savings account that comes with an agreement that you won’t take any withdrawals for an agreed-upon and contracted period of time. The period can be anywhere from one month to five years or even longer. You’ll pay a penalty to the bank or credit union if you do take a withdrawal during this time. You purchase the CD for a fixed deposit amount, so in most cases, you would not make additional deposits over that time. You’ll receive your deposit back plus interest at the end of the term. The interest rate is typically [superior to that of a traditional savings account](https://www.investopedia.com/cds-vs-savings-accounts-5270287). It averaged 1.36% for a 12-month CD in February 2023, when traditional savings accounts were paying an average of 0.35%. The IRS treats this interest earned as ordinary income as well, so it’s taxed according to your marginal tax bracket rate. Here’s the downside: You could pay tax on this interest income before you can withdraw any of it or your original deposit without penalty. ### CD interest is taxable in the year when it’s earned. So, you’ll pay taxes on interest from a CD bought in 2023, even if it’s a multiyear CD that doesn’t mature until 2025. Keep in mind that you can’t access the interest without penalty until then. ### High-Yield Savings Accounts [These savings accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) are distinguished from traditional savings accounts in that they pay a more generous interest rate. They can be a sweet deal because you’re generally not limited as to when or how you access the money you’ve saved. The downside is that you’re not guaranteed that higher interest rate throughout the entire time period that you hold the account. The rate can fluctuate, going up and down as influenced by the [economy](https://www.investopedia.com/terms/e/economy.asp) and, yes, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp). But even if the rate plummets, the interest would most likely be more than you would earn on a traditional savings account because those traditional rates would drop, too. However, other investment options could earn more. ### Reminder: The [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) guarantees deposits up to $250,000, for each depositor, at each FDIC-insured bank. ## Preparing for Tax Season “I recommend that folks monitor their accounts on a quarterly basis and consider either making quarterly payments in anticipation of the taxes that they may owe, or think about investing in an [IRA (individual retirement account)](https://www.investopedia.com/terms/i/ira.asp), which would reduce their taxable income, if they’re noticing significant increases,” Capelli says. “The good news is that you can make a deposit in an IRA for the current year until April 15 (or whatever the tax filing deadline is) of the following year.” So you have until April 15, 2024, to make any last-minute adjustments. In any event, the amount of interest you received during the tax year shouldn’t come as a big surprise on tax day. You should receive a [Form 1099-INT](https://www.investopedia.com/terms/f/form-1099-int.asp) from your bank or credit union early in the year if your account earned $10 or more. It will tell you—and the IRS—how much interest you earned. This gives you a period of time to dispute the amount with your bank or credit union if it doesn’t seem right, or to at least ask for clarification. Your bank or credit union can then file an amended form. This is the amount that you’re obligated to report as interest on your tax return so it can be included in your total income. You’ll receive a Form 1099-INT from the federal government as well if you’ve invested your money in Treasury bills. You can elect to have taxes withheld from these earnings. The amount that you’ve paid into the IRS through withholding will appear on the form in the box labeled “Federal Income Tax Withheld.” You should also be prepared to deal with the [net investment income](https://www.investopedia.com/terms/n/netinvestmentincome.asp) tax (NIIT) in addition to your regular income tax bill if you’ve saved a significant amount of money and you’re a high-income earner. This “extra” tax has been in place since 2013 and applies to “interest, dividends, capital gains, rental and royalty income, and non-qualified annuities,” according to the IRS. The NIIT rate is 3.8%, and it’s levied on either your investment income or the amount by which your overall [modified adjusted gross income (MAGI)](https://www.investopedia.com/terms/m/magi.asp) exceeds certain limits, whichever is less. For the 2023 tax year, these income limits are: * $250,000 (married filing jointly, or qualifying widow or widower with a child) * $200,000 (single or head of household) * $125,000 (married filing a separate return) ## Reducing the Amount You Owe You have other savings and investment options if you’re concerned with that extra tax bill that might come due simply because you popped your spare money into a high-interest savings account. You might want to look into tax-free or tax-deferred savings methods instead, such as Series EE and Series I bonds on which you won’t pay taxes on interest until you redeem them or they mature. And interest earned on state bonds and municipal bonds that raise money to fund government operations isn’t taxable at the federal level at all, although it may be taxable at the state level. This tax provision varies from state to state, although you typically won’t pay tax to the state, county, or municipality that issued the bond. ### Keep in mind that capital gains rates for earnings on stocks or mutual funds tend to be much kinder if you choose to invest in them. But stocks are a far riskier place to plant your money. ## Are High-Yield Savings Accounts Still Worth It? Yes, the tax man cometh, but the bite shouldn’t be horribly painful if you prepare. High-yield savings accounts are safe, and this can be an especially important factor if you’re retired or nearing retirement. They’re [FDIC-insured](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for $250,000 per depositor, per FDIC-insured bank, for each account ownership category. That means your money is safe even if your [bank goes toes-up](https://www.investopedia.com/terms/b/bank-failure.asp), as happened five times in the United States in 2023. Plus, your money isn’t locked up and inaccessible under penalty for withdrawals, making it a good place for an emergency cash fund. ## Do You Have to Pay Taxes on Your High-Yield Savings Account? You only have to pay taxes on the interest you earn on a high-yield savings account—not on the principal balance. High-yield savings account interest is taxed at ordinary income tax rates. ## How Much Will $1,000 Make in a High-Yield Savings Account? The amount of interest $1,000 will earn in a high-yield savings account depends on the [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp) and whether the interest is compounded or not. Let’s say you put $1,000 into an account that has a 5.00% APY. After one year, your money would have earned $50 if the bank pays simple interest. But if the interest is compounded quarterly, for example, your money would have earned $50.95 after a year. Keeping your money in an account that earns [compound interest](https://www.investopedia.com/terms/c/compoundinterest.asp)—that is, interest on the interest you’ve already earned—is a good way to make your savings grow faster. ## How Long Will High Interest Rates on Savings Accounts Last? It’s impossible to say how long interest rates on savings accounts will remain high. But there’s reason to believe that rates are unlikely to go much higher, and they could start to drop in 2024. Interest rates are high now because the Federal Reserve has raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) numerous times in order to tame inflation, which has largely been successful. If the Fed cuts the funds rate next year, that will likely lower interest rates paid out on savings accounts, since commercial interest rates tend to move in the same direction as the federal funds rate. ## The Bottom Line Where you save your money depends a great deal on what you want to do with it and when. Do you have a long-term window, such as saving for retirement or funding your child’s college education, or are you saving for a wedding within the tax year? There’s not much argument that a high-yield savings account is a better option than a garden-variety traditional savings account, but other types of investment and savings options might be more beneficial for you. Consider talking to an [accountant](https://www.investopedia.com/terms/a/accountant.asp) so you have a firm grasp of what your decision will cost you tax-wise, and perhaps a [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp) as well to explore other options.

Interest rates were volatile in 2023, and anyone who has credit card debt or took out a loan recently has felt the pinch in their wallet. But there has also been a silver lining: As interest rates have climbed, banks have started offering higher interest on savings vehicles. If you jumped at the chance to earn more in savings this past year, you’ll want to keep as much of the extra cash as you can. And that means knowing what the federal government’s share is and planning for it, since interest earned on savings accounts is taxable. Key Takeaways Interest earned on savings accounts is taxable at ordinary income tax rates.With a few exceptions, interest earned on savings is taxable in the year when it becomes available to you.Treasury bill (T-bill) interest is taxed in the year when the bill matures, but it is not subject to state taxes.Interest from Series EE and Series I bonds isn’t taxed until you redeem them or they mature.If your savings account earned $10 or more during the year, you’ll receive Form 1099-INT from your bank or credit union (or the federal government, if you invested in Treasury bills) early in the upcoming year. What You Have to Pay Taxes on Earning more on savings accounts is a welcome change. Not so welcome: The Internal Revenue Service (IRS) requires a cut of that high-yield savings account interest. In fact, it gets a percentage of all your savings interest, including that paid on certificates of deposit (CDs). The bad news is that the interest is taxed along with your other, ordinary income according to the tax bracket you fall into this year. (Brackets are updated annually to keep pace with inflation.) And those rates can be far less kind than the capital gains tax rate for stocks and real estate. “When we’re in a good market, with high returns and interest rates, that income is taxable,” says Chip Capelli, an accountant in Provincetown, Massachusetts. “For small investors, the amount is usually not significant. However, with the return of high-yield savings accounts and good market returns, some people may be in for a shock.” Here’s an example: Let’s say you’re a single taxpayer with ordinary income of $100,000 in tax year 2023. You would be required to pay an ordinary income tax rate of 24% on the amount over $95,375 if $4,625 of that $100,000 derived from interest earned on money you plunked into a savings account. That works out to $1,110 that the IRS will want of your $4,625 gain. Compare this to the 0%, 15%, or 20% rates payable on most capital gains. It’s something to keep in mind as you determine your savings strategy, because various types of savings vehicles are taxed differently. Savings Account Interest and Earnings Taxable interest, according to the IRS, is interest earned on money in an account that you can withdraw from without penalty. This includes savings accounts and distributions in the form of dividends, as well as savings bond interest. Interest is usually taxable in the year when it becomes available to you, with a couple of exceptions. Interest earned on Series EE or Series I savings bonds, for example, isn’t taxable until they mature or you redeem them. Keep in mind that you’ll pay taxes only on the account’s earnings, not the principal balance you saved, and again, the rate is the same as it is for ordinary income. Money Market Accounts A money market account is another type of popular, interest-earning savings vehicle. It is an interest-bearing account at a bank or a credit union account, typically with a higher interest rate than a regular savings account. Money market accounts may include check-writing and debit card options, but also usage restrictions that may vary based on the institution. Overall, they are more of an investment than a traditional savings account that you can dip into whenever you want or need to without penalty. This earned interest is also taxed as ordinary income. Treasury Bill Earnings Treasury bills, or T-bills, are a type of time deposit. You commit your savings dollars for a period of time that can be as short as one month or as long as a year. You buy the bill, then the Treasury purchases it back again at the end of your term, referred to as its maturity date. The difference between what you paid and what you receive at maturity is the interest payment.  Treasury bill interest is also taxed at ordinary income rates, but these investments aren’t subject to state taxes, so you can at least dodge that bullet. The interest is taxed in the year when the bill matures. Certificates of Deposit (CDs) A certificate of deposit (CD) is effectively a savings account that comes with an agreement that you won’t take any withdrawals for an agreed-upon and contracted period of time. The period can be anywhere from one month to five years or even longer. You’ll pay a penalty to the bank or credit union if you do take a withdrawal during this time. You purchase the CD for a fixed deposit amount, so in most cases, you would not make additional deposits over that time. You’ll receive your deposit back plus interest at the end of the term. The interest rate is typically superior to that of a traditional savings account. It averaged 1.36% for a 12-month CD in February 2023, when traditional savings accounts were paying an average of 0.35%. The IRS treats this interest earned as ordinary income as well, so it’s taxed according to your marginal tax bracket rate. Here’s the downside: You could pay tax on this interest income before you can withdraw any of it or your original deposit without penalty. CD interest is taxable in the year when it’s earned. So, you’ll pay taxes on interest from a CD bought in 2023, even if it’s a multiyear CD that doesn’t mature until 2025. Keep in mind that you can’t access the interest without penalty until then. High-Yield Savings Accounts These savings accounts are distinguished from traditional savings accounts in that they pay a more generous interest rate. They can be a sweet deal because you’re generally not limited as to when or how you access the money you’ve saved. The downside is that you’re not guaranteed that higher interest rate throughout the entire time period that you hold the account. The rate can fluctuate, going up and down as influenced by the economy and, yes, the Federal Reserve. But even if the rate plummets, the interest would most likely be more than you would earn on a traditional savings account because those traditional rates would drop, too. However, other investment options could earn more. Reminder: The Federal Deposit Insurance Corp. (FDIC) guarantees deposits up to $250,000, for each depositor, at each FDIC-insured bank. Preparing for Tax Season “I recommend that folks monitor their accounts on a quarterly basis and consider either making quarterly payments in anticipation of the taxes that they may owe, or think about investing in an IRA (individual retirement account), which would reduce their taxable income, if they’re noticing significant increases,” Capelli says. “The good news is that you can make a deposit in an IRA for the current year until April 15 (or whatever the tax filing deadline is) of the following year.” So you have until April 15, 2024, to make any last-minute adjustments. In any event, the amount of interest you received during the tax year shouldn’t come as a big surprise on tax day. You should receive a Form 1099-INT from your bank or credit union early in the year if your account earned $10 or more. It will tell you—and the IRS—how much interest you earned. This gives you a period of time to dispute the amount with your bank or credit union if it doesn’t seem right, or to at least ask for clarification. Your bank or credit union can then file an amended form. This is the amount that you’re obligated to report as interest on your tax return so it can be included in your total income. You’ll receive a Form 1099-INT from the federal government as well if you’ve invested your money in Treasury bills. You can elect to have taxes withheld from these earnings. The amount that you’ve paid into the IRS through withholding will appear on the form in the box labeled “Federal Income Tax Withheld.” You should also be prepared to deal with the net investment income tax (NIIT) in addition to your regular income tax bill if you’ve saved a significant amount of money and you’re a high-income earner. This “extra” tax has been in place since 2013 and applies to “interest, dividends, capital gains, rental and royalty income, and non-qualified annuities,” according to the IRS. The NIIT rate is 3.8%, and it’s levied on either your investment income or the amount by which your overall modified adjusted gross income (MAGI) exceeds certain limits, whichever is less. For the 2023 tax year, these income limits are: $250,000 (married filing jointly, or qualifying widow or widower with a child)$200,000 (single or head of household)$125,000 (married filing a separate return) Reducing the Amount You Owe You have other savings and investment options if you’re concerned with that extra tax bill that might come due simply because you popped your spare money into a high-interest savings account. You might want to look into tax-free or tax-deferred savings methods instead, such as Series EE and Series I bonds on which you won’t pay taxes on interest until you redeem them or they mature. And interest earned on state bonds and municipal bonds that raise money to fund government operations isn’t taxable at the federal level at all, although it may be taxable at the state level. This tax provision varies from state to state, although you typically won’t pay tax to the state, county, or municipality that issued the bond. Keep in mind that capital gains rates for earnings on stocks or mutual funds tend to be much kinder if you choose to invest in them. But stocks are a far riskier place to plant your money. Are High-Yield Savings Accounts Still Worth It? Yes, the tax man cometh, but the bite shouldn’t be horribly painful if you prepare. High-yield savings accounts are safe, and this can be an especially important factor if you’re retired or nearing retirement. They’re FDIC-insured for $250,000 per depositor, per FDIC-insured bank, for each account ownership category. That means your money is safe even if your bank goes toes-up, as happened five times in the United States in 2023. Plus, your money isn’t locked up and inaccessible under penalty for withdrawals, making it a good place for an emergency cash fund. Do You Have to Pay Taxes on Your High-Yield Savings Account? You only have to pay taxes on the interest you earn on a high-yield savings account—not on the principal balance. High-yield savings account interest is taxed at ordinary income tax rates. How Much Will $1,000 Make in a High-Yield Savings Account? The amount of interest $1,000 will earn in a high-yield savings account depends on the annual percentage yield (APY) and whether the interest is compounded or not.Let’s say you put $1,000 into an account that has a 5.00% APY. After one year, your money would have earned $50 if the bank pays simple interest. But if the interest is compounded quarterly, for example, your money would have earned $50.95 after a year.Keeping your money in an account that earns compound interest—that is, interest on the interest you’ve already earned—is a good way to make your savings grow faster. How Long Will High Interest Rates on Savings Accounts Last? It’s impossible to say how long interest rates on savings accounts will remain high. But there’s reason to believe that rates are unlikely to go much higher, and they could start to drop in 2024.Interest rates are high now because the Federal Reserve has raised the federal funds rate numerous times in order to tame inflation, which has largely been successful. If the Fed cuts the funds rate next year, that will likely lower interest rates paid out on savings accounts, since commercial interest rates tend to move in the same direction as the federal funds rate. The Bottom Line Where you save your money depends a great deal on what you want to do with it and when. Do you have a long-term window, such as saving for retirement or funding your child’s college education, or are you saving for a wedding within the tax year? There’s not much argument that a high-yield savings account is a better option than a garden-variety traditional savings account, but other types of investment and savings options might be more beneficial for you. Consider talking to an accountant so you have a firm grasp of what your decision will cost you tax-wise, and perhaps a financial advisor as well to explore other options.

https://www.investopedia.com/terms/f/foreign-exchange.asp

Forex (FX): How Trading in the Foreign Exchange Market Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-forex-or-fx"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Forex or FX? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The forex market is the largest, most liquid market in the world, with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/11/who-trades-forex-and-why.asp">trillions of dollars</a> changing hands every day. It has no centralized location, and no government authority oversees it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Rather, the forex is an electronic network of banks, brokerages, institutional investors, and individual traders (mostly trading through brokerages or banks).<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The forex is a global marketplace for exchanging national currencies.</li><li>Foreign exchange venues comprise the largest securities market in the world by nominal value, with trillions of dollars changing hands each day.</li><li>Foreign exchange trading uses currency pairs, priced in terms of one versus the other.</li><li>Forwards and futures are another way to participate in the forex market.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_10-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Foreign Exchange (Forex or FX)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/m6r0J9bQxBpUhRr9yRlMDnLvqPM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/m6r0J9bQxBpUhRr9yRlMDnLvqPM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png" data-srcset="https://www.investopedia.com/thmb/vAN3v1lwJ89r0mMWDu7D6EkpB6E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Foreign Exchange (Forex or FX)" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/m6r0J9bQxBpUhRr9yRlMDnLvqPM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png" srcset="https://www.investopedia.com/thmb/vAN3v1lwJ89r0mMWDu7D6EkpB6E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Paige McLaughlin</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-the-forex"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Understanding the Forex </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The Forex market determines the day-to-day value, or the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">exchange rate</a>, of most of the world's currencies. If a traveler exchanges dollars for euros at an exchange kiosk or a bank, the number of euros will be based on the current forex rate. If imported French cheese suddenly costs more at the grocery, it may well mean that euros have increased in value against the U.S. dollar in forex trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Forex traders seek to profit from the continual fluctuations of currency values. For example, a trader may anticipate that the British pound will strengthen in value. The trader will exchange U.S. dollars for British pounds. If the pound then strengthens, the trader can do the transaction in reverse, getting more dollars for the pounds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-subheading__text"> Currency Pairs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In forex trading, currencies are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the euro (EUR) versus the USD, and the USD versus the Japanese yen (JPY). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> There will also be a price associated with each pair, such as 1.2569. If this is the USD/CAD pair, it means that it costs 1.2569 CAD to buy one USD. If the price increases to 1.3336, then it now costs 1.3336 CAD to buy one USD. The USD has increased in value against the CAD, so it now costs more CAD to buy one USD. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In the forex market, currencies trade in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0412/the-basics-of-currency-trading.aspx">lots</a>, called micro, mini, and standard lots. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/micro-lot.asp">micro lot</a> is 1,000 worth of a given currency, a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mini-lot.asp">mini lot</a> is 10,000, and a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standard-lot.asp">standard lot</a> is 100,000. Trades take place in set blocks of currency. For example, a trader can exchange seven micro lots (7,000), three mini lots (30,000), or 75 standard lots (7,500,000). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volumeoftrade.asp">Trading volume</a> in the forex market is generally very large. Trading in the foreign exchange markets averaged $6.6 trillion worth per day in April 2019, according to the Bank for International Settlements.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-trading-in-the-foreign-exchange-market"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Trading in the Foreign Exchange Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The Forex market is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/tradingclosedmarket.asp">open 24 hours a day</a>, five days a week around the globe.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Historically, foreign exchange market participation was for governments, large companies, and hedge funds. In today's world, trading currencies is as easy as a click of a mouse and accessibility is not an issue. Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentcompany.asp">investment companies</a> allow individuals to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/08/forex-account-type.asp">open accounts</a> and trade currencies through their platforms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> This is not like a trip to a foreign exchange kiosk. The process is entirely electronic with no physical exchange of money from one hand to another. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Rather, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp">traders</a> are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they're buying (or weakness if they're selling) so that they can make a profit.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-forex-market-vs-other-markets"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Forex Market vs. Other Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> There are some fundamental differences between foreign exchange and other markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> First of all, there are fewer rules, which means investors aren't held to strict standards or regulations like those in the stock, futures, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a> markets. There are no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearinghouse.asp">clearing houses</a> and no central bodies that oversee the forex market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Second, since trades don't take place on a traditional exchange, there are fewer fees or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commissions</a> like those on other markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Next, there's no cutoff as to when you can and cannot trade. Because the market is open 24 hours a day, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/11/become-successful-forex-trader.asp">you can trade at any time</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-types-of-forex-transactions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Types of Forex Transactions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Forex traders transact in one of three distinct marketplaces: the spot, the forward, or the futures market. To find the best entry and exit point for a trade, they will use a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/forex/best-method-of-forex-analysis.asp">variety of analysis techniques</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> The Forex Spot Market </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The spot market is the most straightforward of the Forex markets. The spot rate is the current exchange rate. A transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Spot transactions for most currencies are finalized in two business days. The major exception is the U.S. dollar versus the Canadian dollar, which settles on the next business day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The price is established on the trade date, but money is exchanged on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuedate.asp">value date</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Role of the U.S. Dollar </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The U.S. dollar is the most actively traded currency.<span class="ql-inline-citation" data-cite="4"></span> The most common pairs are the USD versus the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euro</a>, Japanese yen, British pound, and Australian dollar.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Trading pairs that do not include the dollar are referred to as crosses. The most common crosses are the euro versus the pound and the euro versus the yen. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> The spot market can be very volatile. Movement in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortterm.asp">short term</a> is dominated by technical trading, which bases trading decisions on a currency's direction and speed of movement. Longer-term changes in a currency's value are driven by fundamental factors such as a nation's interest rates and economic growth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-subheading__text"> The Forex Forward Market </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> A forward trade is any trade that settles further in the future than a spot transaction. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardprice.asp">forward price</a> is a combination of the spot rate plus or minus forward points that represent the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest-rate-differential.asp">interest rate differential</a> between the two currencies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outright-forward.asp">forward trades</a> have a maturity of less than a year in the future but a longer term is possible. As in the spot market, the price is set on the transaction date but money is exchanged on the maturity date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardcontract.asp">forward contract</a> is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-subheading__text"> Forex Futures </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Unlike the rest of the foreign exchange market, forex futures are traded on an established exchange, primarily the Chicago Mercantile Exchange. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forexfutures.asp#:~:text=Key%20Takeaways-,Forex%20futures%20are%20exchange%2Dtraded%20currency%20derivative%20contracts%20obligating%20the,main%20uses%20for%20forex%20futures.">Forex futures</a> are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> This type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations. It also is subject to speculative trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <span class="heading-toc" id="toc-example-of-a-forex-trade"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_78-0"> <span class="mntl-sc-block-heading__text"> Example of a Forex Trade </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short</a> €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. This creates a profit for the trader of $5,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> By shorting €100,000, the trader took in $115,000 for the short sale. When the euro fell, and the trader covered the short, it cost the trader only $110,000 to repurchase the currency. The difference between the money received on the short sale and the buy to cover it is the profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Had the euro strengthened versus the dollar, it would have resulted in a loss. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <span class="heading-toc" id="toc-pros-and-cons-of-forex"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-heading__text"> Pros and Cons of Forex </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_86-0"> <span class="mntl-sc-block-subheading__text"> Pros </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> The forex was once the exclusive province of banks and other financial institutions. The internet has blasted the doors wide open. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Entry costs are low and the marketplace is open around the clock. There are many choices of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-forex-trading-4587882">forex trading platforms</a>, including some that cater to beginners. There also are online <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-forex-trading-classes-5094837">forex trading courses</a> that teach the basics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_91-0"> <span class="mntl-sc-block-subheading__text"> Cons </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Those financial institutions and the traders who work for them are still there, alongside the neophytes working from home. They have deep pockets, sophisticated software that tracks currency price movements, and teams of analysts to examine the economic factors that make currency rates move. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> Currency trading is a fast-moving, volatile arena, quickly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/11/international-events-affect-forex.asp">impacted by changes in global events</a>. It's a risky business and can be made riskier by the use of leverage to increase the size of bets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> It's an easy way to lose money fast. Anyone willing to jump into Forex should get the necessary training in advance and start slowly with a minimal stake. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_98-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_99-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros and Cons of Forex</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Accessible to individual investors through online trading platforms.</p></li> <li><p>Open 24 hours a day world-wide.</p></li> <li><p>Relatively light regulation or oversight.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Dominated by professionals and institutions with deep pockets.</p></li> <li><p>Volatile prices subject to sudden swings based on news.</p></li> <li><p>Relatively steep learning curve for newcomers.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <span class="heading-toc" id="toc-forex-terms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_101-0"> <span class="mntl-sc-block-heading__text"> Forex Terms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> There are a number of terms that are used by Forex traders. Here are some of the basics.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> Going long: Buying a currency on the belief that its value will increase in a matter of hours. Then it can be sold for a profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> Going short: Selling a currency on the belief that its value will decrease. It can then be repurchased at a lower price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> Currency pair: Every Forex transaction is an exchange of one currency for another. A currency pair quote looks like this: USD/GBP = $1.15. In this example, the U.S. dollar is the base currency, and the British pound is the quote currency. A trader who wishes to buy British pounds will pay $1.15 for each. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> <strong>The ask</strong>: The price the trader will pay to buy a currency pair. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> <strong>The bid</strong>: The price the trader will pay to sell a currency pair. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> <strong>The spread</strong>: The difference between the buying price and the selling price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_116-0"> <span class="mntl-sc-block-subheading__text"> Major Currency Codes on the Forex </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> Just seven currency pairs represent the majority of trades on the Forex. They are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_119-0"> EUR/USD (Euro/U.S. dollar) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_121-0"> USD/JPY (U.S. dollar/Japanese yen) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_122-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> GBP/USD (British pound/U.S. dollar) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_125-0"> AUD/USD (Australian dollar/U.S. dollar) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> USD/CAD (U.S. dollar/Canadian dollar) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_129-0"> USD/CHF (U.S. dollar/Swiss franc) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> NZD/USD (New Zealand dollar/U.S. dollar)<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_133-0"><span class="heading-toc" id="toc-how-big-is-the-forex-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Big Is the Forex Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The daily trading volume on the forex market dwarfs that of the stock and bond markets.</p><p>According to the latest triennial survey conducted by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bis.asp">Bank for International Settlements</a> (BIS), trading in foreign exchange markets averaged $6.6 trillion per day in 2019.<span class="ql-inline-citation" data-cite="2"></span> By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_135-0"><span class="heading-toc" id="toc-what-is-foreign-exchange-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Foreign Exchange Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When you're making trades in the forex market, you're buying the currency of one nation and simultaneously selling the currency of another nation.</p><p>There's no physical exchange of money. Traders are taking a position in a specific currency, with the hope that it will gain in value relative to the other currency.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_137-0"><span class="heading-toc" id="toc-how-does-the-forex-market-differ-from-other-markets"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the Forex Market Differ From Other Markets?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Forex is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/forex/where-is-central-location-of-forex-market.asp">a decentralized market</a>. It has no physical existence and no owner or management.</p><p>There are no clearing houses or central bodies to oversee the forex. That means traders aren't held to strict standards or regulations, as are seen in the stock, futures, or options markets.</p><p>It also means there are fewer fees and commissions to pay.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_139-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> The forex, or FX, is the global marketplace for the exchange of currencies. As such, it determines the value of one currency against another in the real world. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_142-0"> Forex prices determine the amount of money a traveler gets when exchanging one currency for another. Forex prices also influence global trade, as companies buying or selling across borders must take currency fluctuations into account when determining their costs. Inevitably, the forex has an impact on consumer prices, as global exchange rates increase or lower the prices of imported components. </p></div>

## What Is the Forex or FX? The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another. The forex market is the largest, most liquid market in the world, with [trillions of dollars](https://www.investopedia.com/articles/forex/11/who-trades-forex-and-why.asp) changing hands every day. It has no centralized location, and no government authority oversees it. Rather, the forex is an electronic network of banks, brokerages, institutional investors, and individual traders (mostly trading through brokerages or banks). ### Key Takeaways * The forex is a global marketplace for exchanging national currencies. * Foreign exchange venues comprise the largest securities market in the world by nominal value, with trillions of dollars changing hands each day. * Foreign exchange trading uses currency pairs, priced in terms of one versus the other. * Forwards and futures are another way to participate in the forex market. ![Foreign Exchange (Forex or FX)]() :max_bytes(150000):strip_icc()/Forex_Final_4196203-e44848b06f2642378b12bc162951a818.png) Investopedia / Paige McLaughlin ## Understanding the Forex The Forex market determines the day-to-day value, or the [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp), of most of the world's currencies. If a traveler exchanges dollars for euros at an exchange kiosk or a bank, the number of euros will be based on the current forex rate. If imported French cheese suddenly costs more at the grocery, it may well mean that euros have increased in value against the U.S. dollar in forex trading. Forex traders seek to profit from the continual fluctuations of currency values. For example, a trader may anticipate that the British pound will strengthen in value. The trader will exchange U.S. dollars for British pounds. If the pound then strengthens, the trader can do the transaction in reverse, getting more dollars for the pounds. ### Currency Pairs In forex trading, currencies are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the euro (EUR) versus the USD, and the USD versus the Japanese yen (JPY). There will also be a price associated with each pair, such as 1.2569. If this is the USD/CAD pair, it means that it costs 1.2569 CAD to buy one USD. If the price increases to 1.3336, then it now costs 1.3336 CAD to buy one USD. The USD has increased in value against the CAD, so it now costs more CAD to buy one USD. In the forex market, currencies trade in [lots](https://www.investopedia.com/financial-edge/0412/the-basics-of-currency-trading.aspx), called micro, mini, and standard lots. A [micro lot](https://www.investopedia.com/terms/m/micro-lot.asp) is 1,000 worth of a given currency, a [mini lot](https://www.investopedia.com/terms/m/mini-lot.asp) is 10,000, and a [standard lot](https://www.investopedia.com/terms/s/standard-lot.asp) is 100,000. Trades take place in set blocks of currency. For example, a trader can exchange seven micro lots (7,000), three mini lots (30,000), or 75 standard lots (7,500,000). [Trading volume](https://www.investopedia.com/terms/v/volumeoftrade.asp) in the forex market is generally very large. Trading in the foreign exchange markets averaged $6.6 trillion worth per day in April 2019, according to the Bank for International Settlements.  The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo. ## Trading in the Foreign Exchange Market The Forex market is [open 24 hours a day](https://www.investopedia.com/ask/answers/06/tradingclosedmarket.asp), five days a week around the globe.  Historically, foreign exchange market participation was for governments, large companies, and hedge funds. In today's world, trading currencies is as easy as a click of a mouse and accessibility is not an issue. Many [investment companies](https://www.investopedia.com/terms/i/investmentcompany.asp) allow individuals to [open accounts](https://www.investopedia.com/articles/forex/08/forex-account-type.asp) and trade currencies through their platforms. This is not like a trip to a foreign exchange kiosk. The process is entirely electronic with no physical exchange of money from one hand to another. Rather, [traders](https://www.investopedia.com/terms/t/trader.asp) are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they're buying (or weakness if they're selling) so that they can make a profit.  ## Forex Market vs. Other Markets There are some fundamental differences between foreign exchange and other markets. First of all, there are fewer rules, which means investors aren't held to strict standards or regulations like those in the stock, futures, and [options](https://www.investopedia.com/terms/o/option.asp) markets. There are no [clearing houses](https://www.investopedia.com/terms/c/clearinghouse.asp) and no central bodies that oversee the forex market. Second, since trades don't take place on a traditional exchange, there are fewer fees or [commissions](https://www.investopedia.com/terms/c/commission.asp) like those on other markets. Next, there's no cutoff as to when you can and cannot trade. Because the market is open 24 hours a day, [you can trade at any time](https://www.investopedia.com/articles/forex/11/become-successful-forex-trader.asp). Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford. ## Types of Forex Transactions Forex traders transact in one of three distinct marketplaces: the spot, the forward, or the futures market. To find the best entry and exit point for a trade, they will use a [variety of analysis techniques](https://www.investopedia.com/ask/answers/forex/best-method-of-forex-analysis.asp). ### The Forex Spot Market The spot market is the most straightforward of the Forex markets. The spot rate is the current exchange rate. A transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate. Spot transactions for most currencies are finalized in two business days. The major exception is the U.S. dollar versus the Canadian dollar, which settles on the next business day. The price is established on the trade date, but money is exchanged on the [value date](https://www.investopedia.com/terms/v/valuedate.asp). ### Role of the U.S. Dollar The U.S. dollar is the most actively traded currency. The most common pairs are the USD versus the [euro](https://www.investopedia.com/terms/e/euro.asp), Japanese yen, British pound, and Australian dollar. Trading pairs that do not include the dollar are referred to as crosses. The most common crosses are the euro versus the pound and the euro versus the yen. The spot market can be very volatile. Movement in the [short term](https://www.investopedia.com/terms/s/shortterm.asp) is dominated by technical trading, which bases trading decisions on a currency's direction and speed of movement. Longer-term changes in a currency's value are driven by fundamental factors such as a nation's interest rates and economic growth. ### The Forex Forward Market A forward trade is any trade that settles further in the future than a spot transaction. The [forward price](https://www.investopedia.com/terms/f/forwardprice.asp) is a combination of the spot rate plus or minus forward points that represent the [interest rate differential](https://www.investopedia.com/terms/i/interest-rate-differential.asp) between the two currencies. Most [forward trades](https://www.investopedia.com/terms/o/outright-forward.asp) have a maturity of less than a year in the future but a longer term is possible. As in the spot market, the price is set on the transaction date but money is exchanged on the maturity date. A [forward contract](https://www.investopedia.com/terms/f/forwardcontract.asp) is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries. ### Forex Futures Unlike the rest of the foreign exchange market, forex futures are traded on an established exchange, primarily the Chicago Mercantile Exchange. [Forex futures](https://www.investopedia.com/terms/f/forexfutures.asp#:~:text=Key%20Takeaways-,Forex%20futures%20are%20exchange%2Dtraded%20currency%20derivative%20contracts%20obligating%20the,main%20uses%20for%20forex%20futures.) are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price. This type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations. It also is subject to speculative trading. ## Example of a Forex Trade A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells [short](https://www.investopedia.com/terms/s/short.asp) €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. This creates a profit for the trader of $5,000. By shorting €100,000, the trader took in $115,000 for the short sale. When the euro fell, and the trader covered the short, it cost the trader only $110,000 to repurchase the currency. The difference between the money received on the short sale and the buy to cover it is the profit. Had the euro strengthened versus the dollar, it would have resulted in a loss. ## Pros and Cons of Forex ### Pros The forex was once the exclusive province of banks and other financial institutions. The internet has blasted the doors wide open. Entry costs are low and the marketplace is open around the clock. There are many choices of [forex trading platforms](https://www.investopedia.com/best-brokers-for-forex-trading-4587882), including some that cater to beginners. There also are online [forex trading courses](https://www.investopedia.com/best-online-forex-trading-classes-5094837) that teach the basics. ### Cons Those financial institutions and the traders who work for them are still there, alongside the neophytes working from home. They have deep pockets, sophisticated software that tracks currency price movements, and teams of analysts to examine the economic factors that make currency rates move. Currency trading is a fast-moving, volatile arena, quickly [impacted by changes in global events](https://www.investopedia.com/articles/forex/11/international-events-affect-forex.asp). It's a risky business and can be made riskier by the use of leverage to increase the size of bets. It's an easy way to lose money fast. Anyone willing to jump into Forex should get the necessary training in advance and start slowly with a minimal stake. ### Pros and Cons of Forex Pros * Accessible to individual investors through online trading platforms. * Open 24 hours a day world-wide. * Relatively light regulation or oversight. Cons * Dominated by professionals and institutions with deep pockets. * Volatile prices subject to sudden swings based on news. * Relatively steep learning curve for newcomers. ## Forex Terms There are a number of terms that are used by Forex traders. Here are some of the basics. Going long: Buying a currency on the belief that its value will increase in a matter of hours. Then it can be sold for a profit. Going short: Selling a currency on the belief that its value will decrease. It can then be repurchased at a lower price. Currency pair: Every Forex transaction is an exchange of one currency for another. A currency pair quote looks like this: USD/GBP = $1.15. In this example, the U.S. dollar is the base currency, and the British pound is the quote currency. A trader who wishes to buy British pounds will pay $1.15 for each. **The ask**: The price the trader will pay to buy a currency pair. **The bid**: The price the trader will pay to sell a currency pair. **The spread**: The difference between the buying price and the selling price. ### Major Currency Codes on the Forex Just seven currency pairs represent the majority of trades on the Forex. They are: EUR/USD (Euro/U.S. dollar) USD/JPY (U.S. dollar/Japanese yen) GBP/USD (British pound/U.S. dollar) AUD/USD (Australian dollar/U.S. dollar) USD/CAD (U.S. dollar/Canadian dollar) USD/CHF (U.S. dollar/Swiss franc) NZD/USD (New Zealand dollar/U.S. dollar) ## How Big Is the Forex Market? The daily trading volume on the forex market dwarfs that of the stock and bond markets. According to the latest triennial survey conducted by the [Bank for International Settlements](https://www.investopedia.com/terms/b/bis.asp) (BIS), trading in foreign exchange markets averaged $6.6 trillion per day in 2019. By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion. ## What Is Foreign Exchange Trading? When you're making trades in the forex market, you're buying the currency of one nation and simultaneously selling the currency of another nation. There's no physical exchange of money. Traders are taking a position in a specific currency, with the hope that it will gain in value relative to the other currency. ## How Does the Forex Market Differ From Other Markets? The Forex is [a decentralized market](https://www.investopedia.com/ask/answers/forex/where-is-central-location-of-forex-market.asp). It has no physical existence and no owner or management. There are no clearing houses or central bodies to oversee the forex. That means traders aren't held to strict standards or regulations, as are seen in the stock, futures, or options markets. It also means there are fewer fees and commissions to pay. ## The Bottom Line The forex, or FX, is the global marketplace for the exchange of currencies. As such, it determines the value of one currency against another in the real world. Forex prices determine the amount of money a traveler gets when exchanging one currency for another. Forex prices also influence global trade, as companies buying or selling across borders must take currency fluctuations into account when determining their costs. Inevitably, the forex has an impact on consumer prices, as global exchange rates increase or lower the prices of imported components.

