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https://www.investopedia.com/happy-graduation-your-student-loan-grace-period-six-months-5187147

What Is the Student Loan Grace Period and 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-the-student-loan-grace-period"></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 Student Loan Grace Period? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Creating a plan to tackle your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-debt.asp">student debt</a> is essential—especially since you have, at best, only a six-month <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grace_period.asp">grace period</a> after graduation before you have to start paying back those loans. </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"> That grace period is not for all borrowers. Federal student loans allow a six-month window after graduation in which borrowers have time to prepare their debt <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> plans. Private student loan lenders may or may not offer a grace period. </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>Student loan grace periods allow borrowers time to prepare to repay their loans before the first loan payment is due.</li><li>Eligible federal student loan borrowers can enjoy a six-month grace period following graduation from college in which to explore repayment plans and options.</li><li>Private student loan lenders are not required to offer grace periods, though some may choose to do so.</li><li>One possibility for help with student loan repayment is asking about tuition assistance or reimbursement from an employer.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-student-loan-grace-periods"></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 Student Loan Grace Periods </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A grace period is a set period of time when no payments are due on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loans</a>. Its purpose is to allow time for borrowers to choose a loan repayment option and create a budget for repaying student debt. This includes the opportunity to explore <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/income-driven-repayment-plans-7562851">income-driven repayment (IDR)</a> options. </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"> For most federal student loans, the grace period is for six months and applies when you: </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>Graduate from college</li><li>Leave school</li><li>Drop below half-time enrollment</li> </ul> <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"> You may have up to nine months to begin repaying student debt if you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/perkins-loan.asp">Perkins Loan</a>. With <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plus-loan.asp">federal PLUS (Parent Loan for Undergraduate Students) loans</a>, you do not get a grace period; instead, you can take advantage of a six-month <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defermentperiod.asp">deferment period</a> if you graduate, leave school, or drop below half-time enrollment.<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_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>For most federal loans, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> continues to accrue during the grace period. You can choose to pay the interest during this time so that it isn’t added to your loan balance.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loans-4775346">private student loan lenders</a> can choose whether or not to offer a grace period. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sallie-mae-student-loans-review-4800305">Sallie Mae</a>, one of the top student private-loan lenders, offers a grace period for six months after graduating or leaving school.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you have a private student loan, contact your lender to determine if your loan has a grace period and (if applicable) when it will apply. If you do have a grace period for a private student loan, be sure to also find out whether interest will accrue during that time. </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>Grace periods are separate from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-student-loan-deferment-4771251">deferment</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-forbearance-pros-and-cons-4771305">forbearance</a> periods, in which you may temporarily pause payments to your loans due to financial hardship.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-use-the-student-loan-grace-period"></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 Use the Student Loan Grace Period </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> During your loan grace period, you’re not obligated to make any payments toward your loans; however, you have the option to do so, even if you’re only paying the interest. The advantage of paying interest during this time is that you can prevent it from being <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizedinterest.asp">capitalized</a> and added to your loan balance.<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"> If you’re currently in your grace period, or soon will be because you’re graduating or leaving school, the following checklist can help you make the most of it. </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"> 1. Determine What You Can Pay </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Six months can go by quickly, so it’s important to know before this time is up how much you can realistically afford to pay toward your student loans. If you don’t yet have a budget in place, the grace period allows you time to create one. </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"> First, look at your monthly income. Then, subtract all of your monthly expenses from what you make—or expect to make once you secure a job. This can give you a ballpark number of what you may be able to afford to pay toward your loans. </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"> 2. Compare Loan Repayment Options </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> If you have federal student loans, you may be eligible for one of <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">several payment plan options</a>. Typically, borrowers can choose from: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>Standard repayment</li><li>Graduated repayment</li><li>Extended repayment</li><li>Income-driven repayment (IDR)</li> </ul> <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 standard repayment plan calculates your monthly payments based on a 10-year repayment schedule. You pay the same amount each month for the entire 10 years. Graduated repayment also follows a 10-year repayment schedule, but your payments increase over time. Extended repayment gives you up to 25 years to pay if you owe $30,000 or more in federal direct loans. </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"> Income-driven plans base your monthly payment on your income and household size. The options include: </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>Income-Based Repayment (IBR)</li><li>Income-Contingent Repayment (ICR)</li><li>Income-Sensitive Repayment</li><li>Pay as You Earn (PAYE)</li><li>Saving on a Valuable Education (SAVE), which replaced Revised Pay as You Earn (REPAYE)</li> </ul> <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"> Your loan type, loan disbursement date, household size, and household income will determine the income-driven repayment plans for which you’re eligible. </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"> The advantage of income-driven repayment is that you may end up with a lower monthly payment. The downside is that instead of paying loans off in 10 years, you may be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844">making payments for 15 or even 25 years</a>, and you’ll pay more in interest over the life of the loan than you would under a standard repayment plan.<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_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>Private student loan lenders are not required to offer income-driven repayment options, though they may allow you to make interest-only payments for a time or choose a graduated repayment plan.<span class="ql-inline-citation" data-cite="9"></span></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"> 3. Seek an Employer That Offers Student Loan Help </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> An estimated 48% of employers offer some type of educational assistance, which can include student loan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinancing</a>, counseling, consolidation, and repayment programs.<span class="ql-inline-citation" data-cite="5"></span> If you’re heading out into the workforce for the first time, consider whether your prospective employer can help with student loan repayment. </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"> Then, when navigating interviews and job offers, ask about any student loan refinancing or repayment assistance in the benefits package. </p> <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-callout mntl-block" id="mntl-sc-block_57-0"><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_58-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0">Public Service Loan Forgiveness (PSLF)</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Some of your loan balance may be forgiven at the end of the loan term. If you’re interested in federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/051214/debt-forgiveness-how-get-out-paying-your-student-loans.asp#toc-public-service-loan-forgiveness-pslf">Public Service Loan Forgiveness (PSLF)</a>, then you should enroll in an income-driven plan before your grace period is up.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></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"> 4. Consider Loan Consolidation or Refinancing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-consolidation-definition-4684455">Consolidating student loans</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/refinance-student-loans-5323837">refinancing them</a> could make repayment easier once the grace period ends. Federal loans can be consolidated into a single direct consolidation loan. This won’t reduce your overall <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a>, but will leave you with a single monthly loan payment instead of multiple payments to multiple federal loans. </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"> Refinancing means taking out a new private student loan to pay off your existing loans. The purpose of doing so is twofold: You can reduce multiple loan payments down to one, and you potentially reduce your interest rate. Remember to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loan-refinance-companies-4782684">compare student loan refinancing companies</a> if you’re interested in getting a lower rate on your loans. </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"> Keep in mind, however, that refinancing federal student loans into a private student loan can cause you to lose certain federal protections. For example, federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-covid-19-student-loan-relief-4845047">Coronavirus Aid, Relief, and Economic Security (CARES) Act protections</a>, such as temporary deferment, do not apply to private loans, so it’s important to consider the tradeoffs of refinancing federal loans with a private lender. You also won’t be eligible for federal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402">student loan repayment plans</a> once you have a private loan.<span class="ql-inline-citation" data-cite="10"></span><br/> </p> <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-callout mntl-block" id="mntl-sc-block_66-0"><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_67-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_6-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>Refinancing typically requires a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit check</a>, so you may need a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-signer</a> to be approved if you have a limited <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>.</p></div></div></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-what-is-a-grace-period"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Grace Period?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In the context of student loans, a grace period is an amount of time between when you graduate, leave school, or drop to half-time status and when have to start paying back your student debt. Most grace periods for federal student loans are for six months.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_70-0"><span class="heading-toc" id="toc-what-should-i-do-with-my-student-loan-during-my-grace-period"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Should I Do with My Student Loan During My Grace Period?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>During your grace period, you have the option of not making any payments on your student loan. However, you also have the option of making payments that will be applied to your debt’s interest. This will prevent the interest from capitalizing and being added to your loan balance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_72-0"><span class="heading-toc" id="toc-whats-the-best-option-for-paying-back-my-student-loan-after-the-grace-period-is-over"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Best Option for Paying Back My Student Loan After the Grace Period Is Over?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are quite a few repayment options to choose from, and which one is the best fit for you will vary based on your financial situation (i.e., how much you are currently making and how many loans you have). You can always reach out to your student loan provider to review your options and find the ideal solution for your circumstances.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></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_74-0"> <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_75-0"> The student loan grace period should be used wisely to create a debt repayment plan that’s right for you. If you’re not sure how you’ll handle loan repayment when the time comes, get in touch with your lenders or loan providers. They may be able to review your budget and income and help you come up with a solution for repaying student loans that meets your needs. </p></div>

## What Is the Student Loan Grace Period? Creating a plan to tackle your [student debt](https://www.investopedia.com/terms/s/student-debt.asp) is essential—especially since you have, at best, only a six-month [grace period](https://www.investopedia.com/terms/g/grace_period.asp) after graduation before you have to start paying back those loans. That grace period is not for all borrowers. Federal student loans allow a six-month window after graduation in which borrowers have time to prepare their debt [repayment](https://www.investopedia.com/terms/r/repayment.asp) plans. Private student loan lenders may or may not offer a grace period. ### Key Takeaways * Student loan grace periods allow borrowers time to prepare to repay their loans before the first loan payment is due. * Eligible federal student loan borrowers can enjoy a six-month grace period following graduation from college in which to explore repayment plans and options. * Private student loan lenders are not required to offer grace periods, though some may choose to do so. * One possibility for help with student loan repayment is asking about tuition assistance or reimbursement from an employer. ## Understanding Student Loan Grace Periods A grace period is a set period of time when no payments are due on [student loans](https://www.investopedia.com/student-loans-4689727). Its purpose is to allow time for borrowers to choose a loan repayment option and create a budget for repaying student debt. This includes the opportunity to explore [income-driven repayment (IDR)](https://www.investopedia.com/income-driven-repayment-plans-7562851) options. For most federal student loans, the grace period is for six months and applies when you: * Graduate from college * Leave school * Drop below half-time enrollment You may have up to nine months to begin repaying student debt if you have a [Perkins Loan](https://www.investopedia.com/terms/p/perkins-loan.asp). With [federal PLUS (Parent Loan for Undergraduate Students) loans](https://www.investopedia.com/terms/p/plus-loan.asp), you do not get a grace period; instead, you can take advantage of a six-month [deferment period](https://www.investopedia.com/terms/d/defermentperiod.asp) if you graduate, leave school, or drop below half-time enrollment. ### For most federal loans, [interest](https://www.investopedia.com/terms/i/interest.asp) continues to accrue during the grace period. You can choose to pay the interest during this time so that it isn’t added to your loan balance. However, [private student loan lenders](https://www.investopedia.com/best-student-loans-4775346) can choose whether or not to offer a grace period. [Sallie Mae](https://www.investopedia.com/sallie-mae-student-loans-review-4800305), one of the top student private-loan lenders, offers a grace period for six months after graduating or leaving school. If you have a private student loan, contact your lender to determine if your loan has a grace period and (if applicable) when it will apply. If you do have a grace period for a private student loan, be sure to also find out whether interest will accrue during that time. ### Grace periods are separate from [deferment](https://www.investopedia.com/what-is-student-loan-deferment-4771251) or [forbearance](https://www.investopedia.com/student-loan-forbearance-pros-and-cons-4771305) periods, in which you may temporarily pause payments to your loans due to financial hardship. ## How to Use the Student Loan Grace Period During your loan grace period, you’re not obligated to make any payments toward your loans; however, you have the option to do so, even if you’re only paying the interest. The advantage of paying interest during this time is that you can prevent it from being [capitalized](https://www.investopedia.com/terms/c/capitalizedinterest.asp) and added to your loan balance. If you’re currently in your grace period, or soon will be because you’re graduating or leaving school, the following checklist can help you make the most of it. ### 1. Determine What You Can Pay Six months can go by quickly, so it’s important to know before this time is up how much you can realistically afford to pay toward your student loans. If you don’t yet have a budget in place, the grace period allows you time to create one. First, look at your monthly income. Then, subtract all of your monthly expenses from what you make—or expect to make once you secure a job. This can give you a ballpark number of what you may be able to afford to pay toward your loans. ### 2. Compare Loan Repayment Options If you have federal student loans, you may be eligible for one of [several payment plan options](https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402). Typically, borrowers can choose from: * Standard repayment * Graduated repayment * Extended repayment * Income-driven repayment (IDR) The standard repayment plan calculates your monthly payments based on a 10-year repayment schedule. You pay the same amount each month for the entire 10 years. Graduated repayment also follows a 10-year repayment schedule, but your payments increase over time. Extended repayment gives you up to 25 years to pay if you owe $30,000 or more in federal direct loans. Income-driven plans base your monthly payment on your income and household size. The options include: * Income-Based Repayment (IBR) * Income-Contingent Repayment (ICR) * Income-Sensitive Repayment * Pay as You Earn (PAYE) * Saving on a Valuable Education (SAVE), which replaced Revised Pay as You Earn (REPAYE) Your loan type, loan disbursement date, household size, and household income will determine the income-driven repayment plans for which you’re eligible. The advantage of income-driven repayment is that you may end up with a lower monthly payment. The downside is that instead of paying loans off in 10 years, you may be [making payments for 15 or even 25 years](https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844), and you’ll pay more in interest over the life of the loan than you would under a standard repayment plan. ### Private student loan lenders are not required to offer income-driven repayment options, though they may allow you to make interest-only payments for a time or choose a graduated repayment plan. ### 3. Seek an Employer That Offers Student Loan Help An estimated 48% of employers offer some type of educational assistance, which can include student loan [refinancing](https://www.investopedia.com/terms/r/refinance.asp), counseling, consolidation, and repayment programs. If you’re heading out into the workforce for the first time, consider whether your prospective employer can help with student loan repayment. Then, when navigating interviews and job offers, ask about any student loan refinancing or repayment assistance in the benefits package. ### Public Service Loan Forgiveness (PSLF) Some of your loan balance may be forgiven at the end of the loan term. If you’re interested in federal [Public Service Loan Forgiveness (PSLF)](https://www.investopedia.com/articles/personal-finance/051214/debt-forgiveness-how-get-out-paying-your-student-loans.asp#toc-public-service-loan-forgiveness-pslf), then you should enroll in an income-driven plan before your grace period is up. ### 4. Consider Loan Consolidation or Refinancing [Consolidating student loans](https://www.investopedia.com/student-loan-consolidation-definition-4684455) or [refinancing them](https://www.investopedia.com/refinance-student-loans-5323837) could make repayment easier once the grace period ends. Federal loans can be consolidated into a single direct consolidation loan. This won’t reduce your overall [interest rate](https://www.investopedia.com/terms/i/interestrate.asp), but will leave you with a single monthly loan payment instead of multiple payments to multiple federal loans. Refinancing means taking out a new private student loan to pay off your existing loans. The purpose of doing so is twofold: You can reduce multiple loan payments down to one, and you potentially reduce your interest rate. Remember to [compare student loan refinancing companies](https://www.investopedia.com/best-student-loan-refinance-companies-4782684) if you’re interested in getting a lower rate on your loans. Keep in mind, however, that refinancing federal student loans into a private student loan can cause you to lose certain federal protections. For example, federal [Coronavirus Aid, Relief, and Economic Security (CARES) Act protections](https://www.investopedia.com/how-to-get-covid-19-student-loan-relief-4845047), such as temporary deferment, do not apply to private loans, so it’s important to consider the tradeoffs of refinancing federal loans with a private lender. You also won’t be eligible for federal [student loan repayment plans](https://www.investopedia.com/student-loan-repayment-options-what-s-the-best-way-to-pay-4772402) once you have a private loan. ### Refinancing typically requires a [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp), so you may need a [co-signer](https://www.investopedia.com/terms/c/co_sign.asp) to be approved if you have a limited [credit history](https://www.investopedia.com/terms/c/credit-history.asp). ## What Is a Grace Period? In the context of student loans, a grace period is an amount of time between when you graduate, leave school, or drop to half-time status and when have to start paying back your student debt. Most grace periods for federal student loans are for six months. ## What Should I Do with My Student Loan During My Grace Period? During your grace period, you have the option of not making any payments on your student loan. However, you also have the option of making payments that will be applied to your debt’s interest. This will prevent the interest from capitalizing and being added to your loan balance. ## What’s the Best Option for Paying Back My Student Loan After the Grace Period Is Over? There are quite a few repayment options to choose from, and which one is the best fit for you will vary based on your financial situation (i.e., how much you are currently making and how many loans you have). You can always reach out to your student loan provider to review your options and find the ideal solution for your circumstances. ## The Bottom Line The student loan grace period should be used wisely to create a debt repayment plan that’s right for you. If you’re not sure how you’ll handle loan repayment when the time comes, get in touch with your lenders or loan providers. They may be able to review your budget and income and help you come up with a solution for repaying student loans that meets your needs.

What Is the Student Loan Grace Period? Creating a plan to tackle your student debt is essential—especially since you have, at best, only a six-month grace period after graduation before you have to start paying back those loans. That grace period is not for all borrowers. Federal student loans allow a six-month window after graduation in which borrowers have time to prepare their debt repayment plans. Private student loan lenders may or may not offer a grace period. Key Takeaways Student loan grace periods allow borrowers time to prepare to repay their loans before the first loan payment is due.Eligible federal student loan borrowers can enjoy a six-month grace period following graduation from college in which to explore repayment plans and options.Private student loan lenders are not required to offer grace periods, though some may choose to do so.One possibility for help with student loan repayment is asking about tuition assistance or reimbursement from an employer. Understanding Student Loan Grace Periods A grace period is a set period of time when no payments are due on student loans. Its purpose is to allow time for borrowers to choose a loan repayment option and create a budget for repaying student debt. This includes the opportunity to explore income-driven repayment (IDR) options. For most federal student loans, the grace period is for six months and applies when you: Graduate from collegeLeave schoolDrop below half-time enrollment You may have up to nine months to begin repaying student debt if you have a Perkins Loan. With federal PLUS (Parent Loan for Undergraduate Students) loans, you do not get a grace period; instead, you can take advantage of a six-month deferment period if you graduate, leave school, or drop below half-time enrollment. For most federal loans, interest continues to accrue during the grace period. You can choose to pay the interest during this time so that it isn’t added to your loan balance. However, private student loan lenders can choose whether or not to offer a grace period. Sallie Mae, one of the top student private-loan lenders, offers a grace period for six months after graduating or leaving school. If you have a private student loan, contact your lender to determine if your loan has a grace period and (if applicable) when it will apply. If you do have a grace period for a private student loan, be sure to also find out whether interest will accrue during that time. Grace periods are separate from deferment or forbearance periods, in which you may temporarily pause payments to your loans due to financial hardship. How to Use the Student Loan Grace Period During your loan grace period, you’re not obligated to make any payments toward your loans; however, you have the option to do so, even if you’re only paying the interest. The advantage of paying interest during this time is that you can prevent it from being capitalized and added to your loan balance. If you’re currently in your grace period, or soon will be because you’re graduating or leaving school, the following checklist can help you make the most of it. 1. Determine What You Can Pay Six months can go by quickly, so it’s important to know before this time is up how much you can realistically afford to pay toward your student loans. If you don’t yet have a budget in place, the grace period allows you time to create one. First, look at your monthly income. Then, subtract all of your monthly expenses from what you make—or expect to make once you secure a job. This can give you a ballpark number of what you may be able to afford to pay toward your loans. 2. Compare Loan Repayment Options If you have federal student loans, you may be eligible for one of several payment plan options. Typically, borrowers can choose from: Standard repaymentGraduated repaymentExtended repaymentIncome-driven repayment (IDR) The standard repayment plan calculates your monthly payments based on a 10-year repayment schedule. You pay the same amount each month for the entire 10 years. Graduated repayment also follows a 10-year repayment schedule, but your payments increase over time. Extended repayment gives you up to 25 years to pay if you owe $30,000 or more in federal direct loans. Income-driven plans base your monthly payment on your income and household size. The options include: Income-Based Repayment (IBR)Income-Contingent Repayment (ICR)Income-Sensitive RepaymentPay as You Earn (PAYE)Saving on a Valuable Education (SAVE), which replaced Revised Pay as You Earn (REPAYE) Your loan type, loan disbursement date, household size, and household income will determine the income-driven repayment plans for which you’re eligible. The advantage of income-driven repayment is that you may end up with a lower monthly payment. The downside is that instead of paying loans off in 10 years, you may be making payments for 15 or even 25 years, and you’ll pay more in interest over the life of the loan than you would under a standard repayment plan. Private student loan lenders are not required to offer income-driven repayment options, though they may allow you to make interest-only payments for a time or choose a graduated repayment plan. 3. Seek an Employer That Offers Student Loan Help An estimated 48% of employers offer some type of educational assistance, which can include student loan refinancing, counseling, consolidation, and repayment programs. If you’re heading out into the workforce for the first time, consider whether your prospective employer can help with student loan repayment. Then, when navigating interviews and job offers, ask about any student loan refinancing or repayment assistance in the benefits package. Public Service Loan Forgiveness (PSLF) Some of your loan balance may be forgiven at the end of the loan term. If you’re interested in federal Public Service Loan Forgiveness (PSLF), then you should enroll in an income-driven plan before your grace period is up. 4. Consider Loan Consolidation or Refinancing Consolidating student loans or refinancing them could make repayment easier once the grace period ends. Federal loans can be consolidated into a single direct consolidation loan. This won’t reduce your overall interest rate, but will leave you with a single monthly loan payment instead of multiple payments to multiple federal loans. Refinancing means taking out a new private student loan to pay off your existing loans. The purpose of doing so is twofold: You can reduce multiple loan payments down to one, and you potentially reduce your interest rate. Remember to compare student loan refinancing companies if you’re interested in getting a lower rate on your loans. Keep in mind, however, that refinancing federal student loans into a private student loan can cause you to lose certain federal protections. For example, federal Coronavirus Aid, Relief, and Economic Security (CARES) Act protections, such as temporary deferment, do not apply to private loans, so it’s important to consider the tradeoffs of refinancing federal loans with a private lender. You also won’t be eligible for federal student loan repayment plans once you have a private loan. Refinancing typically requires a credit check, so you may need a co-signer to be approved if you have a limited credit history. What Is a Grace Period? In the context of student loans, a grace period is an amount of time between when you graduate, leave school, or drop to half-time status and when have to start paying back your student debt. Most grace periods for federal student loans are for six months. What Should I Do with My Student Loan During My Grace Period? During your grace period, you have the option of not making any payments on your student loan. However, you also have the option of making payments that will be applied to your debt’s interest. This will prevent the interest from capitalizing and being added to your loan balance. What’s the Best Option for Paying Back My Student Loan After the Grace Period Is Over? There are quite a few repayment options to choose from, and which one is the best fit for you will vary based on your financial situation (i.e., how much you are currently making and how many loans you have). You can always reach out to your student loan provider to review your options and find the ideal solution for your circumstances. The Bottom Line The student loan grace period should be used wisely to create a debt repayment plan that’s right for you. If you’re not sure how you’ll handle loan repayment when the time comes, get in touch with your lenders or loan providers. They may be able to review your budget and income and help you come up with a solution for repaying student loans that meets your needs.

https://www.investopedia.com/4-key-takeaways-from-reddit-q1-2024-earnings-call-8644990

4 Key Takeaways From Reddit's First Earnings Call After Going Public

<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 Reddit (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT">RDDT</a>) reported record-high user traffic and rising revenue in its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reddit-q1-fy-2024-earnings-8644631">first quarterly earnings report</a> since its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a> in March, executives joined the social media company's earnings call to discuss user traffic, the data licensing business, opportunities driven by <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a>, and international growth potential.<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> <span class="heading-toc" id="toc-user-traffic-hits-record-high"></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"> User Traffic Hits Record High </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> "More people are visiting Reddit than ever before," Reddit CEO Steve Huffman said on the call, highlighting the social media platform's record-high user traffic, with daily active unique users jumping 37% year-over-year to 82.7 million in the first quarter. </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"> Huffman indicated a primary focus for Reddit this year will be to make Reddit "faster, easier to use, and safer," adding that "speed equals retention" and "retention equals growth." </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 company said its investments in machine learning and AI will also help "improve relevance, engagement and moderation."<br/> </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-still-early-in-data-licensing-business"></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"> 'Still Early' in Data Licensing Business </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Huffman noted that the data licensing business is "still early in its monetization journey," after Reddit had indicated in its IPO filing that licensing its data for AI training would represent a key source of opportunity for the company. </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 CEO said that data licensing is currently reflected in its financials as "other revenue." In the first quarter, other revenue sat at $20 million, more than quintupling from the same period a year earlier, primarily from new data licensing agreements signed in the first quarter. </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 company has already announced a licensing agreement with Alphabet's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) Google and reported it also "signed licensing agreements with various companies in the social listening space." </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-reddit-could-also-benefit-from-the-spread-of-ai-as-people-seek-human-generated-content"></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"> Reddit Could Also Benefit From the Spread of AI as People Seek Human-Generated Content </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Huffman suggested the platform could also be well-positioned to benefit from the spread of AI-generated content as people seek content created by humans. </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 the AI era, people value authentic content more, or content written by humans, and that's what Reddit is, and that's what Reddit has," the CEO said, adding that he thinks "there's a thirst for authentic opinions and advice." </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"> "I think that's the kind of irony of the technology shift that we're going through, is the value of humans and fresh ideas continues to grow," he said.<br/> </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-using-translation-to-catalyze-international-growth"></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"> Using Translation To Catalyze International Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Huffman told investors the company is working on translating content to grow its international reach. International revenue, which grew 30% year-over-year to $43 billion, represented only 18% of the company's total revenue in the first quarter. </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"> Huffman noted that Reddit's social media peers are skewed towards a majority of non-U.S. users, and said that a push into international markets presents a "huge opportunity" for the company. </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"> "I think one of the big unlocks for us in the near to medium term is machine translation, or translating our entire corpus that's today mostly in English into other languages," Huffman said, adding translation can "help accelerate international transfer." </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"> Reddit is utilizing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/large-language-model-7563532#:~:text=A%20large%20language%20model%20needs,of%20different%20concepts%20and%20meanings.">large language models (LLMs)</a> to "do translation at human level quality" and is currently testing its French translations, with plans to move to Spanish, Huffman reported. </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"> "I keep saying everybody has a home on Reddit today [and] that's a true statement if you speak English, but we want to make that a true statement for everyone in the world," Huffman said.<br/> </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"> Reddit shares were up over 15% at $56.90 in extended trading as of 7:15 p.m. ET Tuesday following the company's earnings call.<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>

After Reddit ([RDDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT)) reported record-high user traffic and rising revenue in its [first quarterly earnings report](https://www.investopedia.com/reddit-q1-fy-2024-earnings-8644631) since its [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) in March, executives joined the social media company's earnings call to discuss user traffic, the data licensing business, opportunities driven by [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp), and international growth potential. ## User Traffic Hits Record High "More people are visiting Reddit than ever before," Reddit CEO Steve Huffman said on the call, highlighting the social media platform's record-high user traffic, with daily active unique users jumping 37% year-over-year to 82.7 million in the first quarter. Huffman indicated a primary focus for Reddit this year will be to make Reddit "faster, easier to use, and safer," adding that "speed equals retention" and "retention equals growth." The company said its investments in machine learning and AI will also help "improve relevance, engagement and moderation." ## 'Still Early' in Data Licensing Business Huffman noted that the data licensing business is "still early in its monetization journey," after Reddit had indicated in its IPO filing that licensing its data for AI training would represent a key source of opportunity for the company. The CEO said that data licensing is currently reflected in its financials as "other revenue." In the first quarter, other revenue sat at $20 million, more than quintupling from the same period a year earlier, primarily from new data licensing agreements signed in the first quarter. The company has already announced a licensing agreement with Alphabet's ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) Google and reported it also "signed licensing agreements with various companies in the social listening space." ## Reddit Could Also Benefit From the Spread of AI as People Seek Human-Generated Content Huffman suggested the platform could also be well-positioned to benefit from the spread of AI-generated content as people seek content created by humans. "In the AI era, people value authentic content more, or content written by humans, and that's what Reddit is, and that's what Reddit has," the CEO said, adding that he thinks "there's a thirst for authentic opinions and advice." "I think that's the kind of irony of the technology shift that we're going through, is the value of humans and fresh ideas continues to grow," he said. ## Using Translation To Catalyze International Growth Huffman told investors the company is working on translating content to grow its international reach. International revenue, which grew 30% year-over-year to $43 billion, represented only 18% of the company's total revenue in the first quarter. Huffman noted that Reddit's social media peers are skewed towards a majority of non-U.S. users, and said that a push into international markets presents a "huge opportunity" for the company. "I think one of the big unlocks for us in the near to medium term is machine translation, or translating our entire corpus that's today mostly in English into other languages," Huffman said, adding translation can "help accelerate international transfer." Reddit is utilizing [large language models (LLMs)](https://www.investopedia.com/large-language-model-7563532#:~:text=A%20large%20language%20model%20needs,of%20different%20concepts%20and%20meanings.) to "do translation at human level quality" and is currently testing its French translations, with plans to move to Spanish, Huffman reported. "I keep saying everybody has a home on Reddit today [and] that's a true statement if you speak English, but we want to make that a true statement for everyone in the world," Huffman said. Reddit shares were up over 15% at $56.90 in extended trading as of 7:15 p.m. ET Tuesday following the company's earnings call. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

After Reddit (RDDT) reported record-high user traffic and rising revenue in its first quarterly earnings report since its initial public offering (IPO) in March, executives joined the social media company's earnings call to discuss user traffic, the data licensing business, opportunities driven by artificial intelligence (AI), and international growth potential. User Traffic Hits Record High "More people are visiting Reddit than ever before," Reddit CEO Steve Huffman said on the call, highlighting the social media platform's record-high user traffic, with daily active unique users jumping 37% year-over-year to 82.7 million in the first quarter. Huffman indicated a primary focus for Reddit this year will be to make Reddit "faster, easier to use, and safer," adding that "speed equals retention" and "retention equals growth." The company said its investments in machine learning and AI will also help "improve relevance, engagement and moderation." 'Still Early' in Data Licensing Business Huffman noted that the data licensing business is "still early in its monetization journey," after Reddit had indicated in its IPO filing that licensing its data for AI training would represent a key source of opportunity for the company. The CEO said that data licensing is currently reflected in its financials as "other revenue." In the first quarter, other revenue sat at $20 million, more than quintupling from the same period a year earlier, primarily from new data licensing agreements signed in the first quarter. The company has already announced a licensing agreement with Alphabet's (GOOGL) Google and reported it also "signed licensing agreements with various companies in the social listening space." Reddit Could Also Benefit From the Spread of AI as People Seek Human-Generated Content Huffman suggested the platform could also be well-positioned to benefit from the spread of AI-generated content as people seek content created by humans. "In the AI era, people value authentic content more, or content written by humans, and that's what Reddit is, and that's what Reddit has," the CEO said, adding that he thinks "there's a thirst for authentic opinions and advice." "I think that's the kind of irony of the technology shift that we're going through, is the value of humans and fresh ideas continues to grow," he said. Using Translation To Catalyze International Growth Huffman told investors the company is working on translating content to grow its international reach. International revenue, which grew 30% year-over-year to $43 billion, represented only 18% of the company's total revenue in the first quarter. Huffman noted that Reddit's social media peers are skewed towards a majority of non-U.S. users, and said that a push into international markets presents a "huge opportunity" for the company. "I think one of the big unlocks for us in the near to medium term is machine translation, or translating our entire corpus that's today mostly in English into other languages," Huffman said, adding translation can "help accelerate international transfer." Reddit is utilizing large language models (LLMs) to "do translation at human level quality" and is currently testing its French translations, with plans to move to Spanish, Huffman reported. "I keep saying everybody has a home on Reddit today [and] that's a true statement if you speak English, but we want to make that a true statement for everyone in the world," Huffman said. Reddit shares were up over 15% at $56.90 in extended trading as of 7:15 p.m. ET Tuesday following the company's earnings call. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp

No-Penalty Certificate of Deposit (CD): 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-no-penalty-certificate-of-deposit-cd"></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 No-Penalty Certificate of Deposit (CD)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A no-penalty <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</a> (also known as a liquid CD) is a type of CD that allows you to withdraw funds without paying a penalty. The account’s funds are accessible at all times—unlike most traditional CDs. </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"> Traditional CDs typically charge a hefty penalty fee for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earlywithdrawal.asp">withdrawing money early</a>.<span class="ql-inline-citation" data-cite="6"></span> However, liquid CDs generally offer lower rates and shorter terms than traditional CDs, so you may trade lower earnings for flexibility. </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 no-penalty certificate of deposit is a CD that allows investors to make withdrawals without incurring a penalty.</li><li>No-penalty CDs may also be called liquid CDs by banks and credit unions.</li><li>No-penalty CDs can offer lower interest rates than traditional CDs, but competitive rates exist if you look for them.</li><li>Alternatives to no-penalty CDs include money market accounts and bank savings accounts.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-no-penalty-cd"></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 No-Penalty CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> No-penalty CDs may also be called liquid CDs or penalty-free CDs. These CDs allow you to make a withdrawal before the CD’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a>. Penalty-free CDs tend to have fairly short terms, typically 13 months or less. </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"> To withdraw your money, you must give the institution advance notice. It’s usually not as simple as withdrawing from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-checking-accounts-5270269">checking account</a>, although some financial institutions may allow multiple withdrawals up to a specified limit. </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"> There is often an initial lockup period during which you can’t take money out, despite the name. You can’t withdraw in the first week or so to comply with federal regulations.<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"> Penalty-free CDs frequently require removing all account funds immediately if you decide to “break open” your CD. However, some may allow you to take out a portion of the total amount, as with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-savings-accounts-5270287">savings account</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"> Breaking your financial institution’s rules can result in withdrawal penalties comparable to a traditional CD. If you’re interested in a liquid CD, read all the terms and conditions of the product, which should state the minimum account size, term length, and any withdrawal requirements. </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>No-penalty CDs, like other types of CDs, run the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflationrisk.asp">risk of inflation</a> eating into your interest earnings.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-a-no-penalty-cd"></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"> Alternatives to a No-Penalty CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Some investors enjoy a liquid CD’s flexibility. It provides quick and easy access to interest-bearing funds in an emergency, so a huge cushion of idle cash doesn’t sit in a savings account. If you think CD rates might rise, your no-penalty CD allows you to access your funds to reinvest in a new, traditional CD without losing any of your earnings. </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"> No-penalty CDs aren’t for everyone, though. Other solutions can satisfy various financial goals. For example, a traditional CD offers better <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 more term choices but less flexibility. If you have a solid <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a> and no need to access quick cash, you could benefit from a traditional CD. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/laddering.asp">Laddering</a> is a popular <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cd-ladder.asp">approach for investing in CDs</a> that promises consistent income at regular intervals. Another approach is to open a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp">money market account, which provides more flexibility than a CD</a>. Even the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> offer rates nearly as high as the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a>. </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"> If you’re in a rising-interest-rate environment, a high-yield savings account or money market account may be a better bet than any CD. If interest rates are predicted to fall, you’re better off locking your money into a standard CD. </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-examples-of-a-no-penalty-cd"></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"> Examples of a No-Penalty CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A bank offers two types of CDs. Joe wants a traditional CD for his $1,000 and has many term options to choose from: short-term (three, six, or nine months), medium-term (12, 18, or 24 months), and long-term (three to seven years). The bank offers a promotional 4% interest rate if he chooses an 11-month CD term. </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"> At the end of the term, Joe will earn $37.28 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>, for a total of $1,037.28 (assuming interest is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounded</a> monthly). </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"> Annika wants a more flexible CD. The same bank only offers one type of no-penalty CD with an 11-month term and a 3.5% interest rate. At the end of the 11-month term, Annika will earn $32.56, for a total of $1,032.56. At that point, she can renew the CD or put it into another CD type. </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"> Imagine that either Joe or Annika wants to take money out of their CD early, after four months. Annika will not pay a penalty, so she will keep roughly $11.72 in interest earnings. Joe will pay a penalty of three months of interest, or $10.03. He will only earn $3.33 in interest. </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"> Also, consider if <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> are rising rapidly, and in a few months, the bank is offering a new promotional 12-month CD at 4.5%. Annika can take her money out and put it into the new traditional CD without losing any of her interest. Joe can’t do so without paying a penalty. </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-is-a-no-penalty-certificate-of-deposit-worth-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a No-Penalty Certificate of Deposit Worth It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No-penalty certificates of deposit, or penalty-free CDs, offer certain benefits but aren’t an ideal option for everyone. No-penalty CDs offer <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>-insured security and flexible withdrawals.<span class="ql-inline-citation" data-cite="7"></span> But they often provide a lower <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rate of return</a> and are only offered for shorter terms. However, if you hunt around, you may find a penalty-free CD with a competitive <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a>.</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-are-there-limits-to-how-much-i-can-take-out-of-a-liquid-cd"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Limits to How Much I Can Take Out of a Liquid CD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Depending on your bank, there may be limits on how much you can withdraw from a liquid CD and how quickly you can access your money. Although rules differ by bank, many no-penalty CD accounts require investors to give notice and limit their withdrawals to a certain amount, or require you to remove all of your funds and close the account. While it is possible to access your money, it won’t be as easy as liquidating a regular bank account.</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-a-no-penalty-cd-a-good-place-for-my-savings"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a No-Penalty CD a Good Place for my Savings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A no-penalty, or liquid, CD could be a good place to park your savings as long as you don’t think you’ll need the money immediately—for example, if you’ll likely only need the money in a few months for a vacation. Despite the “liquid” term for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-are-the-different-types-of-specialty-certificates-of-deposit-cd-5525646">this type of CD</a>, you can’t actually take your money out immediately for use. You may need to wait several days or a week to retrieve it after closing the account. So if you think you might need same-day or emergency access, then a traditional savings account fund might be a better option.</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"> A no-penalty CD can help you gain confidence in investing in CDs, particularly if you’re new to saving with CDs. You can withdraw your funds before the term is over without paying an early-withdrawal penalty. </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"> On the other hand, your no-penalty CD may come with restrictions and rules that vary by bank, and you won’t have immediate access to funds as with a savings account. You usually have to wait a few days or a week to withdraw without penalty. In addition, the interest rate may be lower than you would find with a traditional CD unless you invest time in research. </p></div>

## What Is a No-Penalty Certificate of Deposit (CD)? A no-penalty [certificate of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (also known as a liquid CD) is a type of CD that allows you to withdraw funds without paying a penalty. The account’s funds are accessible at all times—unlike most traditional CDs. Traditional CDs typically charge a hefty penalty fee for [withdrawing money early](https://www.investopedia.com/terms/e/earlywithdrawal.asp). However, liquid CDs generally offer lower rates and shorter terms than traditional CDs, so you may trade lower earnings for flexibility. ### Key Takeaways * A no-penalty certificate of deposit is a CD that allows investors to make withdrawals without incurring a penalty. * No-penalty CDs may also be called liquid CDs by banks and credit unions. * No-penalty CDs can offer lower interest rates than traditional CDs, but competitive rates exist if you look for them. * Alternatives to no-penalty CDs include money market accounts and bank savings accounts. ## Understanding a No-Penalty CD No-penalty CDs may also be called liquid CDs or penalty-free CDs. These CDs allow you to make a withdrawal before the CD’s [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp). Penalty-free CDs tend to have fairly short terms, typically 13 months or less. To withdraw your money, you must give the institution advance notice. It’s usually not as simple as withdrawing from a [checking account](https://www.investopedia.com/cds-vs-checking-accounts-5270269), although some financial institutions may allow multiple withdrawals up to a specified limit. There is often an initial lockup period during which you can’t take money out, despite the name. You can’t withdraw in the first week or so to comply with federal regulations. Penalty-free CDs frequently require removing all account funds immediately if you decide to “break open” your CD. However, some may allow you to take out a portion of the total amount, as with a [savings account](https://www.investopedia.com/cds-vs-savings-accounts-5270287). Breaking your financial institution’s rules can result in withdrawal penalties comparable to a traditional CD. If you’re interested in a liquid CD, read all the terms and conditions of the product, which should state the minimum account size, term length, and any withdrawal requirements. ### No-penalty CDs, like other types of CDs, run the [risk of inflation](https://www.investopedia.com/terms/i/inflationrisk.asp) eating into your interest earnings. ## Alternatives to a No-Penalty CD Some investors enjoy a liquid CD’s flexibility. It provides quick and easy access to interest-bearing funds in an emergency, so a huge cushion of idle cash doesn’t sit in a savings account. If you think CD rates might rise, your no-penalty CD allows you to access your funds to reinvest in a new, traditional CD without losing any of your earnings. No-penalty CDs aren’t for everyone, though. Other solutions can satisfy various financial goals. For example, a traditional CD offers better [returns](https://www.investopedia.com/terms/r/return.asp) and more term choices but less flexibility. If you have a solid [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) and no need to access quick cash, you could benefit from a traditional CD. [Laddering](https://www.investopedia.com/terms/l/laddering.asp) is a popular [approach for investing in CDs](https://www.investopedia.com/terms/c/cd-ladder.asp) that promises consistent income at regular intervals. Another approach is to open a [money market account, which provides more flexibility than a CD](https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp). Even the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) offer rates nearly as high as the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214). If you’re in a rising-interest-rate environment, a high-yield savings account or money market account may be a better bet than any CD. If interest rates are predicted to fall, you’re better off locking your money into a standard CD. ## Examples of a No-Penalty CD A bank offers two types of CDs. Joe wants a traditional CD for his $1,000 and has many term options to choose from: short-term (three, six, or nine months), medium-term (12, 18, or 24 months), and long-term (three to seven years). The bank offers a promotional 4% interest rate if he chooses an 11-month CD term. At the end of the term, Joe will earn $37.28 in [interest](https://www.investopedia.com/terms/i/interest.asp), for a total of $1,037.28 (assuming interest is [compounded](https://www.investopedia.com/terms/c/compounding.asp) monthly). Annika wants a more flexible CD. The same bank only offers one type of no-penalty CD with an 11-month term and a 3.5% interest rate. At the end of the 11-month term, Annika will earn $32.56, for a total of $1,032.56. At that point, she can renew the CD or put it into another CD type. Imagine that either Joe or Annika wants to take money out of their CD early, after four months. Annika will not pay a penalty, so she will keep roughly $11.72 in interest earnings. Joe will pay a penalty of three months of interest, or $10.03. He will only earn $3.33 in interest. Also, consider if [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) are rising rapidly, and in a few months, the bank is offering a new promotional 12-month CD at 4.5%. Annika can take her money out and put it into the new traditional CD without losing any of her interest. Joe can’t do so without paying a penalty. ## Is a No-Penalty Certificate of Deposit Worth It? No-penalty certificates of deposit, or penalty-free CDs, offer certain benefits but aren’t an ideal option for everyone. No-penalty CDs offer [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp)-insured security and flexible withdrawals. But they often provide a lower [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp) and are only offered for shorter terms. However, if you hunt around, you may find a penalty-free CD with a competitive [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp). ## Are There Limits to How Much I Can Take Out of a Liquid CD? Depending on your bank, there may be limits on how much you can withdraw from a liquid CD and how quickly you can access your money. Although rules differ by bank, many no-penalty CD accounts require investors to give notice and limit their withdrawals to a certain amount, or require you to remove all of your funds and close the account. While it is possible to access your money, it won’t be as easy as liquidating a regular bank account. ## Is a No-Penalty CD a Good Place for my Savings? A no-penalty, or liquid, CD could be a good place to park your savings as long as you don’t think you’ll need the money immediately—for example, if you’ll likely only need the money in a few months for a vacation. Despite the “liquid” term for [this type of CD](https://www.investopedia.com/what-are-the-different-types-of-specialty-certificates-of-deposit-cd-5525646), you can’t actually take your money out immediately for use. You may need to wait several days or a week to retrieve it after closing the account. So if you think you might need same-day or emergency access, then a traditional savings account fund might be a better option. ## The Bottom Line A no-penalty CD can help you gain confidence in investing in CDs, particularly if you’re new to saving with CDs. You can withdraw your funds before the term is over without paying an early-withdrawal penalty. On the other hand, your no-penalty CD may come with restrictions and rules that vary by bank, and you won’t have immediate access to funds as with a savings account. You usually have to wait a few days or a week to withdraw without penalty. In addition, the interest rate may be lower than you would find with a traditional CD unless you invest time in research.

What Is a No-Penalty Certificate of Deposit (CD)? A no-penalty certificate of deposit (also known as a liquid CD) is a type of CD that allows you to withdraw funds without paying a penalty. The account’s funds are accessible at all times—unlike most traditional CDs. Traditional CDs typically charge a hefty penalty fee for withdrawing money early. However, liquid CDs generally offer lower rates and shorter terms than traditional CDs, so you may trade lower earnings for flexibility. Key Takeaways A no-penalty certificate of deposit is a CD that allows investors to make withdrawals without incurring a penalty.No-penalty CDs may also be called liquid CDs by banks and credit unions.No-penalty CDs can offer lower interest rates than traditional CDs, but competitive rates exist if you look for them.Alternatives to no-penalty CDs include money market accounts and bank savings accounts. Understanding a No-Penalty CD No-penalty CDs may also be called liquid CDs or penalty-free CDs. These CDs allow you to make a withdrawal before the CD’s maturity date. Penalty-free CDs tend to have fairly short terms, typically 13 months or less. To withdraw your money, you must give the institution advance notice. It’s usually not as simple as withdrawing from a checking account, although some financial institutions may allow multiple withdrawals up to a specified limit. There is often an initial lockup period during which you can’t take money out, despite the name. You can’t withdraw in the first week or so to comply with federal regulations. Penalty-free CDs frequently require removing all account funds immediately if you decide to “break open” your CD. However, some may allow you to take out a portion of the total amount, as with a savings account. Breaking your financial institution’s rules can result in withdrawal penalties comparable to a traditional CD. If you’re interested in a liquid CD, read all the terms and conditions of the product, which should state the minimum account size, term length, and any withdrawal requirements. No-penalty CDs, like other types of CDs, run the risk of inflation eating into your interest earnings. Alternatives to a No-Penalty CD Some investors enjoy a liquid CD’s flexibility. It provides quick and easy access to interest-bearing funds in an emergency, so a huge cushion of idle cash doesn’t sit in a savings account. If you think CD rates might rise, your no-penalty CD allows you to access your funds to reinvest in a new, traditional CD without losing any of your earnings. No-penalty CDs aren’t for everyone, though. Other solutions can satisfy various financial goals. For example, a traditional CD offers better returns and more term choices but less flexibility. If you have a solid emergency fund and no need to access quick cash, you could benefit from a traditional CD. Laddering is a popular approach for investing in CDs that promises consistent income at regular intervals. Another approach is to open a money market account, which provides more flexibility than a CD. Even the best high-yield savings accounts offer rates nearly as high as the best CD rates. If you’re in a rising-interest-rate environment, a high-yield savings account or money market account may be a better bet than any CD. If interest rates are predicted to fall, you’re better off locking your money into a standard CD. Examples of a No-Penalty CD A bank offers two types of CDs. Joe wants a traditional CD for his $1,000 and has many term options to choose from: short-term (three, six, or nine months), medium-term (12, 18, or 24 months), and long-term (three to seven years). The bank offers a promotional 4% interest rate if he chooses an 11-month CD term. At the end of the term, Joe will earn $37.28 in interest, for a total of $1,037.28 (assuming interest is compounded monthly). Annika wants a more flexible CD. The same bank only offers one type of no-penalty CD with an 11-month term and a 3.5% interest rate. At the end of the 11-month term, Annika will earn $32.56, for a total of $1,032.56. At that point, she can renew the CD or put it into another CD type. Imagine that either Joe or Annika wants to take money out of their CD early, after four months. Annika will not pay a penalty, so she will keep roughly $11.72 in interest earnings. Joe will pay a penalty of three months of interest, or $10.03. He will only earn $3.33 in interest. Also, consider if interest rates are rising rapidly, and in a few months, the bank is offering a new promotional 12-month CD at 4.5%. Annika can take her money out and put it into the new traditional CD without losing any of her interest. Joe can’t do so without paying a penalty. Is a No-Penalty Certificate of Deposit Worth It? No-penalty certificates of deposit, or penalty-free CDs, offer certain benefits but aren’t an ideal option for everyone. No-penalty CDs offer Federal Deposit Insurance Corp. (FDIC)-insured security and flexible withdrawals. But they often provide a lower rate of return and are only offered for shorter terms. However, if you hunt around, you may find a penalty-free CD with a competitive annual percentage yield (APY). Are There Limits to How Much I Can Take Out of a Liquid CD? Depending on your bank, there may be limits on how much you can withdraw from a liquid CD and how quickly you can access your money. Although rules differ by bank, many no-penalty CD accounts require investors to give notice and limit their withdrawals to a certain amount, or require you to remove all of your funds and close the account. While it is possible to access your money, it won’t be as easy as liquidating a regular bank account. Is a No-Penalty CD a Good Place for my Savings? A no-penalty, or liquid, CD could be a good place to park your savings as long as you don’t think you’ll need the money immediately—for example, if you’ll likely only need the money in a few months for a vacation. Despite the “liquid” term for this type of CD, you can’t actually take your money out immediately for use. You may need to wait several days or a week to retrieve it after closing the account. So if you think you might need same-day or emergency access, then a traditional savings account fund might be a better option. The Bottom Line A no-penalty CD can help you gain confidence in investing in CDs, particularly if you’re new to saving with CDs. You can withdraw your funds before the term is over without paying an early-withdrawal penalty. On the other hand, your no-penalty CD may come with restrictions and rules that vary by bank, and you won’t have immediate access to funds as with a savings account. You usually have to wait a few days or a week to withdraw without penalty. In addition, the interest rate may be lower than you would find with a traditional CD unless you invest time in research.

https://www.investopedia.com/how-to-talk-about-money-with-friends-8608029

Getting Real: How to Talk About Money with Friends

<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"> Money is a deeply personal topic. But by keeping our finances under wraps from friends, we may be missing out on valuable advice, deeper relationships, and new perspectives. </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"> “Having a friend or a group of friends that you can talk to about money can radically shift your relationship with it,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://millennialmoney.com/about/">Grant Sabatier</a>, author of <em>Financial Freedom</em> and creator of <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://millennialmoney.com">Millennial Money</a>. “The more you think about money and talk about money, the more comfortable that you get with it.” </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"> Here are some helpful tips on how to start the conversation, set boundaries, and help one another toward <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/112015/these-10-habits-will-help-you-reach-financial-freedom.asp">financial independence</a>. </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>Discussing money with friends can help you build stronger relationships and foster financial well-being.</li><li>Creating a safe and judgment-free environment is crucial for open and honest money conversations.</li><li>Starting the conversation with interesting and indirect questions can help break the ice and encourage participation.</li><li>Setting boundaries and expectations can prevent conflicts and ensure productive discussions.</li><li>Seeking educational resources and working with financial advisors and financial therapists can enhance your financial journey.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-start-the-conversation"></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 Start the Conversation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Before deciding what you want to talk about, you will want to determine who you want to talk with. </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"> Casually incorporating personal finance topics into your conversations with friends can help you figure out which friends share your financial values and what tone you want the conversation to have. Here are some questions to open the conversation without getting into the nitty-gritty: </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>Are you more of a spender or a saver?</li><li>What’s more worth it: an experience or an item?</li><li>Can money buy happiness?</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"> For me and many of my college-aged friends, investing in a <a 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>, opening a <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">high-yield savings account</a>, or amassing a strong <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> are points of pride. As Sabatier suggests, speaking with friends in similar financial situations to your own helps you relate to one another without a sense of competition. </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"> “Talking with people who were in the exact same situation as me about money was very, very effective,” Sabatier says. “It’s being on a life journey with someone else who’s where you’re at.” </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-how-to-create-a-judgment-free-environment"></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"> How to Create a Judgment-Free Environment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Creating a safe and judgment-free environment is key to having constructive conversations and building relationships with your friends. Here are some tips for setting the tone and building trust. </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"> Set Ground Rules  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Before you jump into a conversation, some financial experts advise setting ground rules and objectives.<span class="ql-inline-citation" data-cite="1"></span> Here are some sample rules that I have used with my friends: </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>Keep the conversation confidential</li><li>Speak using “I” statements</li><li>Actively listen without interrupting</li><li>Do not pass judgment</li><li>Avoid comparisons</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"> This step may feel overly formal, but it can help define the conversation’s terms and avoid later discomfort. </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"> Lead by Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Sabatier says that by embodying the tone that you want the conversation to take, your friends will be able to pick up on your language and demeanor to support a constructive conversation. </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"> Especially if you’re initiating the conversation, you may need to demonstrate to your friends that an easy and comfortable money chat is achievable in the first place. Imagine if one of your friends approached you to discuss personal finance, and they immediately began passing judgments on your expenses, insisting that you use the same budget tracker that they do, or complaining about their own financial situation (which you know is more stable than your own). That would be horrible! </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"> Modeling practices can help you avoid these situations and lay a foundation for success. </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"> Adopt a Growth Mindset </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> You have a whole financial future ahead of you, and nothing is set in stone. Your financial situation will likely ebb and flow throughout your life, and centering growth and positivity in conversations with friends can improve your mindset and help you cultivate stronger financial relationships with your friends. </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"> According to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.kristinwong.com/home/about/" rel="nofollow">Kristin Wong</a>, author of <em>Get Money</em>, a financial freedom guide for young people, confiding in friends about financial situations can be very helpful and reassuring. </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 can be really hard not to internalize our money challenges and see them as personal shortcomings,” Wong says. “Talking about those issues openly with a friend can make you feel a little less alone. Most of us have been there, and there’s a good chance your friends have, too.” </p> <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-set-boundaries-and-expectations"></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"> Set Boundaries and Expectations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The greatest risk when discussing money with friends is that the conversation becomes uncomfortable, and it jeopardizes your friendship. According to Sabatier and Wong, setting expectations and boundaries for money conversations can stop this problem at the root. </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"> Personally, my precise account balances are off-limits to friends. Some of my friends are uncomfortable speaking about their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/just-a-third-of-people-were-financially-independent-from-parents-as-adults-study-says-7973735">financial support from their parents</a>, and other friends choose not to talk about their college financial aid packages. </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 each have different preferences, and being upfront about them can benefit your relationships in the long run. </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"> “You can still have a candid conversation about money without sharing the nitty-gritty details of your financial life,” Wong says. “If you’re talking to the right person, you should feel comfortable setting boundaries on specific details, like your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a> amounts, to maintain privacy and prevent any potential discomfort.” </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-callout mntl-block" id="mntl-sc-block_53-0"><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_54-0"><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>If you do run into issues with navigating sensitive topics, it’s best to tackle any miscommunication or discomfort head-on. Some conflicts may represent a flaw in your approach to financial conversations with friends, and they could be signs to reevaluate boundaries or limits on advice.</p></div></div></div> <span class="heading-toc" id="toc-set-financial-goals-together"></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"> Set Financial Goals Together </span> </h2> <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/articles/personal-finance/100516/setting-financial-goals/">Setting financial goals</a> with your friends can keep you motivated and improve your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-literacy.asp">financial literacy</a>. According to Wong, by sharing financial successes and failures, you can better evaluate your financial 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"> “Friends in the same age group often face similar financial challenges: student loans, entry-level salaries, budget constraints, and so on,” Wong says. “Most young adults have a shared understanding of what it is to struggle financially, so you can create a community that fosters financial literacy and cheers each other on when it comes to financial goals.” </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-address-differences-in-financial-situations"></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"> Address Differences in Financial Situations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> When you’re in college, you and your friends all live in the same dorms and eat the same dining hall food, but when you’re in the real world, financial disparities between you and your friends will probably become more obvious—especially as you embark on different career paths. </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"> It’s certainly not impossible to navigate money conversations with friends in different financial situations, especially if you share the same values. However, you should address financial differences head-on and approach these conversations intentionally, to prevent feelings of pity or resentment. </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"> “You really have to come to it from a place of love, and respect, and understanding. Try to put yourself in the person’s shoes that you’re talking with, and recognize how you talk about money will make them feel,” Sabatier says. “If you have more money than them, often talking with someone who doesn’t have as much money can come off as bragging or make them feel bad because they’re not in this similar position.” </p> <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-seek-professional-help-if-needed"></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"> Seek Professional Help If Needed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> While speaking about money with friends can be very helpful, these relationships have their limits, and you may want or need additional support from a financial advisor or educational source. </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"> “You can get valuable insight from friends while also seeking help from a professional,” Wong says. “It’s like going to a therapist, right? A good therapist is going to help you process whatever you’re going through, but your friends can be there for you, too.” </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"> Here are some helpful resources for finding a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialplanner.asp">financial planner</a>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.napfa.org/">National Association of Personal Financial Advisors</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.cfp.net/">CFP Board</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.xyplanningnetwork.com/">XY Planning Network</a></li> </ul> <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-tip" 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_3-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Of course, hiring a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-advisor.asp">financial advisor</a> may not be financially realistic for many young people. According to Wong, older friends or colleagues can be helpful resources. You can also look into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-robo-advisor-cash-management-accounts-for-2023-7975978">robo-advisor programs</a>, which can help you manage your money for much less than a traditional financial advisor.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> As Sabatier notes, a financial advisor can be very helpful, but you should always try to do your own research before seeking out a professional. </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"> “​​Unfortunately, the financial industry is so predatory, and it’s really built around exploiting people and exploiting what they don’t know,” Sabatier says. “So if you know a little bit, you’re not gonna get scammed or the likelihood is gonna be a lot less, and you’re gonna be able to ask better questions for yourself.” </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"> Here are some resources for self-education: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-literacy-resource-center-7151950">Investopedia’s Financial Literacy Resource Center</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/consumer-tools/">Consumer Financial Protection Bureau</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.nefe.org/initiatives/40-Money-Management-Tips.pdf">National Endowment for Financial Education</a></li> </ul> <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-do-you-start-a-conversation-asking-for-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Start a Conversation Asking for Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Asking for money can be hard and often embarrassing. If you want to ask a friend or family member, it is important to approach the matter seriously, being direct and honest. You should explain why you need the money, provide a clear timeline for repayment, and thank the person for hearing you out.</p><p>Still, some experts in financial planning for young adults warn against lending or borrowing from friends and family.</p><p>“I think it’s probably best to avoid co-signing or lending money to friends because it has the potential to ruin friendships, and our friendships are more important than money,” Wong says.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_88-0"><span class="heading-toc" id="toc-can-a-friend-or-family-member-help-me-with-bill-paying-and-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can a Friend or Family Member Help Me with Bill Paying and Banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can ask a friend or family member to help you with bill paying and banking, but you should know that this move could come with uncomfortable consequences or power imbalances in your personal relationships.</p><p>If you have already decided that you want to ask a friend or family member for help with bill paying and banking, you have both formal and informal options.</p><p>Informal loans could involve your close friend cutting you a check with an informal agreement that you will pay the money back in a set amount of time.</p><p>More formal options could include a convenience account that allows you to designate a person to help you with depositing, withdrawing, and writing checks. Alternatively, adding a friend or family member to your account as a trusted contact would notify that person if your bank suspects a financial scam, and granting a person close to you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp">power of attorney</a> would give them the ability to act on your behalf regarding your finances.<span class="ql-inline-citation" data-cite="2"></span><br/></p></div> </div> <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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-who-is-the-best-person-to-talk-to-about-finances"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is the Best Person to Talk to About Finances?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While there is no “best” person to talk to about finances, some financial experts say that you may find it helpful to consult your friends and family about personal finance questions. Given that these people are deeply familiar with your values and character, they may be able to provide you with more candid and personalized advice than a financial advisor or therapist.</p><p>Regardless of who you talk to about your personal finances, you should make an effort to educate yourself on different financial products and services before entering into a conversation. Resources like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-literacy-resource-center-7151950">Investopedia’s Financial Literacy Resource Center</a>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/consumer-tools/">Consumer Financial Protection Bureau</a>, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.nefe.org/initiatives/40-Money-Management-Tips.pdf">National Endowment for Financial Education</a> provide foundational finance knowledge, so you can know your options and control your money.</p></div> </div> <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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> Friends can be a great resource for personal finance matters. However, it’s essential to recognize the importance of establishing clear boundaries and expectations when engaging in financial discussions with friends. By openly communicating personal preferences and boundaries, you can foster healthier relationships and avoid potential discomfort or misunderstandings. </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"> Beyond friends, you may want to seek professional guidance from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inv-100-top-financial-advisors-7556227">financial advisors</a> and external financial education resources. Ultimately, by navigating financial discussions with friends sensitively, you can strengthen your friendships while enhancing your financial well-being. </p></div>