What Is the Forex or FX? The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another. The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day. It has no centralized location, and no government authority oversees it. Rather, the forex is an electronic network of banks, brokerages, institutional investors, and individual traders (mostly trading through brokerages or banks). Key Takeaways The forex is a global marketplace for exchanging national currencies.Foreign exchange venues comprise the largest securities market in the world by nominal value, with trillions of dollars changing hands each day.Foreign exchange trading uses currency pairs, priced in terms of one versus the other.Forwards and futures are another way to participate in the forex market. Investopedia / Paige McLaughlin Understanding the Forex The Forex market determines the day-to-day value, or the exchange rate, of most of the world's currencies. If a traveler exchanges dollars for euros at an exchange kiosk or a bank, the number of euros will be based on the current forex rate. If imported French cheese suddenly costs more at the grocery, it may well mean that euros have increased in value against the U.S. dollar in forex trading. Forex traders seek to profit from the continual fluctuations of currency values. For example, a trader may anticipate that the British pound will strengthen in value. The trader will exchange U.S. dollars for British pounds. If the pound then strengthens, the trader can do the transaction in reverse, getting more dollars for the pounds. Currency Pairs In forex trading, currencies are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the euro (EUR) versus the USD, and the USD versus the Japanese yen (JPY). There will also be a price associated with each pair, such as 1.2569. If this is the USD/CAD pair, it means that it costs 1.2569 CAD to buy one USD. If the price increases to 1.3336, then it now costs 1.3336 CAD to buy one USD. The USD has increased in value against the CAD, so it now costs more CAD to buy one USD. In the forex market, currencies trade in lots, called micro, mini, and standard lots. A micro lot is 1,000 worth of a given currency, a mini lot is 10,000, and a standard lot is 100,000. Trades take place in set blocks of currency. For example, a trader can exchange seven micro lots (7,000), three mini lots (30,000), or 75 standard lots (7,500,000). Trading volume in the forex market is generally very large. Trading in the foreign exchange markets averaged $6.6 trillion worth per day in April 2019, according to the Bank for International Settlements.  The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo. Trading in the Foreign Exchange Market The Forex market is open 24 hours a day, five days a week around the globe.  Historically, foreign exchange market participation was for governments, large companies, and hedge funds. In today's world, trading currencies is as easy as a click of a mouse and accessibility is not an issue. Many investment companies allow individuals to open accounts and trade currencies through their platforms. This is not like a trip to a foreign exchange kiosk. The process is entirely electronic with no physical exchange of money from one hand to another. Rather, traders are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they're buying (or weakness if they're selling) so that they can make a profit.  Forex Market vs. Other Markets There are some fundamental differences between foreign exchange and other markets. First of all, there are fewer rules, which means investors aren't held to strict standards or regulations like those in the stock, futures, and options markets. There are no clearing houses and no central bodies that oversee the forex market. Second, since trades don't take place on a traditional exchange, there are fewer fees or commissions like those on other markets. Next, there's no cutoff as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time. Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford. Types of Forex Transactions Forex traders transact in one of three distinct marketplaces: the spot, the forward, or the futures market. To find the best entry and exit point for a trade, they will use a variety of analysis techniques. The Forex Spot Market The spot market is the most straightforward of the Forex markets. The spot rate is the current exchange rate. A transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate. Spot transactions for most currencies are finalized in two business days. The major exception is the U.S. dollar versus the Canadian dollar, which settles on the next business day. The price is established on the trade date, but money is exchanged on the value date. Role of the U.S. Dollar The U.S. dollar is the most actively traded currency. The most common pairs are the USD versus the euro, Japanese yen, British pound, and Australian dollar. Trading pairs that do not include the dollar are referred to as crosses. The most common crosses are the euro versus the pound and the euro versus the yen. The spot market can be very volatile. Movement in the short term is dominated by technical trading, which bases trading decisions on a currency's direction and speed of movement. Longer-term changes in a currency's value are driven by fundamental factors such as a nation's interest rates and economic growth. The Forex Forward Market A forward trade is any trade that settles further in the future than a spot transaction. The forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies. Most forward trades have a maturity of less than a year in the future but a longer term is possible. As in the spot market, the price is set on the transaction date but money is exchanged on the maturity date. A forward contract is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries. Forex Futures Unlike the rest of the foreign exchange market, forex futures are traded on an established exchange, primarily the Chicago Mercantile Exchange. Forex futures are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price. This type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations. It also is subject to speculative trading. Example of a Forex Trade A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells short €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. This creates a profit for the trader of $5,000. By shorting €100,000, the trader took in $115,000 for the short sale. When the euro fell, and the trader covered the short, it cost the trader only $110,000 to repurchase the currency. The difference between the money received on the short sale and the buy to cover it is the profit. Had the euro strengthened versus the dollar, it would have resulted in a loss. Pros and Cons of Forex Pros The forex was once the exclusive province of banks and other financial institutions. The internet has blasted the doors wide open. Entry costs are low and the marketplace is open around the clock. There are many choices of forex trading platforms, including some that cater to beginners. There also are online forex trading courses that teach the basics. Cons Those financial institutions and the traders who work for them are still there, alongside the neophytes working from home. They have deep pockets, sophisticated software that tracks currency price movements, and teams of analysts to examine the economic factors that make currency rates move. Currency trading is a fast-moving, volatile arena, quickly impacted by changes in global events. It's a risky business and can be made riskier by the use of leverage to increase the size of bets. It's an easy way to lose money fast. Anyone willing to jump into Forex should get the necessary training in advance and start slowly with a minimal stake. Pros and Cons of Forex Pros Accessible to individual investors through online trading platforms. Open 24 hours a day world-wide. Relatively light regulation or oversight. Cons Dominated by professionals and institutions with deep pockets. Volatile prices subject to sudden swings based on news. Relatively steep learning curve for newcomers. Forex Terms There are a number of terms that are used by Forex traders. Here are some of the basics. Going long: Buying a currency on the belief that its value will increase in a matter of hours. Then it can be sold for a profit. Going short: Selling a currency on the belief that its value will decrease. It can then be repurchased at a lower price. Currency pair: Every Forex transaction is an exchange of one currency for another. A currency pair quote looks like this: USD/GBP = $1.15. In this example, the U.S. dollar is the base currency, and the British pound is the quote currency. A trader who wishes to buy British pounds will pay $1.15 for each. The ask: The price the trader will pay to buy a currency pair. The bid: The price the trader will pay to sell a currency pair. The spread: The difference between the buying price and the selling price. Major Currency Codes on the Forex Just seven currency pairs represent the majority of trades on the Forex. They are: EUR/USD (Euro/U.S. dollar) USD/JPY (U.S. dollar/Japanese yen) GBP/USD (British pound/U.S. dollar) AUD/USD (Australian dollar/U.S. dollar) USD/CAD (U.S. dollar/Canadian dollar) USD/CHF (U.S. dollar/Swiss franc) NZD/USD (New Zealand dollar/U.S. dollar) How Big Is the Forex Market? The daily trading volume on the forex market dwarfs that of the stock and bond markets.According to the latest triennial survey conducted by the Bank for International Settlements (BIS), trading in foreign exchange markets averaged $6.6 trillion per day in 2019. By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion. What Is Foreign Exchange Trading? When you're making trades in the forex market, you're buying the currency of one nation and simultaneously selling the currency of another nation.There's no physical exchange of money. Traders are taking a position in a specific currency, with the hope that it will gain in value relative to the other currency. How Does the Forex Market Differ From Other Markets? The Forex is a decentralized market. It has no physical existence and no owner or management.There are no clearing houses or central bodies to oversee the forex. That means traders aren't held to strict standards or regulations, as are seen in the stock, futures, or options markets.It also means there are fewer fees and commissions to pay. The Bottom Line The forex, or FX, is the global marketplace for the exchange of currencies. As such, it determines the value of one currency against another in the real world. Forex prices determine the amount of money a traveler gets when exchanging one currency for another. Forex prices also influence global trade, as companies buying or selling across borders must take currency fluctuations into account when determining their costs. Inevitably, the forex has an impact on consumer prices, as global exchange rates increase or lower the prices of imported components.

https://www.investopedia.com/articles/basics/07/financing-options.asp

The Best Ways To Borrow Money

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Borrowing money can fund a new home, pay for college tuition, or help start a new business. Financing options range from traditional financial institutions, such as banks, credit unions, and financing companies, to peer-to-peer lending (P2P) or a loan from a 401(k) retirement plan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Borrowing money can fund a new home, pay for college tuition, or help start a new business.</li><li>Traditional lenders include banks, credit unions, and financing companies.</li><li>Peer-to-peer (P2P) lending is also known as social lending or crowdlending.</li><li>Borrowers should know the terms and the interest rate and fees of the loan they are considering.</li></ul></div></div></div> <span class="heading-toc" id="toc-banks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Banks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Banks are a traditional source of funds for individuals looking to borrow to fund a new home or college tuition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Banks offer a variety of ways to borrow money, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> products, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loans</a>, auto loans, and construction loans. They also offer opportunities to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance</a> an existing loan at a more favorable rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Although banks may <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/3_6_3_rule.asp">pay little interest on deposited funds</a> they take in, they charge a higher interest rate on the funds they disperse as loans. This <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp">spread</a> is essentially how banks earn money.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Consumers often have a relationship and an account with a bank, and personnel are usually on hand at the local branch to answer questions and help with paperwork. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> However, banks tend to have high costs associated with loan applications or servicing fees. Banks may also resell loans to other banks or financing companies, and this may mean that fees, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">interest rates</a>, and procedures may change, often with little notice. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_17-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing From a Bank</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Banks are well-established sources of consumer loans.</p></li> <li><p>Consumers often have a relationship with a bank, making it somewhat easier to apply.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Banks may resell your loan to another institution.</p></li> <li><p>Fees can be high for loan applications or servicing.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-credit-unions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Credit Unions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit union</a> is a cooperative institution controlled by its members, those who are part of a particular group, organization, or community. Credit unions offer many of the same services as banks but may limit services to members only. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> They are typically <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-profitorganization.asp">nonprofit enterprises</a>, which enables them to lend money at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/1211/6-benefits-of-using-a-credit-union.aspx">more favorable rates</a> or on more generous terms than commercial financial institutions, and certain fees or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan-application-fee.asp">loan application fees</a> may be cheaper or even nonexistent.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Credit union membership was once limited to people who shared a "common bond" and were employees of the same company or members of a particular community, labor union, or other association. That's less true today, although membership requirements remain.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_27-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing From a Credit Union</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Credit unions are nonprofit institutions and may charge less than a regular bank.</p></li> <li><p>Fees and interest rates may also be more favorable.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Credit unions may offer fewer loan products than a larger institution might offer.</p></li> <li><p>Credit unions may have membership requirements in order to apply.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-peer-to-peer-lending-p2p"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Peer-to-Peer Lending (P2P) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer-to-peer-lending.asp#ixzz530mA9Jof">Peer-to-peer (P2P) lending</a>, also known as social lending or crowdlending, is a method of financing that enables individuals to borrow from and lend money to each other directly.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> With peer-to-peer lending, borrowers receive financing from individual investors who are willing to lend their own money for an agreed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/100314/what-difference-between-interest-rate-and-annual-percentage-rate-apr.asp">interest rate</a>, perhaps via a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092315/7-best-peertopeer-lending-websites.asp">peer-to-peer online platform</a>. On these sites, investors can assess borrowers to determine whether to extend a loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> A borrower may receive the full amount or only a portion of a loan, and it may be funded by one or more investors in the peer lending marketplace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> For lenders, the loans generate income in the form of interest. P2P loans represent an alternative source of financing, especially for borrowers who are unable to get approval from traditional sources. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_39-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Peer-to-Peer Lending</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Borrowers might be able to get a P2P loan even if they don't qualify for other sources of credit.</p></li> <li><p>Loan interest may be lower than traditional lenders.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>P2P lending sites may have complex fee structures that borrowers need to read carefully.</p></li> <li><p>Borrowers may end up owing money to multiple lenders rather than a single creditor.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-401k-plans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> 401(k) Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plans</a> and comparable workplace-based retirement accounts, such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/403bplan.asp">403(b)</a> or<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/457plan.asp"> 457 plan</a>, allow employees to take out a plan loan against the funds being saved. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Most 401(k)s allow loans up to 50% of the funds vested in the account, to a limit of $50,000, and for up to five years.<span class="ql-inline-citation" data-cite="11"></span> Because the funds aren't withdrawn, only borrowed, the loan is tax-free, and payments include both principal and interest.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Unlike a traditional loan, the interest doesn't go to the bank or another commercial lender, it is repaid to the borrower. If payments aren't made as required or are stopped completely, the IRS may consider the borrower in default, and the loan will be reclassified as a distribution with taxes and penalties due on it. A permanent withdrawal from a 401(k) incurs taxes and a 10% penalty if the account holder is under 59.5 years old.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_48-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_49-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing From a 401(k) Plan</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>No application or underwriting fees.</p></li> <li><p>Interest goes back to the borrower's account, effectively making it a loan to themselves.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>There may be tax implications for borrowing against your 401(k)</p></li> <li><p>This will also reduce the amount of money you have when you retire.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-credit-cards"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> Credit Cards </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Using a credit card is just like borrowing money. The credit card company pays the merchant, essentially advancing a loan. When a credit card is used to withdraw cash. It's called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashadvance.asp">cash advance</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> A cash advance on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> incurs no application fees and for those who pay off their entire balance at the end of every month, credit cards can be a source of loans at a 0% interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> However, if a balance is carried over, credit cards can carry exorbitant <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> charges, often higher than 20% annually. Also, credit card companies usually will only lend or extend a relatively small amount of money or credit to an individual, so large purchases can't be financed this way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_59-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing Through Credit Cards</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>No application fees.</p></li> <li><p>No interest, provided you can pay off your advances every month.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Extremely high interest rates if a balance is allowed to compound.</p></li> <li><p>May reduce your credit score of you borrow too much.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-margin-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Margin Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp">Margin accounts</a> allow a brokerage customer to borrow money to invest in securities. The funds or equity in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage account</a> are often used as collateral for this loan (see video below).<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> The interest rates charged by margin accounts are usually better than or consistent with other sources of funding. In addition, if a margin account is already maintained and the customer has an ample amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> in the account, a loan is easy to initiate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Margin accounts are primarily used to make investments and aren't a source of funding for longer-term financing. An individual with enough equity can use margin loans to purchase everything from a car to a new home, but if the value of the securities in the account declines, the brokerage firm may require the individual to add <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/additional-collateral.asp">additional collateral</a> on short notice or risk the sale of the investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_68-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_69-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing Through Margin Accounts</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Better interest rates than other sources.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Borrower may have to provide additional collateral if the price declines.</p></li> <li><p>Losses may be higher in the event of a downturn.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <span class="heading-toc" id="toc-public-agencies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-heading__text"> Public Agencies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> The U.S. government or entities sponsored or chartered by the government can be a source of funds. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/fannie-mae-loans/">Fannie Mae</a> is a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quasi_public_corporation.asp">quasi-public agency</a> that has worked to increase the availability and affordability of homeownership over the years.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The government or the sponsored entity allows borrowers to repay loans over an extended period. In addition, interest rates charged are usually favorable compared with private sources of funding. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> The paperwork to obtain a loan from this type of agency can be daunting, and not everyone qualifies for government loans, which often require restricted income levels and asset requirements.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_78-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_79-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing From the Government</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Better interest rates than private lenders.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Borrower may have to meet certain income requirements.</p></li> <li><p>Applications may also be more complicated than a traditional loan application.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <span class="heading-toc" id="toc-finance-companies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-heading__text"> Finance Companies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Finance companies are private companies dedicated to lending money. They usually provide loans to purchase big-ticket goods or services, such as a car, major appliances, or furniture. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Most financing companies specialize in short-term loans and are often associated with particular carmakers, like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/toyota-sets-new-records-for-global-output-sales-8384271">Toyota</a> or General Motors, which provide auto loans or auto leases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Financing companies usually offer competitive rates, depending on a borrower's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> and financial history. The approval process is usually completed fairly quickly and often at the retailer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Finance companies aren't subject to federal oversight and are licensed and regulated by the state in which they operate.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_90-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_91-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Borrowing From a Finance Company</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Interest rates are usually competitive.</p></li> <li><p>Fees may be lower than traditional lenders.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Lower level of customer service.</p></li> <li><p>Less regulated than banks and other lenders.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_93-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Sources for Borrowing Money" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/gdjTMdci_wwnGxW3EwbmZyTSJKg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gdjTMdci_wwnGxW3EwbmZyTSJKg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png" data-srcset="https://www.investopedia.com/thmb/xSaJ3A12kFBuecU8SMYeZYZYfO8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Sources for Borrowing Money" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/gdjTMdci_wwnGxW3EwbmZyTSJKg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png" srcset="https://www.investopedia.com/thmb/xSaJ3A12kFBuecU8SMYeZYZYfO8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Ellen Lindner</p></span> </figcaption></figure> <span class="heading-toc" id="toc-tips-on-borrowing-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_94-0"> <span class="mntl-sc-block-heading__text"> Tips on Borrowing Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> Before borrowing money, it's important to note the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> <li>Understand the interest rate that each lender charges, as higher interest rates mean paying more for the money that is borrowed.</li> <li>Know the loan repayment terms, the length of time to repay the loan, and any other specific rules of repayment.</li> <li>Fees may be charged in addition to the interest rate and may include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fees</a>, application fees, or late fees.</li> <li>Know if the loan is secured or unsecured. If collateral secures the loan, such as a home, it can be forfeited to the lender or face foreclosure if there is a default on payments.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_99-0"><span class="heading-toc" id="toc-what-borrowing-methods-are-best-to-avoid"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Borrowing Methods Are Best To Avoid?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A payday loan is a short-term loan that’s meant to be repaid with your next paycheck. However, these loans are extremely costly, up to $15 for every $100 borrowed, which amounts to an APR of 391% for a two-week loan. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp">High-interest installment loans</a> are repaid over a few weeks to months and have interest rates above 36%, the maximum rate that most consumer advocates consider affordable.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_101-0"><span class="heading-toc" id="toc-what-are-common-types-of-borrowing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Common Types of Borrowing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most loans <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-secured-personal-loans-5114143">are either secured</a> (i.e., backed by an asset) or unsecured (i.e., without collateral). Common types of loans include mortgage loans, personal loans, student loans, credit card advances, and retail financing loans.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_103-0"><span class="heading-toc" id="toc-what-are-the-advantages-of-borrowing-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Advantages of Borrowing Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Borrowing money allows consumers to obtain big-ticket items like a home or a car. Borrowing can also be a way to establish a credit history or improve a credit score. Handling debt responsibly can make it easier to borrow money in the future.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_105-0"><span class="heading-toc" id="toc-what-is-considered-a-good-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Considered a Good Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Credit scores range from 300 to 850 and are a rating that measures an individual's likelihood to repay a debt. A higher credit score means that a borrower is lower risk to a lender and more likely to make on-time payments. A credit score of 700 or above is generally considered good and 800 or above is considered excellent.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_107-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> Banks, credit unions, and finance companies are traditional institutions that offer loans. Government agencies, credit cards, and investment accounts can serve as sources for borrowed funds as well. When considering a loan, it is important to know the terms of the loan, the interest rate, and fees for borrowing. </p></div>

Borrowing money can fund a new home, pay for college tuition, or help start a new business. Financing options range from traditional financial institutions, such as banks, credit unions, and financing companies, to peer-to-peer lending (P2P) or a loan from a 401(k) retirement plan. ### Key Takeaways * Borrowing money can fund a new home, pay for college tuition, or help start a new business. * Traditional lenders include banks, credit unions, and financing companies. * Peer-to-peer (P2P) lending is also known as social lending or crowdlending. * Borrowers should know the terms and the interest rate and fees of the loan they are considering. ## Banks Banks are a traditional source of funds for individuals looking to borrow to fund a new home or college tuition. Banks offer a variety of ways to borrow money, including [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) products, [personal loans](https://www.investopedia.com/best-personal-loans-4773300), auto loans, and construction loans. They also offer opportunities to [refinance](https://www.investopedia.com/terms/r/refinance.asp) an existing loan at a more favorable rate. ### Although banks may [pay little interest on deposited funds](https://www.investopedia.com/terms/1/3_6_3_rule.asp) they take in, they charge a higher interest rate on the funds they disperse as loans. This [spread](https://www.investopedia.com/terms/s/spread.asp) is essentially how banks earn money. Consumers often have a relationship and an account with a bank, and personnel are usually on hand at the local branch to answer questions and help with paperwork. However, banks tend to have high costs associated with loan applications or servicing fees. Banks may also resell loans to other banks or financing companies, and this may mean that fees, [interest rates](https://www.investopedia.com/personal-loan-calculator-5082130), and procedures may change, often with little notice. ### Borrowing From a Bank Pros * Banks are well-established sources of consumer loans. * Consumers often have a relationship with a bank, making it somewhat easier to apply. Cons * Banks may resell your loan to another institution. * Fees can be high for loan applications or servicing. ## Credit Unions A [credit union](https://www.investopedia.com/terms/c/creditunion.asp) is a cooperative institution controlled by its members, those who are part of a particular group, organization, or community. Credit unions offer many of the same services as banks but may limit services to members only. They are typically [nonprofit enterprises](https://www.investopedia.com/terms/n/non-profitorganization.asp), which enables them to lend money at [more favorable rates](https://www.investopedia.com/financial-edge/1211/6-benefits-of-using-a-credit-union.aspx) or on more generous terms than commercial financial institutions, and certain fees or [loan application fees](https://www.investopedia.com/terms/l/loan-application-fee.asp) may be cheaper or even nonexistent. ### Credit union membership was once limited to people who shared a "common bond" and were employees of the same company or members of a particular community, labor union, or other association. That's less true today, although membership requirements remain. ### Borrowing From a Credit Union Pros * Credit unions are nonprofit institutions and may charge less than a regular bank. * Fees and interest rates may also be more favorable. Cons * Credit unions may offer fewer loan products than a larger institution might offer. * Credit unions may have membership requirements in order to apply. ## Peer-to-Peer Lending (P2P) [Peer-to-peer (P2P) lending](https://www.investopedia.com/terms/p/peer-to-peer-lending.asp#ixzz530mA9Jof), also known as social lending or crowdlending, is a method of financing that enables individuals to borrow from and lend money to each other directly. With peer-to-peer lending, borrowers receive financing from individual investors who are willing to lend their own money for an agreed [interest rate](https://www.investopedia.com/ask/answers/100314/what-difference-between-interest-rate-and-annual-percentage-rate-apr.asp), perhaps via a [peer-to-peer online platform](https://www.investopedia.com/articles/investing/092315/7-best-peertopeer-lending-websites.asp). On these sites, investors can assess borrowers to determine whether to extend a loan. A borrower may receive the full amount or only a portion of a loan, and it may be funded by one or more investors in the peer lending marketplace. For lenders, the loans generate income in the form of interest. P2P loans represent an alternative source of financing, especially for borrowers who are unable to get approval from traditional sources. ### Peer-to-Peer Lending Pros * Borrowers might be able to get a P2P loan even if they don't qualify for other sources of credit. * Loan interest may be lower than traditional lenders. Cons * P2P lending sites may have complex fee structures that borrowers need to read carefully. * Borrowers may end up owing money to multiple lenders rather than a single creditor. ## 401(k) Plans Most [401(k) plans](https://www.investopedia.com/terms/1/401kplan.asp) and comparable workplace-based retirement accounts, such as a [403(b)](https://www.investopedia.com/terms/1/403bplan.asp) or[457 plan](https://www.investopedia.com/terms/1/457plan.asp), allow employees to take out a plan loan against the funds being saved. Most 401(k)s allow loans up to 50% of the funds vested in the account, to a limit of $50,000, and for up to five years. Because the funds aren't withdrawn, only borrowed, the loan is tax-free, and payments include both principal and interest. Unlike a traditional loan, the interest doesn't go to the bank or another commercial lender, it is repaid to the borrower. If payments aren't made as required or are stopped completely, the IRS may consider the borrower in default, and the loan will be reclassified as a distribution with taxes and penalties due on it. A permanent withdrawal from a 401(k) incurs taxes and a 10% penalty if the account holder is under 59.5 years old. ### Borrowing From a 401(k) Plan Pros * No application or underwriting fees. * Interest goes back to the borrower's account, effectively making it a loan to themselves. Cons * There may be tax implications for borrowing against your 401(k) * This will also reduce the amount of money you have when you retire. ## Credit Cards Using a credit card is just like borrowing money. The credit card company pays the merchant, essentially advancing a loan. When a credit card is used to withdraw cash. It's called a [cash advance](https://www.investopedia.com/terms/c/cashadvance.asp). A cash advance on a [credit card](https://www.investopedia.com/terms/c/creditcard.asp) incurs no application fees and for those who pay off their entire balance at the end of every month, credit cards can be a source of loans at a 0% interest rate. However, if a balance is carried over, credit cards can carry exorbitant [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) charges, often higher than 20% annually. Also, credit card companies usually will only lend or extend a relatively small amount of money or credit to an individual, so large purchases can't be financed this way. ### Borrowing Through Credit Cards Pros * No application fees. * No interest, provided you can pay off your advances every month. Cons * Extremely high interest rates if a balance is allowed to compound. * May reduce your credit score of you borrow too much. ## Margin Accounts [Margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp) allow a brokerage customer to borrow money to invest in securities. The funds or equity in the [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) are often used as collateral for this loan (see video below). The interest rates charged by margin accounts are usually better than or consistent with other sources of funding. In addition, if a margin account is already maintained and the customer has an ample amount of [equity](https://www.investopedia.com/terms/e/equity.asp) in the account, a loan is easy to initiate. Margin accounts are primarily used to make investments and aren't a source of funding for longer-term financing. An individual with enough equity can use margin loans to purchase everything from a car to a new home, but if the value of the securities in the account declines, the brokerage firm may require the individual to add [additional collateral](https://www.investopedia.com/terms/a/additional-collateral.asp) on short notice or risk the sale of the investments. ### Borrowing Through Margin Accounts Pros * Better interest rates than other sources. Cons * Borrower may have to provide additional collateral if the price declines. * Losses may be higher in the event of a downturn. ## Public Agencies The U.S. government or entities sponsored or chartered by the government can be a source of funds. [Fannie Mae](https://www.investopedia.com/mortgage/fannie-mae-loans/) is a [quasi-public agency](https://www.investopedia.com/terms/q/quasi_public_corporation.asp) that has worked to increase the availability and affordability of homeownership over the years. The government or the sponsored entity allows borrowers to repay loans over an extended period. In addition, interest rates charged are usually favorable compared with private sources of funding. The paperwork to obtain a loan from this type of agency can be daunting, and not everyone qualifies for government loans, which often require restricted income levels and asset requirements. ### Borrowing From the Government Pros * Better interest rates than private lenders. Cons * Borrower may have to meet certain income requirements. * Applications may also be more complicated than a traditional loan application. ## Finance Companies Finance companies are private companies dedicated to lending money. They usually provide loans to purchase big-ticket goods or services, such as a car, major appliances, or furniture. Most financing companies specialize in short-term loans and are often associated with particular carmakers, like [Toyota](https://www.investopedia.com/toyota-sets-new-records-for-global-output-sales-8384271) or General Motors, which provide auto loans or auto leases. Financing companies usually offer competitive rates, depending on a borrower's [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and financial history. The approval process is usually completed fairly quickly and often at the retailer. Finance companies aren't subject to federal oversight and are licensed and regulated by the state in which they operate. ### Borrowing From a Finance Company Pros * Interest rates are usually competitive. * Fees may be lower than traditional lenders. Cons * Lower level of customer service. * Less regulated than banks and other lenders. ![Sources for Borrowing Money]() :max_bytes(150000):strip_icc()/financing-options.asp_final-dd2cfe64477f48ad8e16969fd6697983.png) Investopedia / Ellen Lindner ## Tips on Borrowing Money Before borrowing money, it's important to note the following: * Understand the interest rate that each lender charges, as higher interest rates mean paying more for the money that is borrowed. * Know the loan repayment terms, the length of time to repay the loan, and any other specific rules of repayment. * Fees may be charged in addition to the interest rate and may include [origination fees](https://www.investopedia.com/terms/o/origination-fee.asp), application fees, or late fees. * Know if the loan is secured or unsecured. If collateral secures the loan, such as a home, it can be forfeited to the lender or face foreclosure if there is a default on payments. ## What Borrowing Methods Are Best To Avoid? A payday loan is a short-term loan that’s meant to be repaid with your next paycheck. However, these loans are extremely costly, up to $15 for every $100 borrowed, which amounts to an APR of 391% for a two-week loan. [High-interest installment loans](https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp) are repaid over a few weeks to months and have interest rates above 36%, the maximum rate that most consumer advocates consider affordable. ## What Are Common Types of Borrowing? Most loans [are either secured](https://www.investopedia.com/best-secured-personal-loans-5114143) (i.e., backed by an asset) or unsecured (i.e., without collateral). Common types of loans include mortgage loans, personal loans, student loans, credit card advances, and retail financing loans. ## What Are the Advantages of Borrowing Money? Borrowing money allows consumers to obtain big-ticket items like a home or a car. Borrowing can also be a way to establish a credit history or improve a credit score. Handling debt responsibly can make it easier to borrow money in the future. ## What Is Considered a Good Credit Score? Credit scores range from 300 to 850 and are a rating that measures an individual's likelihood to repay a debt. A higher credit score means that a borrower is lower risk to a lender and more likely to make on-time payments. A credit score of 700 or above is generally considered good and 800 or above is considered excellent. ## The Bottom Line Banks, credit unions, and finance companies are traditional institutions that offer loans. Government agencies, credit cards, and investment accounts can serve as sources for borrowed funds as well. When considering a loan, it is important to know the terms of the loan, the interest rate, and fees for borrowing.

Borrowing money can fund a new home, pay for college tuition, or help start a new business. Financing options range from traditional financial institutions, such as banks, credit unions, and financing companies, to peer-to-peer lending (P2P) or a loan from a 401(k) retirement plan. Key Takeaways Borrowing money can fund a new home, pay for college tuition, or help start a new business.Traditional lenders include banks, credit unions, and financing companies.Peer-to-peer (P2P) lending is also known as social lending or crowdlending.Borrowers should know the terms and the interest rate and fees of the loan they are considering. Banks Banks are a traditional source of funds for individuals looking to borrow to fund a new home or college tuition. Banks offer a variety of ways to borrow money, including mortgage products, personal loans, auto loans, and construction loans. They also offer opportunities to refinance an existing loan at a more favorable rate. Although banks may pay little interest on deposited funds they take in, they charge a higher interest rate on the funds they disperse as loans. This spread is essentially how banks earn money. Consumers often have a relationship and an account with a bank, and personnel are usually on hand at the local branch to answer questions and help with paperwork. However, banks tend to have high costs associated with loan applications or servicing fees. Banks may also resell loans to other banks or financing companies, and this may mean that fees, interest rates, and procedures may change, often with little notice. Borrowing From a Bank Pros Banks are well-established sources of consumer loans. Consumers often have a relationship with a bank, making it somewhat easier to apply. Cons Banks may resell your loan to another institution. Fees can be high for loan applications or servicing. Credit Unions A credit union is a cooperative institution controlled by its members, those who are part of a particular group, organization, or community. Credit unions offer many of the same services as banks but may limit services to members only. They are typically nonprofit enterprises, which enables them to lend money at more favorable rates or on more generous terms than commercial financial institutions, and certain fees or loan application fees may be cheaper or even nonexistent. Credit union membership was once limited to people who shared a "common bond" and were employees of the same company or members of a particular community, labor union, or other association. That's less true today, although membership requirements remain. Borrowing From a Credit Union Pros Credit unions are nonprofit institutions and may charge less than a regular bank. Fees and interest rates may also be more favorable. Cons Credit unions may offer fewer loan products than a larger institution might offer. Credit unions may have membership requirements in order to apply. Peer-to-Peer Lending (P2P) Peer-to-peer (P2P) lending, also known as social lending or crowdlending, is a method of financing that enables individuals to borrow from and lend money to each other directly. With peer-to-peer lending, borrowers receive financing from individual investors who are willing to lend their own money for an agreed interest rate, perhaps via a peer-to-peer online platform. On these sites, investors can assess borrowers to determine whether to extend a loan. A borrower may receive the full amount or only a portion of a loan, and it may be funded by one or more investors in the peer lending marketplace. For lenders, the loans generate income in the form of interest. P2P loans represent an alternative source of financing, especially for borrowers who are unable to get approval from traditional sources. Peer-to-Peer Lending Pros Borrowers might be able to get a P2P loan even if they don't qualify for other sources of credit. Loan interest may be lower than traditional lenders. Cons P2P lending sites may have complex fee structures that borrowers need to read carefully. Borrowers may end up owing money to multiple lenders rather than a single creditor. 401(k) Plans Most 401(k) plans and comparable workplace-based retirement accounts, such as a 403(b) or 457 plan, allow employees to take out a plan loan against the funds being saved. Most 401(k)s allow loans up to 50% of the funds vested in the account, to a limit of $50,000, and for up to five years. Because the funds aren't withdrawn, only borrowed, the loan is tax-free, and payments include both principal and interest. Unlike a traditional loan, the interest doesn't go to the bank or another commercial lender, it is repaid to the borrower. If payments aren't made as required or are stopped completely, the IRS may consider the borrower in default, and the loan will be reclassified as a distribution with taxes and penalties due on it. A permanent withdrawal from a 401(k) incurs taxes and a 10% penalty if the account holder is under 59.5 years old. Borrowing From a 401(k) Plan Pros No application or underwriting fees. Interest goes back to the borrower's account, effectively making it a loan to themselves. Cons There may be tax implications for borrowing against your 401(k) This will also reduce the amount of money you have when you retire. Credit Cards Using a credit card is just like borrowing money. The credit card company pays the merchant, essentially advancing a loan. When a credit card is used to withdraw cash. It's called a cash advance. A cash advance on a credit card incurs no application fees and for those who pay off their entire balance at the end of every month, credit cards can be a source of loans at a 0% interest rate. However, if a balance is carried over, credit cards can carry exorbitant interest rate charges, often higher than 20% annually. Also, credit card companies usually will only lend or extend a relatively small amount of money or credit to an individual, so large purchases can't be financed this way. Borrowing Through Credit Cards Pros No application fees. No interest, provided you can pay off your advances every month. Cons Extremely high interest rates if a balance is allowed to compound. May reduce your credit score of you borrow too much. Margin Accounts Margin accounts allow a brokerage customer to borrow money to invest in securities. The funds or equity in the brokerage account are often used as collateral for this loan (see video below). The interest rates charged by margin accounts are usually better than or consistent with other sources of funding. In addition, if a margin account is already maintained and the customer has an ample amount of equity in the account, a loan is easy to initiate. Margin accounts are primarily used to make investments and aren't a source of funding for longer-term financing. An individual with enough equity can use margin loans to purchase everything from a car to a new home, but if the value of the securities in the account declines, the brokerage firm may require the individual to add additional collateral on short notice or risk the sale of the investments. Borrowing Through Margin Accounts Pros Better interest rates than other sources. Cons Borrower may have to provide additional collateral if the price declines. Losses may be higher in the event of a downturn. Public Agencies The U.S. government or entities sponsored or chartered by the government can be a source of funds. Fannie Mae is a quasi-public agency that has worked to increase the availability and affordability of homeownership over the years. The government or the sponsored entity allows borrowers to repay loans over an extended period. In addition, interest rates charged are usually favorable compared with private sources of funding. The paperwork to obtain a loan from this type of agency can be daunting, and not everyone qualifies for government loans, which often require restricted income levels and asset requirements. Borrowing From the Government Pros Better interest rates than private lenders. Cons Borrower may have to meet certain income requirements. Applications may also be more complicated than a traditional loan application. Finance Companies Finance companies are private companies dedicated to lending money. They usually provide loans to purchase big-ticket goods or services, such as a car, major appliances, or furniture. Most financing companies specialize in short-term loans and are often associated with particular carmakers, like Toyota or General Motors, which provide auto loans or auto leases. Financing companies usually offer competitive rates, depending on a borrower's credit score and financial history. The approval process is usually completed fairly quickly and often at the retailer. Finance companies aren't subject to federal oversight and are licensed and regulated by the state in which they operate. Borrowing From a Finance Company Pros Interest rates are usually competitive. Fees may be lower than traditional lenders. Cons Lower level of customer service. Less regulated than banks and other lenders. Investopedia / Ellen Lindner Tips on Borrowing Money Before borrowing money, it's important to note the following: Understand the interest rate that each lender charges, as higher interest rates mean paying more for the money that is borrowed. Know the loan repayment terms, the length of time to repay the loan, and any other specific rules of repayment. Fees may be charged in addition to the interest rate and may include origination fees, application fees, or late fees. Know if the loan is secured or unsecured. If collateral secures the loan, such as a home, it can be forfeited to the lender or face foreclosure if there is a default on payments. What Borrowing Methods Are Best To Avoid? A payday loan is a short-term loan that’s meant to be repaid with your next paycheck. However, these loans are extremely costly, up to $15 for every $100 borrowed, which amounts to an APR of 391% for a two-week loan. High-interest installment loans are repaid over a few weeks to months and have interest rates above 36%, the maximum rate that most consumer advocates consider affordable. What Are Common Types of Borrowing? Most loans are either secured (i.e., backed by an asset) or unsecured (i.e., without collateral). Common types of loans include mortgage loans, personal loans, student loans, credit card advances, and retail financing loans. What Are the Advantages of Borrowing Money? Borrowing money allows consumers to obtain big-ticket items like a home or a car. Borrowing can also be a way to establish a credit history or improve a credit score. Handling debt responsibly can make it easier to borrow money in the future. What Is Considered a Good Credit Score? Credit scores range from 300 to 850 and are a rating that measures an individual's likelihood to repay a debt. A higher credit score means that a borrower is lower risk to a lender and more likely to make on-time payments. A credit score of 700 or above is generally considered good and 800 or above is considered excellent. The Bottom Line Banks, credit unions, and finance companies are traditional institutions that offer loans. Government agencies, credit cards, and investment accounts can serve as sources for borrowed funds as well. When considering a loan, it is important to know the terms of the loan, the interest rate, and fees for borrowing.

https://www.investopedia.com/terms/1/48-hour-rule.asp

48-Hour Rule: What It is, How It Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-48-hour-rule"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the 48-Hour Rule? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The 48-hour rule is a requirement that sellers of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tba.asp" rel="noopener noreferrer">to-be-announced</a> (TBA) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp" rel="noopener noreferrer">mortgage-backed securities</a> (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sifma.asp" rel="noopener noreferrer">Securities Industry and Financial Markets Association</a> (SIFMA) enforces this rule. SIFMA was formerly known as the Public Securities Association or Bond Market Association. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The 48-hour rule refers to a part of the mortgage allocation process related to the buying and selling of to-be-announced (TBA) mortgage-backed securities (MBS).</li><li>The 48-hour rule stipulates that the seller of an MBS notifies the buyer with the details of the underlying mortgages that make up the MBS by 3 p.m. Eastern Time, 48 hours before the settlement date.</li><li>The Securities Industry and Financial Markets Association (SIFMA) enforces the 48-hour rule.</li><li>When an MBS is traded in the secondary market, the underlying mortgages are not known, which helps facilitate trading and liquidity.</li><li>Certain information is agreed upon when an MBS trade is made, such as the price, par, and coupon, but not the underlying mortgages.</li><li>The TBA market is the second most traded secondary market after the U.S. Treasury market.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-48-hour-rule"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding the 48-Hour Rule </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> An MBS is a bond that is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secureddebt.asp" rel="noopener noreferrer">secured</a>, or backed, by mortgage loans. Loans with similar traits are grouped to form a pool. The pool is then sold as a security to investors. The issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages. Investors receive interest payments monthly rather than semiannually. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A to-be-announced (TBA) trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools, or the exact amount involved in the transaction, which means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. This interchangeability helps facilitate trading and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp" rel="noopener noreferrer">liquidity</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The 48-hour rule is part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage_allocations.asp" rel="noopener noreferrer">mortgage allocation</a> process, the period when the underlying mortgages will be assigned and made available to a specific MBS, which was created to bring transparency to TBA trade settlements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The 48-hour rule states that the seller of a specific MBS must make the buyer of that MBS aware of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp" rel="noopener noreferrer">mortgages</a> that make up the MBS 48 hours prior to the trade settling. Because of the standard T+3 settlement date, this usually occurs on the day after the trade is executed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-the-48-hour-rule-as-part-of-the-tba-process"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> The 48-Hour Rule as Part of the TBA Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The TBA process benefits buyers and sellers because it increases the liquidity of the MBS market by taking thousands of different mortgage-backed securities with different characteristics and trading them through a handful of contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp" rel="noopener noreferrer">maturity</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp" rel="noopener noreferrer">coupon</a>, price, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp" rel="noopener noreferrer">par</a> amount, and settlement date. The specific securities involved in the trade are announced 48 hours before the settlement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The TBA market was established in the 1970s to facilitate the trading of MBS issued by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp" rel="noopener noreferrer">Fannie Mae, Freddie Mac</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/ginniemae.asp" rel="noopener noreferrer">Ginnie Mae</a>. It allows mortgage lenders to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp" rel="noopener noreferrer">hedge</a> their origination pipelines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The TBA market is the most liquid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondarymarket.asp" rel="noopener noreferrer">secondary market</a> for mortgage loans, resulting in high levels of market activity. In fact, the amount of money traded on the TBA market is second only to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp" rel="noopener noreferrer">U.S. Treasury</a> market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-example-of-the-48-hour-rule"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Example of the 48-Hour Rule </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Company ABC decides to sell a mortgage-backed security (MBS) to Company XYZ and Company XYZ accepts. The sale will take place on Tuesday. On Tuesday, when the sale is made, neither Company ABC nor Company XYZ knows the underlying mortgages that make up the mortgage-backed security (MBS). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The standard industry settlement is T+3 days, meaning this trade will settle on Friday. According to the 48-hour rule, on Wednesday before 3 p.m. Eastern Time, Company ABC will have to notify Company XYZ of the mortgage allocations it will receive when the trade settles. </p></div>

## What Is the 48-Hour Rule? The 48-hour rule is a requirement that sellers of [to-be-announced](https://www.investopedia.com/terms/t/tba.asp) (TBA) [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The [Securities Industry and Financial Markets Association](https://www.investopedia.com/terms/s/sifma.asp) (SIFMA) enforces this rule. SIFMA was formerly known as the Public Securities Association or Bond Market Association. ### Key Takeaways * The 48-hour rule refers to a part of the mortgage allocation process related to the buying and selling of to-be-announced (TBA) mortgage-backed securities (MBS). * The 48-hour rule stipulates that the seller of an MBS notifies the buyer with the details of the underlying mortgages that make up the MBS by 3 p.m. Eastern Time, 48 hours before the settlement date. * The Securities Industry and Financial Markets Association (SIFMA) enforces the 48-hour rule. * When an MBS is traded in the secondary market, the underlying mortgages are not known, which helps facilitate trading and liquidity. * Certain information is agreed upon when an MBS trade is made, such as the price, par, and coupon, but not the underlying mortgages. * The TBA market is the second most traded secondary market after the U.S. Treasury market. ## Understanding the 48-Hour Rule An MBS is a bond that is [secured](https://www.investopedia.com/terms/s/secureddebt.asp), or backed, by mortgage loans. Loans with similar traits are grouped to form a pool. The pool is then sold as a security to investors. The issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages. Investors receive interest payments monthly rather than semiannually. A to-be-announced (TBA) trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools, or the exact amount involved in the transaction, which means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. This interchangeability helps facilitate trading and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). The 48-hour rule is part of the [mortgage allocation](https://www.investopedia.com/terms/m/mortgage_allocations.asp) process, the period when the underlying mortgages will be assigned and made available to a specific MBS, which was created to bring transparency to TBA trade settlements. The 48-hour rule states that the seller of a specific MBS must make the buyer of that MBS aware of the [mortgages](https://www.investopedia.com/terms/m/mortgage.asp) that make up the MBS 48 hours prior to the trade settling. Because of the standard T+3 settlement date, this usually occurs on the day after the trade is executed. ## The 48-Hour Rule as Part of the TBA Process The TBA process benefits buyers and sellers because it increases the liquidity of the MBS market by taking thousands of different mortgage-backed securities with different characteristics and trading them through a handful of contracts. Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer [maturity](https://www.investopedia.com/terms/m/maturity.asp), [coupon](https://www.investopedia.com/terms/c/coupon.asp), price, [par](https://www.investopedia.com/terms/p/parvalue.asp) amount, and settlement date. The specific securities involved in the trade are announced 48 hours before the settlement. The TBA market was established in the 1970s to facilitate the trading of MBS issued by [Fannie Mae, Freddie Mac](https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp), and [Ginnie Mae](https://www.investopedia.com/terms/g/ginniemae.asp). It allows mortgage lenders to [hedge](https://www.investopedia.com/terms/h/hedge.asp) their origination pipelines. The TBA market is the most liquid [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp) for mortgage loans, resulting in high levels of market activity. In fact, the amount of money traded on the TBA market is second only to the [U.S. Treasury](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp) market. ## Example of the 48-Hour Rule Company ABC decides to sell a mortgage-backed security (MBS) to Company XYZ and Company XYZ accepts. The sale will take place on Tuesday. On Tuesday, when the sale is made, neither Company ABC nor Company XYZ knows the underlying mortgages that make up the mortgage-backed security (MBS). The standard industry settlement is T+3 days, meaning this trade will settle on Friday. According to the 48-hour rule, on Wednesday before 3 p.m. Eastern Time, Company ABC will have to notify Company XYZ of the mortgage allocations it will receive when the trade settles.

What Is the 48-Hour Rule? The 48-hour rule is a requirement that sellers of to-be-announced (TBA) mortgage-backed securities (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The Securities Industry and Financial Markets Association (SIFMA) enforces this rule. SIFMA was formerly known as the Public Securities Association or Bond Market Association. Key Takeaways The 48-hour rule refers to a part of the mortgage allocation process related to the buying and selling of to-be-announced (TBA) mortgage-backed securities (MBS).The 48-hour rule stipulates that the seller of an MBS notifies the buyer with the details of the underlying mortgages that make up the MBS by 3 p.m. Eastern Time, 48 hours before the settlement date.The Securities Industry and Financial Markets Association (SIFMA) enforces the 48-hour rule.When an MBS is traded in the secondary market, the underlying mortgages are not known, which helps facilitate trading and liquidity.Certain information is agreed upon when an MBS trade is made, such as the price, par, and coupon, but not the underlying mortgages.The TBA market is the second most traded secondary market after the U.S. Treasury market. Understanding the 48-Hour Rule An MBS is a bond that is secured, or backed, by mortgage loans. Loans with similar traits are grouped to form a pool. The pool is then sold as a security to investors. The issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages. Investors receive interest payments monthly rather than semiannually. A to-be-announced (TBA) trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools, or the exact amount involved in the transaction, which means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. This interchangeability helps facilitate trading and liquidity. The 48-hour rule is part of the mortgage allocation process, the period when the underlying mortgages will be assigned and made available to a specific MBS, which was created to bring transparency to TBA trade settlements. The 48-hour rule states that the seller of a specific MBS must make the buyer of that MBS aware of the mortgages that make up the MBS 48 hours prior to the trade settling. Because of the standard T+3 settlement date, this usually occurs on the day after the trade is executed. The 48-Hour Rule as Part of the TBA Process The TBA process benefits buyers and sellers because it increases the liquidity of the MBS market by taking thousands of different mortgage-backed securities with different characteristics and trading them through a handful of contracts. Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer maturity, coupon, price, par amount, and settlement date. The specific securities involved in the trade are announced 48 hours before the settlement. The TBA market was established in the 1970s to facilitate the trading of MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It allows mortgage lenders to hedge their origination pipelines. The TBA market is the most liquid secondary market for mortgage loans, resulting in high levels of market activity. In fact, the amount of money traded on the TBA market is second only to the U.S. Treasury market. Example of the 48-Hour Rule Company ABC decides to sell a mortgage-backed security (MBS) to Company XYZ and Company XYZ accepts. The sale will take place on Tuesday. On Tuesday, when the sale is made, neither Company ABC nor Company XYZ knows the underlying mortgages that make up the mortgage-backed security (MBS). The standard industry settlement is T+3 days, meaning this trade will settle on Friday. According to the 48-hour rule, on Wednesday before 3 p.m. Eastern Time, Company ABC will have to notify Company XYZ of the mortgage allocations it will receive when the trade settles.

https://www.investopedia.com/terms/d/data-anonymization.asp

Data Anonymization: Meaning, Techniques, Reasoning

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-data-anonymization"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Data Anonymization? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Data anonymization seeks to protect private or sensitive data by deleting or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/encryption.asp" rel="noopener noreferrer">encrypting</a> personally identifiable information from a database. Data anonymization is done for the purpose of protecting an individual’s or company’s private activities while maintaining the integrity of the data gathered and shared. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Data anonymization is also known as "data obfuscation," "data masking," or "data de-identification." It can be contrasted with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deanonymization.asp" rel="noopener noreferrer">de-anonymization</a>, which are techniques used in data mining that attempt to re-identify encrypted or obscured information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Data anonymization refers to stripping or encrypting personal or identifying information from sensitive data.</li><li>As businesses, governments, healthcare systems, and other organizations increasingly store individuals' information on local or cloud servers, data anonymization is crucial to maintain data integrity and prevent security breaches.</li><li>In the highly sensitive healthcare and financial sectors, patient or customer data must be obscured in such a way to meet regulatory requirements.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-data-anonymization"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Data Anonymization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Corporations generate, store, and process enormous amounts of sensitive data in the normal course of their business operations. Advancement in technology has thrived because of relevant information found in data that has been generated and shared across various sectors and countries. Financial innovation in technology (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fintech.asp" rel="noopener noreferrer">fintech</a>) has made boundless progress in the way financial services are customized to clients, thanks to data that has been shared from sectors such as social media and e-commerce establishments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Data shared between digital media and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecommerce.asp" rel="noopener noreferrer">e-commerce</a> firms has helped both sectors better advertise products on their sites to a specific user or consumer. However, in order for shared data to be useful without compromising the identities of clients compiled in the database, anonymization must be utilized. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-data-anonymization-in-practice"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Data Anonymization in Practice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Data anonymization is carried out by most industries that deal with sensitive information such as the healthcare, financial, and digital media industries while promoting the integrity of data sharing. Data anonymization reduces the risk of unintended disclosure when sharing data between countries, industries, and even departments within the same company. It also reduces opportunities for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/identitytheft.asp" rel="noopener noreferrer">identify theft</a> to occur. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For example, a hospital sharing confidential data on its patients to a medical research lab or pharmaceutical company would be able to do so ethically if it keeps its patients anonymous. This can be done by removing the names, Social Security Numbers, dates of birth, and addresses of its patients from the shared list while leaving the important components required for medical research like age, ailments, height, weight, gender, race, etc. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-data-anonymization-techniques"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Data Anonymization Techniques </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Anonymization of data is done in various ways including deletion, encryption, generalization, and a host of others. A company can either delete <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personally-identifiable-information-pii.asp" rel="noopener noreferrer">personally identifiable information (PII)</a> from its data gathered or encrypt this information with a strong passphrase. A business can also decide to generalize the information collected in its database. For example, a table contains the exact gross income earned by five CEOs in the retail sector. Let's assume the recorded incomes are $520,000, $230,000, $109,000, $875,000, and $124,000. This information can be generalized into categories like “&lt; $500,000” and “≥ $500,000”. Although, the data is obfuscated, it will still be useful to the user. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-data-anonymization-reasoning"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Data Anonymization Reasoning </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Data anonymization is whereby classified information is sanitized and masked in such a way that if a breach occurs, the data acquired is useless to the culprits. The need to protect data should be held in high priority in every organization, as classified information that falls into the wrong hands can be misused, intentionally or unintentionally. Lack of sensitivity when handling sensitive client information can come at a great cost to businesses due to regulatory authorities cracking down on gross negligence. Legal and compliance requirements like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pci-compliance.asp" rel="noopener noreferrer">PCI</a> DSS (Payment Card Industry Data Security Standard) impose hefty fines on financial institutions in the event of a credit card breach.<span class="ql-inline-citation" data-cite="3"></span> <span class="ql-inline-citation" data-cite="2"></span> PIPEDA, a Canadian Law, governs the disclosure and use of personal information by corporations.<span class="ql-inline-citation" data-cite="1"></span> There are other multiple regulatory bodies that have been formed to monitor an organization’s use or misuse of private data. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Decoding anonymized data is possible through a process known as De-anonymization (or "re-identification"). Due to the fact that anonymized data can be decoded and unraveled, critics believe anonymization provides a false sense of security. </p></div>

## What Is Data Anonymization? Data anonymization seeks to protect private or sensitive data by deleting or [encrypting](https://www.investopedia.com/terms/e/encryption.asp) personally identifiable information from a database. Data anonymization is done for the purpose of protecting an individual’s or company’s private activities while maintaining the integrity of the data gathered and shared. Data anonymization is also known as "data obfuscation," "data masking," or "data de-identification." It can be contrasted with [de-anonymization](https://www.investopedia.com/terms/d/deanonymization.asp), which are techniques used in data mining that attempt to re-identify encrypted or obscured information. ### Key Takeaways * Data anonymization refers to stripping or encrypting personal or identifying information from sensitive data. * As businesses, governments, healthcare systems, and other organizations increasingly store individuals' information on local or cloud servers, data anonymization is crucial to maintain data integrity and prevent security breaches. * In the highly sensitive healthcare and financial sectors, patient or customer data must be obscured in such a way to meet regulatory requirements. ## Understanding Data Anonymization Corporations generate, store, and process enormous amounts of sensitive data in the normal course of their business operations. Advancement in technology has thrived because of relevant information found in data that has been generated and shared across various sectors and countries. Financial innovation in technology ([fintech](https://www.investopedia.com/terms/f/fintech.asp)) has made boundless progress in the way financial services are customized to clients, thanks to data that has been shared from sectors such as social media and e-commerce establishments. Data shared between digital media and [e-commerce](https://www.investopedia.com/terms/e/ecommerce.asp) firms has helped both sectors better advertise products on their sites to a specific user or consumer. However, in order for shared data to be useful without compromising the identities of clients compiled in the database, anonymization must be utilized. ## Data Anonymization in Practice Data anonymization is carried out by most industries that deal with sensitive information such as the healthcare, financial, and digital media industries while promoting the integrity of data sharing. Data anonymization reduces the risk of unintended disclosure when sharing data between countries, industries, and even departments within the same company. It also reduces opportunities for [identify theft](https://www.investopedia.com/terms/i/identitytheft.asp) to occur. For example, a hospital sharing confidential data on its patients to a medical research lab or pharmaceutical company would be able to do so ethically if it keeps its patients anonymous. This can be done by removing the names, Social Security Numbers, dates of birth, and addresses of its patients from the shared list while leaving the important components required for medical research like age, ailments, height, weight, gender, race, etc. ## Data Anonymization Techniques Anonymization of data is done in various ways including deletion, encryption, generalization, and a host of others. A company can either delete [personally identifiable information (PII)](https://www.investopedia.com/terms/p/personally-identifiable-information-pii.asp) from its data gathered or encrypt this information with a strong passphrase. A business can also decide to generalize the information collected in its database. For example, a table contains the exact gross income earned by five CEOs in the retail sector. Let's assume the recorded incomes are $520,000, $230,000, $109,000, $875,000, and $124,000. This information can be generalized into categories like “< $500,000” and “≥ $500,000”. Although, the data is obfuscated, it will still be useful to the user. ## Data Anonymization Reasoning Data anonymization is whereby classified information is sanitized and masked in such a way that if a breach occurs, the data acquired is useless to the culprits. The need to protect data should be held in high priority in every organization, as classified information that falls into the wrong hands can be misused, intentionally or unintentionally. Lack of sensitivity when handling sensitive client information can come at a great cost to businesses due to regulatory authorities cracking down on gross negligence. Legal and compliance requirements like [PCI](https://www.investopedia.com/terms/p/pci-compliance.asp) DSS (Payment Card Industry Data Security Standard) impose hefty fines on financial institutions in the event of a credit card breach.  PIPEDA, a Canadian Law, governs the disclosure and use of personal information by corporations. There are other multiple regulatory bodies that have been formed to monitor an organization’s use or misuse of private data. Decoding anonymized data is possible through a process known as De-anonymization (or "re-identification"). Due to the fact that anonymized data can be decoded and unraveled, critics believe anonymization provides a false sense of security.

What Is Data Anonymization? Data anonymization seeks to protect private or sensitive data by deleting or encrypting personally identifiable information from a database. Data anonymization is done for the purpose of protecting an individual’s or company’s private activities while maintaining the integrity of the data gathered and shared. Data anonymization is also known as "data obfuscation," "data masking," or "data de-identification." It can be contrasted with de-anonymization, which are techniques used in data mining that attempt to re-identify encrypted or obscured information. Key Takeaways Data anonymization refers to stripping or encrypting personal or identifying information from sensitive data.As businesses, governments, healthcare systems, and other organizations increasingly store individuals' information on local or cloud servers, data anonymization is crucial to maintain data integrity and prevent security breaches.In the highly sensitive healthcare and financial sectors, patient or customer data must be obscured in such a way to meet regulatory requirements. Understanding Data Anonymization Corporations generate, store, and process enormous amounts of sensitive data in the normal course of their business operations. Advancement in technology has thrived because of relevant information found in data that has been generated and shared across various sectors and countries. Financial innovation in technology (fintech) has made boundless progress in the way financial services are customized to clients, thanks to data that has been shared from sectors such as social media and e-commerce establishments. Data shared between digital media and e-commerce firms has helped both sectors better advertise products on their sites to a specific user or consumer. However, in order for shared data to be useful without compromising the identities of clients compiled in the database, anonymization must be utilized. Data Anonymization in Practice Data anonymization is carried out by most industries that deal with sensitive information such as the healthcare, financial, and digital media industries while promoting the integrity of data sharing. Data anonymization reduces the risk of unintended disclosure when sharing data between countries, industries, and even departments within the same company. It also reduces opportunities for identify theft to occur. For example, a hospital sharing confidential data on its patients to a medical research lab or pharmaceutical company would be able to do so ethically if it keeps its patients anonymous. This can be done by removing the names, Social Security Numbers, dates of birth, and addresses of its patients from the shared list while leaving the important components required for medical research like age, ailments, height, weight, gender, race, etc. Data Anonymization Techniques Anonymization of data is done in various ways including deletion, encryption, generalization, and a host of others. A company can either delete personally identifiable information (PII) from its data gathered or encrypt this information with a strong passphrase. A business can also decide to generalize the information collected in its database. For example, a table contains the exact gross income earned by five CEOs in the retail sector. Let's assume the recorded incomes are $520,000, $230,000, $109,000, $875,000, and $124,000. This information can be generalized into categories like “< $500,000” and “≥ $500,000”. Although, the data is obfuscated, it will still be useful to the user. Data Anonymization Reasoning Data anonymization is whereby classified information is sanitized and masked in such a way that if a breach occurs, the data acquired is useless to the culprits. The need to protect data should be held in high priority in every organization, as classified information that falls into the wrong hands can be misused, intentionally or unintentionally. Lack of sensitivity when handling sensitive client information can come at a great cost to businesses due to regulatory authorities cracking down on gross negligence. Legal and compliance requirements like PCI DSS (Payment Card Industry Data Security Standard) impose hefty fines on financial institutions in the event of a credit card breach.  PIPEDA, a Canadian Law, governs the disclosure and use of personal information by corporations. There are other multiple regulatory bodies that have been formed to monitor an organization’s use or misuse of private data. Decoding anonymized data is possible through a process known as De-anonymization (or "re-identification"). Due to the fact that anonymized data can be decoded and unraveled, critics believe anonymization provides a false sense of security.

https://www.investopedia.com/terms/p/personal-financial-advisor.asp

Personal Financial Advisor: What It Is, What They Do

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-personal-financial-advisor"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Personal Financial Advisor? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A personal financial advisor is a professional who provides financial advice and services to clients according to their specific needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Personal financial advisors have the expertise and experience to deliver solutions tailored to their customers' needs, avoid costly errors, and mitigate risk, as well as offer a suite of services and products aligned with their clients' current and future goals. Some financial advisors receive a flat fee for their advice, while others earn commissions from the sale of investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Personal financial advisors are professionals who offer tailored financial advice and services to customers.</li><li>In the U.S., financial advisors hold the FINRA Series 7 and 66 or the Series 65 licenses and may hold various designations, such as Certified Financial Planner (CFP).</li><li>Financial advisors first develop a financial plan for their clients, which evaluates their current and future financial needs and considers many facets of their life.</li><li>Good financial plans are fluid and will keep the client aware of changes that affect them and their investments.</li><li>Personal financial advisors may be paid as a flat fee, a commission, or a percentage of the client's assets. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-personal-financial-advisors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Personal Financial Advisors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Finding a personal financial advisor can be a daunting and confusing task as there are many financial services professionals whose duties are similar to those of financial advisors. Professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help locate advisors in your area.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> When choosing a financial advisor, it is important to verify their history and credentials. For example, ask if they have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">FINRA</a> licenses or professional designations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Many personal financial advisors elect to join wealth management firms like Fidelity, Vanguard, and Charles Schwab that provide tailored financial advice to high-net-worth and retail customers.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="10"></span> Some larger asset managers like Morgan Stanley and Goldman Sachs also have robust wealth management arms for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hnwi.asp">high-net-worth individuals</a>.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A personal financial advisor's role is distinct from that of an adviser. While the former provides advice, the latter has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp">fiduciary duty</a> to their clients. This means they are legally bound to act in your best financial interests.</p></div></div></div> <span class="heading-toc" id="toc-types-of-personal-financial-advisors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Types of Personal Financial Advisors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In the U.S., financial advisors must hold the Series 7 and either the Series 66 or the Series 65 licenses from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority</a>.<span class="ql-inline-citation" data-cite="1"></span> In addition, every state <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/091815/do-financial-advisors-have-be-licensed.asp">requires</a> the Series 63 license before an investment adviser can conduct business within its borders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In addition to these qualifications, some advisors seek <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/101001.asp">additional credentials</a> that demonstrate their knowledge of different financial areas. Possible additional qualifications include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner</a> (CFP): signifies expertise in all areas of financial planning, including taxes, insurance, estate planning, and retirement.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">Chartered Financial Analyst</a> (CFA): indicates deep study of accounting, economics, money management, and security analysis.</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chartered-financial-consultant-chfc.asp">Chartered Financial Consultant</a> (ChFC): indicates completion of nine college-level courses on subjects related to financial planning, such as tax laws, asset protection, and employee benefits.</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/ria.asp">Registered Investment Advisor</a> (RIA): authorized to advise clients on different securities and manage their portfolios.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Some of the FINRA series requirements may be waived for individuals who hold one of these qualifications. In addition to the required financial expertise, each of these courses of study requires a strong awareness of the ethical requirements for financial planners. These designations are good indicators of an advisor's experience and training.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Before providing advice and recommending products and services, financial advisors create financial plans for their clients. This involves a comprehensive evaluation of their current and future financial state. It also considers critical, basic information, such as age (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">time horizon</a>), financial goals (saving for education, purchasing a home, preserving capital, or generating income), and appetite for risk and reward. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Creating a financial plan requires consideration of the education, net worth, and financial experience of each client. Additional aspects of financial plans can include tax liabilities, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/03/032603.asp">asset allocation</a>, and future retirement and estate plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A good personal financial advisor won’t reuse templates on different clients. While the majority of financial plans will include research into and considerations of the client's life goals, wealth transfer plans, and projected expense levels, a personal financial advisor should take time to incorporate unique aspects of each customer’s financial journey, including attitudes towards investing, budgeting, and continued education about financial topics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> A good financial plan will alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, allowing for occasional updates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-how-do-you-become-a-personal-financial-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Become a Personal Financial Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several different paths to becoming a personal financial advisor, but most of them require a bachelor's degree at the very minimum. Financial advisors are required to pass the Series 7 and Series 65 or 66 exams from FINRA, although these exam requirements may sometimes be waived for those with more advanced credentials. Many advisors choose to demonstrate deeper knowledge by acquiring certifications such as the CFP, CFA, or ChFC, which require additional study and work experience.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-how-much-does-a-personal-financial-advisor-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does a Personal Financial Advisor Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/091815/what-fees-do-financial-advisors-charge.asp">fee structures for financial advisors</a>. Many advisors charge a percentage of the client's assets under management. This is typically around 1% or 2%, although larger portfolios may be charged a smaller percentage. Others may charge a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp">flat fee</a>, typically around $1,500 to $3,000, to create your financial plan. Some advisors may also receive a commission based on product sales, although this practice is controversial because of the possible conflicts of interest.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-where-do-personal-financial-advisors-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Do Personal Financial Advisors Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While many financial advisors operate independently, the majority work for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financialcareers/06/financialplanningquiz.asp">financial institutions</a> such as brokers, insurance companies, banks, and investment firms.</p></div> </div></div>

## What Is a Personal Financial Advisor? A personal financial advisor is a professional who provides financial advice and services to clients according to their specific needs. Personal financial advisors have the expertise and experience to deliver solutions tailored to their customers' needs, avoid costly errors, and mitigate risk, as well as offer a suite of services and products aligned with their clients' current and future goals. Some financial advisors receive a flat fee for their advice, while others earn commissions from the sale of investments. ### Key Takeaways * Personal financial advisors are professionals who offer tailored financial advice and services to customers. * In the U.S., financial advisors hold the FINRA Series 7 and 66 or the Series 65 licenses and may hold various designations, such as Certified Financial Planner (CFP). * Financial advisors first develop a financial plan for their clients, which evaluates their current and future financial needs and considers many facets of their life. * Good financial plans are fluid and will keep the client aware of changes that affect them and their investments. * Personal financial advisors may be paid as a flat fee, a commission, or a percentage of the client's assets. ## Understanding Personal Financial Advisors Finding a personal financial advisor can be a daunting and confusing task as there are many financial services professionals whose duties are similar to those of financial advisors. Professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help locate advisors in your area. When choosing a financial advisor, it is important to verify their history and credentials. For example, ask if they have [FINRA](https://www.investopedia.com/terms/f/finra.asp) licenses or professional designations. Many personal financial advisors elect to join wealth management firms like Fidelity, Vanguard, and Charles Schwab that provide tailored financial advice to high-net-worth and retail customers. Some larger asset managers like Morgan Stanley and Goldman Sachs also have robust wealth management arms for [high-net-worth individuals](https://www.investopedia.com/terms/h/hnwi.asp). ### A personal financial advisor's role is distinct from that of an adviser. While the former provides advice, the latter has a [fiduciary duty](https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp) to their clients. This means they are legally bound to act in your best financial interests. ## Types of Personal Financial Advisors In the U.S., financial advisors must hold the Series 7 and either the Series 66 or the Series 65 licenses from the [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp). In addition, every state [requires](https://www.investopedia.com/ask/answers/091815/do-financial-advisors-have-be-licensed.asp) the Series 63 license before an investment adviser can conduct business within its borders. In addition to these qualifications, some advisors seek [additional credentials](https://www.investopedia.com/articles/01/101001.asp) that demonstrate their knowledge of different financial areas. Possible additional qualifications include: * [Certified Financial Planner](https://www.investopedia.com/terms/c/cfp.asp) (CFP): signifies expertise in all areas of financial planning, including taxes, insurance, estate planning, and retirement. * [Chartered Financial Analyst](https://www.investopedia.com/terms/c/cfa.asp) (CFA): indicates deep study of accounting, economics, money management, and security analysis. * [Chartered Financial Consultant](https://www.investopedia.com/terms/c/chartered-financial-consultant-chfc.asp) (ChFC): indicates completion of nine college-level courses on subjects related to financial planning, such as tax laws, asset protection, and employee benefits. * [Registered Investment Advisor](https://www.investopedia.com/terms/r/ria.asp) (RIA): authorized to advise clients on different securities and manage their portfolios. Some of the FINRA series requirements may be waived for individuals who hold one of these qualifications. In addition to the required financial expertise, each of these courses of study requires a strong awareness of the ethical requirements for financial planners. These designations are good indicators of an advisor's experience and training. ## Special Considerations Before providing advice and recommending products and services, financial advisors create financial plans for their clients. This involves a comprehensive evaluation of their current and future financial state. It also considers critical, basic information, such as age ([time horizon](https://www.investopedia.com/terms/t/timehorizon.asp)), financial goals (saving for education, purchasing a home, preserving capital, or generating income), and appetite for risk and reward. Creating a financial plan requires consideration of the education, net worth, and financial experience of each client. Additional aspects of financial plans can include tax liabilities, [asset allocation](https://www.investopedia.com/articles/03/032603.asp), and future retirement and estate plans. A good personal financial advisor won’t reuse templates on different clients. While the majority of financial plans will include research into and considerations of the client's life goals, wealth transfer plans, and projected expense levels, a personal financial advisor should take time to incorporate unique aspects of each customer’s financial journey, including attitudes towards investing, budgeting, and continued education about financial topics. A good financial plan will alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, allowing for occasional updates. ## How Do You Become a Personal Financial Advisor? There are several different paths to becoming a personal financial advisor, but most of them require a bachelor's degree at the very minimum. Financial advisors are required to pass the Series 7 and Series 65 or 66 exams from FINRA, although these exam requirements may sometimes be waived for those with more advanced credentials. Many advisors choose to demonstrate deeper knowledge by acquiring certifications such as the CFP, CFA, or ChFC, which require additional study and work experience. ## How Much Does a Personal Financial Advisor Cost? There are several different [fee structures for financial advisors](https://www.investopedia.com/ask/answers/091815/what-fees-do-financial-advisors-charge.asp). Many advisors charge a percentage of the client's assets under management. This is typically around 1% or 2%, although larger portfolios may be charged a smaller percentage. Others may charge a [flat fee](https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp), typically around $1,500 to $3,000, to create your financial plan. Some advisors may also receive a commission based on product sales, although this practice is controversial because of the possible conflicts of interest. ## Where Do Personal Financial Advisors Work? While many financial advisors operate independently, the majority work for [financial institutions](https://www.investopedia.com/articles/financialcareers/06/financialplanningquiz.asp) such as brokers, insurance companies, banks, and investment firms.