Money is a deeply personal topic. But by keeping our finances under wraps from friends, we may be missing out on valuable advice, deeper relationships, and new perspectives. “Having a friend or a group of friends that you can talk to about money can radically shift your relationship with it,” says [Grant Sabatier](https://millennialmoney.com/about/), author of *Financial Freedom* and creator of [Millennial Money](https://millennialmoney.com). “The more you think about money and talk about money, the more comfortable that you get with it.” Here are some helpful tips on how to start the conversation, set boundaries, and help one another toward [financial independence](https://www.investopedia.com/articles/personal-finance/112015/these-10-habits-will-help-you-reach-financial-freedom.asp). ### Key Takeaways * Discussing money with friends can help you build stronger relationships and foster financial well-being. * Creating a safe and judgment-free environment is crucial for open and honest money conversations. * Starting the conversation with interesting and indirect questions can help break the ice and encourage participation. * Setting boundaries and expectations can prevent conflicts and ensure productive discussions. * Seeking educational resources and working with financial advisors and financial therapists can enhance your financial journey. ## How to Start the Conversation Before deciding what you want to talk about, you will want to determine who you want to talk with. Casually incorporating personal finance topics into your conversations with friends can help you figure out which friends share your financial values and what tone you want the conversation to have. Here are some questions to open the conversation without getting into the nitty-gritty: * Are you more of a spender or a saver? * What’s more worth it: an experience or an item? * Can money buy happiness? For me and many of my college-aged friends, investing in a [Roth individual retirement account (Roth IRA)](https://www.investopedia.com/terms/r/rothira.asp), opening a [high-yield savings account](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp), or amassing a strong [credit score](https://www.investopedia.com/terms/c/credit_score.asp) are points of pride. As Sabatier suggests, speaking with friends in similar financial situations to your own helps you relate to one another without a sense of competition. “Talking with people who were in the exact same situation as me about money was very, very effective,” Sabatier says. “It’s being on a life journey with someone else who’s where you’re at.” ## How to Create a Judgment-Free Environment Creating a safe and judgment-free environment is key to having constructive conversations and building relationships with your friends. Here are some tips for setting the tone and building trust. ### Set Ground Rules Before you jump into a conversation, some financial experts advise setting ground rules and objectives. Here are some sample rules that I have used with my friends: * Keep the conversation confidential * Speak using “I” statements * Actively listen without interrupting * Do not pass judgment * Avoid comparisons This step may feel overly formal, but it can help define the conversation’s terms and avoid later discomfort. ### Lead by Example Sabatier says that by embodying the tone that you want the conversation to take, your friends will be able to pick up on your language and demeanor to support a constructive conversation. Especially if you’re initiating the conversation, you may need to demonstrate to your friends that an easy and comfortable money chat is achievable in the first place. Imagine if one of your friends approached you to discuss personal finance, and they immediately began passing judgments on your expenses, insisting that you use the same budget tracker that they do, or complaining about their own financial situation (which you know is more stable than your own). That would be horrible! Modeling practices can help you avoid these situations and lay a foundation for success. ### Adopt a Growth Mindset You have a whole financial future ahead of you, and nothing is set in stone. Your financial situation will likely ebb and flow throughout your life, and centering growth and positivity in conversations with friends can improve your mindset and help you cultivate stronger financial relationships with your friends. According to [Kristin Wong](https://www.kristinwong.com/home/about/), author of *Get Money*, a financial freedom guide for young people, confiding in friends about financial situations can be very helpful and reassuring. “It can be really hard not to internalize our money challenges and see them as personal shortcomings,” Wong says. “Talking about those issues openly with a friend can make you feel a little less alone. Most of us have been there, and there’s a good chance your friends have, too.” ## Set Boundaries and Expectations The greatest risk when discussing money with friends is that the conversation becomes uncomfortable, and it jeopardizes your friendship. According to Sabatier and Wong, setting expectations and boundaries for money conversations can stop this problem at the root. Personally, my precise account balances are off-limits to friends. Some of my friends are uncomfortable speaking about their [financial support from their parents](https://www.investopedia.com/just-a-third-of-people-were-financially-independent-from-parents-as-adults-study-says-7973735), and other friends choose not to talk about their college financial aid packages. We each have different preferences, and being upfront about them can benefit your relationships in the long run. “You can still have a candid conversation about money without sharing the nitty-gritty details of your financial life,” Wong says. “If you’re talking to the right person, you should feel comfortable setting boundaries on specific details, like your [income](https://www.investopedia.com/terms/i/income.asp) or [debt](https://www.investopedia.com/terms/d/debt.asp) amounts, to maintain privacy and prevent any potential discomfort.” ### Tip If you do run into issues with navigating sensitive topics, it’s best to tackle any miscommunication or discomfort head-on. Some conflicts may represent a flaw in your approach to financial conversations with friends, and they could be signs to reevaluate boundaries or limits on advice. ## Set Financial Goals Together [Setting financial goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/) with your friends can keep you motivated and improve your [financial literacy](https://www.investopedia.com/terms/f/financial-literacy.asp). According to Wong, by sharing financial successes and failures, you can better evaluate your financial strategies. “Friends in the same age group often face similar financial challenges: student loans, entry-level salaries, budget constraints, and so on,” Wong says. “Most young adults have a shared understanding of what it is to struggle financially, so you can create a community that fosters financial literacy and cheers each other on when it comes to financial goals.” ## Address Differences in Financial Situations When you’re in college, you and your friends all live in the same dorms and eat the same dining hall food, but when you’re in the real world, financial disparities between you and your friends will probably become more obvious—especially as you embark on different career paths. It’s certainly not impossible to navigate money conversations with friends in different financial situations, especially if you share the same values. However, you should address financial differences head-on and approach these conversations intentionally, to prevent feelings of pity or resentment. “You really have to come to it from a place of love, and respect, and understanding. Try to put yourself in the person’s shoes that you’re talking with, and recognize how you talk about money will make them feel,” Sabatier says. “If you have more money than them, often talking with someone who doesn’t have as much money can come off as bragging or make them feel bad because they’re not in this similar position.” ## Seek Professional Help If Needed While speaking about money with friends can be very helpful, these relationships have their limits, and you may want or need additional support from a financial advisor or educational source. “You can get valuable insight from friends while also seeking help from a professional,” Wong says. “It’s like going to a therapist, right? A good therapist is going to help you process whatever you’re going through, but your friends can be there for you, too.” Here are some helpful resources for finding a [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp): * [National Association of Personal Financial Advisors](https://www.napfa.org/) * [CFP Board](https://www.cfp.net/) * [XY Planning Network](https://www.xyplanningnetwork.com/) ### Tip Of course, hiring a [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp) may not be financially realistic for many young people. According to Wong, older friends or colleagues can be helpful resources. You can also look into [robo-advisor programs](https://www.investopedia.com/best-robo-advisor-cash-management-accounts-for-2023-7975978), which can help you manage your money for much less than a traditional financial advisor. As Sabatier notes, a financial advisor can be very helpful, but you should always try to do your own research before seeking out a professional. “​​Unfortunately, the financial industry is so predatory, and it’s really built around exploiting people and exploiting what they don’t know,” Sabatier says. “So if you know a little bit, you’re not gonna get scammed or the likelihood is gonna be a lot less, and you’re gonna be able to ask better questions for yourself.” Here are some resources for self-education: * [Investopedia’s Financial Literacy Resource Center](https://www.investopedia.com/financial-literacy-resource-center-7151950) * [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/consumer-tools/) * [National Endowment for Financial Education](https://www.nefe.org/initiatives/40-Money-Management-Tips.pdf) ## How Do You Start a Conversation Asking for Money? Asking for money can be hard and often embarrassing. If you want to ask a friend or family member, it is important to approach the matter seriously, being direct and honest. You should explain why you need the money, provide a clear timeline for repayment, and thank the person for hearing you out. Still, some experts in financial planning for young adults warn against lending or borrowing from friends and family. “I think it’s probably best to avoid co-signing or lending money to friends because it has the potential to ruin friendships, and our friendships are more important than money,” Wong says. ## Can a Friend or Family Member Help Me with Bill Paying and Banking? You can ask a friend or family member to help you with bill paying and banking, but you should know that this move could come with uncomfortable consequences or power imbalances in your personal relationships. If you have already decided that you want to ask a friend or family member for help with bill paying and banking, you have both formal and informal options. Informal loans could involve your close friend cutting you a check with an informal agreement that you will pay the money back in a set amount of time. More formal options could include a convenience account that allows you to designate a person to help you with depositing, withdrawing, and writing checks. Alternatively, adding a friend or family member to your account as a trusted contact would notify that person if your bank suspects a financial scam, and granting a person close to you [power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp) would give them the ability to act on your behalf regarding your finances. ## Who Is the Best Person to Talk to About Finances? While there is no “best” person to talk to about finances, some financial experts say that you may find it helpful to consult your friends and family about personal finance questions. Given that these people are deeply familiar with your values and character, they may be able to provide you with more candid and personalized advice than a financial advisor or therapist. Regardless of who you talk to about your personal finances, you should make an effort to educate yourself on different financial products and services before entering into a conversation. Resources like [Investopedia’s Financial Literacy Resource Center](https://www.investopedia.com/financial-literacy-resource-center-7151950), the [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/consumer-tools/), and the [National Endowment for Financial Education](https://www.nefe.org/initiatives/40-Money-Management-Tips.pdf) provide foundational finance knowledge, so you can know your options and control your money. ## The Bottom Line Friends can be a great resource for personal finance matters. However, it’s essential to recognize the importance of establishing clear boundaries and expectations when engaging in financial discussions with friends. By openly communicating personal preferences and boundaries, you can foster healthier relationships and avoid potential discomfort or misunderstandings. Beyond friends, you may want to seek professional guidance from [financial advisors](https://www.investopedia.com/inv-100-top-financial-advisors-7556227) and external financial education resources. Ultimately, by navigating financial discussions with friends sensitively, you can strengthen your friendships while enhancing your financial well-being.

Money is a deeply personal topic. But by keeping our finances under wraps from friends, we may be missing out on valuable advice, deeper relationships, and new perspectives. “Having a friend or a group of friends that you can talk to about money can radically shift your relationship with it,” says Grant Sabatier, author of Financial Freedom and creator of Millennial Money. “The more you think about money and talk about money, the more comfortable that you get with it.” Here are some helpful tips on how to start the conversation, set boundaries, and help one another toward financial independence. Key Takeaways Discussing money with friends can help you build stronger relationships and foster financial well-being.Creating a safe and judgment-free environment is crucial for open and honest money conversations.Starting the conversation with interesting and indirect questions can help break the ice and encourage participation.Setting boundaries and expectations can prevent conflicts and ensure productive discussions.Seeking educational resources and working with financial advisors and financial therapists can enhance your financial journey. How to Start the Conversation Before deciding what you want to talk about, you will want to determine who you want to talk with. Casually incorporating personal finance topics into your conversations with friends can help you figure out which friends share your financial values and what tone you want the conversation to have. Here are some questions to open the conversation without getting into the nitty-gritty: Are you more of a spender or a saver?What’s more worth it: an experience or an item?Can money buy happiness? For me and many of my college-aged friends, investing in a Roth individual retirement account (Roth IRA), opening a high-yield savings account, or amassing a strong credit score are points of pride. As Sabatier suggests, speaking with friends in similar financial situations to your own helps you relate to one another without a sense of competition. “Talking with people who were in the exact same situation as me about money was very, very effective,” Sabatier says. “It’s being on a life journey with someone else who’s where you’re at.” How to Create a Judgment-Free Environment Creating a safe and judgment-free environment is key to having constructive conversations and building relationships with your friends. Here are some tips for setting the tone and building trust. Set Ground Rules  Before you jump into a conversation, some financial experts advise setting ground rules and objectives. Here are some sample rules that I have used with my friends: Keep the conversation confidentialSpeak using “I” statementsActively listen without interruptingDo not pass judgmentAvoid comparisons This step may feel overly formal, but it can help define the conversation’s terms and avoid later discomfort. Lead by Example Sabatier says that by embodying the tone that you want the conversation to take, your friends will be able to pick up on your language and demeanor to support a constructive conversation. Especially if you’re initiating the conversation, you may need to demonstrate to your friends that an easy and comfortable money chat is achievable in the first place. Imagine if one of your friends approached you to discuss personal finance, and they immediately began passing judgments on your expenses, insisting that you use the same budget tracker that they do, or complaining about their own financial situation (which you know is more stable than your own). That would be horrible! Modeling practices can help you avoid these situations and lay a foundation for success. Adopt a Growth Mindset You have a whole financial future ahead of you, and nothing is set in stone. Your financial situation will likely ebb and flow throughout your life, and centering growth and positivity in conversations with friends can improve your mindset and help you cultivate stronger financial relationships with your friends. According to Kristin Wong, author of Get Money, a financial freedom guide for young people, confiding in friends about financial situations can be very helpful and reassuring. “It can be really hard not to internalize our money challenges and see them as personal shortcomings,” Wong says. “Talking about those issues openly with a friend can make you feel a little less alone. Most of us have been there, and there’s a good chance your friends have, too.” Set Boundaries and Expectations The greatest risk when discussing money with friends is that the conversation becomes uncomfortable, and it jeopardizes your friendship. According to Sabatier and Wong, setting expectations and boundaries for money conversations can stop this problem at the root. Personally, my precise account balances are off-limits to friends. Some of my friends are uncomfortable speaking about their financial support from their parents, and other friends choose not to talk about their college financial aid packages. We each have different preferences, and being upfront about them can benefit your relationships in the long run. “You can still have a candid conversation about money without sharing the nitty-gritty details of your financial life,” Wong says. “If you’re talking to the right person, you should feel comfortable setting boundaries on specific details, like your income or debt amounts, to maintain privacy and prevent any potential discomfort.” Tip If you do run into issues with navigating sensitive topics, it’s best to tackle any miscommunication or discomfort head-on. Some conflicts may represent a flaw in your approach to financial conversations with friends, and they could be signs to reevaluate boundaries or limits on advice. Set Financial Goals Together Setting financial goals with your friends can keep you motivated and improve your financial literacy. According to Wong, by sharing financial successes and failures, you can better evaluate your financial strategies. “Friends in the same age group often face similar financial challenges: student loans, entry-level salaries, budget constraints, and so on,” Wong says. “Most young adults have a shared understanding of what it is to struggle financially, so you can create a community that fosters financial literacy and cheers each other on when it comes to financial goals.” Address Differences in Financial Situations When you’re in college, you and your friends all live in the same dorms and eat the same dining hall food, but when you’re in the real world, financial disparities between you and your friends will probably become more obvious—especially as you embark on different career paths. It’s certainly not impossible to navigate money conversations with friends in different financial situations, especially if you share the same values. However, you should address financial differences head-on and approach these conversations intentionally, to prevent feelings of pity or resentment. “You really have to come to it from a place of love, and respect, and understanding. Try to put yourself in the person’s shoes that you’re talking with, and recognize how you talk about money will make them feel,” Sabatier says. “If you have more money than them, often talking with someone who doesn’t have as much money can come off as bragging or make them feel bad because they’re not in this similar position.” Seek Professional Help If Needed While speaking about money with friends can be very helpful, these relationships have their limits, and you may want or need additional support from a financial advisor or educational source. “You can get valuable insight from friends while also seeking help from a professional,” Wong says. “It’s like going to a therapist, right? A good therapist is going to help you process whatever you’re going through, but your friends can be there for you, too.” Here are some helpful resources for finding a financial planner: National Association of Personal Financial Advisors CFP Board XY Planning Network Tip Of course, hiring a financial advisor may not be financially realistic for many young people. According to Wong, older friends or colleagues can be helpful resources. You can also look into robo-advisor programs, which can help you manage your money for much less than a traditional financial advisor. As Sabatier notes, a financial advisor can be very helpful, but you should always try to do your own research before seeking out a professional. “​​Unfortunately, the financial industry is so predatory, and it’s really built around exploiting people and exploiting what they don’t know,” Sabatier says. “So if you know a little bit, you’re not gonna get scammed or the likelihood is gonna be a lot less, and you’re gonna be able to ask better questions for yourself.” Here are some resources for self-education: Investopedia’s Financial Literacy Resource Center Consumer Financial Protection Bureau National Endowment for Financial Education How Do You Start a Conversation Asking for Money? Asking for money can be hard and often embarrassing. If you want to ask a friend or family member, it is important to approach the matter seriously, being direct and honest. You should explain why you need the money, provide a clear timeline for repayment, and thank the person for hearing you out.Still, some experts in financial planning for young adults warn against lending or borrowing from friends and family.“I think it’s probably best to avoid co-signing or lending money to friends because it has the potential to ruin friendships, and our friendships are more important than money,” Wong says. Can a Friend or Family Member Help Me with Bill Paying and Banking? You can ask a friend or family member to help you with bill paying and banking, but you should know that this move could come with uncomfortable consequences or power imbalances in your personal relationships.If you have already decided that you want to ask a friend or family member for help with bill paying and banking, you have both formal and informal options.Informal loans could involve your close friend cutting you a check with an informal agreement that you will pay the money back in a set amount of time.More formal options could include a convenience account that allows you to designate a person to help you with depositing, withdrawing, and writing checks. Alternatively, adding a friend or family member to your account as a trusted contact would notify that person if your bank suspects a financial scam, and granting a person close to you power of attorney would give them the ability to act on your behalf regarding your finances. Who Is the Best Person to Talk to About Finances? While there is no “best” person to talk to about finances, some financial experts say that you may find it helpful to consult your friends and family about personal finance questions. Given that these people are deeply familiar with your values and character, they may be able to provide you with more candid and personalized advice than a financial advisor or therapist.Regardless of who you talk to about your personal finances, you should make an effort to educate yourself on different financial products and services before entering into a conversation. Resources like Investopedia’s Financial Literacy Resource Center, the Consumer Financial Protection Bureau, and the National Endowment for Financial Education provide foundational finance knowledge, so you can know your options and control your money. The Bottom Line Friends can be a great resource for personal finance matters. However, it’s essential to recognize the importance of establishing clear boundaries and expectations when engaging in financial discussions with friends. By openly communicating personal preferences and boundaries, you can foster healthier relationships and avoid potential discomfort or misunderstandings. Beyond friends, you may want to seek professional guidance from financial advisors and external financial education resources. Ultimately, by navigating financial discussions with friends sensitively, you can strengthen your friendships while enhancing your financial well-being.

https://www.investopedia.com/the-express-podcast-episode-124-7108842

There is an ETF for That!

<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"> This week on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-investopedia-express-podcast-5215636">The Investopedia Express</a> podcast, we head down to ETF Exchange to learn what is coming down the tracks for investors riding the rails of <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>. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/in/todd-rosenbluth-89120a/">Todd Rosenbluth</a> of VettaFi and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://gtsx.com/reginald-m-browne/" rel="nofollow">Reggie Browne</a> of GTS join the show to tell us why there is still a lot of growth ahead for the ETF industry, and why they are creating new solutions for more discerning investors. Plus, a little risk-reversal takes hold after a torrid January, just as <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investors</a> dive headlong into the options market. Be careful out there. </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-whats-in-this-episode"></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"> What's in This Episode? </span> </h2> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_4-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE4040682370" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="There is an ETF for That!"></iframe></div> <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"> <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_7-0"></div> <span class="heading-toc" id="toc-term-of-the-week-deflation"></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"> Term of the Week: Deflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> This week's term comes to us from Boris in San Francisco, who's a Scorpio according to his Instagram profile—just like me! Boris suggests '<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deflation.asp">deflation</a>' this week, and we like that term given the critical CPI and PPI reports we will be getting this week. </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"> According to my favorite website, deflation is a general decline in the price level of goods and services, and is usually associated with a contraction in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneysupply.asp">supply of money</a> and credit—sound familiar? Deflation can also occur due to increases in productivity and technological improvements. </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"> We've seen deflation across parts of the economy, including energy prices and lumber, but not in key areas that impact consumers the most, like food, shelter, and wages. That's why the Fed will likely continue to stay aggressive on interest rates. </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"> It's also important to know the difference between deflation and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disinflation.asp">disinflation</a>. Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to a slowdown in the rate of inflation itself. We're seeing a lot more disinflation than deflation lately, but that's also starting to change. </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"> Good suggestion, Boris from San Francisco who's a Scorpio. We're going to be sending you some Investopedia socks. </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-links-for-show-notes"></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"> Links for Show Notes </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">What is an Exchange-Traded Fund (ETF)?</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://exchangeetf.com/" rel="nofollow">Exchange — An ETF Experience</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.etftrends.com/author/toddrosenbuth/">Todd Rosenbluth — VettaFi</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://gtsx.com/reginald-m-browne/" rel="nofollow">Reginald M. Browne — GTS</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deflation.asp">Deflation: Definition and Causes</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disinflation.asp">Disinflation: Definition, How It Works, Example</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="externalLink" href="https://www.etoro.com/news-and-analysis/in-depth-analysis/the-costs-of-rising-short-termism/" rel="nofollow">Global Market Insights: The Costs of Rising Short-Termism</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="externalLink" href="https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_021023.pdf" rel="nofollow">FactSet Earnings Insights: February 10, 2023</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="externalLink" href="https://www.cboe.com/data/market_statistics/">CBOE Market Statistics</a></li> </ul></div>

This week on [The Investopedia Express](https://www.investopedia.com/the-investopedia-express-podcast-5215636) podcast, we head down to ETF Exchange to learn what is coming down the tracks for investors riding the rails of [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). [Todd Rosenbluth](https://www.linkedin.com/in/todd-rosenbluth-89120a/) of VettaFi and [Reggie Browne](https://gtsx.com/reginald-m-browne/) of GTS join the show to tell us why there is still a lot of growth ahead for the ETF industry, and why they are creating new solutions for more discerning investors. Plus, a little risk-reversal takes hold after a torrid January, just as [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp) dive headlong into the options market. Be careful out there. ## What's in This Episode? **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) ## Term of the Week: Deflation This week's term comes to us from Boris in San Francisco, who's a Scorpio according to his Instagram profile—just like me! Boris suggests '[deflation](https://www.investopedia.com/terms/d/deflation.asp)' this week, and we like that term given the critical CPI and PPI reports we will be getting this week. According to my favorite website, deflation is a general decline in the price level of goods and services, and is usually associated with a contraction in the [supply of money](https://www.investopedia.com/terms/m/moneysupply.asp) and credit—sound familiar? Deflation can also occur due to increases in productivity and technological improvements. We've seen deflation across parts of the economy, including energy prices and lumber, but not in key areas that impact consumers the most, like food, shelter, and wages. That's why the Fed will likely continue to stay aggressive on interest rates. It's also important to know the difference between deflation and [disinflation](https://www.investopedia.com/terms/d/disinflation.asp). Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to a slowdown in the rate of inflation itself. We're seeing a lot more disinflation than deflation lately, but that's also starting to change. Good suggestion, Boris from San Francisco who's a Scorpio. We're going to be sending you some Investopedia socks. ## Links for Show Notes * [What is an Exchange-Traded Fund (ETF)?](https://www.investopedia.com/terms/e/etf.asp) * [Exchange — An ETF Experience](https://exchangeetf.com/) * [Todd Rosenbluth — VettaFi](https://www.etftrends.com/author/toddrosenbuth/) * [Reginald M. Browne — GTS](https://gtsx.com/reginald-m-browne/) * [Deflation: Definition and Causes](https://www.investopedia.com/terms/d/deflation.asp) * [Disinflation: Definition, How It Works, Example](https://www.investopedia.com/terms/d/disinflation.asp) * [Global Market Insights: The Costs of Rising Short-Termism](https://www.etoro.com/news-and-analysis/in-depth-analysis/the-costs-of-rising-short-termism/) * [FactSet Earnings Insights: February 10, 2023](https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_021023.pdf) * [CBOE Market Statistics](https://www.cboe.com/data/market_statistics/)