What Is a Personal Financial Advisor? A personal financial advisor is a professional who provides financial advice and services to clients according to their specific needs. Personal financial advisors have the expertise and experience to deliver solutions tailored to their customers' needs, avoid costly errors, and mitigate risk, as well as offer a suite of services and products aligned with their clients' current and future goals. Some financial advisors receive a flat fee for their advice, while others earn commissions from the sale of investments. Key Takeaways Personal financial advisors are professionals who offer tailored financial advice and services to customers.In the U.S., financial advisors hold the FINRA Series 7 and 66 or the Series 65 licenses and may hold various designations, such as Certified Financial Planner (CFP).Financial advisors first develop a financial plan for their clients, which evaluates their current and future financial needs and considers many facets of their life.Good financial plans are fluid and will keep the client aware of changes that affect them and their investments.Personal financial advisors may be paid as a flat fee, a commission, or a percentage of the client's assets. Understanding Personal Financial Advisors Finding a personal financial advisor can be a daunting and confusing task as there are many financial services professionals whose duties are similar to those of financial advisors. Professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help locate advisors in your area. When choosing a financial advisor, it is important to verify their history and credentials. For example, ask if they have FINRA licenses or professional designations. Many personal financial advisors elect to join wealth management firms like Fidelity, Vanguard, and Charles Schwab that provide tailored financial advice to high-net-worth and retail customers. Some larger asset managers like Morgan Stanley and Goldman Sachs also have robust wealth management arms for high-net-worth individuals. A personal financial advisor's role is distinct from that of an adviser. While the former provides advice, the latter has a fiduciary duty to their clients. This means they are legally bound to act in your best financial interests. Types of Personal Financial Advisors In the U.S., financial advisors must hold the Series 7 and either the Series 66 or the Series 65 licenses from the Financial Industry Regulatory Authority. In addition, every state requires the Series 63 license before an investment adviser can conduct business within its borders. In addition to these qualifications, some advisors seek additional credentials that demonstrate their knowledge of different financial areas. Possible additional qualifications include: Certified Financial Planner (CFP): signifies expertise in all areas of financial planning, including taxes, insurance, estate planning, and retirement. Chartered Financial Analyst (CFA): indicates deep study of accounting, economics, money management, and security analysis. Chartered Financial Consultant (ChFC): indicates completion of nine college-level courses on subjects related to financial planning, such as tax laws, asset protection, and employee benefits. Registered Investment Advisor (RIA): authorized to advise clients on different securities and manage their portfolios. Some of the FINRA series requirements may be waived for individuals who hold one of these qualifications. In addition to the required financial expertise, each of these courses of study requires a strong awareness of the ethical requirements for financial planners. These designations are good indicators of an advisor's experience and training. Special Considerations Before providing advice and recommending products and services, financial advisors create financial plans for their clients. This involves a comprehensive evaluation of their current and future financial state. It also considers critical, basic information, such as age (time horizon), financial goals (saving for education, purchasing a home, preserving capital, or generating income), and appetite for risk and reward. Creating a financial plan requires consideration of the education, net worth, and financial experience of each client. Additional aspects of financial plans can include tax liabilities, asset allocation, and future retirement and estate plans. A good personal financial advisor won’t reuse templates on different clients. While the majority of financial plans will include research into and considerations of the client's life goals, wealth transfer plans, and projected expense levels, a personal financial advisor should take time to incorporate unique aspects of each customer’s financial journey, including attitudes towards investing, budgeting, and continued education about financial topics. A good financial plan will alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, allowing for occasional updates. How Do You Become a Personal Financial Advisor? There are several different paths to becoming a personal financial advisor, but most of them require a bachelor's degree at the very minimum. Financial advisors are required to pass the Series 7 and Series 65 or 66 exams from FINRA, although these exam requirements may sometimes be waived for those with more advanced credentials. Many advisors choose to demonstrate deeper knowledge by acquiring certifications such as the CFP, CFA, or ChFC, which require additional study and work experience. How Much Does a Personal Financial Advisor Cost? There are several different fee structures for financial advisors. Many advisors charge a percentage of the client's assets under management. This is typically around 1% or 2%, although larger portfolios may be charged a smaller percentage. Others may charge a flat fee, typically around $1,500 to $3,000, to create your financial plan. Some advisors may also receive a commission based on product sales, although this practice is controversial because of the possible conflicts of interest. Where Do Personal Financial Advisors Work? While many financial advisors operate independently, the majority work for financial institutions such as brokers, insurance companies, banks, and investment firms.

https://www.investopedia.com/how-to-give-nfts-as-a-gift-5205546

How to Give NFTs as a Gift

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/non-fungible-tokens-nft-5115211">Non-fungible tokens (NFTs)</a> have become a popular medium for digital art. People have literally bid thousands to own these collectibles,<strong> </strong>and some have even sold for millions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If your loved ones are into digital art and cryptocurrencies and are enticed by the possibility of striking it rich with a speculative investment, then gifting them NFTs could be a great option.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Non-fungible tokens (NFTs) are stored in a digital wallet and usually paid for with a cryptocurrency.</li><li>NFT marketplaces operate auctions or the option to buy at a fixed price, similar to eBay.</li><li>The Internal Revenue Service (IRS) has not yet issued official rules on NFTs, making these digital assets complex from a tax perspective.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block has-details inline-video" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/yF79GQa2/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0">Click Play To Learn All About NFTs</h4> <div class="comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block" id="mntl-sc-block-inlinevideo__feature-link-wrapper_1-0"><span class="comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link" id="mntl-sc-block-inlinevideo__feature-link_1-0"></span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-what-are-nfts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Are NFTs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> An NFT is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-create-an-nft-6362495">essentially a digital file</a> that comes with ownership rights. Anything in digital format can qualify, including pieces of art, sports cards, memes, videos, and audio, and once “tokenized,” they can be bought and sold online.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you’re new to all this, you might wonder why people spend thousands or even millions of dollars on files that they could probably quite easily view and download for free. The answer is exclusive ownership.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> When you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pros-and-cons-of-investing-in-nfts-5220290">buy an NFT</a>, you receive a digital token that functions as a certificate of ownership. This title is registered and stored on a shared ledger known as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a>, the record-keeping technology behind the Bitcoin network,<strong> </strong>so everyone knows you are<strong> </strong>the proprietor and have the right to sell the asset. A digital file can be easily and repeatedly duplicated (it is fungible). However, there is only one or a limited number of NFT versions of it (thus, it is non-fungible).<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In February 2021, the 2011 meme of a flying toaster pastry cat named “Nyan Cat” sold for 300 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ether-cryptocurrency.asp">Ether (ETH)</a>. About a month later, a JPEG of “Everydays: The First 5000 Days,” a digital artwork created by Mike “Beeple” Winkelmann, fetched over $69 million at Christie’s.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> It’s not just regular art that is “tokenized” and sold for big bucks, either. In March 2021, Jack Dorsey (CEO of then-Twitter, now X) put up for auction an image of his first tweet as an NFT and ended up collecting more than $2.9 million for charity.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="3"></span><br/><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>NFTs are highly speculative investments, with their value being based entirely on what someone else is willing to pay for them.<span class="ql-inline-citation" data-cite="19"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-gift-an-nft"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> How to Gift an NFT </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> If you don’t already have an NFT collection to gift, then you’ll need to buy one. For non-cryptocurrency enthusiasts, this requires picking up a few key items first. Some NFT marketplaces now accept credit and debit cards in addition to cryptocurrency, but not all do. You’ll also need a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-wallet.asp">digital wallet</a> to store NFTs and your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> There are several NFT marketplaces online, and each functions slightly differently, including in terms of what assets they trade. Some sell a bit of everything, while others specialize in certain niches, such as sports and gaming. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Once you’ve found a suitable marketplace and obtained all the right tools to trade, it’s time to set up an account and start buying. NFT marketplaces operate similarly to eBay. Usually, there are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auction.asp">auctions</a> where the highest bidder wins, although some offer “buy now” options where NFTs are sold for a fixed price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> After you’ve made your purchase, the next step is to transfer the NFT to the person to whom you want <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/digital-assets-as-gift-6747778">to gift it</a>. Many NFT marketplaces now offer this option, and it can usually be achieved with a few clicks of a button. Generally, you’ll need to select the item you want to gift, choose the option to transfer it, and then key in the recipient’s wallet address.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>When <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-give-cryptocurrency-as-a-gift-5205409">gifting an NFT</a>, make sure that you input the recipient’s wallet address correctly. This is a blockchain transaction, meaning that the transfer is irreversible and carries a transaction fee—a payment made to compensate for the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nfts-and-the-environment-5220221">computing energy required</a> to process and validate transactions on the blockchain.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-nft-tax-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> NFT Tax Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Gifts surpassing $17,000 in 2023 are taxable events in the eyes of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a>—unless the recipient is your spouse.<span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="4"></span> If you plan to be this generous and risk exceeding the lifetime <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gifttax.asp">gift tax</a> exemption, you might be hit with a hefty tax bill—although, in 2023 and 2024, you would need to have gifted more than $12.5 million in your life to trigger this tax.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> If that’s not an issue, then the only tax liability will lie with the recipient when they eventually decide to sell. NFTs, like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-give-stocks-as-a-holiday-gift-5204765">stocks</a>, are subject to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains taxes</a> (at least until the IRS publishes its official guidance on digital asset taxes). So, for example, if you bought an NFT for $500 (your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costbasis.asp">cost basis</a>) and gave it to your child, who then sold it for $1,000, your child would be taxed on a capital gain<strong> </strong>of $500.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="14"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Given the newness of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nft-tax-guide-5222726">NFT taxation</a>, it’s probably a good idea to contact a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxadvisor.asp">tax advisor</a> before buying and gifting NFTs.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-does-nft-stand-for"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does NFT Stand for?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>NFT is short for non-fungible token. If someone describes an item as non-fungible, they mean that it is unique and cannot be easily traded with something else. Fungible items can be exchanged for another good or asset of the same value, such as swapping one $10 note for two $5 notes. Non-fungibles don’t work this way—each one is different.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-how-do-i-send-someone-an-nft"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Send Someone an NFT?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Once you are equipped with all the necessary materials, including an NFT to gift and a wallet address to send it to, making a transfer is usually quite simple. Generally, it involves opening the account where the NFT is held, locating the NFT, selecting the option to transfer it, and then keying in the recipient’s wallet address.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-how-much-does-it-cost-to-transfer-an-nft"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does It Cost to Transfer an NFT?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>On most platforms, you will be charged a transaction fee every time you send an NFT to someone else. These fees cover the computational expenses of processing and validating the transfer. You should pay careful attention to these fees, as they can be high.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> NFTs are digital collectibles that have become a popular form of investment or gifts. However, because they are based on blockchain networks, it is important to understand how the technology works before giving it away. Make sure that the recipient understands the security risks and costs associated with blockchain transactions so that they can enjoy your gift. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info. As of the date this article was written, the author does not own non-fungible tokens.</em> </p></div>

[Non-fungible tokens (NFTs)](https://www.investopedia.com/non-fungible-tokens-nft-5115211) have become a popular medium for digital art. People have literally bid thousands to own these collectibles,and some have even sold for millions. If your loved ones are into digital art and cryptocurrencies and are enticed by the possibility of striking it rich with a speculative investment, then gifting them NFTs could be a great option. ### Key Takeaways * Non-fungible tokens (NFTs) are stored in a digital wallet and usually paid for with a cryptocurrency. * NFT marketplaces operate auctions or the option to buy at a fixed price, similar to eBay. * The Internal Revenue Service (IRS) has not yet issued official rules on NFTs, making these digital assets complex from a tax perspective. #### Click Play To Learn All About NFTs ## What Are NFTs? An NFT is [essentially a digital file](https://www.investopedia.com/how-to-create-an-nft-6362495) that comes with ownership rights. Anything in digital format can qualify, including pieces of art, sports cards, memes, videos, and audio, and once “tokenized,” they can be bought and sold online. If you’re new to all this, you might wonder why people spend thousands or even millions of dollars on files that they could probably quite easily view and download for free. The answer is exclusive ownership. When you [buy an NFT](https://www.investopedia.com/pros-and-cons-of-investing-in-nfts-5220290), you receive a digital token that functions as a certificate of ownership. This title is registered and stored on a shared ledger known as the [blockchain](https://www.investopedia.com/terms/b/blockchain.asp), the record-keeping technology behind the Bitcoin network,so everyone knows you arethe proprietor and have the right to sell the asset. A digital file can be easily and repeatedly duplicated (it is fungible). However, there is only one or a limited number of NFT versions of it (thus, it is non-fungible). In February 2021, the 2011 meme of a flying toaster pastry cat named “Nyan Cat” sold for 300 [Ether (ETH)](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp). About a month later, a JPEG of “Everydays: The First 5000 Days,” a digital artwork created by Mike “Beeple” Winkelmann, fetched over $69 million at Christie’s. It’s not just regular art that is “tokenized” and sold for big bucks, either. In March 2021, Jack Dorsey (CEO of then-Twitter, now X) put up for auction an image of his first tweet as an NFT and ended up collecting more than $2.9 million for charity. ### NFTs are highly speculative investments, with their value being based entirely on what someone else is willing to pay for them. ## How to Gift an NFT If you don’t already have an NFT collection to gift, then you’ll need to buy one. For non-cryptocurrency enthusiasts, this requires picking up a few key items first. Some NFT marketplaces now accept credit and debit cards in addition to cryptocurrency, but not all do. You’ll also need a [digital wallet](https://www.investopedia.com/terms/d/digital-wallet.asp) to store NFTs and your [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp). There are several NFT marketplaces online, and each functions slightly differently, including in terms of what assets they trade. Some sell a bit of everything, while others specialize in certain niches, such as sports and gaming. Once you’ve found a suitable marketplace and obtained all the right tools to trade, it’s time to set up an account and start buying. NFT marketplaces operate similarly to eBay. Usually, there are [auctions](https://www.investopedia.com/terms/a/auction.asp) where the highest bidder wins, although some offer “buy now” options where NFTs are sold for a fixed price. After you’ve made your purchase, the next step is to transfer the NFT to the person to whom you want [to gift it](https://www.investopedia.com/digital-assets-as-gift-6747778). Many NFT marketplaces now offer this option, and it can usually be achieved with a few clicks of a button. Generally, you’ll need to select the item you want to gift, choose the option to transfer it, and then key in the recipient’s wallet address. ### When [gifting an NFT](https://www.investopedia.com/how-to-give-cryptocurrency-as-a-gift-5205409), make sure that you input the recipient’s wallet address correctly. This is a blockchain transaction, meaning that the transfer is irreversible and carries a transaction fee—a payment made to compensate for the [computing energy required](https://www.investopedia.com/nfts-and-the-environment-5220221) to process and validate transactions on the blockchain. ## NFT Tax Considerations Gifts surpassing $17,000 in 2023 are taxable events in the eyes of the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp)—unless the recipient is your spouse. If you plan to be this generous and risk exceeding the lifetime [gift tax](https://www.investopedia.com/terms/g/gifttax.asp) exemption, you might be hit with a hefty tax bill—although, in 2023 and 2024, you would need to have gifted more than $12.5 million in your life to trigger this tax. If that’s not an issue, then the only tax liability will lie with the recipient when they eventually decide to sell. NFTs, like [stocks](https://www.investopedia.com/how-to-give-stocks-as-a-holiday-gift-5204765), are subject to [capital gains taxes](https://www.investopedia.com/terms/c/capital_gains_tax.asp) (at least until the IRS publishes its official guidance on digital asset taxes). So, for example, if you bought an NFT for $500 (your [cost basis](https://www.investopedia.com/terms/c/costbasis.asp)) and gave it to your child, who then sold it for $1,000, your child would be taxed on a capital gainof $500. Given the newness of [NFT taxation](https://www.investopedia.com/nft-tax-guide-5222726), it’s probably a good idea to contact a [tax advisor](https://www.investopedia.com/terms/t/taxadvisor.asp) before buying and gifting NFTs. ## What Does NFT Stand for? NFT is short for non-fungible token. If someone describes an item as non-fungible, they mean that it is unique and cannot be easily traded with something else. Fungible items can be exchanged for another good or asset of the same value, such as swapping one $10 note for two $5 notes. Non-fungibles don’t work this way—each one is different. ## How Do I Send Someone an NFT? Once you are equipped with all the necessary materials, including an NFT to gift and a wallet address to send it to, making a transfer is usually quite simple. Generally, it involves opening the account where the NFT is held, locating the NFT, selecting the option to transfer it, and then keying in the recipient’s wallet address. ## How Much Does It Cost to Transfer an NFT? On most platforms, you will be charged a transaction fee every time you send an NFT to someone else. These fees cover the computational expenses of processing and validating the transfer. You should pay careful attention to these fees, as they can be high. ## The Bottom Line NFTs are digital collectibles that have become a popular form of investment or gifts. However, because they are based on blockchain networks, it is important to understand how the technology works before giving it away. Make sure that the recipient understands the security risks and costs associated with blockchain transactions so that they can enjoy your gift. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info. As of the date this article was written, the author does not own non-fungible tokens.*

Non-fungible tokens (NFTs) have become a popular medium for digital art. People have literally bid thousands to own these collectibles, and some have even sold for millions. If your loved ones are into digital art and cryptocurrencies and are enticed by the possibility of striking it rich with a speculative investment, then gifting them NFTs could be a great option. Key Takeaways Non-fungible tokens (NFTs) are stored in a digital wallet and usually paid for with a cryptocurrency.NFT marketplaces operate auctions or the option to buy at a fixed price, similar to eBay.The Internal Revenue Service (IRS) has not yet issued official rules on NFTs, making these digital assets complex from a tax perspective. Click Play To Learn All About NFTs What Are NFTs? An NFT is essentially a digital file that comes with ownership rights. Anything in digital format can qualify, including pieces of art, sports cards, memes, videos, and audio, and once “tokenized,” they can be bought and sold online. If you’re new to all this, you might wonder why people spend thousands or even millions of dollars on files that they could probably quite easily view and download for free. The answer is exclusive ownership. When you buy an NFT, you receive a digital token that functions as a certificate of ownership. This title is registered and stored on a shared ledger known as the blockchain, the record-keeping technology behind the Bitcoin network, so everyone knows you are the proprietor and have the right to sell the asset. A digital file can be easily and repeatedly duplicated (it is fungible). However, there is only one or a limited number of NFT versions of it (thus, it is non-fungible). In February 2021, the 2011 meme of a flying toaster pastry cat named “Nyan Cat” sold for 300 Ether (ETH). About a month later, a JPEG of “Everydays: The First 5000 Days,” a digital artwork created by Mike “Beeple” Winkelmann, fetched over $69 million at Christie’s. It’s not just regular art that is “tokenized” and sold for big bucks, either. In March 2021, Jack Dorsey (CEO of then-Twitter, now X) put up for auction an image of his first tweet as an NFT and ended up collecting more than $2.9 million for charity. NFTs are highly speculative investments, with their value being based entirely on what someone else is willing to pay for them. How to Gift an NFT If you don’t already have an NFT collection to gift, then you’ll need to buy one. For non-cryptocurrency enthusiasts, this requires picking up a few key items first. Some NFT marketplaces now accept credit and debit cards in addition to cryptocurrency, but not all do. You’ll also need a digital wallet to store NFTs and your cryptocurrency. There are several NFT marketplaces online, and each functions slightly differently, including in terms of what assets they trade. Some sell a bit of everything, while others specialize in certain niches, such as sports and gaming. Once you’ve found a suitable marketplace and obtained all the right tools to trade, it’s time to set up an account and start buying. NFT marketplaces operate similarly to eBay. Usually, there are auctions where the highest bidder wins, although some offer “buy now” options where NFTs are sold for a fixed price. After you’ve made your purchase, the next step is to transfer the NFT to the person to whom you want to gift it. Many NFT marketplaces now offer this option, and it can usually be achieved with a few clicks of a button. Generally, you’ll need to select the item you want to gift, choose the option to transfer it, and then key in the recipient’s wallet address. When gifting an NFT, make sure that you input the recipient’s wallet address correctly. This is a blockchain transaction, meaning that the transfer is irreversible and carries a transaction fee—a payment made to compensate for the computing energy required to process and validate transactions on the blockchain. NFT Tax Considerations Gifts surpassing $17,000 in 2023 are taxable events in the eyes of the Internal Revenue Service (IRS)—unless the recipient is your spouse. If you plan to be this generous and risk exceeding the lifetime gift tax exemption, you might be hit with a hefty tax bill—although, in 2023 and 2024, you would need to have gifted more than $12.5 million in your life to trigger this tax. If that’s not an issue, then the only tax liability will lie with the recipient when they eventually decide to sell. NFTs, like stocks, are subject to capital gains taxes (at least until the IRS publishes its official guidance on digital asset taxes). So, for example, if you bought an NFT for $500 (your cost basis) and gave it to your child, who then sold it for $1,000, your child would be taxed on a capital gain of $500. Given the newness of NFT taxation, it’s probably a good idea to contact a tax advisor before buying and gifting NFTs. What Does NFT Stand for? NFT is short for non-fungible token. If someone describes an item as non-fungible, they mean that it is unique and cannot be easily traded with something else. Fungible items can be exchanged for another good or asset of the same value, such as swapping one $10 note for two $5 notes. Non-fungibles don’t work this way—each one is different. How Do I Send Someone an NFT? Once you are equipped with all the necessary materials, including an NFT to gift and a wallet address to send it to, making a transfer is usually quite simple. Generally, it involves opening the account where the NFT is held, locating the NFT, selecting the option to transfer it, and then keying in the recipient’s wallet address. How Much Does It Cost to Transfer an NFT? On most platforms, you will be charged a transaction fee every time you send an NFT to someone else. These fees cover the computational expenses of processing and validating the transfer. You should pay careful attention to these fees, as they can be high. The Bottom Line NFTs are digital collectibles that have become a popular form of investment or gifts. However, because they are based on blockchain networks, it is important to understand how the technology works before giving it away. Make sure that the recipient understands the security risks and costs associated with blockchain transactions so that they can enjoy your gift. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own non-fungible tokens.

https://www.investopedia.com/trump-media-stock-plummets-after-filing-to-issue-millions-of-new-shares-8631534

Trump Media Stock Plummets After Filing To Issue Millions of New Shares

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Trump Media &amp; Technology Group stock sank in intraday trading Monday after the company filed to issue millions of new shares.</li><li>The Truth Social operator could offer about 21.5 million new shares, according to an S-1 filing with the Securities and Exchange Commission.</li><li>The stock has dropped well below the levels it debuted at following the merger of Trump Media and Digital World Acquisition Corp. last month.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Shares of Trump Media &amp; Technology Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DJT">DJT</a>), former President Donald Trump's media company and the parent of Truth Social, plummeted in intraday trading Monday as it reported in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC</a>) filing that it plans to issue millions of additional shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Trump Media could offer up to about 21.5 million shares that are issuable upon the exercise of a number of different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/warrant.asp">warrants</a>, the company said in an S-1 filing.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The company also registered to resell more than 146 million shares, about 115 million of which belong to Trump, who is one of several shareholders who cannot sell shares until after a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lockup-period.asp">predetermined lock-up period</a> passes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Trump Media projected that it would receive about $247.1 million if those who hold <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/warrantcoverage.asp">public warrants</a> exercise them and sell shares, and the company expects they will if the stock's price stays above $11.50. Trump Media shares were down 17% to $26.90 around 1:50 p.m. ET Monday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Shares of Trump Media have been on a rollercoaster since their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-you-need-to-know-ahead-of-truth-social-owner-trump-media-trading-debut-tuesday-8620005">public debut last month</a> following a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trump-truth-social-to-go-public-via-merger-with-dwac-8613288">merger with Digital World Acquisition Corp.</a>, which was first announced in October 2021 and finally completed last month after <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trump-media-company-involved-in-sec-probe-5212221">SEC investigations delayed the merger</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The stock rose 16% in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/truth-social-owner-trump-media-and-technology-stock-soars-in-debut-8620379">first day of trading</a> under the "DJT" ticker, which stands for the former president's initials, but has been on the decline since the company <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trump-media-stock-plunges-after-reporting-usd58m-loss-for-2023-8623071">reported earlier this month that it incurred a $58.2 million loss</a> in fiscal 2023. The Truth Social operator said it expected to continue to "incur operating losses and negative <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flows</a> from operating activities for the foreseeable future, as it works to expand its user base, attracting more platform partners and advertisers." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Trump Media shares last week fell below the levels that DWAC stock was at in the weeks leading up to the merger. </p></div>

### Key Takeaways * Trump Media & Technology Group stock sank in intraday trading Monday after the company filed to issue millions of new shares. * The Truth Social operator could offer about 21.5 million new shares, according to an S-1 filing with the Securities and Exchange Commission. * The stock has dropped well below the levels it debuted at following the merger of Trump Media and Digital World Acquisition Corp. last month. Shares of Trump Media & Technology Group ([DJT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DJT)), former President Donald Trump's media company and the parent of Truth Social, plummeted in intraday trading Monday as it reported in a [Securities and Exchange Commission (SEC](https://www.investopedia.com/terms/s/sec.asp)) filing that it plans to issue millions of additional shares. Trump Media could offer up to about 21.5 million shares that are issuable upon the exercise of a number of different [warrants](https://www.investopedia.com/terms/w/warrant.asp), the company said in an S-1 filing. The company also registered to resell more than 146 million shares, about 115 million of which belong to Trump, who is one of several shareholders who cannot sell shares until after a [predetermined lock-up period](https://www.investopedia.com/terms/l/lockup-period.asp) passes. Trump Media projected that it would receive about $247.1 million if those who hold [public warrants](https://www.investopedia.com/terms/w/warrantcoverage.asp) exercise them and sell shares, and the company expects they will if the stock's price stays above $11.50. Trump Media shares were down 17% to $26.90 around 1:50 p.m. ET Monday. Shares of Trump Media have been on a rollercoaster since their [public debut last month](https://www.investopedia.com/what-you-need-to-know-ahead-of-truth-social-owner-trump-media-trading-debut-tuesday-8620005) following a [merger with Digital World Acquisition Corp.](https://www.investopedia.com/trump-truth-social-to-go-public-via-merger-with-dwac-8613288), which was first announced in October 2021 and finally completed last month after [SEC investigations delayed the merger](https://www.investopedia.com/trump-media-company-involved-in-sec-probe-5212221). The stock rose 16% in its [first day of trading](https://www.investopedia.com/truth-social-owner-trump-media-and-technology-stock-soars-in-debut-8620379) under the "DJT" ticker, which stands for the former president's initials, but has been on the decline since the company [reported earlier this month that it incurred a $58.2 million loss](https://www.investopedia.com/trump-media-stock-plunges-after-reporting-usd58m-loss-for-2023-8623071) in fiscal 2023. The Truth Social operator said it expected to continue to "incur operating losses and negative [cash flows](https://www.investopedia.com/terms/c/cashflow.asp) from operating activities for the foreseeable future, as it works to expand its user base, attracting more platform partners and advertisers." Trump Media shares last week fell below the levels that DWAC stock was at in the weeks leading up to the merger.

Key Takeaways Trump Media & Technology Group stock sank in intraday trading Monday after the company filed to issue millions of new shares.The Truth Social operator could offer about 21.5 million new shares, according to an S-1 filing with the Securities and Exchange Commission.The stock has dropped well below the levels it debuted at following the merger of Trump Media and Digital World Acquisition Corp. last month. Shares of Trump Media & Technology Group (DJT), former President Donald Trump's media company and the parent of Truth Social, plummeted in intraday trading Monday as it reported in a Securities and Exchange Commission (SEC) filing that it plans to issue millions of additional shares. Trump Media could offer up to about 21.5 million shares that are issuable upon the exercise of a number of different warrants, the company said in an S-1 filing. The company also registered to resell more than 146 million shares, about 115 million of which belong to Trump, who is one of several shareholders who cannot sell shares until after a predetermined lock-up period passes. Trump Media projected that it would receive about $247.1 million if those who hold public warrants exercise them and sell shares, and the company expects they will if the stock's price stays above $11.50. Trump Media shares were down 17% to $26.90 around 1:50 p.m. ET Monday. Shares of Trump Media have been on a rollercoaster since their public debut last month following a merger with Digital World Acquisition Corp., which was first announced in October 2021 and finally completed last month after SEC investigations delayed the merger. The stock rose 16% in its first day of trading under the "DJT" ticker, which stands for the former president's initials, but has been on the decline since the company reported earlier this month that it incurred a $58.2 million loss in fiscal 2023. The Truth Social operator said it expected to continue to "incur operating losses and negative cash flows from operating activities for the foreseeable future, as it works to expand its user base, attracting more platform partners and advertisers." Trump Media shares last week fell below the levels that DWAC stock was at in the weeks leading up to the merger.

https://www.investopedia.com/who-is-rishi-sunak-6822837

Who Is Rishi Sunak?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Rishi Sunak is a former <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentbanker.asp">investment banker</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge-fund-manager.asp">hedge fund manager</a> turned politician. He was appointed as prime minister of the United Kingdom by his peers in October 2022 after several years of working in finance and then as a Conservative Party member of Parliament and Chancellor of the Exchequer. Sunak became the first non-White person to lead the country and, at age 42, the youngest to take on the role in more than a century.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Like most politicians, Sunak is revered by some and heavily criticized by others. Supporters believe his experience in finance makes him an ideal candidate to steer Britain through one of its most difficult economic moments. On the other hand, critics say he is too rich and out of touch with the electorate and, based on some documented past actions, argue that he is a poster child of inequality.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Rishi Sunak is the prime minister of the United Kingdom and is the country's first non-White leader.</li><li>Sunak was born in Southampton, England, to Indian parents in 1980 and studied at Winchester College, Oxford University, and Stanford University in the United States.</li><li>Sunak turned to politics after a successful career in finance and becoming very rich.</li></ul></div></div></div> <span class="heading-toc" id="toc-early-life-and-education"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Early Life and Education </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Sunak was born in Southampton, England, in 1980 to parents of Indian descent. His mother and father moved to the U.K. from East Africa in the 1960s and met and married in southern England. The couple had three children—Rishi is the oldest.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Sunak’s father was a doctor, while his mother ran her own pharmacy. Rishi, who later helped his mother with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accounting.asp">accounting</a>, said it was his parents’ jobs that gave him the desire to serve the public. He credited their sacrifices with getting a top education.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> After finishing at the prestigious Winchester College, an expensive private school, Sunak studied philosophy, politics, and economics—a popular choice among future prime ministers—at Lincoln College, Oxford. While there, Sunak interned at the headquarters of the Conservative Party and was president of the Oxford Trading &amp; Investment Society, which teaches students about financial markets and trading.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> His passion for investing led to a job as an analyst at Goldman Sachs, where he worked for three years after graduating from Oxford in 2021. Sunak then won a Fulbright scholarship to pursue a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mba.asp">master of business administration (MBA)</a> at Stanford University. While in the United States, he met his future wife, Akshata Murthy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-notable-accomplishments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Notable Accomplishments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Before his rapid rise up the political ladder, Sunak worked in finance for a number of prestigious companies. These experiences gave him a solid understanding of investing, innovation, and money management, which could come in handy in his role as prime minister, and helped boost his bank balance.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Wealth </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Sunak’s career in finance, and his wife’s stake in Infosys, made him extremely wealthy. According to <em>The Sunday Times</em>, the couple's combined fortune was £529 million as of May 2023. Their net worth dropped by about £201 million from £730 million in 2022 because of a decrease in the value of Infosys.<span class="ql-inline-citation" data-cite="23"></span><span class="ql-inline-citation" data-cite="22"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> This wealth is both a blessing and a curse. On one hand, it shone a light on Sunak’s credentials as highly qualified to handle a nation’s finances. On the other hand, it led to accusations that he is unable to relate to the brutal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/100214/how-cost-living-index-calculated.asp">cost-of-living</a> crisis and financial struggles engulfing many people living in the country he is in charge of running.<span class="ql-inline-citation" data-cite="3"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Sunak’s super-rich status earned him a reputation for being good at managing money. It has also led to accusations that he’s out of touch and incapable of relating to the financial difficulties facing a large portion of the British population.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-subheading__text"> Legacy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Sunak began working for the Conservative Party in 2010 and moved quickly up the ranks. In 2015, he was elected to represent Richmond, a town in Yorkshire, England, in Parliament, a seat he continues to hold. He also served in other government positions before landing the big job of Chancellor of the Exchequer in 2020.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> As the U.K.’s chief finance minister, Sunak was tasked with steering Britain’s economy through a challenging period of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723">COVID-19</a>-related shutdowns. He responded by doling out billions of pounds of aid in the form of salary subsidies for workers, business loans, and so on. Those measures came at a huge cost but were generally well-received.<span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="7"></span><br/><br/>Not long after, and following a previous failed attempt, he was selected by his peers to replace <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-is-liz-truss-6747296">Liz Truss</a> as prime minister. It took just seven years for Sunak to rise from being a Member of Parliament to leading the government.<span class="ql-inline-citation" data-cite="2"></span> He also won plaudits for becoming the first person of color and the first Hindu to lead Britain, and for achieving all these accomplishments at a relatively young age.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-subheading__text"> Personal Life </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Sunak married Akshata Murthy (also spelled Murty) in 2009. She is the daughter of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/020415/top-10-indian-entrepreneurs.asp">Narayana Murthy</a>, an Indian billionaire and co-founder of technology giant Infosys.<span class="ql-inline-citation" data-cite="16"></span> At that point, he returned to the U.K. from the United States and was working in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">hedge fund</a> industry, first for The Children’s Investment Fund and then for Theleme Partners.<span class="ql-inline-citation" data-cite="16"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Sunak was part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brexit.asp">Brexit</a> camp that voted for the U.K. to leave the European Union.<span class="ql-inline-citation" data-cite="16"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-controversies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Controversies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Sunak’s reputation has been tarnished somewhat by his past actions. Among other things, he has been accused of being a traitor, greedy, unpatriotic, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxevasion.asp">tax evader</a>, and flouting the law. Carrying such associations around is far from ideal, especially in the world of politics. The following provides further detail on these labels for Sunak.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-subheading__text"> Tax Dodger </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> One of the most damaging revelations was that Sunak’s wife was using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loophole.asp">loophole</a> to avoid paying U.K. taxes on her global income. Murty, it was confirmed, got out of paying taxes on her international earnings by registering as a non-domiciled U.K. resident. That move reportedly saved her millions in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxliability.asp">tax liabilities</a> and led to a public outcry.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Murty promised to pay taxes on a remittance basis but continues to hold her non-domiciled status. As such, she pays £30,000 per year, which shields her from British taxes on any earnings from overseas sources.<span class="ql-inline-citation" data-cite="24"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> Rich Elitist </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Sunak is extremely rich and known to flaunt his wealth by wearing expensive clothes. These observations have led some to question whether he is too out of touch with the average electorate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Some of the past comments he made haven’t helped. In 2007, Sunak was filmed claiming he does not have working-class friends. He was also caught on camera talking about taking money destined for deprived urban areas and funneling it into wealthier towns instead.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Unpatriotic </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> People who lead countries are generally supposed to present themselves as patriotic and happy to live there. Sunak made the public question that when it was revealed he held onto a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/green-card.asp">Green Card</a> for U.S. residency.<span class="ql-inline-citation" data-cite="12"></span> It was reported that he surrendered his Green Card in October 2021 before he made his first trip to the United States as a British government minister.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Ignoring Lockdown Laws </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In April 2022, then-Prime Minister Boris Johnson, his wife, and Sunak were fined by the police for attending a party in June 2020 when the country was in a COVID-19-imposed lockdown.<span class="ql-inline-citation" data-cite="13"></span> There were calls for Johnson and Sunak to resign—primarily from opposition MPs. They apologized but rejected any calls to step down from their positions.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-subheading__text"> Disloyal </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> When Boris Johnson, the former prime minister who gave Sunak his big break as chancellor, came under fire for his role in the 2020 “Partygate” scandal and other gaffes, Sunak was one of the politicians who turned against him. Then, to add salt to the wound, as soon as Johnson resigned, Sunak put his name forward to replace him.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-where-is-rishi-sunak-from"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Is Rishi Sunak From?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Rishi Sunak was born in Southampton, England. His grandparents emigrated from Punjab, India, to East Africa, and his mother and father moved to England in the 1960s.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-is-rishi-sunaks-role"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Rishi Sunak's Role?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Rishi Sunak is the prime minister of the United Kingdom. He assumed office on Oct. 25, 2022. At age 42, he was the youngest person to take on the role in more than a century. He's also the first non-White individual to lead the U.K.</p><p>Prior to this, Sunak was the Chancellor of the Exchequer between February 2020 and July 2022. He held a number of positions within the British government before 2020, including Chief Secretary to the Treasury.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-is-rishi-sunaks-net-worth"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Rishi Sunak's Net Worth?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Rishi Sunak is considerably wealthy. His early career in finance along with his wife's stake in Infosys (her father's company) helped the two amass a sizeable fortune. As of May 2023, their net worth was about £529 million.<span class="ql-inline-citation" data-cite="23"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Rishi Sunak made headlines a lot in the past few years. His speedy rise to the top of British politics at a young age earned him plaudits, as has his experience in the finance world. Sunak also broke down barriers by becoming the first non-White leader of one the world’s largest economies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> But the news flow hasn’t all been good, though. Sunak happens to have a few skeletons in his closet that opposition politicians use as ammunition. He also finds himself in the hot seat in a difficult period. The party he leads has been in power for more than a decade and, after several enforced leadership changes, is no longer popular.<span class="ql-inline-citation" data-cite="14"></span> And the country he is responsible for running is in the midst of a deepening economic crisis.<span class="ql-inline-citation" data-cite="21"></span><br> </br></p></div>