This week on The Investopedia Express podcast, we head down to ETF Exchange to learn what is coming down the tracks for investors riding the rails of exchange-traded funds (ETFs). Todd Rosenbluth of VettaFi and Reggie Browne of GTS join the show to tell us why there is still a lot of growth ahead for the ETF industry, and why they are creating new solutions for more discerning investors. Plus, a little risk-reversal takes hold after a torrid January, just as retail investors dive headlong into the options market. Be careful out there. What's in This Episode? Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Term of the Week: Deflation This week's term comes to us from Boris in San Francisco, who's a Scorpio according to his Instagram profile—just like me! Boris suggests 'deflation' this week, and we like that term given the critical CPI and PPI reports we will be getting this week. According to my favorite website, deflation is a general decline in the price level of goods and services, and is usually associated with a contraction in the supply of money and credit—sound familiar? Deflation can also occur due to increases in productivity and technological improvements. We've seen deflation across parts of the economy, including energy prices and lumber, but not in key areas that impact consumers the most, like food, shelter, and wages. That's why the Fed will likely continue to stay aggressive on interest rates. It's also important to know the difference between deflation and disinflation. Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to a slowdown in the rate of inflation itself. We're seeing a lot more disinflation than deflation lately, but that's also starting to change. Good suggestion, Boris from San Francisco who's a Scorpio. We're going to be sending you some Investopedia socks. Links for Show Notes What is an Exchange-Traded Fund (ETF)? Exchange — An ETF Experience Todd Rosenbluth — VettaFi Reginald M. Browne — GTS Deflation: Definition and Causes Disinflation: Definition, How It Works, Example Global Market Insights: The Costs of Rising Short-Termism FactSet Earnings Insights: February 10, 2023 CBOE Market Statistics

https://www.investopedia.com/roadside-assistance-insurance-5088592

Roadside Assistance Insurance: 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"> Getting a flat tire or running out of gas can disrupt your daily commute or derail a vacation road trip. An estimated 69 million breakdowns happen on America's roadways each year, roughly equivalent to one for every three drivers.<span class="ql-inline-citation" data-cite="1"></span> Roadside assistance insurance can come in handy if your vehicle leaves you stranded. There are a number of ways to get coverage, and prices can vary from $0 on up. Here is how to compare. </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>Roughly 1 in 3 drivers experience vehicle trouble that requires roadside assistance each year. </li><li>Roadside assistance insurance can cover a variety of situations, from flat tires to towing to lockouts. </li><li>Car insurance companies, AAA, and your credit card issuer are some of the options for getting roadside assistance coverage. </li><li>Having this coverage doesn't necessarily mean you won't have some out-of-pocket costs. </li></ul></div></div></div> <span class="heading-toc" id="toc-roadside-assistance-insurance-what-is-it"></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"> Roadside Assistance Insurance: What Is It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Roadside assistance insurance is designed to help you if you run into vehicle trouble on the road or even at home. </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 range of services it covers can vary. But generally, you may be covered for things like: </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>Towing to the nearest repair location</li><li>Flat tire replacement</li><li>Jump starts if your battery goes dead</li><li>Locksmithing services if you get locked out</li><li>Fuel delivery if you run out of gas</li><li>Extrication if your car gets stuck in mud, snow, or a ditch</li><li>Rental car discounts if you need to rent a car temporarily</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"> Roadside assistance coverage is different from standard <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp" rel="noopener noreferrer">auto insurance</a>. Auto insurance is designed to protect you and your vehicle in case of accidents, theft, vandalism, or damage related to acts of nature. It can cover repairs to the vehicle, as well as medical expenses and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/comprehensive-personal-liability.asp" rel="noopener noreferrer">personal liability</a> for injuries to other people or their property. You may be able to get roadside assistance as part of your auto insurance policy, but they're two separate things. </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>Whether you're eligible for roadside assistance coverage through your car insurance company or anywhere else may depend on your vehicle's age and mileage. </p></div></div></div> <span class="heading-toc" id="toc-how-roadside-assistance-insurance-works"></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 Roadside Assistance Insurance Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If you have roadside assistance insurance, you can use it like you would any other insurance.  </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"> Specifically, if you have a situation that you think requires assistance, you'd start by calling the company you have your coverage through. Some roadside assistance providers also have a mobile app you can use.  </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"> You'd need to explain the type of vehicle issue you're having, and the roadside assistance company would quickly review your policy to make sure that it's covered. Assuming it is, a partner company (such as a towing company) would be dispatched to wherever you are to help you out. You'd be responsible for paying any out-of-pocket costs not covered by your roadside assistance policy. And if the policy has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deductible.asp" rel="noopener noreferrer">deductible</a>, you'd be responsible for paying that, as well. </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-note" 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 with-title" id="mntl-sc-block-callout-heading_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>There may be limits on how far a vehicle can be towed without incurring additional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-it-cost-to-tow-a-car-5180826">towing fees</a>. </p></div></div></div> <span class="heading-toc" id="toc-where-to-get-roadside-assistance-insurance"></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"> Where to Get Roadside Assistance Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> There are several ways to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-insurance-4427710">get roadside assistance</a> insurance coverage, including: </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>Car insurance companies</li><li>Roadside assistance membership services (such as AAA)</li><li>Vehicle manufacturer's warranty</li><li>Cell phone company </li><li>Credit card company</li><li>Membership organizations</li> </ul> <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 two most important things to consider when comparing roadside assistance insurance are what's covered and what you'll pay for it. In terms of cost, you might pay $15 to $60 per year for coverage through your current car insurance policy. Enrolling in a roadside assistance membership plan might cost anywhere from $50 to $360 a year. </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"> Credit card companies may not charge a separate fee for this coverage; instead, it's included as a card benefit. But you may still pay an annual fee for the card itself and there may be some out-of-pocket costs you have to pay to take advantage of this feature. Cell phone companies may also provide this as an add-on to your account. Depending on the type of plan you have, this may or may not require a small monthly fee.  </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"> If you're buying a new or newer car that's still covered by the manufacturer's warranty, free roadside assistance services may be included automatically. You can ask the dealer whether it's included, what it covers, and how long it lasts.  </p> <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-callout mntl-block" id="mntl-sc-block_36-0"><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_37-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_4-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Roadside assistance coverage that's provided as part of a car manufacturer's warranty typically lasts for a certain time period or a certain number of miles. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Belonging to some membership organizations can also unlock roadside assistance benefits. For example, if you belong to a college alumni association or a professional organization, you may be able to obtain membership in AAA or a similar service at a discount.  </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"> When reviewing roadside assistance coverage, pay close attention to what's included in the policy—and what exclusions may apply. For example, there may be restrictions on which towing companies you can use or how many vehicles are covered. It's also helpful to ask about adding multiple drivers to your policy if you're not the only person who drives your car. That may involve an additional fee.  </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_5-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>There may be a limit on the number of service claims you can make each year through your roadside assistance insurance policy. </p></div></div></div> <span class="heading-toc" id="toc-do-you-need-roadside-assistance-insurance"></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"> Do You Need Roadside Assistance Insurance?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> There's no legal requirement to have roadside assistance insurance, as there is in most states with regular car insurance. </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"> When deciding whether it's worth purchasing roadside assistance, consider things like: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <li>The age and condition of your vehicle</li><li>The number of people in your household who normally drive your vehicle</li><li>How many miles you typically drive in a year</li><li>How often you commute versus taking longer road trips</li><li>How adept you or other members of your household are at handling minor car troubles, such as changing a flat tire</li> </ul> <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"> Keeping your vehicle well maintained and regularly serviced can help minimize the odds of a breakdown. And if you typically only drive short distances, dealing with car trouble if it happens may not be a major inconvenience.  </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"> But if you're worried about being stranded on the side of the road, roadside assistance insurance can offer some peace of mind. Be sure to compare costs and coverage so you know what you're getting. And if you're buying coverage through your car insurance company, ask if any discounts are available that could save you money.  </p></div>

Getting a flat tire or running out of gas can disrupt your daily commute or derail a vacation road trip. An estimated 69 million breakdowns happen on America's roadways each year, roughly equivalent to one for every three drivers. Roadside assistance insurance can come in handy if your vehicle leaves you stranded. There are a number of ways to get coverage, and prices can vary from $0 on up. Here is how to compare. ### Key Takeaways * Roughly 1 in 3 drivers experience vehicle trouble that requires roadside assistance each year. * Roadside assistance insurance can cover a variety of situations, from flat tires to towing to lockouts. * Car insurance companies, AAA, and your credit card issuer are some of the options for getting roadside assistance coverage. * Having this coverage doesn't necessarily mean you won't have some out-of-pocket costs. ## Roadside Assistance Insurance: What Is It? Roadside assistance insurance is designed to help you if you run into vehicle trouble on the road or even at home. The range of services it covers can vary. But generally, you may be covered for things like: * Towing to the nearest repair location * Flat tire replacement * Jump starts if your battery goes dead * Locksmithing services if you get locked out * Fuel delivery if you run out of gas * Extrication if your car gets stuck in mud, snow, or a ditch * Rental car discounts if you need to rent a car temporarily Roadside assistance coverage is different from standard [auto insurance](https://www.investopedia.com/terms/a/auto-insurance.asp). Auto insurance is designed to protect you and your vehicle in case of accidents, theft, vandalism, or damage related to acts of nature. It can cover repairs to the vehicle, as well as medical expenses and [personal liability](https://www.investopedia.com/terms/c/comprehensive-personal-liability.asp) for injuries to other people or their property. You may be able to get roadside assistance as part of your auto insurance policy, but they're two separate things. ### Note Whether you're eligible for roadside assistance coverage through your car insurance company or anywhere else may depend on your vehicle's age and mileage.  ## How Roadside Assistance Insurance Works If you have roadside assistance insurance, you can use it like you would any other insurance.  Specifically, if you have a situation that you think requires assistance, you'd start by calling the company you have your coverage through. Some roadside assistance providers also have a mobile app you can use.  You'd need to explain the type of vehicle issue you're having, and the roadside assistance company would quickly review your policy to make sure that it's covered. Assuming it is, a partner company (such as a towing company) would be dispatched to wherever you are to help you out. You'd be responsible for paying any out-of-pocket costs not covered by your roadside assistance policy. And if the policy has a [deductible](https://www.investopedia.com/terms/d/deductible.asp), you'd be responsible for paying that, as well. ### Note There may be limits on how far a vehicle can be towed without incurring additional [towing fees](https://www.investopedia.com/how-much-does-it-cost-to-tow-a-car-5180826).  ## Where to Get Roadside Assistance Insurance There are several ways to [get roadside assistance](https://www.investopedia.com/car-insurance-4427710) insurance coverage, including: * Car insurance companies * Roadside assistance membership services (such as AAA) * Vehicle manufacturer's warranty * Cell phone company * Credit card company * Membership organizations The two most important things to consider when comparing roadside assistance insurance are what's covered and what you'll pay for it. In terms of cost, you might pay $15 to $60 per year for coverage through your current car insurance policy. Enrolling in a roadside assistance membership plan might cost anywhere from $50 to $360 a year. Credit card companies may not charge a separate fee for this coverage; instead, it's included as a card benefit. But you may still pay an annual fee for the card itself and there may be some out-of-pocket costs you have to pay to take advantage of this feature. Cell phone companies may also provide this as an add-on to your account. Depending on the type of plan you have, this may or may not require a small monthly fee.  If you're buying a new or newer car that's still covered by the manufacturer's warranty, free roadside assistance services may be included automatically. You can ask the dealer whether it's included, what it covers, and how long it lasts.  ### Note Roadside assistance coverage that's provided as part of a car manufacturer's warranty typically lasts for a certain time period or a certain number of miles.  Belonging to some membership organizations can also unlock roadside assistance benefits. For example, if you belong to a college alumni association or a professional organization, you may be able to obtain membership in AAA or a similar service at a discount.  When reviewing roadside assistance coverage, pay close attention to what's included in the policy—and what exclusions may apply. For example, there may be restrictions on which towing companies you can use or how many vehicles are covered. It's also helpful to ask about adding multiple drivers to your policy if you're not the only person who drives your car. That may involve an additional fee.  ### Important There may be a limit on the number of service claims you can make each year through your roadside assistance insurance policy.  ## Do You Need Roadside Assistance Insurance? There's no legal requirement to have roadside assistance insurance, as there is in most states with regular car insurance. When deciding whether it's worth purchasing roadside assistance, consider things like: * The age and condition of your vehicle * The number of people in your household who normally drive your vehicle * How many miles you typically drive in a year * How often you commute versus taking longer road trips * How adept you or other members of your household are at handling minor car troubles, such as changing a flat tire Keeping your vehicle well maintained and regularly serviced can help minimize the odds of a breakdown. And if you typically only drive short distances, dealing with car trouble if it happens may not be a major inconvenience.  But if you're worried about being stranded on the side of the road, roadside assistance insurance can offer some peace of mind. Be sure to compare costs and coverage so you know what you're getting. And if you're buying coverage through your car insurance company, ask if any discounts are available that could save you money. 

Getting a flat tire or running out of gas can disrupt your daily commute or derail a vacation road trip. An estimated 69 million breakdowns happen on America's roadways each year, roughly equivalent to one for every three drivers. Roadside assistance insurance can come in handy if your vehicle leaves you stranded. There are a number of ways to get coverage, and prices can vary from $0 on up. Here is how to compare. Key Takeaways Roughly 1 in 3 drivers experience vehicle trouble that requires roadside assistance each year. Roadside assistance insurance can cover a variety of situations, from flat tires to towing to lockouts. Car insurance companies, AAA, and your credit card issuer are some of the options for getting roadside assistance coverage. Having this coverage doesn't necessarily mean you won't have some out-of-pocket costs.  Roadside Assistance Insurance: What Is It? Roadside assistance insurance is designed to help you if you run into vehicle trouble on the road or even at home. The range of services it covers can vary. But generally, you may be covered for things like: Towing to the nearest repair locationFlat tire replacementJump starts if your battery goes deadLocksmithing services if you get locked outFuel delivery if you run out of gasExtrication if your car gets stuck in mud, snow, or a ditchRental car discounts if you need to rent a car temporarily Roadside assistance coverage is different from standard auto insurance. Auto insurance is designed to protect you and your vehicle in case of accidents, theft, vandalism, or damage related to acts of nature. It can cover repairs to the vehicle, as well as medical expenses and personal liability for injuries to other people or their property. You may be able to get roadside assistance as part of your auto insurance policy, but they're two separate things. Note Whether you're eligible for roadside assistance coverage through your car insurance company or anywhere else may depend on your vehicle's age and mileage.  How Roadside Assistance Insurance Works If you have roadside assistance insurance, you can use it like you would any other insurance.  Specifically, if you have a situation that you think requires assistance, you'd start by calling the company you have your coverage through. Some roadside assistance providers also have a mobile app you can use.  You'd need to explain the type of vehicle issue you're having, and the roadside assistance company would quickly review your policy to make sure that it's covered. Assuming it is, a partner company (such as a towing company) would be dispatched to wherever you are to help you out. You'd be responsible for paying any out-of-pocket costs not covered by your roadside assistance policy. And if the policy has a deductible, you'd be responsible for paying that, as well. Note There may be limits on how far a vehicle can be towed without incurring additional towing fees.  Where to Get Roadside Assistance Insurance There are several ways to get roadside assistance insurance coverage, including: Car insurance companiesRoadside assistance membership services (such as AAA)Vehicle manufacturer's warrantyCell phone company Credit card companyMembership organizations The two most important things to consider when comparing roadside assistance insurance are what's covered and what you'll pay for it. In terms of cost, you might pay $15 to $60 per year for coverage through your current car insurance policy. Enrolling in a roadside assistance membership plan might cost anywhere from $50 to $360 a year. Credit card companies may not charge a separate fee for this coverage; instead, it's included as a card benefit. But you may still pay an annual fee for the card itself and there may be some out-of-pocket costs you have to pay to take advantage of this feature. Cell phone companies may also provide this as an add-on to your account. Depending on the type of plan you have, this may or may not require a small monthly fee.  If you're buying a new or newer car that's still covered by the manufacturer's warranty, free roadside assistance services may be included automatically. You can ask the dealer whether it's included, what it covers, and how long it lasts.  Note Roadside assistance coverage that's provided as part of a car manufacturer's warranty typically lasts for a certain time period or a certain number of miles.  Belonging to some membership organizations can also unlock roadside assistance benefits. For example, if you belong to a college alumni association or a professional organization, you may be able to obtain membership in AAA or a similar service at a discount.  When reviewing roadside assistance coverage, pay close attention to what's included in the policy—and what exclusions may apply. For example, there may be restrictions on which towing companies you can use or how many vehicles are covered. It's also helpful to ask about adding multiple drivers to your policy if you're not the only person who drives your car. That may involve an additional fee.  Important There may be a limit on the number of service claims you can make each year through your roadside assistance insurance policy.  Do You Need Roadside Assistance Insurance?  There's no legal requirement to have roadside assistance insurance, as there is in most states with regular car insurance. When deciding whether it's worth purchasing roadside assistance, consider things like: The age and condition of your vehicleThe number of people in your household who normally drive your vehicleHow many miles you typically drive in a yearHow often you commute versus taking longer road tripsHow adept you or other members of your household are at handling minor car troubles, such as changing a flat tire Keeping your vehicle well maintained and regularly serviced can help minimize the odds of a breakdown. And if you typically only drive short distances, dealing with car trouble if it happens may not be a major inconvenience.  But if you're worried about being stranded on the side of the road, roadside assistance insurance can offer some peace of mind. Be sure to compare costs and coverage so you know what you're getting. And if you're buying coverage through your car insurance company, ask if any discounts are available that could save you money. 

https://www.investopedia.com/terms/w/weaklongs.asp

Weak Longs

<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-weak-longs"></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 Weak Longs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Weak longs are investors who hold a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long</a> position and are quick to exit that position at the first sign of weakness. This type of investor is typically trying to capture the upside potential of a security but without significant loss. These investors will quickly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closeposition.asp">close</a> their positions when a trade does not move in their favor. </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-weak-longs"></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 Weak Longs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Weak longs are often short-term traders rather than long-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> because they are unwilling to hold their positions through market fluctuations. If a trade does not move in their favor, they will quickly close their positions and look elsewhere for opportunities. Most weak longs are momentum traders who are more interested in a quick profit than investing in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/undervalued.asp">undervalued</a> companies until they reach a fair value. </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"> When weak longs close their position, it may present an opportunity for other investors to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-the-dips.asp">buy into the dip</a>. The selling pressure that weak longs create when closing their positions can lead to consolidation in a stock after a significant uptrend. This explains why stocks tend to top out after following an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">earnings</a> announcement because these traders lock in their profits and move on to other investment opportunities. </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 benefit of a weak long is that the investor can secure profits immediately rather than succumbing to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposition.asp">disposition</a> effect, holding onto a losing stock for too long. However, weak longs tend to generate substantial churn in their portfolio, making it harder to remain profitable such as through the use of a long-term investing strategy. </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-example-of-weak-longs"></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"> Example of Weak Longs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> When a company announces favorable earnings for the quarter, short-term traders may buy the stock at the open to capitalize on the run-up while long-term investors may add the stock to their existing positions. Weak longs will hold the stock until it begins to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consolidation.asp">consolidate</a> following an earnings run-up, selling the stock and moving on to other opportunities. Long-term investors will continue holding the stock. </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"> Long-term investors may take advantage of the consolidation to add to their position and lower their cost basis. Long-term investors may wait on the sidelines following a positive earnings announcement and buy the stock after it begins to move lower and consolidate. This allows them to buy the stock at a lower price and ultimately increase their long-term profit potential.<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_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>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.</p></div></div></div></div>

## What Are Weak Longs? Weak longs are investors who hold a [long](https://www.investopedia.com/terms/l/long.asp) position and are quick to exit that position at the first sign of weakness. This type of investor is typically trying to capture the upside potential of a security but without significant loss. These investors will quickly [close](https://www.investopedia.com/terms/c/closeposition.asp) their positions when a trade does not move in their favor. ## Understanding Weak Longs Weak longs are often short-term traders rather than long-term [investors](https://www.investopedia.com/terms/i/investor.asp) because they are unwilling to hold their positions through market fluctuations. If a trade does not move in their favor, they will quickly close their positions and look elsewhere for opportunities. Most weak longs are momentum traders who are more interested in a quick profit than investing in [undervalued](https://www.investopedia.com/terms/u/undervalued.asp) companies until they reach a fair value. When weak longs close their position, it may present an opportunity for other investors to [buy into the dip](https://www.investopedia.com/terms/b/buy-the-dips.asp). The selling pressure that weak longs create when closing their positions can lead to consolidation in a stock after a significant uptrend. This explains why stocks tend to top out after following an [earnings](https://www.investopedia.com/terms/e/earnings.asp) announcement because these traders lock in their profits and move on to other investment opportunities. The benefit of a weak long is that the investor can secure profits immediately rather than succumbing to the [disposition](https://www.investopedia.com/terms/d/disposition.asp) effect, holding onto a losing stock for too long. However, weak longs tend to generate substantial churn in their portfolio, making it harder to remain profitable such as through the use of a long-term investing strategy. ## Example of Weak Longs When a company announces favorable earnings for the quarter, short-term traders may buy the stock at the open to capitalize on the run-up while long-term investors may add the stock to their existing positions. Weak longs will hold the stock until it begins to [consolidate](https://www.investopedia.com/terms/c/consolidation.asp) following an earnings run-up, selling the stock and moving on to other opportunities. Long-term investors will continue holding the stock. Long-term investors may take advantage of the consolidation to add to their position and lower their cost basis. Long-term investors may wait on the sidelines following a positive earnings announcement and buy the stock after it begins to move lower and consolidate. This allows them to buy the stock at a lower price and ultimately increase their long-term profit potential. ### 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 Are Weak Longs? Weak longs are investors who hold a long position and are quick to exit that position at the first sign of weakness. This type of investor is typically trying to capture the upside potential of a security but without significant loss. These investors will quickly close their positions when a trade does not move in their favor. Understanding Weak Longs Weak longs are often short-term traders rather than long-term investors because they are unwilling to hold their positions through market fluctuations. If a trade does not move in their favor, they will quickly close their positions and look elsewhere for opportunities. Most weak longs are momentum traders who are more interested in a quick profit than investing in undervalued companies until they reach a fair value. When weak longs close their position, it may present an opportunity for other investors to buy into the dip. The selling pressure that weak longs create when closing their positions can lead to consolidation in a stock after a significant uptrend. This explains why stocks tend to top out after following an earnings announcement because these traders lock in their profits and move on to other investment opportunities. The benefit of a weak long is that the investor can secure profits immediately rather than succumbing to the disposition effect, holding onto a losing stock for too long. However, weak longs tend to generate substantial churn in their portfolio, making it harder to remain profitable such as through the use of a long-term investing strategy. Example of Weak Longs When a company announces favorable earnings for the quarter, short-term traders may buy the stock at the open to capitalize on the run-up while long-term investors may add the stock to their existing positions. Weak longs will hold the stock until it begins to consolidate following an earnings run-up, selling the stock and moving on to other opportunities. Long-term investors will continue holding the stock. Long-term investors may take advantage of the consolidation to add to their position and lower their cost basis. Long-term investors may wait on the sidelines following a positive earnings announcement and buy the stock after it begins to move lower and consolidate. This allows them to buy the stock at a lower price and ultimately increase their long-term profit potential. 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/the-express-podcast-episode-152-7965433

Organized Labor's Summer Uprising and the Future of Unions

<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=MERE1155698256" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Organized Labor's Summer Uprising and the Future of Unions"></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"> It's been the summer of discontent for labor unions across industries, and the future of the way millions of people work and earn is in the balance. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sipa.columbia.edu/communities-connections/faculty/suresh-naidu">Suresh Naidu</a>, Professor of Labor Economics at Columbia University, joins <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-investopedia-express-podcast-5215636">The Express</a> to explain the dynamics unfolding inside industries today that are pitting workers against executives and shareholders. Plus, where does organized labor go from here as <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> and robotics permeate industries? </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/september-effect.asp">September Effect</a> will make headlines this month, but that doesn't mean we need to pay attention to the historical axiom anymore. </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) It's been the summer of discontent for labor unions across industries, and the future of the way millions of people work and earn is in the balance. [Suresh Naidu](https://www.sipa.columbia.edu/communities-connections/faculty/suresh-naidu), Professor of Labor Economics at Columbia University, joins [The Express](https://www.investopedia.com/the-investopedia-express-podcast-5215636) to explain the dynamics unfolding inside industries today that are pitting workers against executives and shareholders. Plus, where does organized labor go from here as [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) and robotics permeate industries? The [September Effect](https://www.investopedia.com/terms/s/september-effect.asp) will make headlines this month, but that doesn't mean we need to pay attention to the historical axiom anymore. 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 It's been the summer of discontent for labor unions across industries, and the future of the way millions of people work and earn is in the balance. Suresh Naidu, Professor of Labor Economics at Columbia University, joins The Express to explain the dynamics unfolding inside industries today that are pitting workers against executives and shareholders. Plus, where does organized labor go from here as artificial intelligence (AI) and robotics permeate industries? The September Effect will make headlines this month, but that doesn't mean we need to pay attention to the historical axiom anymore. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/m/mortgageinterest.asp

Mortgage Interest: 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-mortgage-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 Mortgage Interest? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term mortgage interest is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp" rel="noopener noreferrer">interest</a> charged on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan.asp" rel="noopener noreferrer">loan</a> used to purchase a piece of property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender. Mortgage interest <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compound.asp" rel="noopener noreferrer">compounds</a> and may be either fixed or variable. The majority of a borrower's payment goes toward mortgage interest in the earlier part of the loan. </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>Mortgage interest is the interest charged on a loan used to purchase a piece of property.</li><li>Interest is calculated as a certain percentage of the full mortgage loan. </li><li>Mortgage interest may be fixed or variable and is compounding. </li><li>Taxpayers can claim mortgage interest up to a certain amount as a tax deduction. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-mortgage-interest-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 Mortgage Interest Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Most consumers require a mortgage in order to finance the purchase of a home or other piece of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/property.asp" rel="noopener noreferrer">property</a>. Under a mortgage agreement, the borrower agrees to make regular payments to the lender for a specific number of years until the loan is either repaid in full or it is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/refinance/" rel="noopener noreferrer">refinanced</a>. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794" rel="noopener noreferrer">mortgage payment</a> includes a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp" rel="noopener noreferrer">principal</a> portion plus interest. Mortgage interest is charged for both primary and secondary loans, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp" rel="noopener noreferrer">home equity loans</a>, lines of credit (LOCs), and as long as the residence is used to secure the loan. </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"> As mentioned above, mortgage interest is calculated as a certain percentage of the mortgage loan. Some mortgages come with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp" rel="noopener noreferrer">fixed-interest rates</a> while others have <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableinterestrate.asp" rel="noopener noreferrer">variable interest rates</a>. More information on these types of rates is outlined below. Mortgage payments are divided into principal and interest. During the earlier part of the mortgage loan, the majority of a property owner's payment goes toward interest versus the principal balance. As the age of the loan increases, more of the payment is applied to the principal balance until it's completely paid off. </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"> Mortgage interest compounds. This means the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accruedinterest.asp" rel="noopener noreferrer">interest accrues</a> on the principal balance and it also includes any accumulated interest that remains unpaid. So if a borrower makes a late payment on a mortgage, they will have to pay interest on the interest as well. This is the opposite of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/simple_interest.asp" rel="noopener noreferrer">simple interest</a> loan, where interest never accrues. </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"> Mortgage interest is one of the major deductions available to personal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxpayer.asp" rel="noopener noreferrer">taxpayers</a>. Taking this deduction means taxpayers can lower their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxableincome.asp" rel="noopener noreferrer">taxable income</a> for the year. But they must <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/itemizeddeduction.asp" rel="noopener noreferrer">itemize their deductions</a> rather than take the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeduction.asp" rel="noopener noreferrer">standard deduction</a> option. And there are certain conditions borrowers must meet in order to qualify for the deduction. </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"> Only the mortgage interest on the first $1 million of a first or second home purchase is deductible. For properties purchased after Dec. 15, 2017, mortgage interest on the first $750,000 qualifies for the deduction. Taxpayers can claim the deductible interest on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/schedulea.asp" rel="noopener noreferrer">Schedule A</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/1040.asp" rel="noopener noreferrer">Form 1040</a>.<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_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>Mortgage interest can be deducted on the first $750,000 for properties purchased after Dec. 15, 2017.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> As long as the homeowners meet the criteria set by the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp" rel="noopener noreferrer">Internal Revenue Service</a> (IRS), the full amount of the mortgage interest paid during the tax year <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/home-mortgage-interest.asp" rel="noopener noreferrer">can be deducted</a>. Keep in mind that the mortgage interest can only be deducted if the mortgage is a secured debt, where the home is put up as collateral. The mortgage must also be for a residence that is a qualified home, meaning it is the owner’s primary home or a second home, with certain stipulations on its usage when not occupied by the owner.<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_21-0"></div> <span class="heading-toc" id="toc-types-of-mortgage-interest"></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"> Types of Mortgage Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> A fixed-rate of interest remains constant for a specific period of time or for the entire length of the mortgage loan. Consumers who want predictability in their payments prefer fixed mortgage interest options because they don't come with the highs and lows associated with floating or variable rates. Many mortgagors opt for fixed rates when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/low-interest-rate-environment.asp">interest rates are low</a> because if rates go up, their interest rate stays the same. Fixed rates are frequently seen with long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financing.asp">financing</a> that carries a term as long as 30 years.<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"> Using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/05/030905.asp">mortgage calculator</a> is a good resource to see these costs. </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 mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_27-0"><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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Variable mortgage interest rates change based on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market.asp">market</a>. These rates are also called floating or adjustable rates. They are based on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> index or interest rate and go up or down based on fluctuations in the market.<span class="ql-inline-citation" data-cite="3"></span> This means when the underlying index or rate changes, the variable interest rate changes as well. So a mortgagor's payment decreases when the rate drops and increases when rates rise. Variable mortgage interest rates are great options for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortterm.asp">short-term</a> financing or when a consumer plans to refinance after a certain period of time. </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>

## What Is Mortgage Interest? The term mortgage interest is the [interest](https://www.investopedia.com/terms/i/interest.asp) charged on a [loan](https://www.investopedia.com/terms/l/loan.asp) used to purchase a piece of property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender. Mortgage interest [compounds](https://www.investopedia.com/terms/c/compound.asp) and may be either fixed or variable. The majority of a borrower's payment goes toward mortgage interest in the earlier part of the loan. ### Key Takeaways * Mortgage interest is the interest charged on a loan used to purchase a piece of property. * Interest is calculated as a certain percentage of the full mortgage loan. * Mortgage interest may be fixed or variable and is compounding. * Taxpayers can claim mortgage interest up to a certain amount as a tax deduction. ## How Mortgage Interest Works Most consumers require a mortgage in order to finance the purchase of a home or other piece of [property](https://www.investopedia.com/terms/p/property.asp). Under a mortgage agreement, the borrower agrees to make regular payments to the lender for a specific number of years until the loan is either repaid in full or it is [refinanced](https://www.investopedia.com/mortgage/refinance/). The [mortgage payment](https://www.investopedia.com/mortgage-calculator-5084794) includes a [principal](https://www.investopedia.com/terms/p/principal.asp) portion plus interest. Mortgage interest is charged for both primary and secondary loans, [home equity loans](https://www.investopedia.com/terms/h/homeequityloan.asp), lines of credit (LOCs), and as long as the residence is used to secure the loan. As mentioned above, mortgage interest is calculated as a certain percentage of the mortgage loan. Some mortgages come with [fixed-interest rates](https://www.investopedia.com/terms/f/fixedinterestrate.asp) while others have [variable interest rates](https://www.investopedia.com/terms/v/variableinterestrate.asp). More information on these types of rates is outlined below. Mortgage payments are divided into principal and interest. During the earlier part of the mortgage loan, the majority of a property owner's payment goes toward interest versus the principal balance. As the age of the loan increases, more of the payment is applied to the principal balance until it's completely paid off. Mortgage interest compounds. This means the [interest accrues](https://www.investopedia.com/terms/a/accruedinterest.asp) on the principal balance and it also includes any accumulated interest that remains unpaid. So if a borrower makes a late payment on a mortgage, they will have to pay interest on the interest as well. This is the opposite of a [simple interest](https://www.investopedia.com/terms/s/simple_interest.asp) loan, where interest never accrues. ## Special Considerations Mortgage interest is one of the major deductions available to personal [taxpayers](https://www.investopedia.com/terms/t/taxpayer.asp). Taking this deduction means taxpayers can lower their [taxable income](https://www.investopedia.com/terms/t/taxableincome.asp) for the year. But they must [itemize their deductions](https://www.investopedia.com/terms/i/itemizeddeduction.asp) rather than take the [standard deduction](https://www.investopedia.com/terms/s/standarddeduction.asp) option. And there are certain conditions borrowers must meet in order to qualify for the deduction. Only the mortgage interest on the first $1 million of a first or second home purchase is deductible. For properties purchased after Dec. 15, 2017, mortgage interest on the first $750,000 qualifies for the deduction. Taxpayers can claim the deductible interest on [Schedule A](https://www.investopedia.com/terms/s/schedulea.asp) of [Form 1040](https://www.investopedia.com/terms/1/1040.asp). ### Mortgage interest can be deducted on the first $750,000 for properties purchased after Dec. 15, 2017. As long as the homeowners meet the criteria set by the [Internal Revenue Service](https://www.investopedia.com/terms/i/irs.asp) (IRS), the full amount of the mortgage interest paid during the tax year [can be deducted](https://www.investopedia.com/terms/home-mortgage-interest.asp). Keep in mind that the mortgage interest can only be deducted if the mortgage is a secured debt, where the home is put up as collateral. The mortgage must also be for a residence that is a qualified home, meaning it is the owner’s primary home or a second home, with certain stipulations on its usage when not occupied by the owner. ## Types of Mortgage Interest A fixed-rate of interest remains constant for a specific period of time or for the entire length of the mortgage loan. Consumers who want predictability in their payments prefer fixed mortgage interest options because they don't come with the highs and lows associated with floating or variable rates. Many mortgagors opt for fixed rates when [interest rates are low](https://www.investopedia.com/terms/l/low-interest-rate-environment.asp) because if rates go up, their interest rate stays the same. Fixed rates are frequently seen with long-term [financing](https://www.investopedia.com/terms/f/financing.asp) that carries a term as long as 30 years. Using a [mortgage calculator](https://www.investopedia.com/articles/pf/05/030905.asp) is a good resource to see these costs. Variable mortgage interest rates change based on the [market](https://www.investopedia.com/terms/m/market.asp). These rates are also called floating or adjustable rates. They are based on a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index or interest rate and go up or down based on fluctuations in the market. This means when the underlying index or rate changes, the variable interest rate changes as well. So a mortgagor's payment decreases when the rate drops and increases when rates rise. Variable mortgage interest rates are great options for [short-term](https://www.investopedia.com/terms/s/shortterm.asp) financing or when a consumer plans to refinance after a certain period of time.

What Is Mortgage Interest? The term mortgage interest is the interest charged on a loan used to purchase a piece of property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender. Mortgage interest compounds and may be either fixed or variable. The majority of a borrower's payment goes toward mortgage interest in the earlier part of the loan. Key Takeaways Mortgage interest is the interest charged on a loan used to purchase a piece of property.Interest is calculated as a certain percentage of the full mortgage loan. Mortgage interest may be fixed or variable and is compounding. Taxpayers can claim mortgage interest up to a certain amount as a tax deduction. How Mortgage Interest Works Most consumers require a mortgage in order to finance the purchase of a home or other piece of property. Under a mortgage agreement, the borrower agrees to make regular payments to the lender for a specific number of years until the loan is either repaid in full or it is refinanced. The mortgage payment includes a principal portion plus interest. Mortgage interest is charged for both primary and secondary loans, home equity loans, lines of credit (LOCs), and as long as the residence is used to secure the loan. As mentioned above, mortgage interest is calculated as a certain percentage of the mortgage loan. Some mortgages come with fixed-interest rates while others have variable interest rates. More information on these types of rates is outlined below. Mortgage payments are divided into principal and interest. During the earlier part of the mortgage loan, the majority of a property owner's payment goes toward interest versus the principal balance. As the age of the loan increases, more of the payment is applied to the principal balance until it's completely paid off. Mortgage interest compounds. This means the interest accrues on the principal balance and it also includes any accumulated interest that remains unpaid. So if a borrower makes a late payment on a mortgage, they will have to pay interest on the interest as well. This is the opposite of a simple interest loan, where interest never accrues. Special Considerations Mortgage interest is one of the major deductions available to personal taxpayers. Taking this deduction means taxpayers can lower their taxable income for the year. But they must itemize their deductions rather than take the standard deduction option. And there are certain conditions borrowers must meet in order to qualify for the deduction. Only the mortgage interest on the first $1 million of a first or second home purchase is deductible. For properties purchased after Dec. 15, 2017, mortgage interest on the first $750,000 qualifies for the deduction. Taxpayers can claim the deductible interest on Schedule A of Form 1040. Mortgage interest can be deducted on the first $750,000 for properties purchased after Dec. 15, 2017. As long as the homeowners meet the criteria set by the Internal Revenue Service (IRS), the full amount of the mortgage interest paid during the tax year can be deducted. Keep in mind that the mortgage interest can only be deducted if the mortgage is a secured debt, where the home is put up as collateral. The mortgage must also be for a residence that is a qualified home, meaning it is the owner’s primary home or a second home, with certain stipulations on its usage when not occupied by the owner. Types of Mortgage Interest A fixed-rate of interest remains constant for a specific period of time or for the entire length of the mortgage loan. Consumers who want predictability in their payments prefer fixed mortgage interest options because they don't come with the highs and lows associated with floating or variable rates. Many mortgagors opt for fixed rates when interest rates are low because if rates go up, their interest rate stays the same. Fixed rates are frequently seen with long-term financing that carries a term as long as 30 years. Using a mortgage calculator is a good resource to see these costs. Variable mortgage interest rates change based on the market. These rates are also called floating or adjustable rates. They are based on a benchmark index or interest rate and go up or down based on fluctuations in the market. This means when the underlying index or rate changes, the variable interest rate changes as well. So a mortgagor's payment decreases when the rate drops and increases when rates rise. Variable mortgage interest rates are great options for short-term financing or when a consumer plans to refinance after a certain period of time.

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

Foreign Draft: 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-a-foreign-draft"></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 Draft? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A foreign draft is an alternative to foreign currency when dealing with international trade or finance. A foreign draft is essentially a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank_draft.asp" rel="noopener noreferrer">bank draft</a> that is drawn on a financial institution in the non-home country of the currency needed. These can be purchased at commercial banks and usually come with a fee depending on the institution and the type of account you hold. </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-important" 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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>If it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment.</p></div></div></div> <span class="heading-toc" id="toc-how-foreign-drafts-work"></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 Foreign Drafts Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A foreign draft is basically a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/billofexchange.asp">bill of exchange</a> that is drawn in one country and made payable in another country. A bill of exchange is a written order, used mostly in international trade, that binds one party to pay a fixed sum of money to another party on demand, or at a predetermined date. </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 particular, the bill of exchange here takes the form of a bank draft—a credit instrument where the issuing bank guarantees payment after reviewing the issuing account for sufficient funds. Obtaining a bank draft requires depositing funds equal to the check amount and applicable fees with the issuing bank. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crossedcheck.asp">bank creates a check</a> to the payee drawn on the bank’s account. The check notes the remitter’s name, but the bank appears as the entity making the payment.  </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 it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment. The sender can then repay the bank for the draft amount in their own home currency, subject to fees and exchange rate spreads. </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"> A foreign draft is thus a handy tool that facilitates the transfer of funds that originate in one country, as one currency. into another currency, in another country, either on demand or at a predetermined rate.  </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>A foreign draft is a bank draft established at a foreign bank in order to pay a transaction in the foreign currency.</li><li>A foreign draft forgoes the need to purchase foreign currency or volunteer information required for an international wire.</li><li>Foreign drafts come with fees that must be paid to the foreign bank.</li></ul></div></div></div> <span class="heading-toc" id="toc-special-considerations-the-uses-of-a-foreign-draft"></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"> Special Considerations: The Uses of a Foreign Draft </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Foreign drafts are generally used to send money to a foreign country. Foreign drafts mitigate the effects of exchange fees, and bank routing delays, so this method is cheaper and more efficient than sending the currency itself. It also enables the receiver to access the funds quicker than if a draft or check were written in U.S. currency. </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 foreign draft also requires less information (such as the routing transit number) on the purchasers part than a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp" rel="noopener noreferrer">wire transfer</a>. Remittances and ad-hoc payments to suppliers or vendors are some examples of when a foreign draft may be used. </p></div>

## What Is a Foreign Draft? A foreign draft is an alternative to foreign currency when dealing with international trade or finance. A foreign draft is essentially a [bank draft](https://www.investopedia.com/terms/b/bank_draft.asp) that is drawn on a financial institution in the non-home country of the currency needed. These can be purchased at commercial banks and usually come with a fee depending on the institution and the type of account you hold. ### If it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment. ## How Foreign Drafts Work A foreign draft is basically a [bill of exchange](https://www.investopedia.com/terms/b/billofexchange.asp) that is drawn in one country and made payable in another country. A bill of exchange is a written order, used mostly in international trade, that binds one party to pay a fixed sum of money to another party on demand, or at a predetermined date. In particular, the bill of exchange here takes the form of a bank draft—a credit instrument where the issuing bank guarantees payment after reviewing the issuing account for sufficient funds. Obtaining a bank draft requires depositing funds equal to the check amount and applicable fees with the issuing bank. The [bank creates a check](https://www.investopedia.com/terms/c/crossedcheck.asp) to the payee drawn on the bank’s account. The check notes the remitter’s name, but the bank appears as the entity making the payment.  If it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment. The sender can then repay the bank for the draft amount in their own home currency, subject to fees and exchange rate spreads. A foreign draft is thus a handy tool that facilitates the transfer of funds that originate in one country, as one currency. into another currency, in another country, either on demand or at a predetermined rate.  ### Key Takeaways * A foreign draft is a bank draft established at a foreign bank in order to pay a transaction in the foreign currency. * A foreign draft forgoes the need to purchase foreign currency or volunteer information required for an international wire. * Foreign drafts come with fees that must be paid to the foreign bank. ## Special Considerations: The Uses of a Foreign Draft Foreign drafts are generally used to send money to a foreign country. Foreign drafts mitigate the effects of exchange fees, and bank routing delays, so this method is cheaper and more efficient than sending the currency itself. It also enables the receiver to access the funds quicker than if a draft or check were written in U.S. currency. A foreign draft also requires less information (such as the routing transit number) on the purchasers part than a [wire transfer](https://www.investopedia.com/terms/w/wiretransfer.asp). Remittances and ad-hoc payments to suppliers or vendors are some examples of when a foreign draft may be used.

What Is a Foreign Draft? A foreign draft is an alternative to foreign currency when dealing with international trade or finance. A foreign draft is essentially a bank draft that is drawn on a financial institution in the non-home country of the currency needed. These can be purchased at commercial banks and usually come with a fee depending on the institution and the type of account you hold. If it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment. How Foreign Drafts Work A foreign draft is basically a bill of exchange that is drawn in one country and made payable in another country. A bill of exchange is a written order, used mostly in international trade, that binds one party to pay a fixed sum of money to another party on demand, or at a predetermined date. In particular, the bill of exchange here takes the form of a bank draft—a credit instrument where the issuing bank guarantees payment after reviewing the issuing account for sufficient funds. Obtaining a bank draft requires depositing funds equal to the check amount and applicable fees with the issuing bank. The bank creates a check to the payee drawn on the bank’s account. The check notes the remitter’s name, but the bank appears as the entity making the payment.  If it is too expensive or cumbersome to obtain the foreign currency needed for an international transaction, a foreign draft can be used to establish a credit account in that country, denominated in the local currency, which can then be used as payment. The sender can then repay the bank for the draft amount in their own home currency, subject to fees and exchange rate spreads. A foreign draft is thus a handy tool that facilitates the transfer of funds that originate in one country, as one currency. into another currency, in another country, either on demand or at a predetermined rate.  Key Takeaways A foreign draft is a bank draft established at a foreign bank in order to pay a transaction in the foreign currency.A foreign draft forgoes the need to purchase foreign currency or volunteer information required for an international wire.Foreign drafts come with fees that must be paid to the foreign bank. Special Considerations: The Uses of a Foreign Draft Foreign drafts are generally used to send money to a foreign country. Foreign drafts mitigate the effects of exchange fees, and bank routing delays, so this method is cheaper and more efficient than sending the currency itself. It also enables the receiver to access the funds quicker than if a draft or check were written in U.S. currency. A foreign draft also requires less information (such as the routing transit number) on the purchasers part than a wire transfer. Remittances and ad-hoc payments to suppliers or vendors are some examples of when a foreign draft may be used.

https://www.investopedia.com/articles/investing/041213/modern-portfolio-theory-vs-behavioral-finance.asp

Modern Portfolio Theory vs. Behavioral Finance

<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/m/modernportfoliotheory.asp">Modern portfolio theory</a> (MPT) and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioralfinance.asp">behavioral finance</a> represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in the ideal world, and to think of behavioral finance as how financial markets work in the real world. Having a solid understanding of both theory and reality can help you make better investment decisions. </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>Evaluating how people should invest (i.e., portfolio choice) has been an important project undertaken by economists and investors alike.</li><li>Modern portfolio theory is a prescriptive theoretical model that shows what asset class mix would produce the greatest expected return for a given risk level.</li><li>Behavioral finance instead focuses on correcting for the cognitive and emotional biases that prevent people from acting rationally in the real world.</li></ul></div></div></div> <span class="heading-toc" id="toc-modern-portfolio-theory"></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"> Modern Portfolio Theory </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Modern portfolio theory is the basis for much of the conventional wisdom that underpins investment decision making. Many core points of modern portfolio theory were captured in the 1950s and1960s by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp">efficient market hypothesis</a> put forth by Eugene Fama of the University of Chicago. </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"> According to Fama’s theory, financial markets are efficient, investors make rational decisions, market participants are sophisticated, informed and act only on available information. Since everyone has the same access to that information, all securities are appropriately priced at any given time. If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price. </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"> Other snippets of conventional wisdom include the theory that 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 return an average of 8% per year (which will result in the value of an investment portfolio doubling every nine years), and that the ultimate goal of investing is to beat a static <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> index. In theory, it all sounds good. The reality can be a bit different. </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"> Modern portfolio theory (MPT) was developed by Harry Markowitz during the same period to identify how a rational actor would construct a diversified portfolio across several asset classes in order to maximize expected return for a given level of risk preference. The resulting theory constructed an "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientfrontier.asp">efficient frontier</a>," or the best possible portfolio mix for any risk tolerance. Modern portfolio theory then uses this theoretical limit to identify optimal portfolios through a process of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/meanvariance-analysis.asp">mean-variance optimization</a> (MVO). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></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_14-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:77.0%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_sa3234qgTGKOti2MAX7yr7L5rk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_sa3234qgTGKOti2MAX7yr7L5rk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg" data-srcset="https://www.investopedia.com/thmb/JQrnksA7Ph65W00svC_t2DPeoio=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg 750w" data-tracking-container="true" height="1814" id="mntl-sc-block-image_1-0" width="2355"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1814" sizes="750px" src="https://www.investopedia.com/thmb/_sa3234qgTGKOti2MAX7yr7L5rk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg" srcset="https://www.investopedia.com/thmb/JQrnksA7Ph65W00svC_t2DPeoio=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg 750w" width="2355"/> </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 2021</p></span> </figcaption></figure> <span class="heading-toc" id="toc-enter-behavioral-finance"></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"> Enter Behavioral Finance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Despite the nice, neat theories, stocks often trade at unjustified prices, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/02/112502.asp">investors make irrational decisions</a>, and you would be hard-pressed to find anyone who owns the much-touted “average” portfolio generating an 8% return every year like clockwork. </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"> So what does all of this mean to you? It means that emotion and psychology play a role when investors make decisions, sometimes causing them to behave in unpredictable or irrational ways. This is not to say that theories have no value, as their concepts do work—sometimes. </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"> Perhaps the best way to consider the differences between theoretical and behavioral finance is to view the theory as a framework from which to develop an understanding of the topics at hand, and to view the behavioral aspects as a reminder that theories don’t always work out as expected. Accordingly, having a good background in both perspectives can help you make better decisions. Comparing and contrasting some of the major topics will help set the stage. </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-market-efficiency"></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"> Market Efficiency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The idea that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/marketefficiency.asp">financial markets are efficient</a> is one of the core tenets of modern portfolio theory. This concept, championed in the efficient market hypothesis, suggests that at any given time prices fully reflect all available information on a particular stock and/or market. Since all market participants are privy to the same information, no one will have an advantage in predicting a return on a stock price because no one has access to better information. </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"> In efficient markets, prices become unpredictable, so no investment pattern can be discerned, completely negating any planned approach to investing. On the other hand, studies in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioralfinance.asp">behavioral finance</a>, which look into the effects of investor psychology on stock prices, reveal some predictable patterns in the stock market. </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-knowledge-distribution"></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"> Knowledge Distribution </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In theory, all information is distributed equally. In reality, if this was true, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp">insider trading</a> would not exist. Surprise bankruptcies would never happen. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sarbanesoxleyact.asp">Sarbanes-Oxley Act of 2002</a>, which was designed to move the markets to greater levels of efficiency because the access to information for certain parties was not being fairly disseminated, would not have been necessary. </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"> And let’s not forget that personal preference and personal ability also play roles. If you choose not to engage in the type of research conducted by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wallstreet.asp">Wall Street</a> stock <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/analyst.asp">analysts</a>, perhaps because you have a job or a family and don’t have the time or the skills, your knowledge will certainly be surpassed by others in the marketplace who are paid to spend all day researching securities. Clearly, there is a disconnect between theory and reality. </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-rational-investment-decisions"></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"> Rational Investment Decisions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Theoretically, all investors make rational investment decisions. Of course, if everyone was rational there would be no speculation, no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bubble.asp">bubbles</a> and no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irrationalexuberance.asp">irrational exuberance</a>. Similarly, nobody would buy securities when the price was high and then panic and sell when the price drops. </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"> Theory aside, we all know that speculation takes place and that bubbles develop and pop. Furthermore, decades of research from organizations such as Dalbar, with its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitativeanalysis.asp">Quantitative Analysis</a> of Investor Behavior study, show that irrational behavior plays a big role and costs investors dearly. </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-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> While it is important to study the theories of efficiency and review the empirical studies that lend them credibility, in reality, markets are full of inefficiencies. One reason for the inefficiencies is that every investor has a unique <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing_style.asp">investment style</a> and way of evaluating an investment. One may use <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical strategies</a> while others rely on fundamentals, and still others may resort to using a dartboard. </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 other factors influence the price of investments, ranging from emotional attachment, rumors and the price of the security to good old <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp">supply and demand</a>. Clearly, not all market participants are sophisticated, informed and act only on available information. But understanding what the experts expect—<em>and</em> how other market participants may act—will help you make good investment decisions for your portfolio and prepare you for the market’s reaction when others make their decisions. </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"> Knowing that markets will fall for unexpected reasons and rise suddenly in response to unusual activity can prepare you to ride out the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> without making trades you will later regret. Understanding that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/11/automated-trading-systems.asp">stock prices can move with “the herd”</a> as investor buying behavior pushes prices to unattainable levels can stop you from buying those overpriced technology shares. </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"> Similarly, you can avoid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dumping.asp">dumping</a> an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oversold.asp">oversold</a> but still valuable stock when investors rush for the exits. </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"> Education can be put to work on behalf of your portfolio in a logical way, yet with your eyes wide open to the degree of illogical factors that influence not only investors' actions, but security prices as well. By paying attention, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/company-insights/083016/example-applying-modern-portfolio-theory-mps.asp">learning the theories</a>, understanding the realities and applying the lessons, you can make the most of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/body-of-knowledge.asp">bodies of knowledge</a> that surround both traditional financial theory and behavioral finance. </p></div>

[Modern portfolio theory](https://www.investopedia.com/terms/m/modernportfoliotheory.asp) (MPT) and [behavioral finance](https://www.investopedia.com/terms/b/behavioralfinance.asp) represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in the ideal world, and to think of behavioral finance as how financial markets work in the real world. Having a solid understanding of both theory and reality can help you make better investment decisions. ### Key Takeaways * Evaluating how people should invest (i.e., portfolio choice) has been an important project undertaken by economists and investors alike. * Modern portfolio theory is a prescriptive theoretical model that shows what asset class mix would produce the greatest expected return for a given risk level. * Behavioral finance instead focuses on correcting for the cognitive and emotional biases that prevent people from acting rationally in the real world. ## Modern Portfolio Theory Modern portfolio theory is the basis for much of the conventional wisdom that underpins investment decision making. Many core points of modern portfolio theory were captured in the 1950s and1960s by the [efficient market hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp) put forth by Eugene Fama of the University of Chicago. According to Fama’s theory, financial markets are efficient, investors make rational decisions, market participants are sophisticated, informed and act only on available information. Since everyone has the same access to that information, all securities are appropriately priced at any given time. If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price. Other snippets of conventional wisdom include the theory that the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) will return an average of 8% per year (which will result in the value of an investment portfolio doubling every nine years), and that the ultimate goal of investing is to beat a static [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index. In theory, it all sounds good. The reality can be a bit different. Modern portfolio theory (MPT) was developed by Harry Markowitz during the same period to identify how a rational actor would construct a diversified portfolio across several asset classes in order to maximize expected return for a given level of risk preference. The resulting theory constructed an "[efficient frontier](https://www.investopedia.com/terms/e/efficientfrontier.asp)," or the best possible portfolio mix for any risk tolerance. Modern portfolio theory then uses this theoretical limit to identify optimal portfolios through a process of [mean-variance optimization](https://www.investopedia.com/terms/m/meanvariance-analysis.asp) (MVO). ![Image]() :max_bytes(150000):strip_icc()/dotdash_INV_final-Modern-Portfolio-Theory-vs-Behavioral-Finance_Feb_2021-01-82cc44608fb94aa8b7f5946b7b502d57.jpg) Image by Sabrina Jiang © Investopedia 2021 ## Enter Behavioral Finance Despite the nice, neat theories, stocks often trade at unjustified prices, [investors make irrational decisions](https://www.investopedia.com/articles/02/112502.asp), and you would be hard-pressed to find anyone who owns the much-touted “average” portfolio generating an 8% return every year like clockwork. So what does all of this mean to you? It means that emotion and psychology play a role when investors make decisions, sometimes causing them to behave in unpredictable or irrational ways. This is not to say that theories have no value, as their concepts do work—sometimes. Perhaps the best way to consider the differences between theoretical and behavioral finance is to view the theory as a framework from which to develop an understanding of the topics at hand, and to view the behavioral aspects as a reminder that theories don’t always work out as expected. Accordingly, having a good background in both perspectives can help you make better decisions. Comparing and contrasting some of the major topics will help set the stage. ## Market Efficiency The idea that [financial markets are efficient](https://www.investopedia.com/ask/answers/05/marketefficiency.asp) is one of the core tenets of modern portfolio theory. This concept, championed in the efficient market hypothesis, suggests that at any given time prices fully reflect all available information on a particular stock and/or market. Since all market participants are privy to the same information, no one will have an advantage in predicting a return on a stock price because no one has access to better information. In efficient markets, prices become unpredictable, so no investment pattern can be discerned, completely negating any planned approach to investing. On the other hand, studies in [behavioral finance](https://www.investopedia.com/terms/b/behavioralfinance.asp), which look into the effects of investor psychology on stock prices, reveal some predictable patterns in the stock market. ## Knowledge Distribution In theory, all information is distributed equally. In reality, if this was true, [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp) would not exist. Surprise bankruptcies would never happen. The [Sarbanes-Oxley Act of 2002](https://www.investopedia.com/terms/s/sarbanesoxleyact.asp), which was designed to move the markets to greater levels of efficiency because the access to information for certain parties was not being fairly disseminated, would not have been necessary. And let’s not forget that personal preference and personal ability also play roles. If you choose not to engage in the type of research conducted by [Wall Street](https://www.investopedia.com/terms/w/wallstreet.asp) stock [analysts](https://www.investopedia.com/terms/a/analyst.asp), perhaps because you have a job or a family and don’t have the time or the skills, your knowledge will certainly be surpassed by others in the marketplace who are paid to spend all day researching securities. Clearly, there is a disconnect between theory and reality. ## Rational Investment Decisions Theoretically, all investors make rational investment decisions. Of course, if everyone was rational there would be no speculation, no [bubbles](https://www.investopedia.com/terms/b/bubble.asp) and no [irrational exuberance](https://www.investopedia.com/terms/i/irrationalexuberance.asp). Similarly, nobody would buy securities when the price was high and then panic and sell when the price drops. Theory aside, we all know that speculation takes place and that bubbles develop and pop. Furthermore, decades of research from organizations such as Dalbar, with its [Quantitative Analysis](https://www.investopedia.com/terms/q/quantitativeanalysis.asp) of Investor Behavior study, show that irrational behavior plays a big role and costs investors dearly. ## The Bottom Line While it is important to study the theories of efficiency and review the empirical studies that lend them credibility, in reality, markets are full of inefficiencies. One reason for the inefficiencies is that every investor has a unique [investment style](https://www.investopedia.com/terms/i/investing_style.asp) and way of evaluating an investment. One may use [technical strategies](https://www.investopedia.com/terms/t/technicalanalysis.asp) while others rely on fundamentals, and still others may resort to using a dartboard. Many other factors influence the price of investments, ranging from emotional attachment, rumors and the price of the security to good old [supply and demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp). Clearly, not all market participants are sophisticated, informed and act only on available information. But understanding what the experts expect—*and* how other market participants may act—will help you make good investment decisions for your portfolio and prepare you for the market’s reaction when others make their decisions. Knowing that markets will fall for unexpected reasons and rise suddenly in response to unusual activity can prepare you to ride out the [volatility](https://www.investopedia.com/terms/v/volatility.asp) without making trades you will later regret. Understanding that [stock prices can move with “the herd”](https://www.investopedia.com/articles/trading/11/automated-trading-systems.asp) as investor buying behavior pushes prices to unattainable levels can stop you from buying those overpriced technology shares. Similarly, you can avoid [dumping](https://www.investopedia.com/terms/d/dumping.asp) an [oversold](https://www.investopedia.com/terms/o/oversold.asp) but still valuable stock when investors rush for the exits. Education can be put to work on behalf of your portfolio in a logical way, yet with your eyes wide open to the degree of illogical factors that influence not only investors' actions, but security prices as well. By paying attention, [learning the theories](https://www.investopedia.com/articles/company-insights/083016/example-applying-modern-portfolio-theory-mps.asp), understanding the realities and applying the lessons, you can make the most of the [bodies of knowledge](https://www.investopedia.com/terms/b/body-of-knowledge.asp) that surround both traditional financial theory and behavioral finance.