Rishi Sunak is a former [investment banker](https://www.investopedia.com/terms/i/investmentbanker.asp) and [hedge fund manager](https://www.investopedia.com/terms/h/hedge-fund-manager.asp) turned politician. He was appointed as prime minister of the United Kingdom by his peers in October 2022 after several years of working in finance and then as a Conservative Party member of Parliament and Chancellor of the Exchequer. Sunak became the first non-White person to lead the country and, at age 42, the youngest to take on the role in more than a century. Like most politicians, Sunak is revered by some and heavily criticized by others. Supporters believe his experience in finance makes him an ideal candidate to steer Britain through one of its most difficult economic moments. On the other hand, critics say he is too rich and out of touch with the electorate and, based on some documented past actions, argue that he is a poster child of inequality. ### Key Takeaways * Rishi Sunak is the prime minister of the United Kingdom and is the country's first non-White leader. * Sunak was born in Southampton, England, to Indian parents in 1980 and studied at Winchester College, Oxford University, and Stanford University in the United States. * Sunak turned to politics after a successful career in finance and becoming very rich. ## Early Life and Education Sunak was born in Southampton, England, in 1980 to parents of Indian descent. His mother and father moved to the U.K. from East Africa in the 1960s and met and married in southern England. The couple had three children—Rishi is the oldest. Sunak’s father was a doctor, while his mother ran her own pharmacy. Rishi, who later helped his mother with [accounting](https://www.investopedia.com/terms/a/accounting.asp), said it was his parents’ jobs that gave him the desire to serve the public. He credited their sacrifices with getting a top education. After finishing at the prestigious Winchester College, an expensive private school, Sunak studied philosophy, politics, and economics—a popular choice among future prime ministers—at Lincoln College, Oxford. While there, Sunak interned at the headquarters of the Conservative Party and was president of the Oxford Trading & Investment Society, which teaches students about financial markets and trading. His passion for investing led to a job as an analyst at Goldman Sachs, where he worked for three years after graduating from Oxford in 2021. Sunak then won a Fulbright scholarship to pursue a [master of business administration (MBA)](https://www.investopedia.com/terms/m/mba.asp) at Stanford University. While in the United States, he met his future wife, Akshata Murthy. ## Notable Accomplishments Before his rapid rise up the political ladder, Sunak worked in finance for a number of prestigious companies. These experiences gave him a solid understanding of investing, innovation, and money management, which could come in handy in his role as prime minister, and helped boost his bank balance. ### Wealth Sunak’s career in finance, and his wife’s stake in Infosys, made him extremely wealthy. According to *The Sunday Times*, the couple's combined fortune was £529 million as of May 2023. Their net worth dropped by about £201 million from £730 million in 2022 because of a decrease in the value of Infosys. This wealth is both a blessing and a curse. On one hand, it shone a light on Sunak’s credentials as highly qualified to handle a nation’s finances. On the other hand, it led to accusations that he is unable to relate to the brutal [cost-of-living](https://www.investopedia.com/ask/answers/100214/how-cost-living-index-calculated.asp) crisis and financial struggles engulfing many people living in the country he is in charge of running. ### Sunak’s super-rich status earned him a reputation for being good at managing money. It has also led to accusations that he’s out of touch and incapable of relating to the financial difficulties facing a large portion of the British population. ### Legacy Sunak began working for the Conservative Party in 2010 and moved quickly up the ranks. In 2015, he was elected to represent Richmond, a town in Yorkshire, England, in Parliament, a seat he continues to hold. He also served in other government positions before landing the big job of Chancellor of the Exchequer in 2020. As the U.K.’s chief finance minister, Sunak was tasked with steering Britain’s economy through a challenging period of [COVID-19](https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723)-related shutdowns. He responded by doling out billions of pounds of aid in the form of salary subsidies for workers, business loans, and so on. Those measures came at a huge cost but were generally well-received. Not long after, and following a previous failed attempt, he was selected by his peers to replace [Liz Truss](https://www.investopedia.com/who-is-liz-truss-6747296) as prime minister. It took just seven years for Sunak to rise from being a Member of Parliament to leading the government. He also won plaudits for becoming the first person of color and the first Hindu to lead Britain, and for achieving all these accomplishments at a relatively young age. ### Personal Life Sunak married Akshata Murthy (also spelled Murty) in 2009. She is the daughter of [Narayana Murthy](https://www.investopedia.com/articles/personal-finance/020415/top-10-indian-entrepreneurs.asp), an Indian billionaire and co-founder of technology giant Infosys. At that point, he returned to the U.K. from the United States and was working in the [hedge fund](https://www.investopedia.com/terms/h/hedgefund.asp) industry, first for The Children’s Investment Fund and then for Theleme Partners. ### Sunak was part of the [Brexit](https://www.investopedia.com/terms/b/brexit.asp) camp that voted for the U.K. to leave the European Union. ## Controversies Sunak’s reputation has been tarnished somewhat by his past actions. Among other things, he has been accused of being a traitor, greedy, unpatriotic, a [tax evader](https://www.investopedia.com/terms/t/taxevasion.asp), and flouting the law. Carrying such associations around is far from ideal, especially in the world of politics. The following provides further detail on these labels for Sunak. ### Tax Dodger One of the most damaging revelations was that Sunak’s wife was using a [loophole](https://www.investopedia.com/terms/l/loophole.asp) to avoid paying U.K. taxes on her global income. Murty, it was confirmed, got out of paying taxes on her international earnings by registering as a non-domiciled U.K. resident. That move reportedly saved her millions in [tax liabilities](https://www.investopedia.com/terms/t/taxliability.asp) and led to a public outcry. Murty promised to pay taxes on a remittance basis but continues to hold her non-domiciled status. As such, she pays £30,000 per year, which shields her from British taxes on any earnings from overseas sources. ### Rich Elitist Sunak is extremely rich and known to flaunt his wealth by wearing expensive clothes. These observations have led some to question whether he is too out of touch with the average electorate. Some of the past comments he made haven’t helped. In 2007, Sunak was filmed claiming he does not have working-class friends. He was also caught on camera talking about taking money destined for deprived urban areas and funneling it into wealthier towns instead. ### Unpatriotic People who lead countries are generally supposed to present themselves as patriotic and happy to live there. Sunak made the public question that when it was revealed he held onto a [Green Card](https://www.investopedia.com/terms/g/green-card.asp) for U.S. residency. It was reported that he surrendered his Green Card in October 2021 before he made his first trip to the United States as a British government minister. ### Ignoring Lockdown Laws In April 2022, then-Prime Minister Boris Johnson, his wife, and Sunak were fined by the police for attending a party in June 2020 when the country was in a COVID-19-imposed lockdown. There were calls for Johnson and Sunak to resign—primarily from opposition MPs. They apologized but rejected any calls to step down from their positions. ### Disloyal When Boris Johnson, the former prime minister who gave Sunak his big break as chancellor, came under fire for his role in the 2020 “Partygate” scandal and other gaffes, Sunak was one of the politicians who turned against him. Then, to add salt to the wound, as soon as Johnson resigned, Sunak put his name forward to replace him. ## Where Is Rishi Sunak From? Rishi Sunak was born in Southampton, England. His grandparents emigrated from Punjab, India, to East Africa, and his mother and father moved to England in the 1960s. ## What Is Rishi Sunak's Role? Rishi Sunak is the prime minister of the United Kingdom. He assumed office on Oct. 25, 2022. At age 42, he was the youngest person to take on the role in more than a century. He's also the first non-White individual to lead the U.K. Prior to this, Sunak was the Chancellor of the Exchequer between February 2020 and July 2022. He held a number of positions within the British government before 2020, including Chief Secretary to the Treasury. ## What Is Rishi Sunak's Net Worth? Rishi Sunak is considerably wealthy. His early career in finance along with his wife's stake in Infosys (her father's company) helped the two amass a sizeable fortune. As of May 2023, their net worth was about £529 million. ## The Bottom Line Rishi Sunak made headlines a lot in the past few years. His speedy rise to the top of British politics at a young age earned him plaudits, as has his experience in the finance world. Sunak also broke down barriers by becoming the first non-White leader of one the world’s largest economies. But the news flow hasn’t all been good, though. Sunak happens to have a few skeletons in his closet that opposition politicians use as ammunition. He also finds himself in the hot seat in a difficult period. The party he leads has been in power for more than a decade and, after several enforced leadership changes, is no longer popular. And the country he is responsible for running is in the midst of a deepening economic crisis.

Rishi Sunak is a former investment banker and hedge fund manager turned politician. He was appointed as prime minister of the United Kingdom by his peers in October 2022 after several years of working in finance and then as a Conservative Party member of Parliament and Chancellor of the Exchequer. Sunak became the first non-White person to lead the country and, at age 42, the youngest to take on the role in more than a century. Like most politicians, Sunak is revered by some and heavily criticized by others. Supporters believe his experience in finance makes him an ideal candidate to steer Britain through one of its most difficult economic moments. On the other hand, critics say he is too rich and out of touch with the electorate and, based on some documented past actions, argue that he is a poster child of inequality. Key Takeaways Rishi Sunak is the prime minister of the United Kingdom and is the country's first non-White leader.Sunak was born in Southampton, England, to Indian parents in 1980 and studied at Winchester College, Oxford University, and Stanford University in the United States.Sunak turned to politics after a successful career in finance and becoming very rich. Early Life and Education Sunak was born in Southampton, England, in 1980 to parents of Indian descent. His mother and father moved to the U.K. from East Africa in the 1960s and met and married in southern England. The couple had three children—Rishi is the oldest. Sunak’s father was a doctor, while his mother ran her own pharmacy. Rishi, who later helped his mother with accounting, said it was his parents’ jobs that gave him the desire to serve the public. He credited their sacrifices with getting a top education. After finishing at the prestigious Winchester College, an expensive private school, Sunak studied philosophy, politics, and economics—a popular choice among future prime ministers—at Lincoln College, Oxford. While there, Sunak interned at the headquarters of the Conservative Party and was president of the Oxford Trading & Investment Society, which teaches students about financial markets and trading. His passion for investing led to a job as an analyst at Goldman Sachs, where he worked for three years after graduating from Oxford in 2021. Sunak then won a Fulbright scholarship to pursue a master of business administration (MBA) at Stanford University. While in the United States, he met his future wife, Akshata Murthy. Notable Accomplishments Before his rapid rise up the political ladder, Sunak worked in finance for a number of prestigious companies. These experiences gave him a solid understanding of investing, innovation, and money management, which could come in handy in his role as prime minister, and helped boost his bank balance. Wealth Sunak’s career in finance, and his wife’s stake in Infosys, made him extremely wealthy. According to The Sunday Times, the couple's combined fortune was £529 million as of May 2023. Their net worth dropped by about £201 million from £730 million in 2022 because of a decrease in the value of Infosys. This wealth is both a blessing and a curse. On one hand, it shone a light on Sunak’s credentials as highly qualified to handle a nation’s finances. On the other hand, it led to accusations that he is unable to relate to the brutal cost-of-living crisis and financial struggles engulfing many people living in the country he is in charge of running. Sunak’s super-rich status earned him a reputation for being good at managing money. It has also led to accusations that he’s out of touch and incapable of relating to the financial difficulties facing a large portion of the British population. Legacy Sunak began working for the Conservative Party in 2010 and moved quickly up the ranks. In 2015, he was elected to represent Richmond, a town in Yorkshire, England, in Parliament, a seat he continues to hold. He also served in other government positions before landing the big job of Chancellor of the Exchequer in 2020. As the U.K.’s chief finance minister, Sunak was tasked with steering Britain’s economy through a challenging period of COVID-19-related shutdowns. He responded by doling out billions of pounds of aid in the form of salary subsidies for workers, business loans, and so on. Those measures came at a huge cost but were generally well-received.Not long after, and following a previous failed attempt, he was selected by his peers to replace Liz Truss as prime minister. It took just seven years for Sunak to rise from being a Member of Parliament to leading the government. He also won plaudits for becoming the first person of color and the first Hindu to lead Britain, and for achieving all these accomplishments at a relatively young age. Personal Life Sunak married Akshata Murthy (also spelled Murty) in 2009. She is the daughter of Narayana Murthy, an Indian billionaire and co-founder of technology giant Infosys. At that point, he returned to the U.K. from the United States and was working in the hedge fund industry, first for The Children’s Investment Fund and then for Theleme Partners. Sunak was part of the Brexit camp that voted for the U.K. to leave the European Union. Controversies Sunak’s reputation has been tarnished somewhat by his past actions. Among other things, he has been accused of being a traitor, greedy, unpatriotic, a tax evader, and flouting the law. Carrying such associations around is far from ideal, especially in the world of politics. The following provides further detail on these labels for Sunak. Tax Dodger One of the most damaging revelations was that Sunak’s wife was using a loophole to avoid paying U.K. taxes on her global income. Murty, it was confirmed, got out of paying taxes on her international earnings by registering as a non-domiciled U.K. resident. That move reportedly saved her millions in tax liabilities and led to a public outcry. Murty promised to pay taxes on a remittance basis but continues to hold her non-domiciled status. As such, she pays £30,000 per year, which shields her from British taxes on any earnings from overseas sources. Rich Elitist Sunak is extremely rich and known to flaunt his wealth by wearing expensive clothes. These observations have led some to question whether he is too out of touch with the average electorate. Some of the past comments he made haven’t helped. In 2007, Sunak was filmed claiming he does not have working-class friends. He was also caught on camera talking about taking money destined for deprived urban areas and funneling it into wealthier towns instead. Unpatriotic People who lead countries are generally supposed to present themselves as patriotic and happy to live there. Sunak made the public question that when it was revealed he held onto a Green Card for U.S. residency. It was reported that he surrendered his Green Card in October 2021 before he made his first trip to the United States as a British government minister. Ignoring Lockdown Laws In April 2022, then-Prime Minister Boris Johnson, his wife, and Sunak were fined by the police for attending a party in June 2020 when the country was in a COVID-19-imposed lockdown. There were calls for Johnson and Sunak to resign—primarily from opposition MPs. They apologized but rejected any calls to step down from their positions. Disloyal When Boris Johnson, the former prime minister who gave Sunak his big break as chancellor, came under fire for his role in the 2020 “Partygate” scandal and other gaffes, Sunak was one of the politicians who turned against him. Then, to add salt to the wound, as soon as Johnson resigned, Sunak put his name forward to replace him. Where Is Rishi Sunak From? Rishi Sunak was born in Southampton, England. His grandparents emigrated from Punjab, India, to East Africa, and his mother and father moved to England in the 1960s. What Is Rishi Sunak's Role? Rishi Sunak is the prime minister of the United Kingdom. He assumed office on Oct. 25, 2022. At age 42, he was the youngest person to take on the role in more than a century. He's also the first non-White individual to lead the U.K.Prior to this, Sunak was the Chancellor of the Exchequer between February 2020 and July 2022. He held a number of positions within the British government before 2020, including Chief Secretary to the Treasury. What Is Rishi Sunak's Net Worth? Rishi Sunak is considerably wealthy. His early career in finance along with his wife's stake in Infosys (her father's company) helped the two amass a sizeable fortune. As of May 2023, their net worth was about £529 million. The Bottom Line Rishi Sunak made headlines a lot in the past few years. His speedy rise to the top of British politics at a young age earned him plaudits, as has his experience in the finance world. Sunak also broke down barriers by becoming the first non-White leader of one the world’s largest economies. But the news flow hasn’t all been good, though. Sunak happens to have a few skeletons in his closet that opposition politicians use as ammunition. He also finds himself in the hot seat in a difficult period. The party he leads has been in power for more than a decade and, after several enforced leadership changes, is no longer popular. And the country he is responsible for running is in the midst of a deepening economic crisis.

https://www.investopedia.com/big-investors-q1-investment-portfolios-13f-preview-8645809

What To Watch For As Big Investors Reveal Their Q1 Portfolio Bets This Week

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Berkshire Hathaway, Third Point, and other institutional investors will file 13F forms for the first quarter by Wednesday.<br/></li><li>Berkshire has already revealed that it trimmed its position in Apple and exited its position in Paramount as it works to build up its cash reserves.</li><li>AI is once again a major trend to watch, as investors will keep an eye on changes to holdings in AI-focused tech firms, chipmakers, and other companies tied to the emerging technology.</li><li>Nvidia will be another company to watch, as it will feature as an investment while also filing its own for its positions in stocks such as Arm and SoundHound.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If you look to the investment wisdom of major investors, such as Warren Buffett, Dan Loeb, and others, you will be keeping a close eye on 13F filings this week that will reveal how their equity positions changed from the beginning of the year to the end of March. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Most large investors with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a> of $100 million or more are required to report their equity holdings each quarter via the SEC's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form-13f.asp">Form 13F</a>. The deadline for these filings for the March quarter is May 15. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> But remember, the 13F filings are only a snapshot of the portfolios at the end of the March quarter, and offer no insight into the price investments were made at or any profit or loss from their sale. They may also not be accurately representative of the portfolios today since trades after March will not be accounted for in these filings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-more-changes-for-buffett-after-apple-paramount"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> More Changes For Buffett After Apple, Paramount? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> At the recent Berkshire Hathaway (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.A">BRK.A</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B">BRK.B</a>) annual shareholders meeting. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/warren-buffett-4689826">Warren Buffett</a> revealed two changes to the company's portfolio, and investors will be keen to know if there were more. The will be especially eager to know any details around the mystery stock investment that it has kept a lid on for almost two filing cycles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/berkshire-hathaway-sliced-apple-stock-holdings-in-first-quarter-8643549">pared its stake</a> in Apple (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) for a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/buffett-berkshire-hathaway-slashed-positions-in-hp-apple-and-paramount-global-in-q4-2023-8581981">second quarter</a> in a row, though it remains Berkshire's largest stock holding. According to Berkshire filings, its Apple position was worth $135.4 billion at the end of the first quarter, compared with $174.3 billion at the end of 2023. That's a roughly 22% decline in value, when Apple's price dropped only about 11% at the end of March, compared to the last trading day of December. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The sale was linked to Buffett's desire to add the the company's already massive cash reserve of $189 billion, which he predicts will rise to over $200 billion by the end of the second quarter. Investors may want to keep an eye on whether Buffett sold shares of any other companies last quarter to add to the cash pile. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> But there was one investment that didn't quite work out for Berkshire, a rare <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0210/buffetts-biggest-mistakes.aspx">mistake from Buffett</a>. He admitted during the annual meeting that Berkshire sold its entire position in Paramount Global (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PARA">PARA</a>) at a big loss. The company had bought Paramount shares in the first quarter of 2022 and at the end of last year, it held 63.3 million shares.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/HPqGz/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Warren Buffett's Berkshire Hathaway Top 5 Holdings"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-loebs-learning-to-love-alphabet-again-on-ai-potential"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Loeb's Learning To Love Alphabet Again On AI Potential </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Dan Loeb's Third Point Capital sold its entire Alphabet stake (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOG">GOOG</a>) (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) in the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dan-loeb-s-third-point-exited-alphabet-slashed-uber-stake-in-q4-8582093">fourth quarter of 2023</a>. But, it looks like Loeb's changed his mind. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Third Point made a "substantial investment" in Alphabet during the first three months of the year, Loeb said in a recent investor letter, adding that any artificial intelligence-related benefits to the company could outweigh any risks AI poses to its core business. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Alphabet "has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products," Loeb wrote.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Of course, investors will want to know how large Loeb's renewed position in Alphabet is, but will also be looking for details around other AI-related investments that now comprise of about half of his entire portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Third Point upped its holding of Taiwan Semiconductor Manufacturing Co. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM">TSM</a>) and Loeb pointed specifically to legacy tech companies like Microsoft (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) and Amazon (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) as key players in the AI race, perhaps signaling that those are companies to watch for in the upcoming 13F filing. The fund had sold shares in all three companies in the fourth quarter.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-nvidia-an-investment-and-an-investor"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Nvidia: An Investment and An Investor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> No conversation around AI-related equity investments can be complete without mentioning Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>). But prominent investors have extremely divergent views on investing in the tech giant that provides hardware for AI platforms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Buffett, for example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/berkshire-hathaway-does-not-hold-nvidia-stock-will-warren-buffett-come-to-regret-it-8600072">didn't own any shares of Nvidia</a> as of December and given the views on AI he expressed at the annual meeting, chances are that stance hasn't changed much. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> But <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ray-dalio-6753592">Ray Dalio</a>'s Bridewater Associates bought a massive stake in Nvidia at the end of last year, increasing its holding nearly six-fold.<span class="ql-inline-citation" data-cite="6"></span> Investors would want to know if the fund continues to remain bullish on the chipmaker, or has its view changed like that of Stanley Druckemiller. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Druckenmiller's Duquesne Family Office sold Nvidia shares after they more than tripled in 2023, he told <em>CNBC</em>, adding that the AI trend is "a little overhyped now, but underhyped long term."<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> But Nvidia's not just an investment, it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/since-nvidia-disclosed-stakes-in-these-stocks-they-have-soared-8609624">filed its first 13-F </a>last quarter to reveal companies it had invested in. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> As of December, Nvidia had positions in AI-focused firms including Arm (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM">ARM</a>), SoundHound AI (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOUN">SOUN</a>), Nanox Imaging (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NNOX">NNOX</a>), and Recursion Pharmaceuticals (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RXRX">RXRX</a>).<span class="ql-inline-citation" data-cite="4"></span> Several of the stocks included in the 13F experienced an increase in share price after the disclosure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Given Nvidia's prominent position in AI, it's likely that shifts in its holdings revealed in its upcoming 13F filing could prompt additional market movement for those companies.<br> </br></p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:tips@investopedia.com" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">tips@investopedia.com</span></a></div></div>

### Key Takeaways * Berkshire Hathaway, Third Point, and other institutional investors will file 13F forms for the first quarter by Wednesday. * Berkshire has already revealed that it trimmed its position in Apple and exited its position in Paramount as it works to build up its cash reserves. * AI is once again a major trend to watch, as investors will keep an eye on changes to holdings in AI-focused tech firms, chipmakers, and other companies tied to the emerging technology. * Nvidia will be another company to watch, as it will feature as an investment while also filing its own for its positions in stocks such as Arm and SoundHound. If you look to the investment wisdom of major investors, such as Warren Buffett, Dan Loeb, and others, you will be keeping a close eye on 13F filings this week that will reveal how their equity positions changed from the beginning of the year to the end of March. Most large investors with [assets under management](https://www.investopedia.com/terms/a/aum.asp) of $100 million or more are required to report their equity holdings each quarter via the SEC's [Form 13F](https://www.investopedia.com/terms/f/form-13f.asp). The deadline for these filings for the March quarter is May 15. But remember, the 13F filings are only a snapshot of the portfolios at the end of the March quarter, and offer no insight into the price investments were made at or any profit or loss from their sale. They may also not be accurately representative of the portfolios today since trades after March will not be accounted for in these filings. ## More Changes For Buffett After Apple, Paramount? At the recent Berkshire Hathaway ([BRK.A](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.A), [BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B)) annual shareholders meeting. [Warren Buffett](https://www.investopedia.com/warren-buffett-4689826) revealed two changes to the company's portfolio, and investors will be keen to know if there were more. The will be especially eager to know any details around the mystery stock investment that it has kept a lid on for almost two filing cycles. The company [pared its stake](https://www.investopedia.com/berkshire-hathaway-sliced-apple-stock-holdings-in-first-quarter-8643549) in Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) for a [second quarter](https://www.investopedia.com/buffett-berkshire-hathaway-slashed-positions-in-hp-apple-and-paramount-global-in-q4-2023-8581981) in a row, though it remains Berkshire's largest stock holding. According to Berkshire filings, its Apple position was worth $135.4 billion at the end of the first quarter, compared with $174.3 billion at the end of 2023. That's a roughly 22% decline in value, when Apple's price dropped only about 11% at the end of March, compared to the last trading day of December. The sale was linked to Buffett's desire to add the the company's already massive cash reserve of $189 billion, which he predicts will rise to over $200 billion by the end of the second quarter. Investors may want to keep an eye on whether Buffett sold shares of any other companies last quarter to add to the cash pile. But there was one investment that didn't quite work out for Berkshire, a rare [mistake from Buffett](https://www.investopedia.com/financial-edge/0210/buffetts-biggest-mistakes.aspx). He admitted during the annual meeting that Berkshire sold its entire position in Paramount Global ([PARA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PARA)) at a big loss. The company had bought Paramount shares in the first quarter of 2022 and at the end of last year, it held 63.3 million shares. ## Loeb's Learning To Love Alphabet Again On AI Potential Dan Loeb's Third Point Capital sold its entire Alphabet stake ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOG)) ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) in the [fourth quarter of 2023](https://www.investopedia.com/dan-loeb-s-third-point-exited-alphabet-slashed-uber-stake-in-q4-8582093). But, it looks like Loeb's changed his mind. Third Point made a "substantial investment" in Alphabet during the first three months of the year, Loeb said in a recent investor letter, adding that any artificial intelligence-related benefits to the company could outweigh any risks AI poses to its core business. Alphabet "has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products," Loeb wrote. Of course, investors will want to know how large Loeb's renewed position in Alphabet is, but will also be looking for details around other AI-related investments that now comprise of about half of his entire portfolio. Third Point upped its holding of Taiwan Semiconductor Manufacturing Co. ([TSM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM)) and Loeb pointed specifically to legacy tech companies like Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) as key players in the AI race, perhaps signaling that those are companies to watch for in the upcoming 13F filing. The fund had sold shares in all three companies in the fourth quarter. ## Nvidia: An Investment and An Investor No conversation around AI-related equity investments can be complete without mentioning Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)). But prominent investors have extremely divergent views on investing in the tech giant that provides hardware for AI platforms. Buffett, for example, [didn't own any shares of Nvidia](https://www.investopedia.com/berkshire-hathaway-does-not-hold-nvidia-stock-will-warren-buffett-come-to-regret-it-8600072) as of December and given the views on AI he expressed at the annual meeting, chances are that stance hasn't changed much. But [Ray Dalio](https://www.investopedia.com/ray-dalio-6753592)'s Bridewater Associates bought a massive stake in Nvidia at the end of last year, increasing its holding nearly six-fold. Investors would want to know if the fund continues to remain bullish on the chipmaker, or has its view changed like that of Stanley Druckemiller. Druckenmiller's Duquesne Family Office sold Nvidia shares after they more than tripled in 2023, he told *CNBC*, adding that the AI trend is "a little overhyped now, but underhyped long term." But Nvidia's not just an investment, it [filed its first 13-F](https://www.investopedia.com/since-nvidia-disclosed-stakes-in-these-stocks-they-have-soared-8609624) last quarter to reveal companies it had invested in. As of December, Nvidia had positions in AI-focused firms including Arm ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM)), SoundHound AI ([SOUN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOUN)), Nanox Imaging ([NNOX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NNOX)), and Recursion Pharmaceuticals ([RXRX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RXRX)). Several of the stocks included in the 13F experienced an increase in share price after the disclosure. Given Nvidia's prominent position in AI, it's likely that shifts in its holdings revealed in its upcoming 13F filing could prompt additional market movement for those companies. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Berkshire Hathaway, Third Point, and other institutional investors will file 13F forms for the first quarter by Wednesday.Berkshire has already revealed that it trimmed its position in Apple and exited its position in Paramount as it works to build up its cash reserves.AI is once again a major trend to watch, as investors will keep an eye on changes to holdings in AI-focused tech firms, chipmakers, and other companies tied to the emerging technology.Nvidia will be another company to watch, as it will feature as an investment while also filing its own for its positions in stocks such as Arm and SoundHound. If you look to the investment wisdom of major investors, such as Warren Buffett, Dan Loeb, and others, you will be keeping a close eye on 13F filings this week that will reveal how their equity positions changed from the beginning of the year to the end of March. Most large investors with assets under management of $100 million or more are required to report their equity holdings each quarter via the SEC's Form 13F. The deadline for these filings for the March quarter is May 15. But remember, the 13F filings are only a snapshot of the portfolios at the end of the March quarter, and offer no insight into the price investments were made at or any profit or loss from their sale. They may also not be accurately representative of the portfolios today since trades after March will not be accounted for in these filings. More Changes For Buffett After Apple, Paramount? At the recent Berkshire Hathaway (BRK.A, BRK.B) annual shareholders meeting. Warren Buffett revealed two changes to the company's portfolio, and investors will be keen to know if there were more. The will be especially eager to know any details around the mystery stock investment that it has kept a lid on for almost two filing cycles. The company pared its stake in Apple (AAPL) for a second quarter in a row, though it remains Berkshire's largest stock holding. According to Berkshire filings, its Apple position was worth $135.4 billion at the end of the first quarter, compared with $174.3 billion at the end of 2023. That's a roughly 22% decline in value, when Apple's price dropped only about 11% at the end of March, compared to the last trading day of December. The sale was linked to Buffett's desire to add the the company's already massive cash reserve of $189 billion, which he predicts will rise to over $200 billion by the end of the second quarter. Investors may want to keep an eye on whether Buffett sold shares of any other companies last quarter to add to the cash pile. But there was one investment that didn't quite work out for Berkshire, a rare mistake from Buffett. He admitted during the annual meeting that Berkshire sold its entire position in Paramount Global (PARA) at a big loss. The company had bought Paramount shares in the first quarter of 2022 and at the end of last year, it held 63.3 million shares. Loeb's Learning To Love Alphabet Again On AI Potential Dan Loeb's Third Point Capital sold its entire Alphabet stake (GOOG) (GOOGL) in the fourth quarter of 2023. But, it looks like Loeb's changed his mind. Third Point made a "substantial investment" in Alphabet during the first three months of the year, Loeb said in a recent investor letter, adding that any artificial intelligence-related benefits to the company could outweigh any risks AI poses to its core business. Alphabet "has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products," Loeb wrote. Of course, investors will want to know how large Loeb's renewed position in Alphabet is, but will also be looking for details around other AI-related investments that now comprise of about half of his entire portfolio. Third Point upped its holding of Taiwan Semiconductor Manufacturing Co. (TSM) and Loeb pointed specifically to legacy tech companies like Microsoft (MSFT) and Amazon (AMZN) as key players in the AI race, perhaps signaling that those are companies to watch for in the upcoming 13F filing. The fund had sold shares in all three companies in the fourth quarter. Nvidia: An Investment and An Investor No conversation around AI-related equity investments can be complete without mentioning Nvidia (NVDA). But prominent investors have extremely divergent views on investing in the tech giant that provides hardware for AI platforms. Buffett, for example, didn't own any shares of Nvidia as of December and given the views on AI he expressed at the annual meeting, chances are that stance hasn't changed much. But Ray Dalio's Bridewater Associates bought a massive stake in Nvidia at the end of last year, increasing its holding nearly six-fold. Investors would want to know if the fund continues to remain bullish on the chipmaker, or has its view changed like that of Stanley Druckemiller. Druckenmiller's Duquesne Family Office sold Nvidia shares after they more than tripled in 2023, he told CNBC, adding that the AI trend is "a little overhyped now, but underhyped long term." But Nvidia's not just an investment, it filed its first 13-F last quarter to reveal companies it had invested in. As of December, Nvidia had positions in AI-focused firms including Arm (ARM), SoundHound AI (SOUN), Nanox Imaging (NNOX), and Recursion Pharmaceuticals (RXRX). Several of the stocks included in the 13F experienced an increase in share price after the disclosure. Given Nvidia's prominent position in AI, it's likely that shifts in its holdings revealed in its upcoming 13F filing could prompt additional market movement for those companies. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/c/cfp.asp

Certified Financial Planner™ (CFP®): What It Is and How to Become One

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-certified-financial-planner-cfp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Certified Financial Planner™ (CFP®)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Certified Financial Planner™ (CFP^®) is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams, then continue ongoing annual education programs to sustain their skills and certification. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A certified financial planner (CFP^®) has received a formal designation from the Certified Financial Planner Board of Standards, Inc.<span class="ql-inline-citation" data-cite="4"></span></li><li>CFPs help individuals in a variety of areas in managing their finances, such as retirement, investing, education, insurance, and taxes.</li><li>Becoming a CFP^® is a difficult and stringent process. It requires years of experience, successful completion of standardized exams, a demonstration of ethics, and a formal education.</li><li>The most important aspect quality of a CFP^® is that they have a fiduciary duty, meaning they must make decisions with their client's best interests in mind.<span class="ql-inline-citation" data-cite="5"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-roles-and-responsibilities-of-a-certified-financial-planner-cfp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Roles and Responsibilities of a Certified Financial Planner™ (CFP®) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> CFPs are there to help individuals manage their finances. This can include a variety of needs, such as investment planning, retirement planning, insurance, and education planning. The most important aspect of a CFP^®is to be a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiduciary.asp">fiduciary</a> of your assets, meaning that they will make decisions with your best interests in mind. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> CFPs are all-encompassing, particularly when compared to investment advisors. CFPs will usually start the process by evaluating your current finances, including any cash, assets, investments, or properties, to come up with an estimate of your income and net worth. They also take a look at your liabilities, such as mortgages and student debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> From this point on they work with you to come up with an individualized financial plan. For example, say you are nearing retirement, the CFP^® will create a financial plan that can see you through your retirement years. Or perhaps you have a child that will be starting college. The CFP^® can help create a financial plan to manage that cost. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A CFP^® is a financial adviser who has earned a certification that indicates in-depth knowledge of financial planning. The requirements to become a CFP are some of the most difficult and stringent in the financial industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-cfp-and-fiduciary-duty"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> CFP® and Fiduciary Duty </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> All CFPs are held to the standard of fiduciary duty. That means they must always put your interests as a client ahead of their own. For example, if they would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/031715/certified-financial-planner-cfp-salary.asp">make more money</a> selling one product over another, but the product that made them less money was better for you, that is the product they must recommend. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A CFP's fiduciary duty is clearly laid out by the CFP Board and states "At all times when providing financial advice to a client, a CFP^® professional must act as a fiduciary, and therefore, act in the best interest of the client." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The board goes on to state that three duties must be met by an adviser with a fiduciary duty. These are (1) duty of loyalty, (2) duty of care, and (3) duty to follow client instructions.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-how-to-become-a-certified-financial-planner-cfp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> How to Become a Certified Financial Planner™ (CFP®) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Earning the CFP^® designation involves meeting requirements in four areas: formal education, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cfp-exam-prep-courses-5094913">performance on the CFP exam</a>, relevant work experience, and demonstrated professional ethics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The education requirements comprise two major components. The candidate must hold a bachelor's or higher degree from an accredited university or college. Second, the candidate must complete a list of specific courses in financial planning, as specified by the CFP Board.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Much of this second requirement is typically waived if the candidate holds certain accepted financial designations, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">chartered financial analyst</a> (CFA) or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cpa.asp">certified public accountant</a> (CPA) designation, or has a higher degree in business, such as a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mba.asp">master of business administration</a> (MBA).<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As for professional experience, candidates must prove they have at least three years (or 6,000 hours) of full-time professional experience in the industry, or two years (4,000 hours) in an apprenticeship role.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Lastly, candidates and CFP^® holders must adhere to the CFP Board's standards of professional conduct. They must also regularly disclose information about any involvement in criminal activity, inquiries by government agencies, bankruptcies, customer complaints, or terminations by employers. The CFP Board conducts an extensive background check on all candidates before granting the certification.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Even successful completion of the above steps doesn't guarantee receipt of the CFP^® designation. The CFP Board has final discretion on whether to award the designation to an individual.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-the-certified-financial-planner-cfp-exam"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> The Certified Financial Planner (CFP) Exam </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionaleducation/07/cfp_exam.asp">CFP exam</a> includes 170 multiple-choice on more than 100 topics related to financial planning. The scope includes professional conduct and regulations, financial planning principles, education planning, risk management, insurance, investments, tax planning, retirement planning, and estate planning.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The various topic areas are weighted, and the most recent weighting is available on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements/cfp-exam-requirement/about-cfp-exam">CFP Board website</a>. Further questions test the candidate's expertise in establishing client-planner relationships and gathering relevant information, and their ability to analyze, develop, communicate, implement, and monitor the recommendations they make to their clients.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Here's some additional information on the administration, costs, and scoring of the CFP exam: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <li><strong>Timing: </strong>Candidates sit for two three-hour sessions on a single day; a 40-minute break period separates the sessions. Exams are typically offered in three eight-day windows: March, July, and November.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Cost:</strong> $925 for an exam administered at a U.S. test site, with a discount for early applications and a surcharge for late ones.<span class="ql-inline-citation" data-cite="1"></span></li><li><strong>Passing Score: </strong>This is criterion-referenced, which means performance is measured according to a set level of required competency, rather than against the scores of other individuals who have written the same exam. This prevents any advantages or disadvantages that can occur when past exams were of lower or higher difficulty.</li><li><strong>Retaking the test: </strong>If you fail, you may retake the test up to four additional times.<span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-cfp-vs-cfa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> CFP® vs. CFA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Though a certified financial planner (CFP^®) and a chartered financial analyst (CFA) may sound similar, they are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/062415/what-are-differences-between-chartered-financial-analyst-cfa-and-certified-financial-planner-cfp.asp">different certifications</a> with different job functions and clients. A CFP^® works with individuals, often retail clients, helping them achieve their financial goals. This includes help in investing and retirement planning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> A CFA works with corporations performing investment analysis. CFAs focus on financial reporting, analysis, and portfolio management. They can trade financial products, such as derivatives, and help in mergers and acquisitions. CFA's usually work for investment banks and hedge funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-when-do-you-need-a-cfp"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Do You Need a CFP®?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you are just looking to invest money in stocks and bonds, a CFP^® probably isn't needed.</p><p>If you are looking to manage your finances, investment choices, estate planning, and retirement planning, a CFP^® can help you with all of those needs.</p><p>A CFP^® is a step above a non-designated financial advisor and has demonstrated expertise in financial planning.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-how-much-does-a-cfp-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does a CFP® Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How much a CFP^® costs will depend on your specific needs. On average, a CFP^® charges between $1,800 and $2,500 for preparing a full financial plan. You also should expect $4,000 for a flat-fee retainer or $250 per hour for hourly services.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-is-cfp-the-same-as-cfa"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is CFP® the Same as CFA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, CFP^®and CFA are not the same. A CFP^® is a certified financial planner who provides financial planning advice to individuals. This includes help with investing, retirement planning, estate planning, and tax law.</p><p>A CFA is a chartered financial analyst who may work for an investment bank or hedge fund and performs financial analysis, modeling, trading, and portfolio management services.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-is-cfp-equivalent-to-mba"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is CFP® Equivalent to MBA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, a CFP^® is not equivalent to an MBA. A certified financial planner (CFP^®) is qualified to advise individuals on financial planning. The holder of a master of business degree has studied the way businesses operate. The career paths differ. A CFP^®works in financial consulting or wealth management. An MBA may be a business manager, portfolio manager, financial analyst, financial strategist, or even an entrepreneur.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-is-the-cfp-exam-hard"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the CFP Exam Hard?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The CFP exam requires a lot of preparation and covers a wide range of topics in depth. The best way to ensure you pass the CFP exam is by preparing for it well in advance and sticking to a study schedule.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Becoming a CFP^® takes education and experience, as well as a strong grasp of financial ethics. The test to gain this distinction is comprised of 170 questions and is split into two three-hour sessions.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Even if candidates pass the test and meet all the requirements, the CFP Board still has the final say about whether to award this distinction. Given the stringent requirements, CFPs can be assumed to have an in-depth understanding of financial planning. </p></div>