Modern portfolio theory (MPT) and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in the ideal world, and to think of behavioral finance as how financial markets work in the real world. Having a solid understanding of both theory and reality can help you make better investment decisions. Key Takeaways Evaluating how people should invest (i.e., portfolio choice) has been an important project undertaken by economists and investors alike.Modern portfolio theory is a prescriptive theoretical model that shows what asset class mix would produce the greatest expected return for a given risk level.Behavioral finance instead focuses on correcting for the cognitive and emotional biases that prevent people from acting rationally in the real world. Modern Portfolio Theory Modern portfolio theory is the basis for much of the conventional wisdom that underpins investment decision making. Many core points of modern portfolio theory were captured in the 1950s and1960s by the efficient market hypothesis put forth by Eugene Fama of the University of Chicago. According to Fama’s theory, financial markets are efficient, investors make rational decisions, market participants are sophisticated, informed and act only on available information. Since everyone has the same access to that information, all securities are appropriately priced at any given time. If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price. Other snippets of conventional wisdom include the theory that the stock market will return an average of 8% per year (which will result in the value of an investment portfolio doubling every nine years), and that the ultimate goal of investing is to beat a static benchmark index. In theory, it all sounds good. The reality can be a bit different. Modern portfolio theory (MPT) was developed by Harry Markowitz during the same period to identify how a rational actor would construct a diversified portfolio across several asset classes in order to maximize expected return for a given level of risk preference. The resulting theory constructed an "efficient frontier," or the best possible portfolio mix for any risk tolerance. Modern portfolio theory then uses this theoretical limit to identify optimal portfolios through a process of mean-variance optimization (MVO). Image by Sabrina Jiang © Investopedia 2021 Enter Behavioral Finance Despite the nice, neat theories, stocks often trade at unjustified prices, investors make irrational decisions, and you would be hard-pressed to find anyone who owns the much-touted “average” portfolio generating an 8% return every year like clockwork. So what does all of this mean to you? It means that emotion and psychology play a role when investors make decisions, sometimes causing them to behave in unpredictable or irrational ways. This is not to say that theories have no value, as their concepts do work—sometimes. Perhaps the best way to consider the differences between theoretical and behavioral finance is to view the theory as a framework from which to develop an understanding of the topics at hand, and to view the behavioral aspects as a reminder that theories don’t always work out as expected. Accordingly, having a good background in both perspectives can help you make better decisions. Comparing and contrasting some of the major topics will help set the stage. Market Efficiency The idea that financial markets are efficient is one of the core tenets of modern portfolio theory. This concept, championed in the efficient market hypothesis, suggests that at any given time prices fully reflect all available information on a particular stock and/or market. Since all market participants are privy to the same information, no one will have an advantage in predicting a return on a stock price because no one has access to better information. In efficient markets, prices become unpredictable, so no investment pattern can be discerned, completely negating any planned approach to investing. On the other hand, studies in behavioral finance, which look into the effects of investor psychology on stock prices, reveal some predictable patterns in the stock market. Knowledge Distribution In theory, all information is distributed equally. In reality, if this was true, insider trading would not exist. Surprise bankruptcies would never happen. The Sarbanes-Oxley Act of 2002, which was designed to move the markets to greater levels of efficiency because the access to information for certain parties was not being fairly disseminated, would not have been necessary. And let’s not forget that personal preference and personal ability also play roles. If you choose not to engage in the type of research conducted by Wall Street stock analysts, perhaps because you have a job or a family and don’t have the time or the skills, your knowledge will certainly be surpassed by others in the marketplace who are paid to spend all day researching securities. Clearly, there is a disconnect between theory and reality. Rational Investment Decisions Theoretically, all investors make rational investment decisions. Of course, if everyone was rational there would be no speculation, no bubbles and no irrational exuberance. Similarly, nobody would buy securities when the price was high and then panic and sell when the price drops. Theory aside, we all know that speculation takes place and that bubbles develop and pop. Furthermore, decades of research from organizations such as Dalbar, with its Quantitative Analysis of Investor Behavior study, show that irrational behavior plays a big role and costs investors dearly. The Bottom Line While it is important to study the theories of efficiency and review the empirical studies that lend them credibility, in reality, markets are full of inefficiencies. One reason for the inefficiencies is that every investor has a unique investment style and way of evaluating an investment. One may use technical strategies while others rely on fundamentals, and still others may resort to using a dartboard. Many other factors influence the price of investments, ranging from emotional attachment, rumors and the price of the security to good old supply and demand. Clearly, not all market participants are sophisticated, informed and act only on available information. But understanding what the experts expect—and how other market participants may act—will help you make good investment decisions for your portfolio and prepare you for the market’s reaction when others make their decisions. Knowing that markets will fall for unexpected reasons and rise suddenly in response to unusual activity can prepare you to ride out the volatility without making trades you will later regret. Understanding that stock prices can move with “the herd” as investor buying behavior pushes prices to unattainable levels can stop you from buying those overpriced technology shares. Similarly, you can avoid dumping an oversold but still valuable stock when investors rush for the exits. Education can be put to work on behalf of your portfolio in a logical way, yet with your eyes wide open to the degree of illogical factors that influence not only investors' actions, but security prices as well. By paying attention, learning the theories, understanding the realities and applying the lessons, you can make the most of the bodies of knowledge that surround both traditional financial theory and behavioral finance.

https://www.investopedia.com/undervalued-stocks-under-50-april-2024-8628130

11 Undervalued Stocks for Less Than $50 in April 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Neuroscience-focused biotechnology firm Pasithea Therapeutics Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KTTA">KTTA</a>) tops the list of undervalued non-penny stocks that trade below $50 per share for April 2024, with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">price-to-book ratio</a> of only 0.38.<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"> Value investors look to the price-to-book ratio as a key measure of whether a company is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/undervalued.asp">undervalued</a> compared to other stocks within its industry or sector. In this article, we examine companies across sectors with the lowest price-to-book ratios for April 2024. In our screen we include stocks listed on the New York Stock Exchange (NYSE) or the Nasdaq that trade for under $50 and that have a positive one-year trailing total return. We do not include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pennystock.asp">penny stocks</a> in our screen.<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"> The data below are as of April 7, 2024.<br> </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>Price-to-book ratio is a measure of a company's market price per share compared against its book value per share.</li><li>Value investors consider price-to-book to be a key measure of whether a company may be undervalued compared with competitors or the larger market; the lower the price-to-book ratio, the more undervalued.</li><li>An inherent tenet of value investing is that the market is likely to eventually correct the pricing of currently undervalued companies, providing investors an opportunity to reap gains.</li></ul></div></div></div> <span class="heading-toc" id="toc-pasithea-therapeutics-corp-ktta"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KTTA" rel="nocaes">Pasithea Therapeutics Corp. (KTTA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Price-to-book ratio: 0.38</li><li>Price: $8.50</li><li>Market capitalization: $8.9 million</li><li>Sector: Healthcare</li><li>1-Year total return: 9.0%</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"> Pasithea is a biotechnology firm developing treatments for central nervous system disorders. Since February, the company has sought enrollment for clinical trials of its PAS-004, a potential treatment for neurofibromatosis type 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_13-0"></div> <span class="heading-toc" id="toc-joyy-inc-yy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=YY" rel="nocaes">Joyy Inc. (YY)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Price-to-book ratio: 0.40</li><li>Price: $34.06</li><li>Market capitalization: $2.1 billion</li><li>Sector: Communication services</li><li>1-Year total return: 12.5%</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"> Joyy is a Singaporean social media company that provides platform services, such as Bigo Live for livestreaming, Hago for social networking, Likee for videos, and more. Although Bigo's revenue climbed by 3.1% year-over-year for the fourth quarter of 2023, companywide net revenue declined by about 6% to $569.8 million for that 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_18-0"></div> <span class="heading-toc" id="toc-top-ships-inc-tops"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TOPS" rel="nocaes">TOP Ships Inc. (TOPS)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Price-to-book ratio: 0.45</li><li>Price: $13.53</li><li>Market capitalization: $62.6 million</li><li>Sector: Industrials (transportation)</li><li>1-Year total return: 32.2%</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"> TOP Ships is a Greek shipping company that owns a fleet of eco tanker vessels used for the global transportation of crude oil, petroleum products, and bulk liquid chemicals. </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-motorcar-parts-of-america-inc-mpaa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MPAA" rel="nocaes">Motorcar Parts of America Inc. (MPAA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>Price-to-book ratio: 0.49</li><li>Price: $7.04</li><li>Market capitalization: $138.4 million</li><li>Sector: Consumer discretionary</li><li>1-Year total return: 18.5%</li> </ul> <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"> Motorcar Parts manufactures, remakes, and distributes aftermarket automotive parts for passenger vehicles, light trucks, and heavy-duty vehicles. In February, the company announced additional product offerings for its Quality-Built brake pad and brake rotor program. More than 20 new part numbers cover an additional 7 million vehicles in operation.<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> <span class="heading-toc" id="toc-security-national-financial-corp-snfca"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNFCA" rel="nocaes">Security National Financial Corp. (SNFCA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>Price-to-book ratio: 0.52</li><li>Price: $7.38</li><li>Market capitalization: $168.9 million</li><li>Sector: Financials</li><li>1-Year total return: 21.7%</li> </ul> <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"> Security National Financial is a financial company providing life insurance products, funeral and cemetery/mortuary services, and mortgage services. For the full-year 2023, after-tax earnings from operations decreased by 44% relative to the prior year, while revenues declined by 18%. For 2023, the company reported a loss of more than $17 million for its mortgages business.<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_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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">Price-to-book ratio</a> is a measure of the market capitalization of a company compared to its book value. The ratio is determined by dividing market price per share by book value per share. Generally, stocks with a price-to-book ratio below 1.0 are seen as potentially undervalued.</p></div></div></div> <span class="heading-toc" id="toc-seneca-foods-corp-senea"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SENEA" rel="nocaes">Seneca Foods Corp. (SENEA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <li>Price-to-book ratio: 0.67</li><li>Price: $55.77</li><li>Market capitalization: $401.5 million</li><li>Sector: Consumer staples</li><li>1-Year total return: 9.0%</li> </ul> <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"> Seneca Foods is a fruit and vegetable processing company that is primarily involved in food packaging. The company sources its produce from approximately 1,400 farms across the U.S.<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_40-0"></div> <span class="heading-toc" id="toc-universal-electronics-inc-ueic"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UEIC" rel="nocaes">Universal Electronics Inc. (UEIC)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li>Price-to-book ratio: 0.73</li><li>Price: $10.10</li><li>Market capitalization: $131.0 million</li><li>Sector: Information technology</li><li>1-Year total return: 2.6%</li> </ul> <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"> Universal Electronics is a technology firm that designs, develops, and sells wireless universal control solutions for home entertainment and smart home devices. For the full year 2023, the company reported net sales of $420.5 million, compared with $542.8 million for the prior year.<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> <span class="heading-toc" id="toc-landsea-homes-corp-lsea"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LSEA" rel="nocaes">Landsea Homes Corp. (LSEA)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <li>Price-to-book ratio: 0.75</li><li>Price: $13.42</li><li>Market capitalization: $483.4 million</li><li>Sector: Real estate</li><li>1-Year total return: 119.6%<br/></li> </ul> <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"> Landsea Homes is a residential homebuilding firm that develops master-planned communities in the northeastern part of the U.S. and California. </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-algoma-steel-group-inc-astl"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASTL" rel="nocaes">Algoma Steel Group Inc. (ASTL)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <li>Price-to-book ratio: 0.79</li><li>Price: $8.23</li><li>Market capitalization: $856.2 million</li><li>Sector: Materials</li><li>1-Year total return: 11.2%</li> </ul> <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"> Algoma is a Canadian producer of hot and cold rolled steel products. It serves customers throughout North America. The company's most recent dividend of $0.05 per common share was paid in late March.<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_55-0"></div> <span class="heading-toc" id="toc-berry-corp-bry"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRY" rel="nocaes">Berry Corp. (BRY)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <li>Price-to-book ratio: 0.87</li><li>Price: $8.69</li><li>Market capitalization: $663.3 million</li><li>Sector: Energy</li><li>1-Year total return: 6.0%</li> </ul> <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"> Berry is an independent upstream energy company engaging in exploration and production, well servicing, and abandonment services. The company primarily focuses on reserves in the western U.S. On April 5, Berry completed the acquisition of hot runner injection and high-volume compression molding company F&amp;S Tool Inc. for an undisclosed sum.<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> <span class="heading-toc" id="toc-pacific-gas--electric-co-pcg"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PCG" rel="nocaes">Pacific Gas &amp; Electric Co. (PCG)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <li>Price-to-book ratio: 1.43</li><li>Price: $16.81</li><li>Market capitalization: $35.9 billion</li><li>Sector: Utilities</li><li>1-Year total return: 1.4%</li> </ul> <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"> Pacific Gas &amp; Electric is a holding company providing utility services for customers across northern and central California through its subsidiary. </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-we-selected-undervalued-stocks"></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 We Selected Undervalued Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> In screening for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/101316/how-tell-if-stock-overvalued-or-undervalued.asp">undervalued stocks</a>, we included firms listed on either the NYSE or the Nasdaq trading between $5 and $50 per share and that had positive total returns over the prior 12-month period. We then ranked those firms by the lowest price-to-book ratio, determined by dividing market price per share by book value per share for each company. We then selected the top company in each <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gics.asp">GICS</a> sector.<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_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/articles/fundamental-analysis/09/five-must-have-metrics-value-investors.asp">Value investors use</a> price-to-book ratio as a way of gauging whether a stock is undervalued compared to its peers and the wider market. Companies with price-to-book ratios lower than 1 are often thought to be undervalued. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">Price-to-earnings ratio</a> is another key metric often used in making this determination. </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"> Value investors aim to buy stocks trading below their actual values in order to see gains when those stocks later rise in value when the market corrects the price gap. This investing strategy can be an accessible one for many investors, particularly with firms trading at under $50 per share. Fortunately, many <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> make it easy to search for undervalued stocks using these and other metrics. </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"> Still, there are risks associated with value investing. Using just a single metric, such as price-to-book ratio, provides a helpful but incomplete picture of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/101316/how-tell-if-stock-overvalued-or-undervalued.asp">whether a stock is undervalued or overvalued</a>. Further, there is no guarantee of whether the market will correct the price of an undervalued stock or when that correction may occur. </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"> <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></em> <em>for more info.</em> </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"> <em>As of the date this article was written, the author does not own any of the above stocks.</em> </p></div>

Neuroscience-focused biotechnology firm Pasithea Therapeutics Corp. ([KTTA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KTTA)) tops the list of undervalued non-penny stocks that trade below $50 per share for April 2024, with a [price-to-book ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp) of only 0.38. Value investors look to the price-to-book ratio as a key measure of whether a company is [undervalued](https://www.investopedia.com/terms/u/undervalued.asp) compared to other stocks within its industry or sector. In this article, we examine companies across sectors with the lowest price-to-book ratios for April 2024. In our screen we include stocks listed on the New York Stock Exchange (NYSE) or the Nasdaq that trade for under $50 and that have a positive one-year trailing total return. We do not include [penny stocks](https://www.investopedia.com/terms/p/pennystock.asp) in our screen. The data below are as of April 7, 2024. ### Key Takeaways * Price-to-book ratio is a measure of a company's market price per share compared against its book value per share. * Value investors consider price-to-book to be a key measure of whether a company may be undervalued compared with competitors or the larger market; the lower the price-to-book ratio, the more undervalued. * An inherent tenet of value investing is that the market is likely to eventually correct the pricing of currently undervalued companies, providing investors an opportunity to reap gains. ## [Pasithea Therapeutics Corp. (KTTA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KTTA) * Price-to-book ratio: 0.38 * Price: $8.50 * Market capitalization: $8.9 million * Sector: Healthcare * 1-Year total return: 9.0% Pasithea is a biotechnology firm developing treatments for central nervous system disorders. Since February, the company has sought enrollment for clinical trials of its PAS-004, a potential treatment for neurofibromatosis type 1. ## [Joyy Inc. (YY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=YY) * Price-to-book ratio: 0.40 * Price: $34.06 * Market capitalization: $2.1 billion * Sector: Communication services * 1-Year total return: 12.5% Joyy is a Singaporean social media company that provides platform services, such as Bigo Live for livestreaming, Hago for social networking, Likee for videos, and more. Although Bigo's revenue climbed by 3.1% year-over-year for the fourth quarter of 2023, companywide net revenue declined by about 6% to $569.8 million for that period. ## [TOP Ships Inc. (TOPS)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TOPS) * Price-to-book ratio: 0.45 * Price: $13.53 * Market capitalization: $62.6 million * Sector: Industrials (transportation) * 1-Year total return: 32.2% TOP Ships is a Greek shipping company that owns a fleet of eco tanker vessels used for the global transportation of crude oil, petroleum products, and bulk liquid chemicals. ## [Motorcar Parts of America Inc. (MPAA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MPAA) * Price-to-book ratio: 0.49 * Price: $7.04 * Market capitalization: $138.4 million * Sector: Consumer discretionary * 1-Year total return: 18.5% Motorcar Parts manufactures, remakes, and distributes aftermarket automotive parts for passenger vehicles, light trucks, and heavy-duty vehicles. In February, the company announced additional product offerings for its Quality-Built brake pad and brake rotor program. More than 20 new part numbers cover an additional 7 million vehicles in operation. ## [Security National Financial Corp. (SNFCA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNFCA) * Price-to-book ratio: 0.52 * Price: $7.38 * Market capitalization: $168.9 million * Sector: Financials * 1-Year total return: 21.7% Security National Financial is a financial company providing life insurance products, funeral and cemetery/mortuary services, and mortgage services. For the full-year 2023, after-tax earnings from operations decreased by 44% relative to the prior year, while revenues declined by 18%. For 2023, the company reported a loss of more than $17 million for its mortgages business. ### [Price-to-book ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp) is a measure of the market capitalization of a company compared to its book value. The ratio is determined by dividing market price per share by book value per share. Generally, stocks with a price-to-book ratio below 1.0 are seen as potentially undervalued. ## [Seneca Foods Corp. (SENEA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SENEA) * Price-to-book ratio: 0.67 * Price: $55.77 * Market capitalization: $401.5 million * Sector: Consumer staples * 1-Year total return: 9.0% Seneca Foods is a fruit and vegetable processing company that is primarily involved in food packaging. The company sources its produce from approximately 1,400 farms across the U.S. ## [Universal Electronics Inc. (UEIC)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UEIC) * Price-to-book ratio: 0.73 * Price: $10.10 * Market capitalization: $131.0 million * Sector: Information technology * 1-Year total return: 2.6% Universal Electronics is a technology firm that designs, develops, and sells wireless universal control solutions for home entertainment and smart home devices. For the full year 2023, the company reported net sales of $420.5 million, compared with $542.8 million for the prior year. ## [Landsea Homes Corp. (LSEA)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LSEA) * Price-to-book ratio: 0.75 * Price: $13.42 * Market capitalization: $483.4 million * Sector: Real estate * 1-Year total return: 119.6% Landsea Homes is a residential homebuilding firm that develops master-planned communities in the northeastern part of the U.S. and California. ## [Algoma Steel Group Inc. (ASTL)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASTL) * Price-to-book ratio: 0.79 * Price: $8.23 * Market capitalization: $856.2 million * Sector: Materials * 1-Year total return: 11.2% Algoma is a Canadian producer of hot and cold rolled steel products. It serves customers throughout North America. The company's most recent dividend of $0.05 per common share was paid in late March. ## [Berry Corp. (BRY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRY) * Price-to-book ratio: 0.87 * Price: $8.69 * Market capitalization: $663.3 million * Sector: Energy * 1-Year total return: 6.0% Berry is an independent upstream energy company engaging in exploration and production, well servicing, and abandonment services. The company primarily focuses on reserves in the western U.S. On April 5, Berry completed the acquisition of hot runner injection and high-volume compression molding company F&S Tool Inc. for an undisclosed sum. ## [Pacific Gas & Electric Co. (PCG)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PCG) * Price-to-book ratio: 1.43 * Price: $16.81 * Market capitalization: $35.9 billion * Sector: Utilities * 1-Year total return: 1.4% Pacific Gas & Electric is a holding company providing utility services for customers across northern and central California through its subsidiary. ## How We Selected Undervalued Stocks In screening for [undervalued stocks](https://www.investopedia.com/articles/investing/101316/how-tell-if-stock-overvalued-or-undervalued.asp), we included firms listed on either the NYSE or the Nasdaq trading between $5 and $50 per share and that had positive total returns over the prior 12-month period. We then ranked those firms by the lowest price-to-book ratio, determined by dividing market price per share by book value per share for each company. We then selected the top company in each [GICS](https://www.investopedia.com/terms/g/gics.asp) sector. [Value investors use](https://www.investopedia.com/articles/fundamental-analysis/09/five-must-have-metrics-value-investors.asp) price-to-book ratio as a way of gauging whether a stock is undervalued compared to its peers and the wider market. Companies with price-to-book ratios lower than 1 are often thought to be undervalued. [Price-to-earnings ratio](https://www.investopedia.com/terms/p/price-earningsratio.asp) is another key metric often used in making this determination. Value investors aim to buy stocks trading below their actual values in order to see gains when those stocks later rise in value when the market corrects the price gap. This investing strategy can be an accessible one for many investors, particularly with firms trading at under $50 per share. Fortunately, many [online brokers](https://www.investopedia.com/best-online-brokers-4587872) make it easy to search for undervalued stocks using these and other metrics. Still, there are risks associated with value investing. Using just a single metric, such as price-to-book ratio, provides a helpful but incomplete picture of [whether a stock is undervalued or overvalued](https://www.investopedia.com/articles/investing/101316/how-tell-if-stock-overvalued-or-undervalued.asp). Further, there is no guarantee of whether the market will correct the price of an undervalued stock or when that correction may occur. *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 stocks.*