## What Is a Certified Financial Planner™ (CFP®)? Certified Financial Planner™ (CFP®) is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving. Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams, then continue ongoing annual education programs to sustain their skills and certification. ### Key Takeaways * A certified financial planner (CFP®) has received a formal designation from the Certified Financial Planner Board of Standards, Inc. * CFPs help individuals in a variety of areas in managing their finances, such as retirement, investing, education, insurance, and taxes. * Becoming a CFP® is a difficult and stringent process. It requires years of experience, successful completion of standardized exams, a demonstration of ethics, and a formal education. * The most important aspect quality of a CFP® is that they have a fiduciary duty, meaning they must make decisions with their client's best interests in mind. ## Roles and Responsibilities of a Certified Financial Planner™ (CFP®) CFPs are there to help individuals manage their finances. This can include a variety of needs, such as investment planning, retirement planning, insurance, and education planning. The most important aspect of a CFP® is to be a [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) of your assets, meaning that they will make decisions with your best interests in mind. CFPs are all-encompassing, particularly when compared to investment advisors. CFPs will usually start the process by evaluating your current finances, including any cash, assets, investments, or properties, to come up with an estimate of your income and net worth. They also take a look at your liabilities, such as mortgages and student debt. From this point on they work with you to come up with an individualized financial plan. For example, say you are nearing retirement, the CFP® will create a financial plan that can see you through your retirement years. Or perhaps you have a child that will be starting college. The CFP® can help create a financial plan to manage that cost. A CFP® is a financial adviser who has earned a certification that indicates in-depth knowledge of financial planning. The requirements to become a CFP are some of the most difficult and stringent in the financial industry. ## CFP® and Fiduciary Duty All CFPs are held to the standard of fiduciary duty. That means they must always put your interests as a client ahead of their own. For example, if they would [make more money](https://www.investopedia.com/articles/personal-finance/031715/certified-financial-planner-cfp-salary.asp) selling one product over another, but the product that made them less money was better for you, that is the product they must recommend. A CFP's fiduciary duty is clearly laid out by the CFP Board and states "At all times when providing financial advice to a client, a CFP® professional must act as a fiduciary, and therefore, act in the best interest of the client." The board goes on to state that three duties must be met by an adviser with a fiduciary duty. These are (1) duty of loyalty, (2) duty of care, and (3) duty to follow client instructions. ## How to Become a Certified Financial Planner™ (CFP®) Earning the CFP® designation involves meeting requirements in four areas: formal education, [performance on the CFP exam](https://www.investopedia.com/best-cfp-exam-prep-courses-5094913), relevant work experience, and demonstrated professional ethics. The education requirements comprise two major components. The candidate must hold a bachelor's or higher degree from an accredited university or college. Second, the candidate must complete a list of specific courses in financial planning, as specified by the CFP Board. Much of this second requirement is typically waived if the candidate holds certain accepted financial designations, such as a [chartered financial analyst](https://www.investopedia.com/terms/c/cfa.asp) (CFA) or [certified public accountant](https://www.investopedia.com/terms/c/cpa.asp) (CPA) designation, or has a higher degree in business, such as a [master of business administration](https://www.investopedia.com/terms/m/mba.asp) (MBA). As for professional experience, candidates must prove they have at least three years (or 6,000 hours) of full-time professional experience in the industry, or two years (4,000 hours) in an apprenticeship role. Lastly, candidates and CFP® holders must adhere to the CFP Board's standards of professional conduct. They must also regularly disclose information about any involvement in criminal activity, inquiries by government agencies, bankruptcies, customer complaints, or terminations by employers. The CFP Board conducts an extensive background check on all candidates before granting the certification. Even successful completion of the above steps doesn't guarantee receipt of the CFP® designation. The CFP Board has final discretion on whether to award the designation to an individual. ## The Certified Financial Planner (CFP) Exam The [CFP exam](https://www.investopedia.com/articles/professionaleducation/07/cfp_exam.asp) includes 170 multiple-choice on more than 100 topics related to financial planning. The scope includes professional conduct and regulations, financial planning principles, education planning, risk management, insurance, investments, tax planning, retirement planning, and estate planning. The various topic areas are weighted, and the most recent weighting is available on the [CFP Board website](https://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements/cfp-exam-requirement/about-cfp-exam). Further questions test the candidate's expertise in establishing client-planner relationships and gathering relevant information, and their ability to analyze, develop, communicate, implement, and monitor the recommendations they make to their clients. Here's some additional information on the administration, costs, and scoring of the CFP exam: * **Timing:**Candidates sit for two three-hour sessions on a single day; a 40-minute break period separates the sessions. Exams are typically offered in three eight-day windows: March, July, and November. * **Cost:** $925 for an exam administered at a U.S. test site, with a discount for early applications and a surcharge for late ones. * **Passing Score:** This is criterion-referenced, which means performance is measured according to a set level of required competency, rather than against the scores of other individuals who have written the same exam. This prevents any advantages or disadvantages that can occur when past exams were of lower or higher difficulty. * **Retaking the test:** If you fail, you may retake the test up to four additional times. ## CFP® vs. CFA Though a certified financial planner (CFP®) and a chartered financial analyst (CFA) may sound similar, they are [different certifications](https://www.investopedia.com/ask/answers/062415/what-are-differences-between-chartered-financial-analyst-cfa-and-certified-financial-planner-cfp.asp) with different job functions and clients. A CFP® works with individuals, often retail clients, helping them achieve their financial goals. This includes help in investing and retirement planning. A CFA works with corporations performing investment analysis. CFAs focus on financial reporting, analysis, and portfolio management. They can trade financial products, such as derivatives, and help in mergers and acquisitions. CFA's usually work for investment banks and hedge funds. ## When Do You Need a CFP®? If you are just looking to invest money in stocks and bonds, a CFP® probably isn't needed. If you are looking to manage your finances, investment choices, estate planning, and retirement planning, a CFP® can help you with all of those needs. A CFP® is a step above a non-designated financial advisor and has demonstrated expertise in financial planning. ## How Much Does a CFP® Cost? How much a CFP® costs will depend on your specific needs. On average, a CFP® charges between $1,800 and $2,500 for preparing a full financial plan. You also should expect $4,000 for a flat-fee retainer or $250 per hour for hourly services. ## Is CFP® the Same as CFA? No, CFP® and CFA are not the same. A CFP® is a certified financial planner who provides financial planning advice to individuals. This includes help with investing, retirement planning, estate planning, and tax law. A CFA is a chartered financial analyst who may work for an investment bank or hedge fund and performs financial analysis, modeling, trading, and portfolio management services. ## Is CFP® Equivalent to MBA? No, a CFP® is not equivalent to an MBA. A certified financial planner (CFP®) is qualified to advise individuals on financial planning. The holder of a master of business degree has studied the way businesses operate. The career paths differ. A CFP® works in financial consulting or wealth management. An MBA may be a business manager, portfolio manager, financial analyst, financial strategist, or even an entrepreneur. ## Is the CFP Exam Hard? The CFP exam requires a lot of preparation and covers a wide range of topics in depth. The best way to ensure you pass the CFP exam is by preparing for it well in advance and sticking to a study schedule. ## The Bottom Line Becoming a CFP® takes education and experience, as well as a strong grasp of financial ethics. The test to gain this distinction is comprised of 170 questions and is split into two three-hour sessions. Even if candidates pass the test and meet all the requirements, the CFP Board still has the final say about whether to award this distinction. Given the stringent requirements, CFPs can be assumed to have an in-depth understanding of financial planning.

What Is a Certified Financial Planner™ (CFP®)? Certified Financial Planner™ (CFP®) is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving. Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams, then continue ongoing annual education programs to sustain their skills and certification. Key Takeaways A certified financial planner (CFP®) has received a formal designation from the Certified Financial Planner Board of Standards, Inc.CFPs help individuals in a variety of areas in managing their finances, such as retirement, investing, education, insurance, and taxes.Becoming a CFP® is a difficult and stringent process. It requires years of experience, successful completion of standardized exams, a demonstration of ethics, and a formal education.The most important aspect quality of a CFP® is that they have a fiduciary duty, meaning they must make decisions with their client's best interests in mind. Roles and Responsibilities of a Certified Financial Planner™ (CFP®) CFPs are there to help individuals manage their finances. This can include a variety of needs, such as investment planning, retirement planning, insurance, and education planning. The most important aspect of a CFP® is to be a fiduciary of your assets, meaning that they will make decisions with your best interests in mind. CFPs are all-encompassing, particularly when compared to investment advisors. CFPs will usually start the process by evaluating your current finances, including any cash, assets, investments, or properties, to come up with an estimate of your income and net worth. They also take a look at your liabilities, such as mortgages and student debt. From this point on they work with you to come up with an individualized financial plan. For example, say you are nearing retirement, the CFP® will create a financial plan that can see you through your retirement years. Or perhaps you have a child that will be starting college. The CFP® can help create a financial plan to manage that cost. A CFP® is a financial adviser who has earned a certification that indicates in-depth knowledge of financial planning. The requirements to become a CFP are some of the most difficult and stringent in the financial industry. CFP® and Fiduciary Duty All CFPs are held to the standard of fiduciary duty. That means they must always put your interests as a client ahead of their own. For example, if they would make more money selling one product over another, but the product that made them less money was better for you, that is the product they must recommend. A CFP's fiduciary duty is clearly laid out by the CFP Board and states "At all times when providing financial advice to a client, a CFP® professional must act as a fiduciary, and therefore, act in the best interest of the client." The board goes on to state that three duties must be met by an adviser with a fiduciary duty. These are (1) duty of loyalty, (2) duty of care, and (3) duty to follow client instructions. How to Become a Certified Financial Planner™ (CFP®) Earning the CFP® designation involves meeting requirements in four areas: formal education, performance on the CFP exam, relevant work experience, and demonstrated professional ethics. The education requirements comprise two major components. The candidate must hold a bachelor's or higher degree from an accredited university or college. Second, the candidate must complete a list of specific courses in financial planning, as specified by the CFP Board. Much of this second requirement is typically waived if the candidate holds certain accepted financial designations, such as a chartered financial analyst (CFA) or certified public accountant (CPA) designation, or has a higher degree in business, such as a master of business administration (MBA). As for professional experience, candidates must prove they have at least three years (or 6,000 hours) of full-time professional experience in the industry, or two years (4,000 hours) in an apprenticeship role. Lastly, candidates and CFP® holders must adhere to the CFP Board's standards of professional conduct. They must also regularly disclose information about any involvement in criminal activity, inquiries by government agencies, bankruptcies, customer complaints, or terminations by employers. The CFP Board conducts an extensive background check on all candidates before granting the certification. Even successful completion of the above steps doesn't guarantee receipt of the CFP® designation. The CFP Board has final discretion on whether to award the designation to an individual. The Certified Financial Planner (CFP) Exam The CFP exam includes 170 multiple-choice on more than 100 topics related to financial planning. The scope includes professional conduct and regulations, financial planning principles, education planning, risk management, insurance, investments, tax planning, retirement planning, and estate planning. The various topic areas are weighted, and the most recent weighting is available on the CFP Board website. Further questions test the candidate's expertise in establishing client-planner relationships and gathering relevant information, and their ability to analyze, develop, communicate, implement, and monitor the recommendations they make to their clients. Here's some additional information on the administration, costs, and scoring of the CFP exam: Timing: Candidates sit for two three-hour sessions on a single day; a 40-minute break period separates the sessions. Exams are typically offered in three eight-day windows: March, July, and November.Cost: $925 for an exam administered at a U.S. test site, with a discount for early applications and a surcharge for late ones.Passing Score: This is criterion-referenced, which means performance is measured according to a set level of required competency, rather than against the scores of other individuals who have written the same exam. This prevents any advantages or disadvantages that can occur when past exams were of lower or higher difficulty.Retaking the test: If you fail, you may retake the test up to four additional times. CFP® vs. CFA Though a certified financial planner (CFP®) and a chartered financial analyst (CFA) may sound similar, they are different certifications with different job functions and clients. A CFP® works with individuals, often retail clients, helping them achieve their financial goals. This includes help in investing and retirement planning. A CFA works with corporations performing investment analysis. CFAs focus on financial reporting, analysis, and portfolio management. They can trade financial products, such as derivatives, and help in mergers and acquisitions. CFA's usually work for investment banks and hedge funds. When Do You Need a CFP®? If you are just looking to invest money in stocks and bonds, a CFP® probably isn't needed.If you are looking to manage your finances, investment choices, estate planning, and retirement planning, a CFP® can help you with all of those needs.A CFP® is a step above a non-designated financial advisor and has demonstrated expertise in financial planning. How Much Does a CFP® Cost? How much a CFP® costs will depend on your specific needs. On average, a CFP® charges between $1,800 and $2,500 for preparing a full financial plan. You also should expect $4,000 for a flat-fee retainer or $250 per hour for hourly services. Is CFP® the Same as CFA? No, CFP® and CFA are not the same. A CFP® is a certified financial planner who provides financial planning advice to individuals. This includes help with investing, retirement planning, estate planning, and tax law.A CFA is a chartered financial analyst who may work for an investment bank or hedge fund and performs financial analysis, modeling, trading, and portfolio management services. Is CFP® Equivalent to MBA? No, a CFP® is not equivalent to an MBA. A certified financial planner (CFP®) is qualified to advise individuals on financial planning. The holder of a master of business degree has studied the way businesses operate. The career paths differ. A CFP® works in financial consulting or wealth management. An MBA may be a business manager, portfolio manager, financial analyst, financial strategist, or even an entrepreneur. Is the CFP Exam Hard? The CFP exam requires a lot of preparation and covers a wide range of topics in depth. The best way to ensure you pass the CFP exam is by preparing for it well in advance and sticking to a study schedule. The Bottom Line Becoming a CFP® takes education and experience, as well as a strong grasp of financial ethics. The test to gain this distinction is comprised of 170 questions and is split into two three-hour sessions. Even if candidates pass the test and meet all the requirements, the CFP Board still has the final say about whether to award this distinction. Given the stringent requirements, CFPs can be assumed to have an in-depth understanding of financial planning.

https://www.investopedia.com/financial-edge/0212/how-is-fico-calculated.aspx

How FICO Scores Are Calculated

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you have credit, you have a FICO score. But how is it calculated? The Fair Isaac Corporation perpetuates the mystery of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp" rel="noopener noreferrer">FICO scores</a> by never releasing the details of the FICO formula. Even if it were known, the fine points of its methodology are still subject to change at its discretion. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-how-is-fico-calculated"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> How is FICO Calculated? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> FICO does not even produce the scores itself; FICO creates the software that is used by the three major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp#axzz1n1rLWewe" rel="noopener noreferrer">credit bureaus</a>. Those companies, Equifax, Experian, and TransUnion, plug their data into the FICO formula to produce proprietary results. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Fortunately for consumers, FICO has disclosed a general outline of what <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/consumer-credit-report/" rel="noopener noreferrer">information</a> is used, and how it is weighted. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Fair Issac Corporation issues FICO scores, but the exact formula for calculating the scores is ambiguous. </li><li>Equifax, Experian, and TransUnion plug their data into the FICO formula to produce information about a person's credit. </li><li>FICO scores are issued to consumers and have three main categories: credit history, credit utilization, and credit history.</li></ul></div></div></div> <span class="heading-toc" id="toc-payment-history"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Payment History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Your payment history is the most critical factor in your FICO scores. Your history includes which of your accounts were paid on time, the amounts owed, and the length of any delinquencies. Also included are any adverse public records such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp" rel="noopener noreferrer">bankruptcies</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/judgement.asp" rel="noopener noreferrer">judgments</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lien.asp" rel="noopener noreferrer">liens</a>. All of this information collectively comprises 35% of a FICO score. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-your-debt-vsyour-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Your Debt vs.Your Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> At 30%, the next most crucial factor is your debt. This data includes the number of accounts you owe money on, the type of debt, and its total amount. Also included is the ratio of money owed to credit available, often referred to as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp" rel="noopener noreferrer">credit utilization rate</a>. Interestingly, this calculation means that when a consumer opens up a new account and has more available credit, their credit utilization ratio will go down, so long as they do not incur additional debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-length-of-credit-history"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Length of Credit History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Beyond your payment history and your debts, the FICO formula takes into account three other factors in much smaller proportions. Your length of credit history makes<br/>up 15% of your score. This factor includes the length of time your accounts have been open and how long it has been since they have been active. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Because the length of time impacts your score is why recent immigrants and young adults start with lower credit scores. The types of credit used comprise another 10% of the FICO derived scores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In general, having a greater variety of differing types of accounts such as credit cards, mortgage payments, and retail accounts is more beneficial than holding fewer.</p></div></div></div> <span class="heading-toc" id="toc-new-credit-applications"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> New Credit Applications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The last 10% of your FICO score is made up of data related to new credit applications, such as the number of recent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp" rel="noopener noreferrer">credit inquiries</a> and how many new accounts have been opened. Opening up too many accounts in too short of a period is interpreted as a sign of risk and will lower your score. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Reportedly, when asked to sum up the entire Old Testament, the Jewish scholar Hillel is supposed to have said, "That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is the explanation; go and learn." Likewise, one could summarize the FICO scoring formula by saying, "You should pay your bills on time and not incur too much debt; the rest are details." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Although your payment history and the amount you owe may only make up 65% of your FICO score, it would be difficult to run afoul of the remaining criteria while paying your bills on time and carrying little debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> There is an aura of mystery surrounding the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/1111/what-credit-score-should-you-have.aspx" rel="noopener noreferrer">FICO score</a>, but it doesn't have to be that way. While it is helpful to know the fundamentals of the FICO formula, consumers should not be tempted to feel like they can game the system. Ultimately, your FICO score will be closely dictated by your payment history and your level of debt. </p></div>

If you have credit, you have a FICO score. But how is it calculated? The Fair Isaac Corporation perpetuates the mystery of its [FICO scores](https://www.investopedia.com/terms/f/ficoscore.asp) by never releasing the details of the FICO formula. Even if it were known, the fine points of its methodology are still subject to change at its discretion. ## How is FICO Calculated? FICO does not even produce the scores itself; FICO creates the software that is used by the three major [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp#axzz1n1rLWewe). Those companies, Equifax, Experian, and TransUnion, plug their data into the FICO formula to produce proprietary results. Fortunately for consumers, FICO has disclosed a general outline of what [information](https://www.investopedia.com/personal-finance/consumer-credit-report/) is used, and how it is weighted. ### Key Takeaways * The Fair Issac Corporation issues FICO scores, but the exact formula for calculating the scores is ambiguous. * Equifax, Experian, and TransUnion plug their data into the FICO formula to produce information about a person's credit. * FICO scores are issued to consumers and have three main categories: credit history, credit utilization, and credit history. ## Payment History Your payment history is the most critical factor in your FICO scores. Your history includes which of your accounts were paid on time, the amounts owed, and the length of any delinquencies. Also included are any adverse public records such as [bankruptcies](https://www.investopedia.com/terms/b/bankruptcy.asp), [judgments](https://www.investopedia.com/terms/j/judgement.asp), or [liens](https://www.investopedia.com/terms/l/lien.asp). All of this information collectively comprises 35% of a FICO score. ## Your Debt vs.Your Credit At 30%, the next most crucial factor is your debt. This data includes the number of accounts you owe money on, the type of debt, and its total amount. Also included is the ratio of money owed to credit available, often referred to as a [credit utilization rate](https://www.investopedia.com/terms/c/credit-utilization-rate.asp). Interestingly, this calculation means that when a consumer opens up a new account and has more available credit, their credit utilization ratio will go down, so long as they do not incur additional debt. ## Length of Credit History Beyond your payment history and your debts, the FICO formula takes into account three other factors in much smaller proportions. Your length of credit history makes up 15% of your score. This factor includes the length of time your accounts have been open and how long it has been since they have been active. Because the length of time impacts your score is why recent immigrants and young adults start with lower credit scores. The types of credit used comprise another 10% of the FICO derived scores. ### In general, having a greater variety of differing types of accounts such as credit cards, mortgage payments, and retail accounts is more beneficial than holding fewer. ## New Credit Applications The last 10% of your FICO score is made up of data related to new credit applications, such as the number of recent [credit inquiries](https://www.investopedia.com/terms/c/credit-inquiry.asp) and how many new accounts have been opened. Opening up too many accounts in too short of a period is interpreted as a sign of risk and will lower your score. ## The Bottom Line Reportedly, when asked to sum up the entire Old Testament, the Jewish scholar Hillel is supposed to have said, "That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is the explanation; go and learn." Likewise, one could summarize the FICO scoring formula by saying, "You should pay your bills on time and not incur too much debt; the rest are details." Although your payment history and the amount you owe may only make up 65% of your FICO score, it would be difficult to run afoul of the remaining criteria while paying your bills on time and carrying little debt. There is an aura of mystery surrounding the [FICO score](https://www.investopedia.com/financial-edge/1111/what-credit-score-should-you-have.aspx), but it doesn't have to be that way. While it is helpful to know the fundamentals of the FICO formula, consumers should not be tempted to feel like they can game the system. Ultimately, your FICO score will be closely dictated by your payment history and your level of debt.

If you have credit, you have a FICO score. But how is it calculated? The Fair Isaac Corporation perpetuates the mystery of its FICO scores by never releasing the details of the FICO formula. Even if it were known, the fine points of its methodology are still subject to change at its discretion. How is FICO Calculated? FICO does not even produce the scores itself; FICO creates the software that is used by the three major credit bureaus. Those companies, Equifax, Experian, and TransUnion, plug their data into the FICO formula to produce proprietary results. Fortunately for consumers, FICO has disclosed a general outline of what information is used, and how it is weighted. Key Takeaways The Fair Issac Corporation issues FICO scores, but the exact formula for calculating the scores is ambiguous. Equifax, Experian, and TransUnion plug their data into the FICO formula to produce information about a person's credit. FICO scores are issued to consumers and have three main categories: credit history, credit utilization, and credit history. Payment History Your payment history is the most critical factor in your FICO scores. Your history includes which of your accounts were paid on time, the amounts owed, and the length of any delinquencies. Also included are any adverse public records such as bankruptcies, judgments, or liens. All of this information collectively comprises 35% of a FICO score. Your Debt vs.Your Credit At 30%, the next most crucial factor is your debt. This data includes the number of accounts you owe money on, the type of debt, and its total amount. Also included is the ratio of money owed to credit available, often referred to as a credit utilization rate. Interestingly, this calculation means that when a consumer opens up a new account and has more available credit, their credit utilization ratio will go down, so long as they do not incur additional debt. Length of Credit History Beyond your payment history and your debts, the FICO formula takes into account three other factors in much smaller proportions. Your length of credit history makesup 15% of your score. This factor includes the length of time your accounts have been open and how long it has been since they have been active. Because the length of time impacts your score is why recent immigrants and young adults start with lower credit scores. The types of credit used comprise another 10% of the FICO derived scores. In general, having a greater variety of differing types of accounts such as credit cards, mortgage payments, and retail accounts is more beneficial than holding fewer. New Credit Applications The last 10% of your FICO score is made up of data related to new credit applications, such as the number of recent credit inquiries and how many new accounts have been opened. Opening up too many accounts in too short of a period is interpreted as a sign of risk and will lower your score. The Bottom Line Reportedly, when asked to sum up the entire Old Testament, the Jewish scholar Hillel is supposed to have said, "That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is the explanation; go and learn." Likewise, one could summarize the FICO scoring formula by saying, "You should pay your bills on time and not incur too much debt; the rest are details." Although your payment history and the amount you owe may only make up 65% of your FICO score, it would be difficult to run afoul of the remaining criteria while paying your bills on time and carrying little debt. There is an aura of mystery surrounding the FICO score, but it doesn't have to be that way. While it is helpful to know the fundamentals of the FICO formula, consumers should not be tempted to feel like they can game the system. Ultimately, your FICO score will be closely dictated by your payment history and your level of debt.

https://www.investopedia.com/terms/l/leveraged-etf.asp

Leveraged ETFs: The Potential for Bigger Gains—and Bigger Losses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-leveraged-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Leveraged ETF? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A leveraged exchange-traded fund (LETF) is a security that uses financial derivatives and debt to amplify the returns of an underlying index or other assets it tracks. Some leveraged or "geared" ETFs track specific stocks, which were introduced in 2022, and crypto, which can make an already volatile trading strategy far more combustible.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="14"></span> While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, an LETF will aim for a 2:1 or 3:1 ratio. These products are available for most indexes, such as the Nasdaq 100 Index and the Dow Jones Industrial Average.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A leveraged exchange-traded fund (LETF) uses financial derivatives and debt to amplify the returns of an underlying index, stock, specific bonds, or currencies.</li><li>While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a LETF may aim for a 2:1 or 3:1 ratio.</li><li>Leverage is a double-edged sword since it can lead to significant gains, but can also lead to significant losses.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> But first, a word of caution is in order. The Securities and Exchange Commission (SEC) first allowed LETFs in 2006.<span class="ql-inline-citation" data-cite="9"></span> Ever since market analysts have been concerned about their effect on overall market volatility since they can magnify major swings in the market.<span class="ql-inline-citation" data-cite="7"></span> But they also, as we do here, never fail to warn investors to avoid them as long-term investments.<span class="ql-inline-citation" data-cite="8"></span> They are meant for day-to-day trading, and their results over longer periods are unpredictable and can significantly compound losses.<span class="ql-inline-citation" data-cite="18"></span> For these reasons, they come under perennial regulatory scrutiny. Before investing in one, read the prospectus and understand the mechanics of these complicated trading instruments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-leveraged-etfs-explained"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Leveraged ETFs Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> ETFs sell like other securities on the stock market and contain a basket of securities. These securities could be from an index they track, a hand-picked theme of stocks, or individual stocks, derivatives, fixed-income securities, and currency. For example, ETFs that track the S&amp;P 500 Index contain the 500 stocks in the S&amp;P 500. Typically, if the S&amp;P moves 1%, the ETF will also move by 1%.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> An LETF that tracks the S&amp;P 500 would use financial products and debt that magnify each 1% gain in the S&amp;P to a 2% or 3% gain. The extent of the gain depends on the amount of leverage used. Leveraging is an investing strategy that uses borrowed funds to buy futures and other derivatives to increase the impact of changes in price. LETFs primarily use futures contracts, index futures, and swap agreements to magnify the daily returns of the underlying index, stock, or other tracked assets.<span class="ql-inline-citation" data-cite="10"></span> These derivatives are needed for the daily rebalancing these LETFs require. More on this crucial aspect below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> This leverage can work in the opposite direction and lead to losses for magnified losses. If the underlying index falls by 1%, the loss is exaggerated by the leverage. Investors should be aware of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/121515/why-3x-etfs-are-riskier-you-think.asp">the risks of LETFs</a> since the risk of losses is far higher than those from traditional investments. As D.J. Abner notes in his "ETF Handbook," while investors notoriously fail to read prospectuses and investor warnings before putting money into securities, this is decidedly not the time to do so.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Lastly, the management fees and transaction costs associated with LETFs can diminish the fund's return.<span class="ql-inline-citation" data-cite="3"></span> For the 170 LETFs it tracks in the U.S. markets, ETF.com puts the average expense ratio at 1.02%.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-the-leverage-in-leveraged-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> The Leverage in Leveraged ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> An LETF applies derivatives to magnify the exposure to a particular index or other targeted asset (stocks, cryptocurrency, commodities, etc.).<span class="ql-inline-citation" data-cite="12"></span> It does not aim to amplify the monthly or annual returns of the target assets but instead tracks daily changes, resetting<em> </em>each<em> </em>day.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The leverage in LETFs comes from several sources. First, it can come from borrowing. For instance, the fund that aims to have twice the return of the targeted assets might take your invested funds and then borrow the same amount to effectively double how much is invested.<span class="ql-inline-citation" data-cite="13"></span> LETFs also employ derivatives like forward contracts, futures contracts, total return swaps, and, less frequently, options:<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <strong>Futures contracts</strong>: Agreements to buy or sell an asset at a predetermined price at a specific time. They are traded on exchanges and the parties have to fulfill the contract at its maturity date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <strong>Forward contracts</strong>: Like futures, forwards are contracts to trade an asset at a set price in the future. However, unlike futures, they are not standardized but are customizable private agreements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <strong>Total return swaps</strong>: Where one party agrees to pay the total return, including dividends, interest, and capital gains, of a tracked asset or set of assets to another party that pays a fixed or floating rate. It's a way to gain exposure to an asset's return without owning it.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <strong>Options</strong>: Options contracts grant an investor the ability to buy (a call option) or sell (a put option) an underlying asset without the obligation to buy or sell the security. Options contracts have an expiration date for when any action must be completed. They are fundamentally different from futures and forwards, which put obligations on both parties, and from swaps, which involve exchanging cash flows or returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Employing derivatives for generating returns is a method known as "synthetic replication" (the flip side of "physical" replication, directly borrowing), which is generally more efficient than borrowing to buy the securities of the benchmark.<span class="ql-inline-citation" data-cite="8"></span> Regarding options, they have upfront fees called premiums that allow investors to buy many shares of a security.<span class="ql-inline-citation" data-cite="4"></span> As a result, options layered with investments, such as stocks, can add to the gains for LETFs over 1:1 traditional ETFs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> A leveraged <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp">inverse ETF</a> uses its leverage to make money when the underlying index is declining in value.<span class="ql-inline-citation" data-cite="16"></span> In other words, an inverse ETF rises while the underlying index is falling, allowing investors to profit from a bearish market or market declines.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-the-costs-of-leverage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Costs of Leverage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Along with management and transaction fee expenses, there are other costs associated with LETFs.<span class="ql-inline-citation" data-cite="18"></span> These funds have higher fees than non-leveraged ETFs because premiums, fees, and interest need to be paid on the derivatives and for margin costs.<span class="ql-inline-citation" data-cite="3"></span> Many LETFs have expense ratios of 1% or more.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Despite the higher expense ratios associated with LETFs, they are often less expensive than other forms of margin. Trading on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp">margin</a> involves a broker lending money to a customer so that the borrower can buy securities with the securities held as collateral for the loan. The broker also charges an interest rate for the margin loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> For example, short selling, which involves borrowing shares from a broker to bet on a downward move, can carry fees of 3% or more on the amount borrowed. The use of margin to buy stock can become similarly expensive and can result in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin calls</a> should the position begin losing money. A margin call happens when a broker asks for more money to shore up the account if the collateral securities are losing value an fall below a certain minimum.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-leveraged-etfs-are-short-term-instruments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> Leveraged ETFs Are Short-Term Instruments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> LETFs are typically used by day traders speculating on an index or other targeted sets of assets. It is difficult to hold long-term investments in LETFs because the derivatives used for the leverage are not long-term investments. As a result, traders often hold positions in LETFs for day trading.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> These ETFs should not be used for long-term strategies since they're anchored in techniques for returns within a trading day, not a longer time, and the daily reset means the fund can't build on itself.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="12"></span> If you want ETFs for long-term investing, there are myriad financial products for that.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_46-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_47-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>LETFs offer the potential for significant gains that exceed the tracked index or assets.</p></li> <li><p>Investors have a wide variety of securities to trade using LETFs.</p></li> <li><p>Investors can make money when the market is declining using inverse LETFs.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>LETFs can lead to significant losses that exceed the tracked index or assets.</p></li> <li><p>LETFs have higher fees and expense ratios compared with traditional ETFs.</p></li> <li><p>LETFs are not long-term investments.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-real-world-example-of-a-leveraged-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> Real World Example of a Leveraged ETF </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The Direxion Daily Financial Bull 3x Shares (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=fas">FAS</a>) ETF holds equities in large U.S. financial companies by tracking the Financial Select Sector Index. It has an expense ratio of 0.96%, and it tracks securities that include Berkshire Hathaway (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.b">BRK.B</a>), Visa (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=v">V</a>), JPMorgan Chase &amp; Co. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm">JPM</a>), and other financial companies in the S&amp;P 500. This LETF aims to provide investors three times (3x) the return on the moves in the financial stocks it tracks.<span class="ql-inline-citation" data-cite="1"></span> To do this, the fund invests in swap agreements, index securities, and ETFs that track the index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Now, suppose an investor bought $10,000 of FAS, and the underlying financial stocks rose by 1% in a single day; FAS would seek to provide 3% returns on that day. This means the $10,000 investment would increase to $10,300 at the end of the day before fees. However, because LETFs reset each day, the gains are not compounded over days. Tomorrow is another day entirely. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Conversely, if the tracked financial stocks declined 2% in a day, FAS would aim for a 6% decline for that same day. So, the original $10,000 investment would decrease to $9,400 before accounting for fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> As this example shows, the multiplier works both ways. You can get three times the gains during a positive performance and three times the losses when the index declines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-impact-of-daily-resets"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> The Impact of Daily Resets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> The daily reset mechanism causes LETFs to rebalance their entire portfolios daily to maintain their leverage. Thus, they won't work necessarily for a buy-and-hold strategy since they don't allow gains and losses to compound over longer periods. This resetting effect allows the ETF to seek 3x leverage daily but can cause longer-term returns to diverge significantly from simply multiplying the underlying index's total returns by 3x. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> To demonstrate this, here is an example covering several days. Let's assume the underlying financial index FAS tracks has the following daily returns: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> <li>Day 1: +1.0%</li><li>Day 2: -2.0%</li><li>Day 3: +0.5%</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> We need to triple each of these for the expected return of FAS: +3.0%, -6.0%, and +1.5%, respectively, for the three days above. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> On Day 1, since the index rose 1%, FAS would seek to provide 3x that return, or 3.0%. So the $10,000 investment would rise to $10,300. But on Day 2, the index fell 2.0%. So FAS would target returns of 3 x -2% = -6%. The $10,300 balance would decline by 6% to $9,682. On Day 3, the index rose 0.5%, so FAS would attempt to return 3 x 0.5% = 1.5%. So, the balance moves from $9,682 to $9,827, a net loss of 1.73%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> As you can see, the daily reset prevents the gains and losses from compounding over several days. The leveraged position is reset completely rather than just adding 3x each day's additional gain or loss. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> While the index declined 0.5% over the three days, the 3x LETF declined more than 1.7% over the same period because of the effects of daily rebalancing (which is more than 1.5% loss expected by multiplying the index return by three). Thus, LETF returns can significantly diverge from a simple multiplier of the underlying index's returns in volatile conditions over those same periods. The sequence of daily gains and losses matters because of the daily reset mechanism. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> So, while useful for short-term trading strategies, LETFs like FAS generally should not be expected to achieve a consistent 3x return compared with the tracked index or assets for longer periods. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-what-are-the-tax-implications-of-owning-leveraged-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Tax Implications of Owning Leveraged ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>LETFs have unique tax implications because of their frequent trading and rebalancing. They can generate higher short-term capital gains inside the fund, which are taxed at a higher rate than long-term capital gains.<span class="ql-inline-citation" data-cite="15"></span> Also, the use of derivatives and other financial instruments in these ETFs can lead to complex tax situations in certain cases.<span class="ql-inline-citation" data-cite="6"></span> It's advisable to consult a tax professional for guidance specific to your circumstances.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_77-0"><span class="heading-toc" id="toc-do-interest-rate-changes-impact-leveraged-etf-performance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Interest Rate Changes Impact Leveraged ETF Performance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>For fixed-income LETFs, yes, since bond prices react to changes or expectations of changes in interest rates.<span class="ql-inline-citation" data-cite="16"></span> For other LETFs, interest rates can significantly affect certain LETFs that use borrowed money or rate-sensitives derivatives instruments, so rising interest rates can increase borrowing costs, thus reducing returns.<span class="ql-inline-citation" data-cite="17"></span> In addition, changes in interest rates can affect the sectors or assets they track, influencing their performance. For example, higher interest rates might negatively influence debt-heavy sectors, which in turn would affect LETFs tracking those sectors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_79-0"><span class="heading-toc" id="toc-whats-the-difference-between-buying-a-leveraged-etf-and-margin-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the Difference Between Buying a Leveraged ETF and Margin Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>LETFs have built-in leverage and aim to deliver a multiple of a tracked index's or assets' daily returns. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">Margin trading</a>, meanwhile, involves borrowing money from a broker to invest in securities. While both involve leverage, margin trading gives investors more control over the amount of leverage and the specific investments. However, margin trading also carries the risk of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin call</a> if the investments decline in value, which is not a risk with LETFs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> LETFs are specialized financial instruments designed to deliver multiples of the daily performance of a specific index or asset. They achieve this by using derivatives as leverage, amplifying both gains and losses. Ideal for experienced traders and suited for short-term (i.e., intraday) investment strategies, LETFs are used in scenarios when quick, significant market moves are expected. However, their complex nature and the impact of daily rebalancing make them unsuitable for longer-term investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Investors should use caution, as these ETFs entail a higher degree of risk and volatility compared with traditional ETFs. Because of their sensitivity to market fluctuations and the costs associated with their operation, LETFs should be used with a clear understanding of their mechanisms and potential impacts on investment portfolios. </p></div>