Neuroscience-focused biotechnology firm Pasithea Therapeutics Corp. (KTTA) tops the list of undervalued non-penny stocks that trade below $50 per share for April 2024, with a price-to-book ratio of only 0.38. Value investors look to the price-to-book ratio as a key measure of whether a company is undervalued compared to other stocks within its industry or sector. In this article, we examine companies across sectors with the lowest price-to-book ratios for April 2024. In our screen we include stocks listed on the New York Stock Exchange (NYSE) or the Nasdaq that trade for under $50 and that have a positive one-year trailing total return. We do not include penny stocks in our screen. The data below are as of April 7, 2024. Key Takeaways Price-to-book ratio is a measure of a company's market price per share compared against its book value per share.Value investors consider price-to-book to be a key measure of whether a company may be undervalued compared with competitors or the larger market; the lower the price-to-book ratio, the more undervalued.An inherent tenet of value investing is that the market is likely to eventually correct the pricing of currently undervalued companies, providing investors an opportunity to reap gains. Pasithea Therapeutics Corp. (KTTA) Price-to-book ratio: 0.38Price: $8.50Market capitalization: $8.9 millionSector: Healthcare1-Year total return: 9.0% Pasithea is a biotechnology firm developing treatments for central nervous system disorders. Since February, the company has sought enrollment for clinical trials of its PAS-004, a potential treatment for neurofibromatosis type 1. Joyy Inc. (YY) Price-to-book ratio: 0.40Price: $34.06Market capitalization: $2.1 billionSector: Communication services1-Year total return: 12.5% Joyy is a Singaporean social media company that provides platform services, such as Bigo Live for livestreaming, Hago for social networking, Likee for videos, and more. Although Bigo's revenue climbed by 3.1% year-over-year for the fourth quarter of 2023, companywide net revenue declined by about 6% to $569.8 million for that period. TOP Ships Inc. (TOPS) Price-to-book ratio: 0.45Price: $13.53Market capitalization: $62.6 millionSector: Industrials (transportation)1-Year total return: 32.2% TOP Ships is a Greek shipping company that owns a fleet of eco tanker vessels used for the global transportation of crude oil, petroleum products, and bulk liquid chemicals. Motorcar Parts of America Inc. (MPAA) Price-to-book ratio: 0.49Price: $7.04Market capitalization: $138.4 millionSector: Consumer discretionary1-Year total return: 18.5% Motorcar Parts manufactures, remakes, and distributes aftermarket automotive parts for passenger vehicles, light trucks, and heavy-duty vehicles. In February, the company announced additional product offerings for its Quality-Built brake pad and brake rotor program. More than 20 new part numbers cover an additional 7 million vehicles in operation. Security National Financial Corp. (SNFCA) Price-to-book ratio: 0.52Price: $7.38Market capitalization: $168.9 millionSector: Financials1-Year total return: 21.7% Security National Financial is a financial company providing life insurance products, funeral and cemetery/mortuary services, and mortgage services. For the full-year 2023, after-tax earnings from operations decreased by 44% relative to the prior year, while revenues declined by 18%. For 2023, the company reported a loss of more than $17 million for its mortgages business. Price-to-book ratio is a measure of the market capitalization of a company compared to its book value. The ratio is determined by dividing market price per share by book value per share. Generally, stocks with a price-to-book ratio below 1.0 are seen as potentially undervalued. Seneca Foods Corp. (SENEA) Price-to-book ratio: 0.67Price: $55.77Market capitalization: $401.5 millionSector: Consumer staples1-Year total return: 9.0% Seneca Foods is a fruit and vegetable processing company that is primarily involved in food packaging. The company sources its produce from approximately 1,400 farms across the U.S. Universal Electronics Inc. (UEIC) Price-to-book ratio: 0.73Price: $10.10Market capitalization: $131.0 millionSector: Information technology1-Year total return: 2.6% Universal Electronics is a technology firm that designs, develops, and sells wireless universal control solutions for home entertainment and smart home devices. For the full year 2023, the company reported net sales of $420.5 million, compared with $542.8 million for the prior year. Landsea Homes Corp. (LSEA) Price-to-book ratio: 0.75Price: $13.42Market capitalization: $483.4 millionSector: Real estate1-Year total return: 119.6% Landsea Homes is a residential homebuilding firm that develops master-planned communities in the northeastern part of the U.S. and California. Algoma Steel Group Inc. (ASTL) Price-to-book ratio: 0.79Price: $8.23Market capitalization: $856.2 millionSector: Materials1-Year total return: 11.2% Algoma is a Canadian producer of hot and cold rolled steel products. It serves customers throughout North America. The company's most recent dividend of $0.05 per common share was paid in late March. Berry Corp. (BRY) Price-to-book ratio: 0.87Price: $8.69Market capitalization: $663.3 millionSector: Energy1-Year total return: 6.0% Berry is an independent upstream energy company engaging in exploration and production, well servicing, and abandonment services. The company primarily focuses on reserves in the western U.S. On April 5, Berry completed the acquisition of hot runner injection and high-volume compression molding company F&S Tool Inc. for an undisclosed sum. Pacific Gas & Electric Co. (PCG) Price-to-book ratio: 1.43Price: $16.81Market capitalization: $35.9 billionSector: Utilities1-Year total return: 1.4% Pacific Gas & Electric is a holding company providing utility services for customers across northern and central California through its subsidiary. How We Selected Undervalued Stocks In screening for undervalued stocks, we included firms listed on either the NYSE or the Nasdaq trading between $5 and $50 per share and that had positive total returns over the prior 12-month period. We then ranked those firms by the lowest price-to-book ratio, determined by dividing market price per share by book value per share for each company. We then selected the top company in each GICS sector. Value investors use price-to-book ratio as a way of gauging whether a stock is undervalued compared to its peers and the wider market. Companies with price-to-book ratios lower than 1 are often thought to be undervalued. Price-to-earnings ratio is another key metric often used in making this determination. Value investors aim to buy stocks trading below their actual values in order to see gains when those stocks later rise in value when the market corrects the price gap. This investing strategy can be an accessible one for many investors, particularly with firms trading at under $50 per share. Fortunately, many online brokers make it easy to search for undervalued stocks using these and other metrics. Still, there are risks associated with value investing. Using just a single metric, such as price-to-book ratio, provides a helpful but incomplete picture of whether a stock is undervalued or overvalued. Further, there is no guarantee of whether the market will correct the price of an undervalued stock or when that correction may occur. 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 stocks.

https://www.investopedia.com/tech/how-cryptocurrencies-impact-estate-planning/

How Cryptocurrencies Impact Estate Planning

<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/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp">Estate planning</a> for investment portfolios has always been somewhat complicated, but in the era of digital currencies, it has gotten significantly more so. It used to be that investors could write out a will and include items like stock certificates in a safe deposit box for their next of kin and that the transfer of investments would move smoothly. Now, there are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp">new laws and protocols which must be observed</a> if an investor wants to be sure that his or her digital assets are safely and securely transferred when the time comes. </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"> Below, we'll explore some of the ins and outs of estate planning when it comes to digital assets. In some cases, the rules haven't changed. In others, there are new considerations to keep in mind that traditional investors may not yet be aware of. </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-knowledge-and-access-are-key"></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"> Knowledge and Access are Key </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Perhaps the single most important consideration when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estateplanning.asp">estate planning</a> with cryptocurrencies is ensuring that the executor of your estate knows which assets you hold and how you can access them. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.forbes.com/sites/tedknutson/2018/08/14/estate-planning-for-crypto-and-other-digital-assets-what-you-need-to-know/#2063d9282f51">A recent report by Forbes</a> suggests that the accessing of these assets can be the most difficult component in the entire process. </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"> Cryptocurrency investors are notoriously fickle about how they store their digital keys and access codes. This is unsurprising, as these passwords allow for full access to digital wallets. On the other hand, be too tricky about things and you run the risk of losing the code. If this happens, there is often no way to recover access, and a wallet full of cryptocurrency tokens can go permanently unused. </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"> Cryptoasset inheritance planning expert Pam Morgan recommends an old-fashioned method: "I'm a big fan of paper and pen" for listing cryptocurrency keys for executors and heirs. Morgan adds that "it's most important to explain [to them] the kinds of assets, key locations, and access controls you're using for security. Access controls are things like PINs, passphrases, multisignature or timelock requirements." </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-the-legal-side-of-things"></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"> The Legal Side of Things </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Even with a clear explanation of where your digital assets are and how your heirs can access them, though, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/11/before-becoming-an-executor.asp">you may be setting your next of kin up for legal trouble if you don't take deliberate action</a>. Ideally, investors will consider both the technical accessibility as well as the legal ramifications. Without considering the legal issues associated with estate planning, investors could be setting up their heirs for lengthy lawsuits. On the other hand, Morgan acknowledges, "without [crypto] keys, a court order is impotent." </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"> Morgan recommends making at least two copies of records of assets and storing them in separate locations. These lists may be worth updating as often as once per week, particularly for highly active cryptocurrency investors. On the other hand, Chicago attorney Michael Goldberg, another expert on cryptocurrency estate planning, suggests that traders who are only active infrequently can probably get away with fewer lists of assets. "I have a pretty wide variety [of tokens]," he explains, adding that he recommends creating and updating a list once per 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"> From a legal perspective, the majority of states have enacted laws in recent years allowing executors to manage digital assets in a similar way to how they might manage traditional assets. This could help as executors feel the urge to sell off cryptocurrency assets quickly; this can prevent them from feeling the backlash from heirs if the virtual currencies drop in value in the meantime. Still, while the law is hurrying to catch up with crypto estate planning, there is room to grow nonetheless. National College of Probate Judges President Tamara Curry suggests that jurists will have to become better versed in cryptocurrencies. "Courts are going to become more inundated. Judges are going to have to be educated and made aware of what to look for when these assets come before them," Curry stated. </p></div>

[Estate planning](https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp) for investment portfolios has always been somewhat complicated, but in the era of digital currencies, it has gotten significantly more so. It used to be that investors could write out a will and include items like stock certificates in a safe deposit box for their next of kin and that the transfer of investments would move smoothly. Now, there are [new laws and protocols which must be observed](https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp) if an investor wants to be sure that his or her digital assets are safely and securely transferred when the time comes. Below, we'll explore some of the ins and outs of estate planning when it comes to digital assets. In some cases, the rules haven't changed. In others, there are new considerations to keep in mind that traditional investors may not yet be aware of. ## Knowledge and Access are Key Perhaps the single most important consideration when [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp) with cryptocurrencies is ensuring that the executor of your estate knows which assets you hold and how you can access them. [A recent report by Forbes](https://www.forbes.com/sites/tedknutson/2018/08/14/estate-planning-for-crypto-and-other-digital-assets-what-you-need-to-know/#2063d9282f51) suggests that the accessing of these assets can be the most difficult component in the entire process. Cryptocurrency investors are notoriously fickle about how they store their digital keys and access codes. This is unsurprising, as these passwords allow for full access to digital wallets. On the other hand, be too tricky about things and you run the risk of losing the code. If this happens, there is often no way to recover access, and a wallet full of cryptocurrency tokens can go permanently unused. Cryptoasset inheritance planning expert Pam Morgan recommends an old-fashioned method: "I'm a big fan of paper and pen" for listing cryptocurrency keys for executors and heirs. Morgan adds that "it's most important to explain [to them] the kinds of assets, key locations, and access controls you're using for security. Access controls are things like PINs, passphrases, multisignature or timelock requirements." ## The Legal Side of Things Even with a clear explanation of where your digital assets are and how your heirs can access them, though, [you may be setting your next of kin up for legal trouble if you don't take deliberate action](https://www.investopedia.com/articles/pf/11/before-becoming-an-executor.asp). Ideally, investors will consider both the technical accessibility as well as the legal ramifications. Without considering the legal issues associated with estate planning, investors could be setting up their heirs for lengthy lawsuits. On the other hand, Morgan acknowledges, "without [crypto] keys, a court order is impotent." Morgan recommends making at least two copies of records of assets and storing them in separate locations. These lists may be worth updating as often as once per week, particularly for highly active cryptocurrency investors. On the other hand, Chicago attorney Michael Goldberg, another expert on cryptocurrency estate planning, suggests that traders who are only active infrequently can probably get away with fewer lists of assets. "I have a pretty wide variety [of tokens]," he explains, adding that he recommends creating and updating a list once per year. From a legal perspective, the majority of states have enacted laws in recent years allowing executors to manage digital assets in a similar way to how they might manage traditional assets. This could help as executors feel the urge to sell off cryptocurrency assets quickly; this can prevent them from feeling the backlash from heirs if the virtual currencies drop in value in the meantime. Still, while the law is hurrying to catch up with crypto estate planning, there is room to grow nonetheless. National College of Probate Judges President Tamara Curry suggests that jurists will have to become better versed in cryptocurrencies. "Courts are going to become more inundated. Judges are going to have to be educated and made aware of what to look for when these assets come before them," Curry stated.

Estate planning for investment portfolios has always been somewhat complicated, but in the era of digital currencies, it has gotten significantly more so. It used to be that investors could write out a will and include items like stock certificates in a safe deposit box for their next of kin and that the transfer of investments would move smoothly. Now, there are new laws and protocols which must be observed if an investor wants to be sure that his or her digital assets are safely and securely transferred when the time comes. Below, we'll explore some of the ins and outs of estate planning when it comes to digital assets. In some cases, the rules haven't changed. In others, there are new considerations to keep in mind that traditional investors may not yet be aware of. Knowledge and Access are Key Perhaps the single most important consideration when estate planning with cryptocurrencies is ensuring that the executor of your estate knows which assets you hold and how you can access them. A recent report by Forbes suggests that the accessing of these assets can be the most difficult component in the entire process. Cryptocurrency investors are notoriously fickle about how they store their digital keys and access codes. This is unsurprising, as these passwords allow for full access to digital wallets. On the other hand, be too tricky about things and you run the risk of losing the code. If this happens, there is often no way to recover access, and a wallet full of cryptocurrency tokens can go permanently unused. Cryptoasset inheritance planning expert Pam Morgan recommends an old-fashioned method: "I'm a big fan of paper and pen" for listing cryptocurrency keys for executors and heirs. Morgan adds that "it's most important to explain [to them] the kinds of assets, key locations, and access controls you're using for security. Access controls are things like PINs, passphrases, multisignature or timelock requirements." The Legal Side of Things Even with a clear explanation of where your digital assets are and how your heirs can access them, though, you may be setting your next of kin up for legal trouble if you don't take deliberate action. Ideally, investors will consider both the technical accessibility as well as the legal ramifications. Without considering the legal issues associated with estate planning, investors could be setting up their heirs for lengthy lawsuits. On the other hand, Morgan acknowledges, "without [crypto] keys, a court order is impotent." Morgan recommends making at least two copies of records of assets and storing them in separate locations. These lists may be worth updating as often as once per week, particularly for highly active cryptocurrency investors. On the other hand, Chicago attorney Michael Goldberg, another expert on cryptocurrency estate planning, suggests that traders who are only active infrequently can probably get away with fewer lists of assets. "I have a pretty wide variety [of tokens]," he explains, adding that he recommends creating and updating a list once per year. From a legal perspective, the majority of states have enacted laws in recent years allowing executors to manage digital assets in a similar way to how they might manage traditional assets. This could help as executors feel the urge to sell off cryptocurrency assets quickly; this can prevent them from feeling the backlash from heirs if the virtual currencies drop in value in the meantime. Still, while the law is hurrying to catch up with crypto estate planning, there is room to grow nonetheless. National College of Probate Judges President Tamara Curry suggests that jurists will have to become better versed in cryptocurrencies. "Courts are going to become more inundated. Judges are going to have to be educated and made aware of what to look for when these assets come before them," Curry stated.