## What Is a Leveraged ETF? A leveraged exchange-traded fund (LETF) is a security that uses financial derivatives and debt to amplify the returns of an underlying index or other assets it tracks. Some leveraged or "geared" ETFs track specific stocks, which were introduced in 2022, and crypto, which can make an already volatile trading strategy far more combustible. While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, an LETF will aim for a 2:1 or 3:1 ratio. These products are available for most indexes, such as the Nasdaq 100 Index and the Dow Jones Industrial Average. ### Key Takeaways * A leveraged exchange-traded fund (LETF) uses financial derivatives and debt to amplify the returns of an underlying index, stock, specific bonds, or currencies. * While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a LETF may aim for a 2:1 or 3:1 ratio. * Leverage is a double-edged sword since it can lead to significant gains, but can also lead to significant losses. But first, a word of caution is in order. The Securities and Exchange Commission (SEC) first allowed LETFs in 2006. Ever since market analysts have been concerned about their effect on overall market volatility since they can magnify major swings in the market. But they also, as we do here, never fail to warn investors to avoid them as long-term investments. They are meant for day-to-day trading, and their results over longer periods are unpredictable and can significantly compound losses. For these reasons, they come under perennial regulatory scrutiny. Before investing in one, read the prospectus and understand the mechanics of these complicated trading instruments. ## Leveraged ETFs Explained ETFs sell like other securities on the stock market and contain a basket of securities. These securities could be from an index they track, a hand-picked theme of stocks, or individual stocks, derivatives, fixed-income securities, and currency. For example, ETFs that track the S&P 500 Index contain the 500 stocks in the S&P 500. Typically, if the S&P moves 1%, the ETF will also move by 1%. An LETF that tracks the S&P 500 would use financial products and debt that magnify each 1% gain in the S&P to a 2% or 3% gain. The extent of the gain depends on the amount of leverage used. Leveraging is an investing strategy that uses borrowed funds to buy futures and other derivatives to increase the impact of changes in price. LETFs primarily use futures contracts, index futures, and swap agreements to magnify the daily returns of the underlying index, stock, or other tracked assets. These derivatives are needed for the daily rebalancing these LETFs require. More on this crucial aspect below. This leverage can work in the opposite direction and lead to losses for magnified losses. If the underlying index falls by 1%, the loss is exaggerated by the leverage. Investors should be aware of [the risks of LETFs](https://www.investopedia.com/articles/investing/121515/why-3x-etfs-are-riskier-you-think.asp) since the risk of losses is far higher than those from traditional investments. As D.J. Abner notes in his "ETF Handbook," while investors notoriously fail to read prospectuses and investor warnings before putting money into securities, this is decidedly not the time to do so. Lastly, the management fees and transaction costs associated with LETFs can diminish the fund's return. For the 170 LETFs it tracks in the U.S. markets, ETF.com puts the average expense ratio at 1.02%. ## The Leverage in Leveraged ETFs An LETF applies derivatives to magnify the exposure to a particular index or other targeted asset (stocks, cryptocurrency, commodities, etc.). It does not aim to amplify the monthly or annual returns of the target assets but instead tracks daily changes, resettingeachday. The leverage in LETFs comes from several sources. First, it can come from borrowing. For instance, the fund that aims to have twice the return of the targeted assets might take your invested funds and then borrow the same amount to effectively double how much is invested. LETFs also employ derivatives like forward contracts, futures contracts, total return swaps, and, less frequently, options: **Futures contracts**: Agreements to buy or sell an asset at a predetermined price at a specific time. They are traded on exchanges and the parties have to fulfill the contract at its maturity date. **Forward contracts**: Like futures, forwards are contracts to trade an asset at a set price in the future. However, unlike futures, they are not standardized but are customizable private agreements. **Total return swaps**: Where one party agrees to pay the total return, including dividends, interest, and capital gains, of a tracked asset or set of assets to another party that pays a fixed or floating rate. It's a way to gain exposure to an asset's return without owning it. **Options**: Options contracts grant an investor the ability to buy (a call option) or sell (a put option) an underlying asset without the obligation to buy or sell the security. Options contracts have an expiration date for when any action must be completed. They are fundamentally different from futures and forwards, which put obligations on both parties, and from swaps, which involve exchanging cash flows or returns. Employing derivatives for generating returns is a method known as "synthetic replication" (the flip side of "physical" replication, directly borrowing), which is generally more efficient than borrowing to buy the securities of the benchmark. Regarding options, they have upfront fees called premiums that allow investors to buy many shares of a security. As a result, options layered with investments, such as stocks, can add to the gains for LETFs over 1:1 traditional ETFs. A leveraged [inverse ETF](https://www.investopedia.com/terms/i/inverse-etf.asp) uses its leverage to make money when the underlying index is declining in value. In other words, an inverse ETF rises while the underlying index is falling, allowing investors to profit from a bearish market or market declines. ## The Costs of Leverage Along with management and transaction fee expenses, there are other costs associated with LETFs. These funds have higher fees than non-leveraged ETFs because premiums, fees, and interest need to be paid on the derivatives and for margin costs. Many LETFs have expense ratios of 1% or more. Despite the higher expense ratios associated with LETFs, they are often less expensive than other forms of margin. Trading on [margin](https://www.investopedia.com/terms/m/marginaccount.asp) involves a broker lending money to a customer so that the borrower can buy securities with the securities held as collateral for the loan. The broker also charges an interest rate for the margin loan. For example, short selling, which involves borrowing shares from a broker to bet on a downward move, can carry fees of 3% or more on the amount borrowed. The use of margin to buy stock can become similarly expensive and can result in [margin calls](https://www.investopedia.com/terms/m/margincall.asp) should the position begin losing money. A margin call happens when a broker asks for more money to shore up the account if the collateral securities are losing value an fall below a certain minimum. ## Leveraged ETFs Are Short-Term Instruments LETFs are typically used by day traders speculating on an index or other targeted sets of assets. It is difficult to hold long-term investments in LETFs because the derivatives used for the leverage are not long-term investments. As a result, traders often hold positions in LETFs for day trading. These ETFs should not be used for long-term strategies since they're anchored in techniques for returns within a trading day, not a longer time, and the daily reset means the fund can't build on itself. If you want ETFs for long-term investing, there are myriad financial products for that. Pros * LETFs offer the potential for significant gains that exceed the tracked index or assets. * Investors have a wide variety of securities to trade using LETFs. * Investors can make money when the market is declining using inverse LETFs. Cons * LETFs can lead to significant losses that exceed the tracked index or assets. * LETFs have higher fees and expense ratios compared with traditional ETFs. * LETFs are not long-term investments. ## Real World Example of a Leveraged ETF The Direxion Daily Financial Bull 3x Shares ([FAS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=fas)) ETF holds equities in large U.S. financial companies by tracking the Financial Select Sector Index. It has an expense ratio of 0.96%, and it tracks securities that include Berkshire Hathaway ([BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.b)), Visa ([V](https://www.investopedia.com/markets/quote?tvwidgetsymbol=v)), JPMorgan Chase & Co. ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm)), and other financial companies in the S&P 500. This LETF aims to provide investors three times (3x) the return on the moves in the financial stocks it tracks. To do this, the fund invests in swap agreements, index securities, and ETFs that track the index. Now, suppose an investor bought $10,000 of FAS, and the underlying financial stocks rose by 1% in a single day; FAS would seek to provide 3% returns on that day. This means the $10,000 investment would increase to $10,300 at the end of the day before fees. However, because LETFs reset each day, the gains are not compounded over days. Tomorrow is another day entirely. Conversely, if the tracked financial stocks declined 2% in a day, FAS would aim for a 6% decline for that same day. So, the original $10,000 investment would decrease to $9,400 before accounting for fees. As this example shows, the multiplier works both ways. You can get three times the gains during a positive performance and three times the losses when the index declines. ## The Impact of Daily Resets The daily reset mechanism causes LETFs to rebalance their entire portfolios daily to maintain their leverage. Thus, they won't work necessarily for a buy-and-hold strategy since they don't allow gains and losses to compound over longer periods. This resetting effect allows the ETF to seek 3x leverage daily but can cause longer-term returns to diverge significantly from simply multiplying the underlying index's total returns by 3x. To demonstrate this, here is an example covering several days. Let's assume the underlying financial index FAS tracks has the following daily returns: * Day 1: +1.0% * Day 2: -2.0% * Day 3: +0.5% We need to triple each of these for the expected return of FAS: +3.0%, -6.0%, and +1.5%, respectively, for the three days above. On Day 1, since the index rose 1%, FAS would seek to provide 3x that return, or 3.0%. So the $10,000 investment would rise to $10,300. But on Day 2, the index fell 2.0%. So FAS would target returns of 3 x -2% = -6%. The $10,300 balance would decline by 6% to $9,682. On Day 3, the index rose 0.5%, so FAS would attempt to return 3 x 0.5% = 1.5%. So, the balance moves from $9,682 to $9,827, a net loss of 1.73%. As you can see, the daily reset prevents the gains and losses from compounding over several days. The leveraged position is reset completely rather than just adding 3x each day's additional gain or loss. While the index declined 0.5% over the three days, the 3x LETF declined more than 1.7% over the same period because of the effects of daily rebalancing (which is more than 1.5% loss expected by multiplying the index return by three). Thus, LETF returns can significantly diverge from a simple multiplier of the underlying index's returns in volatile conditions over those same periods. The sequence of daily gains and losses matters because of the daily reset mechanism. So, while useful for short-term trading strategies, LETFs like FAS generally should not be expected to achieve a consistent 3x return compared with the tracked index or assets for longer periods. ## What Are the Tax Implications of Owning Leveraged ETFs? LETFs have unique tax implications because of their frequent trading and rebalancing. They can generate higher short-term capital gains inside the fund, which are taxed at a higher rate than long-term capital gains. Also, the use of derivatives and other financial instruments in these ETFs can lead to complex tax situations in certain cases. It's advisable to consult a tax professional for guidance specific to your circumstances. ## Do Interest Rate Changes Impact Leveraged ETF Performance? For fixed-income LETFs, yes, since bond prices react to changes or expectations of changes in interest rates. For other LETFs, interest rates can significantly affect certain LETFs that use borrowed money or rate-sensitives derivatives instruments, so rising interest rates can increase borrowing costs, thus reducing returns. In addition, changes in interest rates can affect the sectors or assets they track, influencing their performance. For example, higher interest rates might negatively influence debt-heavy sectors, which in turn would affect LETFs tracking those sectors. ## What's the Difference Between Buying a Leveraged ETF and Margin Trading? LETFs have built-in leverage and aim to deliver a multiple of a tracked index's or assets' daily returns. [Margin trading](https://www.investopedia.com/terms/m/margin.asp), meanwhile, involves borrowing money from a broker to invest in securities. While both involve leverage, margin trading gives investors more control over the amount of leverage and the specific investments. However, margin trading also carries the risk of a [margin call](https://www.investopedia.com/terms/m/margincall.asp) if the investments decline in value, which is not a risk with LETFs. ## The Bottom Line LETFs are specialized financial instruments designed to deliver multiples of the daily performance of a specific index or asset. They achieve this by using derivatives as leverage, amplifying both gains and losses. Ideal for experienced traders and suited for short-term (i.e., intraday) investment strategies, LETFs are used in scenarios when quick, significant market moves are expected. However, their complex nature and the impact of daily rebalancing make them unsuitable for longer-term investments. Investors should use caution, as these ETFs entail a higher degree of risk and volatility compared with traditional ETFs. Because of their sensitivity to market fluctuations and the costs associated with their operation, LETFs should be used with a clear understanding of their mechanisms and potential impacts on investment portfolios.

What Is a Leveraged ETF? A leveraged exchange-traded fund (LETF) is a security that uses financial derivatives and debt to amplify the returns of an underlying index or other assets it tracks. Some leveraged or "geared" ETFs track specific stocks, which were introduced in 2022, and crypto, which can make an already volatile trading strategy far more combustible. While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, an LETF will aim for a 2:1 or 3:1 ratio. These products are available for most indexes, such as the Nasdaq 100 Index and the Dow Jones Industrial Average. Key Takeaways A leveraged exchange-traded fund (LETF) uses financial derivatives and debt to amplify the returns of an underlying index, stock, specific bonds, or currencies.While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a LETF may aim for a 2:1 or 3:1 ratio.Leverage is a double-edged sword since it can lead to significant gains, but can also lead to significant losses. But first, a word of caution is in order. The Securities and Exchange Commission (SEC) first allowed LETFs in 2006. Ever since market analysts have been concerned about their effect on overall market volatility since they can magnify major swings in the market. But they also, as we do here, never fail to warn investors to avoid them as long-term investments. They are meant for day-to-day trading, and their results over longer periods are unpredictable and can significantly compound losses. For these reasons, they come under perennial regulatory scrutiny. Before investing in one, read the prospectus and understand the mechanics of these complicated trading instruments. Leveraged ETFs Explained ETFs sell like other securities on the stock market and contain a basket of securities. These securities could be from an index they track, a hand-picked theme of stocks, or individual stocks, derivatives, fixed-income securities, and currency. For example, ETFs that track the S&P 500 Index contain the 500 stocks in the S&P 500. Typically, if the S&P moves 1%, the ETF will also move by 1%. An LETF that tracks the S&P 500 would use financial products and debt that magnify each 1% gain in the S&P to a 2% or 3% gain. The extent of the gain depends on the amount of leverage used. Leveraging is an investing strategy that uses borrowed funds to buy futures and other derivatives to increase the impact of changes in price. LETFs primarily use futures contracts, index futures, and swap agreements to magnify the daily returns of the underlying index, stock, or other tracked assets. These derivatives are needed for the daily rebalancing these LETFs require. More on this crucial aspect below. This leverage can work in the opposite direction and lead to losses for magnified losses. If the underlying index falls by 1%, the loss is exaggerated by the leverage. Investors should be aware of the risks of LETFs since the risk of losses is far higher than those from traditional investments. As D.J. Abner notes in his "ETF Handbook," while investors notoriously fail to read prospectuses and investor warnings before putting money into securities, this is decidedly not the time to do so. Lastly, the management fees and transaction costs associated with LETFs can diminish the fund's return. For the 170 LETFs it tracks in the U.S. markets, ETF.com puts the average expense ratio at 1.02%. The Leverage in Leveraged ETFs An LETF applies derivatives to magnify the exposure to a particular index or other targeted asset (stocks, cryptocurrency, commodities, etc.). It does not aim to amplify the monthly or annual returns of the target assets but instead tracks daily changes, resetting each day. The leverage in LETFs comes from several sources. First, it can come from borrowing. For instance, the fund that aims to have twice the return of the targeted assets might take your invested funds and then borrow the same amount to effectively double how much is invested. LETFs also employ derivatives like forward contracts, futures contracts, total return swaps, and, less frequently, options: Futures contracts: Agreements to buy or sell an asset at a predetermined price at a specific time. They are traded on exchanges and the parties have to fulfill the contract at its maturity date. Forward contracts: Like futures, forwards are contracts to trade an asset at a set price in the future. However, unlike futures, they are not standardized but are customizable private agreements. Total return swaps: Where one party agrees to pay the total return, including dividends, interest, and capital gains, of a tracked asset or set of assets to another party that pays a fixed or floating rate. It's a way to gain exposure to an asset's return without owning it. Options: Options contracts grant an investor the ability to buy (a call option) or sell (a put option) an underlying asset without the obligation to buy or sell the security. Options contracts have an expiration date for when any action must be completed. They are fundamentally different from futures and forwards, which put obligations on both parties, and from swaps, which involve exchanging cash flows or returns. Employing derivatives for generating returns is a method known as "synthetic replication" (the flip side of "physical" replication, directly borrowing), which is generally more efficient than borrowing to buy the securities of the benchmark. Regarding options, they have upfront fees called premiums that allow investors to buy many shares of a security. As a result, options layered with investments, such as stocks, can add to the gains for LETFs over 1:1 traditional ETFs. A leveraged inverse ETF uses its leverage to make money when the underlying index is declining in value. In other words, an inverse ETF rises while the underlying index is falling, allowing investors to profit from a bearish market or market declines. The Costs of Leverage Along with management and transaction fee expenses, there are other costs associated with LETFs. These funds have higher fees than non-leveraged ETFs because premiums, fees, and interest need to be paid on the derivatives and for margin costs. Many LETFs have expense ratios of 1% or more. Despite the higher expense ratios associated with LETFs, they are often less expensive than other forms of margin. Trading on margin involves a broker lending money to a customer so that the borrower can buy securities with the securities held as collateral for the loan. The broker also charges an interest rate for the margin loan. For example, short selling, which involves borrowing shares from a broker to bet on a downward move, can carry fees of 3% or more on the amount borrowed. The use of margin to buy stock can become similarly expensive and can result in margin calls should the position begin losing money. A margin call happens when a broker asks for more money to shore up the account if the collateral securities are losing value an fall below a certain minimum. Leveraged ETFs Are Short-Term Instruments LETFs are typically used by day traders speculating on an index or other targeted sets of assets. It is difficult to hold long-term investments in LETFs because the derivatives used for the leverage are not long-term investments. As a result, traders often hold positions in LETFs for day trading. These ETFs should not be used for long-term strategies since they're anchored in techniques for returns within a trading day, not a longer time, and the daily reset means the fund can't build on itself. If you want ETFs for long-term investing, there are myriad financial products for that. Pros LETFs offer the potential for significant gains that exceed the tracked index or assets. Investors have a wide variety of securities to trade using LETFs. Investors can make money when the market is declining using inverse LETFs. Cons LETFs can lead to significant losses that exceed the tracked index or assets. LETFs have higher fees and expense ratios compared with traditional ETFs. LETFs are not long-term investments. Real World Example of a Leveraged ETF The Direxion Daily Financial Bull 3x Shares (FAS) ETF holds equities in large U.S. financial companies by tracking the Financial Select Sector Index. It has an expense ratio of 0.96%, and it tracks securities that include Berkshire Hathaway (BRK.B), Visa (V), JPMorgan Chase & Co. (JPM), and other financial companies in the S&P 500. This LETF aims to provide investors three times (3x) the return on the moves in the financial stocks it tracks. To do this, the fund invests in swap agreements, index securities, and ETFs that track the index. Now, suppose an investor bought $10,000 of FAS, and the underlying financial stocks rose by 1% in a single day; FAS would seek to provide 3% returns on that day. This means the $10,000 investment would increase to $10,300 at the end of the day before fees. However, because LETFs reset each day, the gains are not compounded over days. Tomorrow is another day entirely. Conversely, if the tracked financial stocks declined 2% in a day, FAS would aim for a 6% decline for that same day. So, the original $10,000 investment would decrease to $9,400 before accounting for fees. As this example shows, the multiplier works both ways. You can get three times the gains during a positive performance and three times the losses when the index declines. The Impact of Daily Resets The daily reset mechanism causes LETFs to rebalance their entire portfolios daily to maintain their leverage. Thus, they won't work necessarily for a buy-and-hold strategy since they don't allow gains and losses to compound over longer periods. This resetting effect allows the ETF to seek 3x leverage daily but can cause longer-term returns to diverge significantly from simply multiplying the underlying index's total returns by 3x. To demonstrate this, here is an example covering several days. Let's assume the underlying financial index FAS tracks has the following daily returns: Day 1: +1.0%Day 2: -2.0%Day 3: +0.5% We need to triple each of these for the expected return of FAS: +3.0%, -6.0%, and +1.5%, respectively, for the three days above. On Day 1, since the index rose 1%, FAS would seek to provide 3x that return, or 3.0%. So the $10,000 investment would rise to $10,300. But on Day 2, the index fell 2.0%. So FAS would target returns of 3 x -2% = -6%. The $10,300 balance would decline by 6% to $9,682. On Day 3, the index rose 0.5%, so FAS would attempt to return 3 x 0.5% = 1.5%. So, the balance moves from $9,682 to $9,827, a net loss of 1.73%. As you can see, the daily reset prevents the gains and losses from compounding over several days. The leveraged position is reset completely rather than just adding 3x each day's additional gain or loss. While the index declined 0.5% over the three days, the 3x LETF declined more than 1.7% over the same period because of the effects of daily rebalancing (which is more than 1.5% loss expected by multiplying the index return by three). Thus, LETF returns can significantly diverge from a simple multiplier of the underlying index's returns in volatile conditions over those same periods. The sequence of daily gains and losses matters because of the daily reset mechanism. So, while useful for short-term trading strategies, LETFs like FAS generally should not be expected to achieve a consistent 3x return compared with the tracked index or assets for longer periods. What Are the Tax Implications of Owning Leveraged ETFs? LETFs have unique tax implications because of their frequent trading and rebalancing. They can generate higher short-term capital gains inside the fund, which are taxed at a higher rate than long-term capital gains. Also, the use of derivatives and other financial instruments in these ETFs can lead to complex tax situations in certain cases. It's advisable to consult a tax professional for guidance specific to your circumstances. Do Interest Rate Changes Impact Leveraged ETF Performance? For fixed-income LETFs, yes, since bond prices react to changes or expectations of changes in interest rates. For other LETFs, interest rates can significantly affect certain LETFs that use borrowed money or rate-sensitives derivatives instruments, so rising interest rates can increase borrowing costs, thus reducing returns. In addition, changes in interest rates can affect the sectors or assets they track, influencing their performance. For example, higher interest rates might negatively influence debt-heavy sectors, which in turn would affect LETFs tracking those sectors. What's the Difference Between Buying a Leveraged ETF and Margin Trading? LETFs have built-in leverage and aim to deliver a multiple of a tracked index's or assets' daily returns. Margin trading, meanwhile, involves borrowing money from a broker to invest in securities. While both involve leverage, margin trading gives investors more control over the amount of leverage and the specific investments. However, margin trading also carries the risk of a margin call if the investments decline in value, which is not a risk with LETFs. The Bottom Line LETFs are specialized financial instruments designed to deliver multiples of the daily performance of a specific index or asset. They achieve this by using derivatives as leverage, amplifying both gains and losses. Ideal for experienced traders and suited for short-term (i.e., intraday) investment strategies, LETFs are used in scenarios when quick, significant market moves are expected. However, their complex nature and the impact of daily rebalancing make them unsuitable for longer-term investments. Investors should use caution, as these ETFs entail a higher degree of risk and volatility compared with traditional ETFs. Because of their sensitivity to market fluctuations and the costs associated with their operation, LETFs should be used with a clear understanding of their mechanisms and potential impacts on investment portfolios.

https://www.investopedia.com/terms/s/sp.asp

Standard & Poor's (S&P): Indexes and Credit Ratings

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-standard--poors-sp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Standard &amp; Poor's (S&amp;P)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Standard &amp; Poor's (S&amp;P) is a company well known around the world as a creator of financial market indices—widely used as investment benchmarks—a data source, and an issuer of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit ratings</a> for companies and debt obligations. It's perhaps best-known for the popular and often-cited <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500 Index</a>. The company's roots date back to the 1860s. Since 2016, its official corporate name has been S&amp;P Global.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Standard &amp; Poor's (S&amp;P) is a leading index provider and data source of independent credit ratings.</li><li>The McGraw-Hill Cos. purchased S&amp;P in 1966, and in 2016, the company became known as S&amp;P Global.<span class="ql-inline-citation" data-cite="2"></span></li><li>Standard &amp; Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue on a scale of AAA to D, indicating their degree of investment risk.<span class="ql-inline-citation" data-cite="12"></span></li><li>The popular S&amp;P 500 Index is perhaps Standard &amp; Poor's best-known product.<span class="ql-inline-citation" data-cite="13"></span></li><li>The S&amp;P 500 is the basis for many investments, including futures contracts, mutual funds, and ETFs.<span class="ql-inline-citation" data-cite="14"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-standard--poors-sp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Standard &amp; Poor's (S&amp;P) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Standard &amp; Poor's grew out of two companies: Poor's Publishing, a publisher of railroad industry guidebooks officially founded in 1868, and the Standard Statistics Bureau (later Company), founded in 1906, which published financial data on companies. In 1923, it released its first stock market indicator, which contained 233 companies. Poor's Publishing, meanwhile, issued its first rating in 1916. The two firms merged in 1941, to create Standard &amp; Poor's.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The McGraw-Hill Cos. purchased S&amp;P in 1966. In 2012, Standard &amp; Poor’s combined its index operations with Dow Jones Indices (which McGraw-Hill owned) to become the leader in stock market indexes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In 2016, McGraw Hill Financial rebranded itself as S&amp;P Global. S&amp;P Global divisions include S&amp;P Global Ratings, S&amp;P Global Market Intelligence, S&amp;P Dow Jones Indices, and S&amp;P Global Platts.<span class="ql-inline-citation" data-cite="2"></span> The company has more than 1,500 credit analysts, and more than 1 million credit ratings have been issued on governments, corporations, the financial sector, and securities.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> S&amp;P is a major credit risk researcher, covering multiple industries, benchmarks, asset classes, and geographies. It issues credit ratings, ranging from AAA to D, on public and private company debt, as well as governments. It also offers ratings on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shorttermdebt.asp">short-term debt</a> and provides outlook ratings that range from six months to two years.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>S&amp;P's major competitors for credit ratings include Moody's and Fitch, and for financial indices, Bloomberg General Business Services.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-standard--poors-indexes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Standard &amp; Poor's Indexes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The S&amp;P 500 Index launched in March 1957. It was the first index to be computer-generated and to be published daily and has become a stand-in for the U.S. stock market itself.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The S&amp;P 500 Index contains 500 of the largest stocks that trade on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/03/103103.asp">New York Stock Exchange (NYSE) and Nasdaq</a>, making it a tool to gauge the overall health of large American companies. The S&amp;P 500 is probably the single most popular equity index in the world and is used as a performance benchmark for a variety of mutual funds, ETFs, and other assets and securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Other popular indexes offered by S&amp;P Global cover different sectors of the market and different market capitalizations. Large offerings from S&amp;P Dow Jones Indices include the S&amp;P SmallCap 600, the S&amp;P MidCap 400, the S&amp;P Composite 1500, and the S&amp;P 900. Each represents a look at market health based on its sub-sector.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-sp-500-index-futures"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> S&amp;P 500 Index Futures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The first S&amp;P 500 futures contracts were introduced by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cme.asp">Chicago Mercantile Exchange (CME)</a> in 1982, and carried a notional value of $250 times the value of the S&amp;P 500. The CME added the E-mini contract—valued at $50 times the S&amp;P 500—in 1997 to allow for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/123115/best-ways-invest-500-5000.asp">smaller investments</a> by a wider range of investors.<span class="ql-inline-citation" data-cite="7"></span> The even smaller micro E-mini, with a multiplier of just $5, was introduced in 2019.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The "E" in E-mini stands for electronic, a reflection of the fact that when E-minis were launched in 1997 they traded exclusively on CME Globex, CME's electronic trading system, rather than in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/openoutcry.asp">open outcry</a> pits like other futures contracts.<span class="ql-inline-citation" data-cite="7"></span> Many traders favored the E-mini over the standard contract not only for its smaller investment size but also for its liquidity. Consequently, CME delisted the standard contract in September 2021.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> As with all futures, investors are only required to front a fraction of the contract value to take a position. This represents the margin on the futures contract. These margins are not the same as margins for stock trading. Futures margins show "skin in the game" that must be offset or settled. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-standard--poors-underlying-ratings-spurs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Standard &amp; Poor's Underlying Ratings (SPURs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Standard &amp; Poor's Underlying Ratings (SPURs) provide an opinion on a municipality's credit quality separate from guarantor or insurer credit enhancements. Municipal or other public sector bonds typically include credit enhancement which is used to obtain better terms by providing increased assurance that the borrower will honor its obligation through additional insurance or a third-party guarantee. Standard &amp; Poor's issues a SPURs rating only at the request of the issuer/obligor and maintains surveillance of an issue with a published SPUR.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-example-of-standard--poors-ratings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Example of Standard &amp; Poor's Ratings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Standard &amp; Poor's Global Ratings division ranks debt instruments, like bonds, and the companies that issue them, in terms of creditworthiness—defined as the likelihood of default or inability to pay debts in a timely manner. Similar to academic grades, each rating consists of a letter on a scale of A to D, sometimes augmented with a plus or minus sign or a number. The higher the grade, the lower the risk (in S&amp;P's estimation). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> A rating of BBB and above is called "investment grade"—the safest sort of investment. Ratings below that are considered "speculative"—a greater degree of risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The chart below displays Standard &amp; Poor's rating system for short-term debt—bills, loans, and other obligations with a maturity of one year or less.<span class="ql-inline-citation" data-cite="1"></span> These are the sort of instruments that money market funds and money market accounts often invest in. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_41-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 25px;"></colgroup> <colgroup span="1" style="width: 140px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">S&amp;P Ratings Scale for Short-Term Debt</th> </tr> <tr> <th><b>Letter Rating</b></th> <th><b>Investment Grade</b></th> <th><b>Degree of Creditworthiness</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td> A–1</td> <td>Investment</td> <td>Strong</td> </tr> <tr> <td> A–2</td> <td>Investment</td> <td>Satisfactory</td> </tr> <tr> <td> A–3</td> <td>Investment</td> <td>Adequate</td> </tr> <tr> <td> B</td> <td>Speculative</td> <td>Currently meets commitments but faces uncertainties</td> </tr> <tr> <td> C</td> <td>Speculative</td> <td>Vulnerable to nonpayment</td> </tr> <tr> <td> D</td> <td>Speculative</td> <td>In default</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-does-standard-and-poors-mean"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does Standard and Poor's Mean?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Standard &amp; Poor's (S&amp;P) is a company, a leading index provider, and data source of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp">independent credit ratings</a>. The name comes from the 1941 merger of two financial data publications. Henry Varnum Poor's publication on railroad prices (dating back to 1860), and The Standard Statistics Bureau, which was founded in 1906. Sometimes a reference to "Standard &amp; Poor's" can also mean the company's most famous index: the S&amp;P 500, which tracks the performance of the 500 largest public companies in the U.S.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-how-does-standard-and-poors-make-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Standard and Poor's Make Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Standard &amp; Poor's is paid fees for its rating services by issuers of securities and debt obligations. In addition, companies and individuals often pay for its more detailed market intelligence and analysis reports, and subscribe to other research services.<span class="ql-inline-citation" data-cite="18"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-companies-are-in-the-sp-500"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Companies Are in the S&amp;P 500?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The S&amp;P 500 consists of the 500 largest publicly-traded companies in the U.S. Many are highly familiar names: Microsoft, Apple, Exxon Mobile, Bank of America, Visa, and Coca-Cola.</p><p>To qualify for the S&amp;P 500 Index, a company must have at least 10% of its shares outstanding in the public market and have a market capitalization of at least $14.6 billion.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-how-do-i-find-a-companys-sp-credit-rating"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Find a Company's S&amp;P Credit Rating?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can find a company's S&amp;P rating by going to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.standardandpoors.com/en_US/web/guest/entity-browse">S&amp;P Global Ratings website</a>. Once you register for free with S&amp;P Global Ratings' website, you can then look up a company.<span class="ql-inline-citation" data-cite="19"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-is-bbb-investment-grade"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is BBB Investment Grade?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, BBB does indicate investment grade. It is the lowest S&amp;P rating to qualify as investment grade. It means a bond or an issuer "exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor's capacity to meet its financial commitments on the obligation," as S&amp;P puts it.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Standard &amp; Poor's—officially, S&amp;P Global—is a public company in the financial information and analytics business. Based in the U.S., but with offices around the world, it provides financial market research and intelligence, maintaining widely followed market and securities indexes—the best-known of which, the S&amp;P 500 Index, acts as a barometer of the entire U.S. stock market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> In addition, Standard &amp; Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue.<span class="ql-inline-citation" data-cite="20"></span> </p></div>

## What Is Standard & Poor's (S&P)? Standard & Poor's (S&P) is a company well known around the world as a creator of financial market indices—widely used as investment benchmarks—a data source, and an issuer of [credit ratings](https://www.investopedia.com/terms/c/creditrating.asp) for companies and debt obligations. It's perhaps best-known for the popular and often-cited [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp). The company's roots date back to the 1860s. Since 2016, its official corporate name has been S&P Global. ### Key Takeaways * Standard & Poor's (S&P) is a leading index provider and data source of independent credit ratings. * The McGraw-Hill Cos. purchased S&P in 1966, and in 2016, the company became known as S&P Global. * Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue on a scale of AAA to D, indicating their degree of investment risk. * The popular S&P 500 Index is perhaps Standard & Poor's best-known product. * The S&P 500 is the basis for many investments, including futures contracts, mutual funds, and ETFs. ## Understanding Standard & Poor's (S&P) Standard & Poor's grew out of two companies: Poor's Publishing, a publisher of railroad industry guidebooks officially founded in 1868, and the Standard Statistics Bureau (later Company), founded in 1906, which published financial data on companies. In 1923, it released its first stock market indicator, which contained 233 companies. Poor's Publishing, meanwhile, issued its first rating in 1916. The two firms merged in 1941, to create Standard & Poor's. The McGraw-Hill Cos. purchased S&P in 1966. In 2012, Standard & Poor’s combined its index operations with Dow Jones Indices (which McGraw-Hill owned) to become the leader in stock market indexes. In 2016, McGraw Hill Financial rebranded itself as S&P Global. S&P Global divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices, and S&P Global Platts. The company has more than 1,500 credit analysts, and more than 1 million credit ratings have been issued on governments, corporations, the financial sector, and securities. S&P is a major credit risk researcher, covering multiple industries, benchmarks, asset classes, and geographies. It issues credit ratings, ranging from AAA to D, on public and private company debt, as well as governments. It also offers ratings on [short-term debt](https://www.investopedia.com/terms/s/shorttermdebt.asp) and provides outlook ratings that range from six months to two years. ### S&P's major competitors for credit ratings include Moody's and Fitch, and for financial indices, Bloomberg General Business Services. ## Standard & Poor's Indexes The S&P 500 Index launched in March 1957. It was the first index to be computer-generated and to be published daily and has become a stand-in for the U.S. stock market itself. The S&P 500 Index contains 500 of the largest stocks that trade on the [New York Stock Exchange (NYSE) and Nasdaq](https://www.investopedia.com/articles/basics/03/103103.asp), making it a tool to gauge the overall health of large American companies. The S&P 500 is probably the single most popular equity index in the world and is used as a performance benchmark for a variety of mutual funds, ETFs, and other assets and securities. Other popular indexes offered by S&P Global cover different sectors of the market and different market capitalizations. Large offerings from S&P Dow Jones Indices include the S&P SmallCap 600, the S&P MidCap 400, the S&P Composite 1500, and the S&P 900. Each represents a look at market health based on its sub-sector. ## S&P 500 Index Futures The first S&P 500 futures contracts were introduced by the [Chicago Mercantile Exchange (CME)](https://www.investopedia.com/terms/c/cme.asp) in 1982, and carried a notional value of $250 times the value of the S&P 500. The CME added the E-mini contract—valued at $50 times the S&P 500—in 1997 to allow for [smaller investments](https://www.investopedia.com/articles/personal-finance/123115/best-ways-invest-500-5000.asp) by a wider range of investors. The even smaller micro E-mini, with a multiplier of just $5, was introduced in 2019. The "E" in E-mini stands for electronic, a reflection of the fact that when E-minis were launched in 1997 they traded exclusively on CME Globex, CME's electronic trading system, rather than in [open outcry](https://www.investopedia.com/terms/o/openoutcry.asp) pits like other futures contracts. Many traders favored the E-mini over the standard contract not only for its smaller investment size but also for its liquidity. Consequently, CME delisted the standard contract in September 2021. As with all futures, investors are only required to front a fraction of the contract value to take a position. This represents the margin on the futures contract. These margins are not the same as margins for stock trading. Futures margins show "skin in the game" that must be offset or settled. ## Standard & Poor's Underlying Ratings (SPURs) Standard & Poor's Underlying Ratings (SPURs) provide an opinion on a municipality's credit quality separate from guarantor or insurer credit enhancements. Municipal or other public sector bonds typically include credit enhancement which is used to obtain better terms by providing increased assurance that the borrower will honor its obligation through additional insurance or a third-party guarantee. Standard & Poor's issues a SPURs rating only at the request of the issuer/obligor and maintains surveillance of an issue with a published SPUR. ## Example of Standard & Poor's Ratings Standard & Poor's Global Ratings division ranks debt instruments, like bonds, and the companies that issue them, in terms of creditworthiness—defined as the likelihood of default or inability to pay debts in a timely manner. Similar to academic grades, each rating consists of a letter on a scale of A to D, sometimes augmented with a plus or minus sign or a number. The higher the grade, the lower the risk (in S&P's estimation). A rating of BBB and above is called "investment grade"—the safest sort of investment. Ratings below that are considered "speculative"—a greater degree of risk. The chart below displays Standard & Poor's rating system for short-term debt—bills, loans, and other obligations with a maturity of one year or less. These are the sort of instruments that money market funds and money market accounts often invest in. | S&P Ratings Scale for Short-Term Debt | | | | --- | --- | --- | | **Letter Rating** | **Investment Grade** | **Degree of Creditworthiness** | | A–1 | Investment | Strong | | A–2 | Investment | Satisfactory | | A–3 | Investment | Adequate | | B | Speculative | Currently meets commitments but faces uncertainties | | C | Speculative | Vulnerable to nonpayment | | D | Speculative | In default | ## What Does Standard and Poor's Mean? Standard & Poor's (S&P) is a company, a leading index provider, and data source of [independent credit ratings](https://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp). The name comes from the 1941 merger of two financial data publications. Henry Varnum Poor's publication on railroad prices (dating back to 1860), and The Standard Statistics Bureau, which was founded in 1906. Sometimes a reference to "Standard & Poor's" can also mean the company's most famous index: the S&P 500, which tracks the performance of the 500 largest public companies in the U.S. ## How Does Standard and Poor's Make Money? Standard & Poor's is paid fees for its rating services by issuers of securities and debt obligations. In addition, companies and individuals often pay for its more detailed market intelligence and analysis reports, and subscribe to other research services. ## What Companies Are in the S&P 500? The S&P 500 consists of the 500 largest publicly-traded companies in the U.S. Many are highly familiar names: Microsoft, Apple, Exxon Mobile, Bank of America, Visa, and Coca-Cola. To qualify for the S&P 500 Index, a company must have at least 10% of its shares outstanding in the public market and have a market capitalization of at least $14.6 billion. ## How Do I Find a Company's S&P Credit Rating? You can find a company's S&P rating by going to the [S&P Global Ratings website](https://www.standardandpoors.com/en_US/web/guest/entity-browse). Once you register for free with S&P Global Ratings' website, you can then look up a company. ## Is BBB Investment Grade? Yes, BBB does indicate investment grade. It is the lowest S&P rating to qualify as investment grade. It means a bond or an issuer "exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor's capacity to meet its financial commitments on the obligation," as S&P puts it. ## The Bottom Line Standard & Poor's—officially, S&P Global—is a public company in the financial information and analytics business. Based in the U.S., but with offices around the world, it provides financial market research and intelligence, maintaining widely followed market and securities indexes—the best-known of which, the S&P 500 Index, acts as a barometer of the entire U.S. stock market. In addition, Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue.

What Is Standard & Poor's (S&P)? Standard & Poor's (S&P) is a company well known around the world as a creator of financial market indices—widely used as investment benchmarks—a data source, and an issuer of credit ratings for companies and debt obligations. It's perhaps best-known for the popular and often-cited S&P 500 Index. The company's roots date back to the 1860s. Since 2016, its official corporate name has been S&P Global. Key Takeaways Standard & Poor's (S&P) is a leading index provider and data source of independent credit ratings.The McGraw-Hill Cos. purchased S&P in 1966, and in 2016, the company became known as S&P Global.Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue on a scale of AAA to D, indicating their degree of investment risk.The popular S&P 500 Index is perhaps Standard & Poor's best-known product.The S&P 500 is the basis for many investments, including futures contracts, mutual funds, and ETFs. Understanding Standard & Poor's (S&P) Standard & Poor's grew out of two companies: Poor's Publishing, a publisher of railroad industry guidebooks officially founded in 1868, and the Standard Statistics Bureau (later Company), founded in 1906, which published financial data on companies. In 1923, it released its first stock market indicator, which contained 233 companies. Poor's Publishing, meanwhile, issued its first rating in 1916. The two firms merged in 1941, to create Standard & Poor's. The McGraw-Hill Cos. purchased S&P in 1966. In 2012, Standard & Poor’s combined its index operations with Dow Jones Indices (which McGraw-Hill owned) to become the leader in stock market indexes. In 2016, McGraw Hill Financial rebranded itself as S&P Global. S&P Global divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices, and S&P Global Platts. The company has more than 1,500 credit analysts, and more than 1 million credit ratings have been issued on governments, corporations, the financial sector, and securities. S&P is a major credit risk researcher, covering multiple industries, benchmarks, asset classes, and geographies. It issues credit ratings, ranging from AAA to D, on public and private company debt, as well as governments. It also offers ratings on short-term debt and provides outlook ratings that range from six months to two years. S&P's major competitors for credit ratings include Moody's and Fitch, and for financial indices, Bloomberg General Business Services. Standard & Poor's Indexes The S&P 500 Index launched in March 1957. It was the first index to be computer-generated and to be published daily and has become a stand-in for the U.S. stock market itself. The S&P 500 Index contains 500 of the largest stocks that trade on the New York Stock Exchange (NYSE) and Nasdaq, making it a tool to gauge the overall health of large American companies. The S&P 500 is probably the single most popular equity index in the world and is used as a performance benchmark for a variety of mutual funds, ETFs, and other assets and securities. Other popular indexes offered by S&P Global cover different sectors of the market and different market capitalizations. Large offerings from S&P Dow Jones Indices include the S&P SmallCap 600, the S&P MidCap 400, the S&P Composite 1500, and the S&P 900. Each represents a look at market health based on its sub-sector. S&P 500 Index Futures The first S&P 500 futures contracts were introduced by the Chicago Mercantile Exchange (CME) in 1982, and carried a notional value of $250 times the value of the S&P 500. The CME added the E-mini contract—valued at $50 times the S&P 500—in 1997 to allow for smaller investments by a wider range of investors. The even smaller micro E-mini, with a multiplier of just $5, was introduced in 2019. The "E" in E-mini stands for electronic, a reflection of the fact that when E-minis were launched in 1997 they traded exclusively on CME Globex, CME's electronic trading system, rather than in open outcry pits like other futures contracts. Many traders favored the E-mini over the standard contract not only for its smaller investment size but also for its liquidity. Consequently, CME delisted the standard contract in September 2021. As with all futures, investors are only required to front a fraction of the contract value to take a position. This represents the margin on the futures contract. These margins are not the same as margins for stock trading. Futures margins show "skin in the game" that must be offset or settled. Standard & Poor's Underlying Ratings (SPURs) Standard & Poor's Underlying Ratings (SPURs) provide an opinion on a municipality's credit quality separate from guarantor or insurer credit enhancements. Municipal or other public sector bonds typically include credit enhancement which is used to obtain better terms by providing increased assurance that the borrower will honor its obligation through additional insurance or a third-party guarantee. Standard & Poor's issues a SPURs rating only at the request of the issuer/obligor and maintains surveillance of an issue with a published SPUR. Example of Standard & Poor's Ratings Standard & Poor's Global Ratings division ranks debt instruments, like bonds, and the companies that issue them, in terms of creditworthiness—defined as the likelihood of default or inability to pay debts in a timely manner. Similar to academic grades, each rating consists of a letter on a scale of A to D, sometimes augmented with a plus or minus sign or a number. The higher the grade, the lower the risk (in S&P's estimation). A rating of BBB and above is called "investment grade"—the safest sort of investment. Ratings below that are considered "speculative"—a greater degree of risk. The chart below displays Standard & Poor's rating system for short-term debt—bills, loans, and other obligations with a maturity of one year or less. These are the sort of instruments that money market funds and money market accounts often invest in. S&P Ratings Scale for Short-Term Debt Letter Rating Investment Grade Degree of Creditworthiness  A–1 Investment Strong  A–2 Investment Satisfactory  A–3 Investment Adequate  B Speculative Currently meets commitments but faces uncertainties  C Speculative Vulnerable to nonpayment  D Speculative In default What Does Standard and Poor's Mean? Standard & Poor's (S&P) is a company, a leading index provider, and data source of independent credit ratings. The name comes from the 1941 merger of two financial data publications. Henry Varnum Poor's publication on railroad prices (dating back to 1860), and The Standard Statistics Bureau, which was founded in 1906. Sometimes a reference to "Standard & Poor's" can also mean the company's most famous index: the S&P 500, which tracks the performance of the 500 largest public companies in the U.S. How Does Standard and Poor's Make Money? Standard & Poor's is paid fees for its rating services by issuers of securities and debt obligations. In addition, companies and individuals often pay for its more detailed market intelligence and analysis reports, and subscribe to other research services. What Companies Are in the S&P 500? The S&P 500 consists of the 500 largest publicly-traded companies in the U.S. Many are highly familiar names: Microsoft, Apple, Exxon Mobile, Bank of America, Visa, and Coca-Cola.To qualify for the S&P 500 Index, a company must have at least 10% of its shares outstanding in the public market and have a market capitalization of at least $14.6 billion. How Do I Find a Company's S&P Credit Rating? You can find a company's S&P rating by going to the S&P Global Ratings website. Once you register for free with S&P Global Ratings' website, you can then look up a company. Is BBB Investment Grade? Yes, BBB does indicate investment grade. It is the lowest S&P rating to qualify as investment grade. It means a bond or an issuer "exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor's capacity to meet its financial commitments on the obligation," as S&P puts it. The Bottom Line Standard & Poor's—officially, S&P Global—is a public company in the financial information and analytics business. Based in the U.S., but with offices around the world, it provides financial market research and intelligence, maintaining widely followed market and securities indexes—the best-known of which, the S&P 500 Index, acts as a barometer of the entire U.S. stock market. In addition, Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue.

https://www.investopedia.com/articles/etfs-mutual-funds/050216/3-etfs-take-advantage-driverless-car-revolution-carz-arkq.asp

ETFs for the Driverless Car Revolution

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Investors seeking exposure to the driverless car revolution now have the option of buying into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> specifically dedicated to driverless cars, electric vehicles, and other innovations in the automobile industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Among this class of ETFs are KraneShares Electric Vehicles and Future Mobility ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=kars">KARS</a>), which debuted in January of 2018; Capital Link Global Green Energy Transport and Technology Leaders ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ekar">EKAR</a>); which debuted in February 2018, and Global X Autonomous &amp; Electric Vehicles ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=driv">DRIV</a>), which debuted in April 2018.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> Prior to the introduction of these specific ETFs, there were no ETFs directly related to self-driving cars and electric vehicles, and only one ETF was focused on the automobile industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Investors seeking exposure to the driverless car revolution now have the option of buying into exchange-traded funds (ETFs) specifically dedicated to driverless cars, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing-in-electric-vehicles-and-green-transportation-5220604">electric vehicles</a>, and other innovations in the automobile industry.</li> <li>KraneShares Electric Vehicles and Future Mobility ETF, Capital Link Global Green Energy Transport and Technology Leaders ETF, and Global X Autonomous &amp; Electric Vehicles ETF are ETFs that are invested in driverless cars, electric vehicles, and other innovations in the automobile industry.</li> <li>People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations, including First Trust's S-Network Future Vehicles &amp; Technology ETF or Autonomous Technology &amp; Robotics ETF by ARK Invest.</li> </ul></div></div></div> <span class="heading-toc" id="toc-kraneshares-electric-vehicles-and-future-mobility-etf-kars"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> KraneShares Electric Vehicles and Future Mobility ETF (KARS) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The KraneShares Electric Vehicles and Future Mobility ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KARS">KARS</a>) had $263 million in net assets and a 0.70% <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a>, as of Aug. 5, 2022. The fund tracks the performance of Bloomberg Electric Vehicles Index, which invests in global companies not only involved with electric vehicle production and/or components. but also "autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing, and electric infrastructure businesses."<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-capital-link-global-green-energy-transport-and-technology-leaders-etf-ekar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The Capital Link Global Green Energy Transport and Technology Leaders ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EKAR">EKAR</a>) is made up of global stocks related to electric autonomous, or self-driving, vehicles as well as renewable energy/battery storage. The fund invests in companies that fall into five categories within the sector: battery producers, original equipment manufacturers, suppliers, semiconductors and software producers and renewable energy producers. The ETF held a relatively small $7.82 million in net assets with an expense ratio of 0.65% as of Aug. 5, 2022. The fund follows the AF Global Green Energy Transport and Technology Leaders Index.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-global-x-autonomous--electric-vehicles-etf-driv"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Global X Autonomous &amp; Electric Vehicles ETF (DRIV) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The Global X Autonomous &amp; Electric Vehicles ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DRIV">DRIV</a>) seeks to correspond to the Solactive Autonomous and Electric Vehicles Index. The fund invests in companies that are involved in the development and manufacturing of software and hardware for driverless vehicles, and companies that produce electric vehicles and their components, such as lithium and cobalt. As of Aug. 5, 2022, the fund had $1.01 billion in net assets and a 0.68% expense ratio.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-related-exchange-traded-fund-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Related Exchange Traded Fund Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li>First Trust's S-Network Future Vehicles &amp; Technology fund (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=carz">CARZ</a>) was launched in 2011, and until 2018, it was the only ETF related to the automobile industry. As of Aug. 5, 2022, the fund had $56 million in net assets with an expense ratio of 0.70%. The ETF tracks the S-Network Electric &amp; Future Vehicle Ecosystem Index, which invests in companies worldwide involved in electric and autonomous vehicle manufacturing, enabling technologies, enabling materials.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="14"></span> Holdings include Tesla (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>), NVIDIA Corp (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>), Apple Inc (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>), Qualcomm Inc. (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QCOM">QCOM</a>), and Microsoft Corp (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MFST</a>).<span class="ql-inline-citation" data-cite="13"></span></li> <li>Another more broad investment option related to driverless cars is the Autonomous Technology &amp; Robotics ETF by ARK Invest (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=arkq">ARKQ</a>). The fund launched in 2014 and reached $1.1 billion in net assets as of June 30, 2022. ARKQ has a 0.75% expense ratio. This is an actively managed fund that invests in companies that are not only involved in autonomous technology, but also robotics, 3D printing, and energy storage.<span class="ql-inline-citation" data-cite="6"></span> Together, they account for almost 88% of the portfolio's assets. The top three sectors, industries, information technologies, and consumer discretionary, combined make up about 91% of the sector breakdown.<span class="ql-inline-citation" data-cite="16"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li>ETF investors may also wish to consider a fund like the First Trust Clean Edge Green Energy Index Fund (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=qcln">QCLN</a>). Launched by First Trust in 2007, the ETF focuses on companies involved in providing clean alternative energy, like solar photovoltaics, wind power, advanced batteries, fuel cells. Now, the fund includes electric cars. There is some significant overlap between companies involved in developing driverless cars and those involved in clean energy. This fund, which tracks the NASDAQ Clean Edge Green Energy Index composed of U.S.-listed firms engaged in developing clean energy, had $2 billion in net assets as of Aug. 5, 2022, and a 0.58% expense ratio. Automobiles and semiconductor firms, which are essential in creating driverless car technology, account for about a third of the portfolio holdings.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="7"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Another indirect to invest in the growth of electric vehicles is to invest in ETFs <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lithium-stocks-look-poised-to-charge-higher-4775207">that track lithium</a> or related stocks. Lithium is a mined element that is a critical component of rechargeable batteries.<span class="ql-inline-citation" data-cite="18"></span></p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_23-0"><span class="heading-toc" id="toc-which-companies-make-all-electric-vehicles"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Companies Make All-Electric Vehicles?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While Tesla Motors may be the most popular electric car company, many traditional automakers have started selling all-electric vehicles such as GM, Toyota, Hyundai, Ford, and Kia, among others.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_25-0"><span class="heading-toc" id="toc-what-is-the-difference-between-an-all-electric-and-hybrid-vehicle"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between an All-Electric and Hybrid Vehicle?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An all-electric vehicle runs on batteries alone, which are most typically recharged by plugging the vehicle in.<span class="ql-inline-citation" data-cite="19"></span> A hybrid-electric vehicle, on the other hand, has a gasoline-powered engine along with a small electric motor. The electric motor is recharged by the car's braking system and is put to use to increase overall gas mileage.<span class="ql-inline-citation" data-cite="20"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-what-percentage-of-vehicles-in-the-us-are-electric"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Percentage of Vehicles in the U.S. Are Electric?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As of 2022, fewer than 1% of the country’s 250 million vehicles are electric. The Biden Administration, however, has set a goal to increase this figure to at least 50% by the year 2050.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div></div>

Investors seeking exposure to the driverless car revolution now have the option of buying into [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) specifically dedicated to driverless cars, electric vehicles, and other innovations in the automobile industry. Among this class of ETFs are KraneShares Electric Vehicles and Future Mobility ETF ([KARS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=kars)), which debuted in January of 2018; Capital Link Global Green Energy Transport and Technology Leaders ETF ([EKAR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ekar)); which debuted in February 2018, and Global X Autonomous & Electric Vehicles ETF ([DRIV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=driv)), which debuted in April 2018. Prior to the introduction of these specific ETFs, there were no ETFs directly related to self-driving cars and electric vehicles, and only one ETF was focused on the automobile industry. ### Key Takeaways * Investors seeking exposure to the driverless car revolution now have the option of buying into exchange-traded funds (ETFs) specifically dedicated to driverless cars, [electric vehicles](https://www.investopedia.com/investing-in-electric-vehicles-and-green-transportation-5220604), and other innovations in the automobile industry. * KraneShares Electric Vehicles and Future Mobility ETF, Capital Link Global Green Energy Transport and Technology Leaders ETF, and Global X Autonomous & Electric Vehicles ETF are ETFs that are invested in driverless cars, electric vehicles, and other innovations in the automobile industry. * People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations, including First Trust's S-Network Future Vehicles & Technology ETF or Autonomous Technology & Robotics ETF by ARK Invest. ## KraneShares Electric Vehicles and Future Mobility ETF (KARS) The KraneShares Electric Vehicles and Future Mobility ETF ([KARS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KARS)) had $263 million in net assets and a 0.70% [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp), as of Aug. 5, 2022. The fund tracks the performance of Bloomberg Electric Vehicles Index, which invests in global companies not only involved with electric vehicle production and/or components. but also "autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing, and electric infrastructure businesses." ## Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR) The Capital Link Global Green Energy Transport and Technology Leaders ETF ([EKAR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EKAR)) is made up of global stocks related to electric autonomous, or self-driving, vehicles as well as renewable energy/battery storage. The fund invests in companies that fall into five categories within the sector: battery producers, original equipment manufacturers, suppliers, semiconductors and software producers and renewable energy producers. The ETF held a relatively small $7.82 million in net assets with an expense ratio of 0.65% as of Aug. 5, 2022. The fund follows the AF Global Green Energy Transport and Technology Leaders Index. ## Global X Autonomous & Electric Vehicles ETF (DRIV) The Global X Autonomous & Electric Vehicles ETF ([DRIV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DRIV)) seeks to correspond to the Solactive Autonomous and Electric Vehicles Index. The fund invests in companies that are involved in the development and manufacturing of software and hardware for driverless vehicles, and companies that produce electric vehicles and their components, such as lithium and cobalt. As of Aug. 5, 2022, the fund had $1.01 billion in net assets and a 0.68% expense ratio. ## Related Exchange Traded Fund Options People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations. * First Trust's S-Network Future Vehicles & Technology fund ([CARZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=carz)) was launched in 2011, and until 2018, it was the only ETF related to the automobile industry. As of Aug. 5, 2022, the fund had $56 million in net assets with an expense ratio of 0.70%. The ETF tracks the S-Network Electric & Future Vehicle Ecosystem Index, which invests in companies worldwide involved in electric and autonomous vehicle manufacturing, enabling technologies, enabling materials. Holdings include Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)), NVIDIA Corp ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)), Apple Inc ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)), Qualcomm Inc. ([QCOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QCOM)), and Microsoft Corp ([MFST](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)). * Another more broad investment option related to driverless cars is the Autonomous Technology & Robotics ETF by ARK Invest ([ARKQ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=arkq)). The fund launched in 2014 and reached $1.1 billion in net assets as of June 30, 2022. ARKQ has a 0.75% expense ratio. This is an actively managed fund that invests in companies that are not only involved in autonomous technology, but also robotics, 3D printing, and energy storage. Together, they account for almost 88% of the portfolio's assets. The top three sectors, industries, information technologies, and consumer discretionary, combined make up about 91% of the sector breakdown. * ETF investors may also wish to consider a fund like the First Trust Clean Edge Green Energy Index Fund ([QCLN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=qcln)). Launched by First Trust in 2007, the ETF focuses on companies involved in providing clean alternative energy, like solar photovoltaics, wind power, advanced batteries, fuel cells. Now, the fund includes electric cars. There is some significant overlap between companies involved in developing driverless cars and those involved in clean energy. This fund, which tracks the NASDAQ Clean Edge Green Energy Index composed of U.S.-listed firms engaged in developing clean energy, had $2 billion in net assets as of Aug. 5, 2022, and a 0.58% expense ratio. Automobiles and semiconductor firms, which are essential in creating driverless car technology, account for about a third of the portfolio holdings. ### Another indirect to invest in the growth of electric vehicles is to invest in ETFs [that track lithium](https://www.investopedia.com/lithium-stocks-look-poised-to-charge-higher-4775207) or related stocks. Lithium is a mined element that is a critical component of rechargeable batteries. ## Which Companies Make All-Electric Vehicles? While Tesla Motors may be the most popular electric car company, many traditional automakers have started selling all-electric vehicles such as GM, Toyota, Hyundai, Ford, and Kia, among others. ## What Is the Difference Between an All-Electric and Hybrid Vehicle? An all-electric vehicle runs on batteries alone, which are most typically recharged by plugging the vehicle in. A hybrid-electric vehicle, on the other hand, has a gasoline-powered engine along with a small electric motor. The electric motor is recharged by the car's braking system and is put to use to increase overall gas mileage. ## What Percentage of Vehicles in the U.S. Are Electric? As of 2022, fewer than 1% of the country’s 250 million vehicles are electric. The Biden Administration, however, has set a goal to increase this figure to at least 50% by the year 2050.

Investors seeking exposure to the driverless car revolution now have the option of buying into exchange-traded funds (ETFs) specifically dedicated to driverless cars, electric vehicles, and other innovations in the automobile industry. Among this class of ETFs are KraneShares Electric Vehicles and Future Mobility ETF (KARS), which debuted in January of 2018; Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR); which debuted in February 2018, and Global X Autonomous & Electric Vehicles ETF (DRIV), which debuted in April 2018. Prior to the introduction of these specific ETFs, there were no ETFs directly related to self-driving cars and electric vehicles, and only one ETF was focused on the automobile industry. Key Takeaways Investors seeking exposure to the driverless car revolution now have the option of buying into exchange-traded funds (ETFs) specifically dedicated to driverless cars, electric vehicles, and other innovations in the automobile industry. KraneShares Electric Vehicles and Future Mobility ETF, Capital Link Global Green Energy Transport and Technology Leaders ETF, and Global X Autonomous & Electric Vehicles ETF are ETFs that are invested in driverless cars, electric vehicles, and other innovations in the automobile industry. People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations, including First Trust's S-Network Future Vehicles & Technology ETF or Autonomous Technology & Robotics ETF by ARK Invest. KraneShares Electric Vehicles and Future Mobility ETF (KARS) The KraneShares Electric Vehicles and Future Mobility ETF (KARS) had $263 million in net assets and a 0.70% expense ratio, as of Aug. 5, 2022. The fund tracks the performance of Bloomberg Electric Vehicles Index, which invests in global companies not only involved with electric vehicle production and/or components. but also "autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing, and electric infrastructure businesses." Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR) The Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR) is made up of global stocks related to electric autonomous, or self-driving, vehicles as well as renewable energy/battery storage. The fund invests in companies that fall into five categories within the sector: battery producers, original equipment manufacturers, suppliers, semiconductors and software producers and renewable energy producers. The ETF held a relatively small $7.82 million in net assets with an expense ratio of 0.65% as of Aug. 5, 2022. The fund follows the AF Global Green Energy Transport and Technology Leaders Index. Global X Autonomous & Electric Vehicles ETF (DRIV) The Global X Autonomous & Electric Vehicles ETF (DRIV) seeks to correspond to the Solactive Autonomous and Electric Vehicles Index. The fund invests in companies that are involved in the development and manufacturing of software and hardware for driverless vehicles, and companies that produce electric vehicles and their components, such as lithium and cobalt. As of Aug. 5, 2022, the fund had $1.01 billion in net assets and a 0.68% expense ratio. Related Exchange Traded Fund Options People looking to invest in driverless cars also have the option of adding ETFs to their portfolio that are focused on the automobile industry and related technological innovations. First Trust's S-Network Future Vehicles & Technology fund (CARZ) was launched in 2011, and until 2018, it was the only ETF related to the automobile industry. As of Aug. 5, 2022, the fund had $56 million in net assets with an expense ratio of 0.70%. The ETF tracks the S-Network Electric & Future Vehicle Ecosystem Index, which invests in companies worldwide involved in electric and autonomous vehicle manufacturing, enabling technologies, enabling materials. Holdings include Tesla (TSLA), NVIDIA Corp (NVDA), Apple Inc (AAPL), Qualcomm Inc. (QCOM), and Microsoft Corp (MFST). Another more broad investment option related to driverless cars is the Autonomous Technology & Robotics ETF by ARK Invest (ARKQ). The fund launched in 2014 and reached $1.1 billion in net assets as of June 30, 2022. ARKQ has a 0.75% expense ratio. This is an actively managed fund that invests in companies that are not only involved in autonomous technology, but also robotics, 3D printing, and energy storage. Together, they account for almost 88% of the portfolio's assets. The top three sectors, industries, information technologies, and consumer discretionary, combined make up about 91% of the sector breakdown. ETF investors may also wish to consider a fund like the First Trust Clean Edge Green Energy Index Fund (QCLN). Launched by First Trust in 2007, the ETF focuses on companies involved in providing clean alternative energy, like solar photovoltaics, wind power, advanced batteries, fuel cells. Now, the fund includes electric cars. There is some significant overlap between companies involved in developing driverless cars and those involved in clean energy. This fund, which tracks the NASDAQ Clean Edge Green Energy Index composed of U.S.-listed firms engaged in developing clean energy, had $2 billion in net assets as of Aug. 5, 2022, and a 0.58% expense ratio. Automobiles and semiconductor firms, which are essential in creating driverless car technology, account for about a third of the portfolio holdings. Another indirect to invest in the growth of electric vehicles is to invest in ETFs that track lithium or related stocks. Lithium is a mined element that is a critical component of rechargeable batteries. Which Companies Make All-Electric Vehicles? While Tesla Motors may be the most popular electric car company, many traditional automakers have started selling all-electric vehicles such as GM, Toyota, Hyundai, Ford, and Kia, among others. What Is the Difference Between an All-Electric and Hybrid Vehicle? An all-electric vehicle runs on batteries alone, which are most typically recharged by plugging the vehicle in. A hybrid-electric vehicle, on the other hand, has a gasoline-powered engine along with a small electric motor. The electric motor is recharged by the car's braking system and is put to use to increase overall gas mileage. What Percentage of Vehicles in the U.S. Are Electric? As of 2022, fewer than 1% of the country’s 250 million vehicles are electric. The Biden Administration, however, has set a goal to increase this figure to at least 50% by the year 2050.

https://www.investopedia.com/terms/z/z.asp

Z

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-z-in-the-nasdaq"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Z in the Nasdaq? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term Z refers to a designation for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a>-listed securities that identifies a miscellaneous entity. This extension is just one of the fifth-letter identifiers that appear after a company's ticker symbol. It indicates that the stock is different from single issues of common or capital stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The reasons for a Z-designation tend to vary and may include things like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depositaryreceipt.asp">depositary receipts</a> or units. The reasons for a Z designation aren't always obvious and usually require a little research. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Z is a fifth-letter identifier for Nasdaq stock symbols.</li><li>It indicates that a stock is different from a single issue of common or capital stock.</li><li>Z might indicate that the issue is a depositary receipt, stub, additional warrant, or unit.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-z"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Z </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Companies must choose a unique <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksymbol.asp">ticker symbol</a> when they want to list on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/092404.asp">stock exchange</a>. This symbol is made up of a series of characters that identifies the company's stock. It allows traders to execute <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transaction.asp">transactions</a> for these securities. The ticker symbol also identifies the stock exchange on which a particular security trades. For instance, a ticker with three letters trades on the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange</a> (NYSE), while those with four letters trade on the Nasdaq. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> These ticker symbols may come with suffixes that alert <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholder.asp">shareholders</a> to specific situations about the stock itself. Suffixes for Nasdaq-listed securities appear as fifth-letter identifiers and follow a dot after their ticker symbols.<span class="ql-inline-citation" data-cite="1"></span> When a fifth letter appears, it identifies the issue as different from a single issue of common stock or capital stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The Z-letter suffix identifies a variety of miscellaneous entities.<span class="ql-inline-citation" data-cite="1"></span> Unlike other designations, this one can be fairly vague, so it's up to individuals investors and traders to do their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duediligence.asp">due diligence</a>. Doing a little research can help them figure out why the suffix is added to the end of the security's ticker symbol. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As mentioned above, the letter Z identifies securities that are not single issues of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalstock.asp">capital stock</a>. It may indicate that the security is a depositary receipt, stub, additional warrant, or another type of unit. Z historically had a different meaning in futures <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">trading</a>, though, where it indicated a delivery month of December until new options symbology was introduced in 2010. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The NYSE uses fourth-letter identifiers to distinguish unique instances when certain issuances vary from normal conditions.</p></div></div></div> <span class="heading-toc" id="toc-z-vs-other-letter-designations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Z vs. Other Letter Designations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The Nasdaq uses a variety of letters or fifth-letter designations to distinguish stock issuances and the rights that come along with them. Z is just one of those designations. Like Z, the letter L also identifies miscellaneous entities. This identifier denotes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofparticipation.asp" rel="noopener noreferrer">certificates of participation</a> (COPs), preferred participation, and stubs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If you see a ticker symbol with the letter P after a dot, it means that the issuance is the preferred first issue of a company, while the letter O is the second preferred issue. The letter E means the company is delinquent with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission</a> (SEC) filing, while K denotes a series of non-voting stock. The letter F means that the stock is a foreign issue. </p></div>

## What Is Z in the Nasdaq? The term Z refers to a designation for [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp)-listed securities that identifies a miscellaneous entity. This extension is just one of the fifth-letter identifiers that appear after a company's ticker symbol. It indicates that the stock is different from single issues of common or capital stock. The reasons for a Z-designation tend to vary and may include things like [depositary receipts](https://www.investopedia.com/terms/d/depositaryreceipt.asp) or units. The reasons for a Z designation aren't always obvious and usually require a little research. ### Key Takeaways * Z is a fifth-letter identifier for Nasdaq stock symbols. * It indicates that a stock is different from a single issue of common or capital stock. * Z might indicate that the issue is a depositary receipt, stub, additional warrant, or unit. ## Understanding Z Companies must choose a unique [ticker symbol](https://www.investopedia.com/terms/s/stocksymbol.asp) when they want to list on a [stock exchange](https://www.investopedia.com/articles/basics/04/092404.asp). This symbol is made up of a series of characters that identifies the company's stock. It allows traders to execute [transactions](https://www.investopedia.com/terms/t/transaction.asp) for these securities. The ticker symbol also identifies the stock exchange on which a particular security trades. For instance, a ticker with three letters trades on the [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE), while those with four letters trade on the Nasdaq. These ticker symbols may come with suffixes that alert [shareholders](https://www.investopedia.com/terms/s/shareholder.asp) to specific situations about the stock itself. Suffixes for Nasdaq-listed securities appear as fifth-letter identifiers and follow a dot after their ticker symbols. When a fifth letter appears, it identifies the issue as different from a single issue of common stock or capital stock. The Z-letter suffix identifies a variety of miscellaneous entities. Unlike other designations, this one can be fairly vague, so it's up to individuals investors and traders to do their [due diligence](https://www.investopedia.com/terms/d/duediligence.asp). Doing a little research can help them figure out why the suffix is added to the end of the security's ticker symbol. As mentioned above, the letter Z identifies securities that are not single issues of [common](https://www.investopedia.com/terms/c/commonstock.asp) or [capital stock](https://www.investopedia.com/terms/c/capitalstock.asp). It may indicate that the security is a depositary receipt, stub, additional warrant, or another type of unit. Z historically had a different meaning in futures [trading](https://www.investopedia.com/terms/f/futures.asp), though, where it indicated a delivery month of December until new options symbology was introduced in 2010. ### The NYSE uses fourth-letter identifiers to distinguish unique instances when certain issuances vary from normal conditions. ## Z vs. Other Letter Designations The Nasdaq uses a variety of letters or fifth-letter designations to distinguish stock issuances and the rights that come along with them. Z is just one of those designations. Like Z, the letter L also identifies miscellaneous entities. This identifier denotes [certificates of participation](https://www.investopedia.com/terms/c/certificateofparticipation.asp) (COPs), preferred participation, and stubs. If you see a ticker symbol with the letter P after a dot, it means that the issuance is the preferred first issue of a company, while the letter O is the second preferred issue. The letter E means the company is delinquent with a [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) filing, while K denotes a series of non-voting stock. The letter F means that the stock is a foreign issue.

What Is Z in the Nasdaq? The term Z refers to a designation for Nasdaq-listed securities that identifies a miscellaneous entity. This extension is just one of the fifth-letter identifiers that appear after a company's ticker symbol. It indicates that the stock is different from single issues of common or capital stock. The reasons for a Z-designation tend to vary and may include things like depositary receipts or units. The reasons for a Z designation aren't always obvious and usually require a little research. Key Takeaways Z is a fifth-letter identifier for Nasdaq stock symbols.It indicates that a stock is different from a single issue of common or capital stock.Z might indicate that the issue is a depositary receipt, stub, additional warrant, or unit. Understanding Z Companies must choose a unique ticker symbol when they want to list on a stock exchange. This symbol is made up of a series of characters that identifies the company's stock. It allows traders to execute transactions for these securities. The ticker symbol also identifies the stock exchange on which a particular security trades. For instance, a ticker with three letters trades on the New York Stock Exchange (NYSE), while those with four letters trade on the Nasdaq. These ticker symbols may come with suffixes that alert shareholders to specific situations about the stock itself. Suffixes for Nasdaq-listed securities appear as fifth-letter identifiers and follow a dot after their ticker symbols. When a fifth letter appears, it identifies the issue as different from a single issue of common stock or capital stock. The Z-letter suffix identifies a variety of miscellaneous entities. Unlike other designations, this one can be fairly vague, so it's up to individuals investors and traders to do their due diligence. Doing a little research can help them figure out why the suffix is added to the end of the security's ticker symbol. As mentioned above, the letter Z identifies securities that are not single issues of common or capital stock. It may indicate that the security is a depositary receipt, stub, additional warrant, or another type of unit. Z historically had a different meaning in futures trading, though, where it indicated a delivery month of December until new options symbology was introduced in 2010. The NYSE uses fourth-letter identifiers to distinguish unique instances when certain issuances vary from normal conditions. Z vs. Other Letter Designations The Nasdaq uses a variety of letters or fifth-letter designations to distinguish stock issuances and the rights that come along with them. Z is just one of those designations. Like Z, the letter L also identifies miscellaneous entities. This identifier denotes certificates of participation (COPs), preferred participation, and stubs. If you see a ticker symbol with the letter P after a dot, it means that the issuance is the preferred first issue of a company, while the letter O is the second preferred issue. The letter E means the company is delinquent with a Securities and Exchange Commission (SEC) filing, while K denotes a series of non-voting stock. The letter F means that the stock is a foreign issue.