https://www.investopedia.com/best-construction-loan-lenders-5078622

Best Construction Loan Lenders

<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> </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"> Construction loans allow landowners to borrow money to build a home from the ground up. While a traditional mortgage, also called a permanent loan, will help you buy an existing house, starting with raw land requires a construction loan. While these loans are a bit more difficult to obtain and often attached to higher rates, many lenders can finance your project. </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"> The best construction loan lenders offer low rates and flexible loan amounts. They also feature low down payment and credit requirements that make it easier for borrowers to qualify. Top lenders offer construction loans in a wide range of geographic areas across the country. Many lenders also offer multiple different types of construction loans depending on your specific situation. </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"> Best Construction Loan Lenders of 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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Nationwide Home Loans Group</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 Bad Credit Scores:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> FMC Lending</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 First-Time Buyers:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Nationwide Home Loans, Inc.</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 Online Borrower Experience:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Normandy</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 Low Down Payments:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> GO Mortgage Corporation</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 Flexible-Use Construction:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> TD Bank</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 Veterans:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> VA Nationwide Home Loans</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><!-- 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 Construction Loan Lenders</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 Construction Loan Lenders" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best Construction Loan Lenders</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_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Nationwide Home Loans Group" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Nationwide Home Loans Group" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-overall-nationwide-home-loans-group" rel="nocaes"> <span class="link__wrapper">Nationwide Home Loans Group</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-FMC Lending" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FMC Lending" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-bad-credit-scores-fmc-lending" rel="nocaes"> <span class="link__wrapper">FMC Lending</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Nationwide Home Loans, Inc." data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Nationwide Home Loans, Inc." data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-first-time-buyers-nationwide-home-loans-inc" rel="nocaes"> <span class="link__wrapper">Nationwide Home Loans, Inc.</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item 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-Normandy" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-3"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Normandy" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-online-borrower-experience-normandy" rel="nocaes"> <span class="link__wrapper">Normandy</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-GO Mortgage Corporation" 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-GO Mortgage Corporation" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-low-down-payments-go-mortgage-corporation" rel="nocaes"> <span class="link__wrapper">GO Mortgage Corporation</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-TD Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-5"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-TD Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-flexible-use-construction-td-bank" rel="nocaes"> <span class="link__wrapper">TD Bank</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-VA Nationwide Home Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-6"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-VA Nationwide Home Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-veterans-va-nationwide-home-loans" rel="nocaes"> <span class="link__wrapper">VA Nationwide Home Loans</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 toc-items__chop mntl-text-block" data-click-action="OnPageClick-See More" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (4)</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" id="mntl-toc__list-item_1-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-compare-the-best-construction-loan-lenders" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">Compare Providers</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_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Guide to Choosing" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-guide-to-choosing-the-best-construction-loan-lender" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">Guide to Choosing</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-FAQ" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faq-2a740335-e4c5-4f82-b23a-eccf2ba7d8e8" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">FAQ</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-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-4" 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-nationwide-home-loans-group"></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"> Nationwide Home Loans Group</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-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" style="--imgWidth: 339px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Nationwide Home Loans Logo" 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/Ud0-Ry0IYzlBOgqVL_Qx6ydqOAc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Nationwide-Home-Loans-Group-Logo-797858fdcf83432d9eabde86c6db53d9.jpeg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Nationwide Home Loans Logo" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/Ud0-Ry0IYzlBOgqVL_Qx6ydqOAc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Nationwide-Home-Loans-Group-Logo-797858fdcf83432d9eabde86c6db53d9.jpeg" width="1500"/> </noscript> </div> </div> </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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-1"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> 640</li><li><strong>Loan terms:</strong> Varies</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-2"> <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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Nationwide Home Loans Group is a great overall choice for a construction loan with loans available in all 50 states, low interest rates, and low down payment requirements. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-6"> <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>Available in 50 states</p></li> <li><p>Low rates</p></li> <li><p>Low down payment requirements</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>640 minimum credit score required</p></li> <li><p>Minimum loan amount of $150,000</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> Nationwide Home Loans Group is powered by The Federal Savings Bank, a veteran-owned, federally-charted bank.<span class="ql-inline-citation" data-cite="2"></span> The Nationwide Home Loans Group construction loan is available in all 50 states. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> Their construction loan size minimum is $150,000. No mortgage payments are collected until the construction is complete. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> The lender requires the borrower’s median of three <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a> to be at least 640. Down payments vary depending on the particular loan program. For example, their VA construction loan can be as low as 0% down, and their FHA loan can be as low as 3.5% down.<span class="ql-inline-citation" data-cite="10"></span> Compared to most construction lenders requiring 20% down, Nationwide can offer these low down payment programs at low rates in a combined loan in all 50 states.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-for-bad-credit-scores-fmc-lending"></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 for Bad Credit Scores</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> FMC Lending</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 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_3-0-11" style="--imgWidth: 593px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="FMC Lending" 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/fmiPxaE8Zj31Cny2oMWgdQuHyz4=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/FMCLending-14aa4f9ffcf14a9bb6f53ca68352888a.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="FMC Lending" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/fmiPxaE8Zj31Cny2oMWgdQuHyz4=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/FMCLending-14aa4f9ffcf14a9bb6f53ca68352888a.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> FMC Lending</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> None</li><li><strong>Loan terms:</strong> Varies</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-13"> <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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-15"> If you’re looking for a construction loan and have less than stellar credit, FMC Lending is a great option, featuring fast funding and no minimum credit score requirements. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-17"> <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>No credit score minimum</p></li> <li><p>Can close in as fast as seven days</p></li> <li><p>Stated income, no proof needed</p></li> <li><p>Prior bankruptcy is allowed</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>Down payment requirements of 20% to 30%</p></li> <li><p>Higher interest rates than other lenders</p></li> <li><p>Most loan terms are short and range from one to seven years</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> FMC is a full-service private money lender focused on borrowers who have been through tough times and don’t fit the traditional bank lending criteria. They offer asset-based lending as opposed to credit-based lending, so they can be more creative with their loan programs because the loans are backed by collateral. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> FMC is very flexible on loan terms. Some programs have only short terms and some can offer very long terms. Everything will vary with your situation and chosen program. </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"> Interest rates for their construction loans range tend to be higher than those of a normal mortgage. However, some have no prepayment penalties. With FMC, you’ll be able to roll the purchase and construction costs into a single loan closing.  </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"> FMC can finance the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/combinedloantovalue.asp">combined loan-to-value (CLTV)</a> up to 100%, so you can bring other loans or property collateral to the deal to make it work. </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"> FMC is the best option for borrowers with low credit scores because they allow you to apply for a construction loan and a permanent mortgage combined into one program without needing to show proof of your credit score.<span class="ql-inline-citation" data-cite="11"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-first-time-buyers-nationwide-home-loans-inc"></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 First-Time Buyers</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Nationwide Home Loans</span>, <span class="split-text__item-secondary"> Inc.</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-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_3-0-24" style="--imgWidth: 380px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Nationwide Home Loans, Inc." 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/oPUuQhI2YztG4OASyM026o0Q8n0=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/NationwideHomeLoans-04badc8b1c7149a6b842992f1b261847.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="Nationwide Home Loans, Inc." class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/oPUuQhI2YztG4OASyM026o0Q8n0=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/NationwideHomeLoans-04badc8b1c7149a6b842992f1b261847.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> Nationwide Home Loans, Inc.</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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-25"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> Varies</li><li><strong>Loan terms:</strong> Varies</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-28"> Nationwide Home Loans, Inc. is a great option for first-time buyers, with low to no down payment options and helpful customer support. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-30"> <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>Low down payment requirements</p></li> <li><p>Flexible credit requirements</p></li> <li><p>Full-service project coordination</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>Only available in nine states</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-32"> Nationwide Home Loans, Inc., is a regional lender focused on nine states. They have an efficient online presence for borrowers to connect with specialists for each state where they plan to build.<span class="ql-inline-citation" data-cite="25"></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_3-0-33"> The down payment requirements relate to the loan program for which you qualify. If you are a veteran and qualify for a VA construction loan, there is no minimum or maximum limit.<span class="ql-inline-citation" data-cite="8"></span> For an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fhaloan.asp">FHA loan</a>, maximums depend on the area you are in. FHA loan limits are updated annually.<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_3-0-34"> Rates for their One Time Close loans are locked in for the term of the loan. You only go through the process once to finance the land, construction, and home mortgage. This not only keeps your closing costs low but also gets you a rate that is closer to the lower permanent financing rates rather than the typical construction loan rates. Credit requirements are flexible because the company caters to self-employed individuals who have trouble showing a steady income, as well as borrowers who have a few nicks and scrapes in their credit history.<span class="ql-inline-citation" data-cite="26"></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_3-0-35"> The down payment requirements range from 0% for VA loans to 3.5% for FHA loans.<span class="ql-inline-citation" data-cite="6"></span> First-time homebuyers seem to gravitate towards FHA loans because of the low downpayment and easier approval. In fact, in 2022, 83.5% of FHA loans went to first-time homebuyers.<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_3-0-36"> Nationwide Home Loans, Inc., wins best for first-time home buyers because they have loan officers that provide a full-service experience, coordinating with appraisers, title companies, the builder, and other third parties necessary to make your construction project a success. Their specialization in low down payment programs, like VA and FHA, and their One Time Close service make them one of the most affordable lenders for first-time home buyers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-online-borrower-experience-normandy"></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 Online Borrower Experience</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Normandy</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-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_3-0-37" style="--imgWidth: 315px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Normandy" 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/k10XJ8ax03UDdG2opSdvNFGKSOk=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Normandy-db359c582ed64b309c6d12b1e5165c72.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="Normandy" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/k10XJ8ax03UDdG2opSdvNFGKSOk=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Normandy-db359c582ed64b309c6d12b1e5165c72.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> Normandy</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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> Varies</li><li><strong>Loan terms:</strong> Varies</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-39"> <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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy" id="button_1-0-3" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-41"> For borrowers looking to secure a loan from an online lender, Normandy offers a seamless application process, with fast funding and the option to prequalify. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-43"> <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>Borrowers can prequalify</p></li> <li><p>Flexible loan amounts</p></li> <li><p>30-day average closing time</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>Required down payment of 10% to 20%</p></li> <li><p>Only available in 15 states</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-45"> Normandy is headquartered in Rochester, NY, and is fully licensed to offer its construction loan in 15 states. Loan amounts range from $95,000 to $5 million. There are several construction loans, such as a loan if you are the actual builder, another if you are hiring a builder, and loans to finance a newly built home that a builder built on speculation. Normandy also offers renovation construction loans for when the house is built but needs extensive renovation work requiring a licensed contractor. </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"> Normandy could qualify you for a 10% down payment for properties appraised at $726,200 or less, 20% down for properties between $726,200 and $1 million, and 25% down for properties over $1 million. You can wrap the land purchase into the construction loan, but you’ll still have to come up with 25% of the land’s purchase price in cash.<span class="ql-inline-citation" data-cite="13"></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"> Normandy’s construction loan rates vary depending on your credit score, the size of your down payment, and your income. You must prequalify to see them. Credit score minimums are not published on their website, but they will contact you with a customized terms proposal when you complete their online prequalification form. </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"> Normandy has an easy-to-find section on its homepage for borrowers to apply for pre-qualification, request construction draws, and make payments toward their loans. This convenience makes Normandy our pick as the best online borrower experience. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-for-low-down-payments-go-mortgage-corporation"></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 for Low Down Payments</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> GO Mortgage Corporation</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-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_3-0-49" style="--imgWidth: 494px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="GSF Mortgage Corporation" 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/Cx1LwdAkHAYLS2Czx9Phw0D8tKE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/GSF-Mortgage-Corporation-cd054aa7f49a4a1ea09ece73726edc35.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-4" width="1500"/> <noscript> <img alt="GSF Mortgage Corporation" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/Cx1LwdAkHAYLS2Czx9Phw0D8tKE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/GSF-Mortgage-Corporation-cd054aa7f49a4a1ea09ece73726edc35.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> GSF Mortgage Corporation</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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-50"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> 640 to 680</li><li><strong>Loan terms:</strong> 30 years</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-51"> <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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage" id="button_1-0-4" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-53"> GO Mortgage Corporation features low down payment requirements for construction loans with a dedicated lending team to help you through the process. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-55"> <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>Licensed in 40 states</p></li> <li><p>Low down payment requirements</p></li> <li><p>Experienced with government-backed loan programs</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>640 to 680 minimum credit score recommended</p></li> <li><p>Minimum loan amount of $175,000</p></li> <li><p>Can’t use a loan for investment properties</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-57"> Based in Wisconsin, GO Mortgage started in 1995 and the single close construction loan is its specialty.<span class="ql-inline-citation" data-cite="27"></span> This loan, available in 40 states, works within the parameters of the government-backed mortgage programs known as the VA, <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">Fannie Mae</a>, FHA, and USDA. Therefore the credit scores, interest rates, down payment percentages, and minimum and maximum loan amounts are regulated by those programs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-58"> For example, if GSF qualifies you for the FHA program, your down payment can be as low as 3.5%.<span class="ql-inline-citation" data-cite="14"></span> For the VA or USDA loan programs, you may qualify for no down payment.<span class="ql-inline-citation" data-cite="15"></span> If you use a Fannie Mae program, your down payment could be as low as 5%.<span class="ql-inline-citation" data-cite="16"></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_3-0-59"> Loan interest rates for these government programs are very close to each other and will vary depending on your credit score. The minimum loan amount often is $175,000.<span class="ql-inline-citation" data-cite="17"></span> The minimum credit score for GO's single close construction loan is 640.<span class="ql-inline-citation" data-cite="18"></span> However, 680 is the minimum score for the Fannie Mae program.<span class="ql-inline-citation" data-cite="19"></span> There is no maximum loan amount for construction loans, but there are some limitations to how much of the loan the government agency will guarantee. The VA will normally guarantee loans up to $766,550, for 2024. However, in more expensive counties they will guarantee up to $1,125,825 through GO or other lenders.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="20"></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_3-0-60"> GO Mortgage Corporation has created a business model focused on a highly trained construction lending team with expertise in the low down payment government agency programs, so they have earned our nod for the best construction lender for you if your primary goal is a low down payment. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-for-flexible-use-construction-td-bank"></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 for Flexible-Use Construction</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> TD Bank</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-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_3-0-61" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="TD Bank" 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/vny8QifgyKbJFhIv0J02zu0NE9o=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/TDBank-0f59801806b54a1e8ce75b974e5a2d19.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-5" width="1500"/> <noscript> <img alt="TD Bank" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/vny8QifgyKbJFhIv0J02zu0NE9o=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/TDBank-0f59801806b54a1e8ce75b974e5a2d19.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> TD Bank</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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-62"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> Varies</li><li><strong>Loan terms:</strong> 30 years</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-63"> <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-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank" id="button_1-0-5" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-65"> TD Bank wins our award for best flexible-use construction lender because of their ability to blend features tailored to what the borrower wants and needs, such as adjustable and fixed rates, and a flexible-use, single close program. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-67"> <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>Flexible single close can be used if you already have a loan for the land</p></li> <li><p>Fixed or adjustable rate options</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>Must make interest-only payments during construction; no payment deferment</p></li> <li><p>Rates and credit score minimums not published on website</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-69"> TD Bank was founded in 1852 in Portland, Maine.<span class="ql-inline-citation" data-cite="22"></span> Its single close construction loan is flexible and can be used if you already own the land or if you have an existing loan on the land. In that case, they will disperse money to pay that loan's balance off and roll it into their single close loan. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-70"> Credit score minimums are not published. Credit scores are taken into account along with other factors, such as the size of the down payment, the borrower’s income, and how much existing debt the borrower already carries. The same factors also dictate how TD Bank calculates your interest rate options. For example, you may have an adjustable-rate interest-only loan for the 12-month construction period, which automatically can roll into a fixed-rate loan for a 30-year mortgage on the finished property. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-71"> Down payment requirements are at least 20% for traditional financing.<span class="ql-inline-citation" data-cite="23"></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_3-0-72"> If you need a flexible construction loan, TD Bank is a great option, with single close loan options for just construction or construction and land. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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_1-0-6"> <span class="heading-toc" id="toc-best-for-veterans-va-nationwide-home-loans"></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_1-0-6"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Veterans</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> VA Nationwide Home Loans</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_1-0-6"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-6"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-6"> <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_3-0-73" style="--imgWidth: 339px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="VA Nationwide Home Loans Logo" 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/V2VPUO8uakqrjTVO1eEBhkWCqXE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/VA-Nationwide-Home-Loans-Logo-3f1cd0a16afe4844a7b64ca10d3bbbc0.jpeg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-6" width="1500"/> <noscript> <img alt="VA Nationwide Home Loans Logo" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/V2VPUO8uakqrjTVO1eEBhkWCqXE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/VA-Nationwide-Home-Loans-Logo-3f1cd0a16afe4844a7b64ca10d3bbbc0.jpeg" width="1500"/> </noscript> </div> </div> </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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-74"> <li><strong>Starting interest rate:</strong> Varies</li><li><strong>Minimum credit score:</strong> 640</li><li><strong>Loan terms:</strong> Varies</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-75"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-6"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="at Fiona" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation" id="button_1-0-6" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-77"> Single close convenience in every state with up to 100% financing available makes VA Nationwide Home Loans the best VA construction lender. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-79"> <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>Available in 50 states</p></li> <li><p>No down payment requirements</p></li> <li><p>One-time and two-time close options</p></li> <li><p>Available for second homes or multi-family homes</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>640 minimum credit score recommended</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-81"> True to its name, VA Nationwide Home Loans lends in all 50 states. You can check your home’s eligibility for their program using their simple and short online form.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-82"> Their featured loan is a single close loan that lets you combine the purchase of the land, the construction of the house, and the mortgage all in a single rate-locked loan. No payments are due during the construction period. VA Nationwide Home Loans could qualify you for a 0% down payment, but you would still need to pay cash for the VA funding fee.<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_3-0-83"> VA Nationwide can offer loans up to $3,000,000 or more with its one-time and two-time close options. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-84"> VA Nationwide Home Loans is a great option for veterans looking for affordable construction loans available in all 50 states and up to 100% financing.<span class="ql-inline-citation" data-cite="24"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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"> There are several good options to choose from when it comes to construction loans. Our top pick for a construction loan lender is Nationwide Home Loans Group, which offers flexible, affordable construction loans. There are programs with up to 100% financing available, making these loans a great fit for borrowers who are short on cash. This lender also offers loans to borrowers in 50 states, so borrowers will be able to access a loan in most areas of the country.<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_4-0-2"> If you're looking to complete the loan process online, Normandy is a good choice, and if you haven't been able to save the way you'd hoped, GO Mortgage Corporation features low down payments. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-compare-the-best-construction-loan-lenders"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-3"> <span class="mntl-sc-block-heading__text"> Compare the Best Construction Loan Lenders </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_4-0-4"> <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="width: 97px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Company</b></th> <th>Starting Interest Rate </th> <th>Minimum Credit Score </th> <th>Loan Terms (range) </th> <th>Maximum Loan Amount </th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans" rel="sponsored nofollow">Nationwide Home Loans Group</a> <b>Best Overall</b></td> <td>Varies</td> <td>640</td> <td>Varies</td> <td>$3,000,000+ on VA loan options</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending" rel="sponsored nofollow">FMC Lending</a> <b>Best for Bad Credit Score</b> </td> <td>Varies </td> <td>None </td> <td>Varies </td> <td>Varies </td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc" rel="sponsored nofollow">Nationwide Home Loans, Inc.</a> <b>Best for First-Time Buyers</b> </td> <td>Varies </td> <td>Varies </td> <td>Varies </td> <td>Varies </td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy" rel="sponsored nofollow">Normandy</a> <b>Best Online Borrower Experience</b> </td> <td>Varies </td> <td>Varies</td> <td>Varies </td> <td>$3,000,000 </td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage" rel="sponsored nofollow">GO Mortgage Corporation</a> <b>Best for Low Down Payments</b> </td> <td>Varies </td> <td>640 to 680 </td> <td>30 years </td> <td>Varies </td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank" rel="sponsored nofollow">TD Bank</a> <b>Best for Flexible Use Construction</b> </td> <td>Varies </td> <td>Varies </td> <td>30 years </td> <td>Varies</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation" rel="sponsored nofollow">VA Nationwide</a> <b>Home Loans</b> <b>Best for Veterans</b> </td> <td>Varies </td> <td>640 </td> <td>Varies</td> <td>$3,000,000+ on VA loan options</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-guide-to-choosing-the-best-construction-loan-lender"></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"> Guide to Choosing the Best Construction Loan Lender </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-6"> <span class="mntl-sc-block-subheading__text"> Determine Your Construction Loan Need </span> </h3><!-- end: comp 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_4-0-7"> Before you apply for a construction loan, you should assess your situation in order to determine exactly what type of construction loan will work best for you. You should consider factors including your savings for a down payment, credit score, and overall loan amount when looking for lenders. It’s a good idea to receive quotes from contractors so you have an estimate of how much the total project will cost. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-8"> <span class="mntl-sc-block-subheading__text"> Compare Construction Loan Lenders </span> </h3><!-- end: comp 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_4-0-9"> There are a few different factors to keep in mind when selecting a home improvement loan or lender: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> <li><strong>Low rates:</strong> The lower the rates on your construction loan, the less you’ll end up paying in interest over time. You should look for a loan with rates that are as low as possible.</li><li><strong>Flexible down payment requirements:</strong> While some lenders require a standard down payment of 20%, others are more flexible. Depending on how much you have saved up, you should look for a lender with flexible down payment requirements.</li><li><strong>Flexible credit score requirements:</strong> Just because you don’t have a perfect credit score doesn’t mean you can’t get a construction loan. Some lenders allow applications from borrowers with fair credit.</li><li><strong>Geographic location:</strong> Make sure to choose a lender that services your area.</li><li><strong>Customer support: </strong>Look for lenders with a history of high customer satisfaction and robust customer support.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-11"> <span class="mntl-sc-block-subheading__text"> Apply for a Construction Loan  </span> </h3><!-- end: comp 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_4-0-12"> To apply for a construction loan, there are a few types of documentation you’ll need. These include architectural plans and drawings, your builder’s certifications, building code compliance, and a schedule for periodic inspections. You’ll also need to provide a detailed construction budget and timeline. Before you apply, it’s also a good idea to make sure that your finances are in order. You should make sure that your credit score is as high as possible, that you have a low debt-to-income ratio, and that you have enough savings to cover the cost of a down payment and closing fees. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-13"> <span class="heading-toc" id="toc-faq-2a740335-e4c5-4f82-b23a-eccf2ba7d8e8"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What FICO score do you need for a construction loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-0"> <div class="faq-accordion__item-answer"> <p>It varies between loan lenders, but generally, you will need a minimum score of 640 and ideally higher. The higher your credit score, the higher the likelihood that you'll be approved. However, some construction loan lenders don't have a minimum credit score requirement, such as FMC Lending.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">What are construction loan interest rates?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Interest rate ranges will differ based on whether you have a construction loan to finance just the construction period or whether you have a combined single close loan that blends the construction and the permanent mortgage. The construction-only loan is considered a bit riskier. In general, you can expect construction loans to be a percentage point or two higher than standard mortgage loans.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">How do I get financed for construction?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>Before you apply, make sure that your finances are in order. Start by improving your credit score if necessary and the savings required for the down payment and closing fees. Once you're ready, you'll need to have your documentation organized and on hand when you apply for financing, as well as a detailed construction budget and timeline.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">What are the most common construction loans?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>There are several types of construction loans: construction-to-permanent, construction-only, renovation, owner-builder, and end loans. Construction-to-permanent loans are the most common and popular type of construction loans for consumers</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-14"> <span class="mntl-sc-block-heading__text"> Methodology </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_4-0-15"> We looked at 24 construction lenders before choosing the best seven. To be named one of our best, we wanted lenders that have a broad geographical reach so that our choices could be used by many. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-16"> We looked for lenders with expertise in several construction loan programs so that you’d find several options without the need to interview many firms. We selected companies whose low end of their interest rate ranges was closest to traditional permanent financing, because those are the lowest rates available. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-17"> Finally, we favored lenders with lower down payment requirements and lower credit score minimums to expand your chances of finding a competitive construction loan. </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> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.8%;"> <img alt="Wood frame of Multi-Family Housing Construction site using Construction Loans" class="primary-image__image mntl-primary-image--blurry" height="1002" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/IvhslgCv_G8J86gvn4ugEPtmV_0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg" srcset="https://www.investopedia.com/thmb/RXynMvG0xAHGzvH_i811idU1dFs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="1500"/> <noscript> <img alt="Wood frame of Multi-Family Housing Construction site using Construction Loans" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1002" sizes="750px" src="https://www.investopedia.com/thmb/IvhslgCv_G8J86gvn4ugEPtmV_0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg" srcset="https://www.investopedia.com/thmb/RXynMvG0xAHGzvH_i811idU1dFs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>Dan Reynolds Photography / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </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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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-2"><p>The Federal Savings Bank. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.thefederalsavingsbank.com/about/">About Us</a>.”</p></li> <li class="mntl-sources__source" id="citation-10"><p>VA Nationwide Home Loans. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.vanationwide.com/va-construction-loans" rel="nofollow sponsored">100% VA Construction Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-9"><p>Nationwide Home Loans Group. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nationwidehomeloansgroup.com/one-time-close-construction-loans" rel="nofollow sponsored">Construction Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-11"><p>FMC Lending. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fundmortgagecapital.com/residential-programs">Residential Programs</a>."</p></li> <li class="mntl-sources__source" id="citation-25"><p>Nationwide Home Loans Inc. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nhlfinance.com/meet-our-team" rel="nofollow sponsored">Our Team</a>."</p></li> <li class="mntl-sources__source" id="citation-8"><p>U.S. Department of Veteran Affairs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.va.gov/housing-assistance/home-loans/loan-limits/" rel="nofollow sponsored">Loan Limits</a>."</p></li> <li class="mntl-sources__source" id="citation-12"><p>Federal Housing Finance Agency. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limit-Values-for-2024.aspx">FHFA Announces Conforming Loan Limit Values for 2024</a>."</p></li> <li class="mntl-sources__source" id="citation-26"><p>Nationwide Home Loans, Inc. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nhlfinance.com/build" rel="nofollow sponsored">What Makes Our Construction Loans Different?</a>"</p></li> <li class="mntl-sources__source" id="citation-6"><p>U.S. Department of Housing and Urban Development. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.hud.gov/buying/loans">Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-1"><p>U.S. Department of Housing and Urban Development. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.hud.gov/sites/dfiles/Housing/documents/2022FHAAnnualRptMMIFund.pdf">Fiscal Year 2022 Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund</a>," Page 9.</p></li> <li class="mntl-sources__source" id="citation-13"><p>Normandy. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://normandy.com/self-build-owner-build-loans/" rel="nofollow sponsored">Self-Build Construction Loan for Borrowers</a>."</p></li> <li class="mntl-sources__source" id="citation-27"><p>LinkedIn. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/company/go-mortgage?original_referer=https%3A%2F%2Fwww.google.com%2F">GO Mortgage</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gomortgage.com/fha-loan/" rel="nofollow sponsored">FHA Loan</a>."</p></li> <li class="mntl-sources__source" id="citation-15"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gomortgage.com/va-single-close-construction/" rel="nofollow sponsored">VA Single Close Construction Loan</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gomortgage.com/fannie-mae-single-close-construction/" rel="nofollow sponsored">Fannie Mae Single Close Construction Loan</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://f.hubspotusercontent10.net/hubfs/322413/Encompass%20TPO%20docs/TPO%20Guidelines%20and%20Tools/Wholesale/GOMortgage%20SCC%20Products%20Matrix%20-%20Wholesale%20-%20v24%20-%2010.21.21.pdf">Single-Close Construction Matrix</a>."</p></li> <li class="mntl-sources__source" id="citation-18"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gomortgage.com/single-close-construction/" rel="nofollow sponsored">Single Close Construction Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-19"><p>GO Mortgage. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://gomortgage.com/fannie-mae-single-close-construction/" rel="nofollow sponsored">Fannie Mae Single Close Construction Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-20"><p>U.S. Department of Veterans Affairs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.va.gov/housing-assistance/home-loans/loan-limits/" rel="nofollow sponsored">VA Home Loan Limits</a>."</p></li> <li class="mntl-sources__source" id="citation-22"><p>TD Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://stories.td.com/us/en/article/company-history" rel="nofollow sponsored">Company History</a>."</p></li> <li class="mntl-sources__source" id="citation-23"><p>TD Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.td.com/us/en/personal-banking/mortgage/build-a-home" rel="nofollow sponsored">Getting a Construction Loan to Build or Renovate Your Home</a>."</p></li> <li class="mntl-sources__source" id="citation-5"><p>U.S. Department of Veterans Affairs. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/" rel="nofollow sponsored">VA Funding Fee and Loan Closing Costs</a>.”</p></li> <li class="mntl-sources__source" id="citation-24"><p>VA Nationwide Home Loans. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.vanationwide.com/va-construction-loans" rel="nofollow sponsored">VA Construction Loans</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="8636839" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/what-is-an-fha-loan-8636839" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Buying a Home"> <img alt="FHA home" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/69m22EAT4XAR5OfDxXQcwkZrc_E=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1529792128-03b50b785da845aebb6d00b232c45596.jpg" height="300" width="400"/> <noscript> <img alt="FHA home" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/69m22EAT4XAR5OfDxXQcwkZrc_E=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1529792128-03b50b785da845aebb6d00b232c45596.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Buying a Home"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">What Is an FHA Loan?</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="5079478" data-ordinal="2" data-tax-levels="" href="https://www.investopedia.com/best-investment-property-loans-5079478" id="mntl-card-list-items_2-0"> <div class="card__media" data-tag="Mortgage"> <img alt="Purchase agreement for hours with model home" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/m3SzKL9oifqCHXcsyeIF-Nh7QAg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-836251910-e1292ada645c47f0adc877200d4b0f24.jpg" height="300" width="400"/> <noscript> <img alt="Purchase agreement for hours with model home" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/m3SzKL9oifqCHXcsyeIF-Nh7QAg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-836251910-e1292ada645c47f0adc877200d4b0f24.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Mortgage"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Best Investment Property Loans</span></span> <div class="card__byline mntl-card__byline" data-byline="By Brian Carmody"></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="5078748" data-ordinal="3" data-tax-levels="" href="https://www.investopedia.com/best-va-loan-rates-5078748" id="mntl-card-list-items_3-0"> <div class="card__media" data-tag="Buying a Home"> <img alt="man looking at VA loans while working on laptop at home" class="lazyload card__img" data-dim-ratio="1.5" data-src="https://www.investopedia.com/thmb/H6SyoKmKo49Mpk_Gsl-zalM3h1E=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-va-loan-rates-5078748-59c22a1d9080495886acde32aa577a47.jpg" height="300" width="400"/> <noscript> <img alt="man looking at VA loans while working on laptop at home" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/H6SyoKmKo49Mpk_Gsl-zalM3h1E=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-va-loan-rates-5078748-59c22a1d9080495886acde32aa577a47.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Buying a Home"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Best VA Loan Rates</span></span> <div class="card__byline mntl-card__byline" data-byline="By Brian Carmody"></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="5076852" data-ordinal="4" data-tax-levels="" href="https://www.investopedia.com/best-mortgage-lenders-5076852" id="mntl-card-list-items_4-0"> <div class="card__media" data-tag="Mortgage"> <img alt='Custom GIF shows two mountains in the clouds with one topped with a small house and the other topped with a building that looks like a bank with columns and a dollar sign. 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Construction loans allow landowners to borrow money to build a home from the ground up. While a traditional mortgage, also called a permanent loan, will help you buy an existing house, starting with raw land requires a construction loan. While these loans are a bit more difficult to obtain and often attached to higher rates, many lenders can finance your project. The best construction loan lenders offer low rates and flexible loan amounts. They also feature low down payment and credit requirements that make it easier for borrowers to qualify. Top lenders offer construction loans in a wide range of geographic areas across the country. Many lenders also offer multiple different types of construction loans depending on your specific situation. ## Best Construction Loan Lenders of 2024 * **Best Overall:** [Nationwide Home Loans Group](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans) * **Best for Bad Credit Scores:** [FMC Lending](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending) * **Best for First-Time Buyers:** [Nationwide Home Loans, Inc.](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc) * **Best Online Borrower Experience:** [Normandy](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy) * **Best for Low Down Payments:** [GO Mortgage Corporation](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage) * **Best for Flexible-Use Construction:** [TD Bank](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank) * **Best for Veterans:** [VA Nationwide Home Loans](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation) Best Construction Loan Lenders Expand Best Construction Loan Lenders * [Our Top Picks](#summary-list) * [Nationwide Home Loans Group](#toc-best-overall-nationwide-home-loans-group) * [FMC Lending](#toc-best-for-bad-credit-scores-fmc-lending) * [Nationwide Home Loans, Inc.](#toc-best-for-first-time-buyers-nationwide-home-loans-inc) * [Normandy](#toc-best-online-borrower-experience-normandy) * [GO Mortgage Corporation](#toc-best-for-low-down-payments-go-mortgage-corporation) * [TD Bank](#toc-best-for-flexible-use-construction-td-bank) * [VA Nationwide Home Loans](#toc-best-for-veterans-va-nationwide-home-loans) * See More (4) * [The Bottom Line](#toc-the-bottom-line) * [Compare Providers](#toc-compare-the-best-construction-loan-lenders) * [Guide to Choosing](#toc-guide-to-choosing-the-best-construction-loan-lender) * [FAQ](#toc-faq-2a740335-e4c5-4f82-b23a-eccf2ba7d8e8) * [Methodology](#toc-methodology) ### Best Overall : Nationwide Home Loans Group --- ![Nationwide Home Loans Logo]() :fill(white):max_bytes(150000):strip_icc()/Nationwide-Home-Loans-Group-Logo-797858fdcf83432d9eabde86c6db53d9.jpeg) * **Starting interest rate:** Varies * **Minimum credit score:** 640 * **Loan terms:** Varies [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans) Why We Chose It Nationwide Home Loans Group is a great overall choice for a construction loan with loans available in all 50 states, low interest rates, and low down payment requirements. Pros & Cons Pros * Available in 50 states * Low rates * Low down payment requirements Cons * 640 minimum credit score required * Minimum loan amount of $150,000 Overview Nationwide Home Loans Group is powered by The Federal Savings Bank, a veteran-owned, federally-charted bank. The Nationwide Home Loans Group construction loan is available in all 50 states. Their construction loan size minimum is $150,000. No mortgage payments are collected until the construction is complete. The lender requires the borrower’s median of three [credit scores](https://www.investopedia.com/terms/c/credit_score.asp) to be at least 640. Down payments vary depending on the particular loan program. For example, their VA construction loan can be as low as 0% down, and their FHA loan can be as low as 3.5% down. Compared to most construction lenders requiring 20% down, Nationwide can offer these low down payment programs at low rates in a combined loan in all 50 states. ### Best for Bad Credit Scores : FMC Lending --- ![FMC Lending]() :fill(white):max_bytes(150000):strip_icc()/FMCLending-14aa4f9ffcf14a9bb6f53ca68352888a.jpg)  FMC Lending * **Starting interest rate:** Varies * **Minimum credit score:** None * **Loan terms:** Varies [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending) Why We Chose It If you’re looking for a construction loan and have less than stellar credit, FMC Lending is a great option, featuring fast funding and no minimum credit score requirements. Pros & Cons Pros * No credit score minimum * Can close in as fast as seven days * Stated income, no proof needed * Prior bankruptcy is allowed Cons * Down payment requirements of 20% to 30% * Higher interest rates than other lenders * Most loan terms are short and range from one to seven years Overview FMC is a full-service private money lender focused on borrowers who have been through tough times and don’t fit the traditional bank lending criteria. They offer asset-based lending as opposed to credit-based lending, so they can be more creative with their loan programs because the loans are backed by collateral. FMC is very flexible on loan terms. Some programs have only short terms and some can offer very long terms. Everything will vary with your situation and chosen program. Interest rates for their construction loans range tend to be higher than those of a normal mortgage. However, some have no prepayment penalties. With FMC, you’ll be able to roll the purchase and construction costs into a single loan closing.  FMC can finance the [combined loan-to-value (CLTV)](https://www.investopedia.com/terms/c/combinedloantovalue.asp) up to 100%, so you can bring other loans or property collateral to the deal to make it work. FMC is the best option for borrowers with low credit scores because they allow you to apply for a construction loan and a permanent mortgage combined into one program without needing to show proof of your credit score. ### Best for First-Time Buyers : Nationwide Home Loans, Inc. --- ![Nationwide Home Loans, Inc.]() :fill(white):max_bytes(150000):strip_icc()/NationwideHomeLoans-04badc8b1c7149a6b842992f1b261847.jpg)  Nationwide Home Loans, Inc. * **Starting interest rate:** Varies * **Minimum credit score:** Varies * **Loan terms:** Varies [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc) Why We Chose It Nationwide Home Loans, Inc. is a great option for first-time buyers, with low to no down payment options and helpful customer support. Pros & Cons Pros * Low down payment requirements * Flexible credit requirements * Full-service project coordination Cons * Only available in nine states Overview Nationwide Home Loans, Inc., is a regional lender focused on nine states. They have an efficient online presence for borrowers to connect with specialists for each state where they plan to build. The down payment requirements relate to the loan program for which you qualify. If you are a veteran and qualify for a VA construction loan, there is no minimum or maximum limit. For an [FHA loan](https://www.investopedia.com/terms/f/fhaloan.asp), maximums depend on the area you are in. FHA loan limits are updated annually. Rates for their One Time Close loans are locked in for the term of the loan. You only go through the process once to finance the land, construction, and home mortgage. This not only keeps your closing costs low but also gets you a rate that is closer to the lower permanent financing rates rather than the typical construction loan rates. Credit requirements are flexible because the company caters to self-employed individuals who have trouble showing a steady income, as well as borrowers who have a few nicks and scrapes in their credit history. The down payment requirements range from 0% for VA loans to 3.5% for FHA loans. First-time homebuyers seem to gravitate towards FHA loans because of the low downpayment and easier approval. In fact, in 2022, 83.5% of FHA loans went to first-time homebuyers. Nationwide Home Loans, Inc., wins best for first-time home buyers because they have loan officers that provide a full-service experience, coordinating with appraisers, title companies, the builder, and other third parties necessary to make your construction project a success. Their specialization in low down payment programs, like VA and FHA, and their One Time Close service make them one of the most affordable lenders for first-time home buyers. ### Best Online Borrower Experience : Normandy --- ![Normandy]() :fill(white):max_bytes(150000):strip_icc()/Normandy-db359c582ed64b309c6d12b1e5165c72.jpg)  Normandy * **Starting interest rate:** Varies * **Minimum credit score:** Varies * **Loan terms:** Varies [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy) Why We Chose It For borrowers looking to secure a loan from an online lender, Normandy offers a seamless application process, with fast funding and the option to prequalify. Pros & Cons Pros * Borrowers can prequalify * Flexible loan amounts * 30-day average closing time Cons * Required down payment of 10% to 20% * Only available in 15 states Overview Normandy is headquartered in Rochester, NY, and is fully licensed to offer its construction loan in 15 states. Loan amounts range from $95,000 to $5 million. There are several construction loans, such as a loan if you are the actual builder, another if you are hiring a builder, and loans to finance a newly built home that a builder built on speculation. Normandy also offers renovation construction loans for when the house is built but needs extensive renovation work requiring a licensed contractor. Normandy could qualify you for a 10% down payment for properties appraised at $726,200 or less, 20% down for properties between $726,200 and $1 million, and 25% down for properties over $1 million. You can wrap the land purchase into the construction loan, but you’ll still have to come up with 25% of the land’s purchase price in cash. Normandy’s construction loan rates vary depending on your credit score, the size of your down payment, and your income. You must prequalify to see them. Credit score minimums are not published on their website, but they will contact you with a customized terms proposal when you complete their online prequalification form. Normandy has an easy-to-find section on its homepage for borrowers to apply for pre-qualification, request construction draws, and make payments toward their loans. This convenience makes Normandy our pick as the best online borrower experience. ### Best for Low Down Payments : GO Mortgage Corporation --- ![GSF Mortgage Corporation]() :fill(white):max_bytes(150000):strip_icc()/GSF-Mortgage-Corporation-cd054aa7f49a4a1ea09ece73726edc35.jpg)  GSF Mortgage Corporation * **Starting interest rate:** Varies * **Minimum credit score:** 640 to 680 * **Loan terms:** 30 years [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage) Why We Chose It GO Mortgage Corporation features low down payment requirements for construction loans with a dedicated lending team to help you through the process. Pros & Cons Pros * Licensed in 40 states * Low down payment requirements * Experienced with government-backed loan programs Cons * 640 to 680 minimum credit score recommended * Minimum loan amount of $175,000 * Can’t use a loan for investment properties Overview Based in Wisconsin, GO Mortgage started in 1995 and the single close construction loan is its specialty. This loan, available in 40 states, works within the parameters of the government-backed mortgage programs known as the VA, [Fannie Mae](https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp), FHA, and USDA. Therefore the credit scores, interest rates, down payment percentages, and minimum and maximum loan amounts are regulated by those programs. For example, if GSF qualifies you for the FHA program, your down payment can be as low as 3.5%. For the VA or USDA loan programs, you may qualify for no down payment. If you use a Fannie Mae program, your down payment could be as low as 5%. Loan interest rates for these government programs are very close to each other and will vary depending on your credit score. The minimum loan amount often is $175,000. The minimum credit score for GO's single close construction loan is 640. However, 680 is the minimum score for the Fannie Mae program. There is no maximum loan amount for construction loans, but there are some limitations to how much of the loan the government agency will guarantee. The VA will normally guarantee loans up to $766,550, for 2024. However, in more expensive counties they will guarantee up to $1,125,825 through GO or other lenders. GO Mortgage Corporation has created a business model focused on a highly trained construction lending team with expertise in the low down payment government agency programs, so they have earned our nod for the best construction lender for you if your primary goal is a low down payment. ### Best for Flexible-Use Construction : TD Bank --- ![TD Bank]() :fill(white):max_bytes(150000):strip_icc()/TDBank-0f59801806b54a1e8ce75b974e5a2d19.jpg)  TD Bank * **Starting interest rate:** Varies * **Minimum credit score:** Varies * **Loan terms:** 30 years [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank) Why We Chose It TD Bank wins our award for best flexible-use construction lender because of their ability to blend features tailored to what the borrower wants and needs, such as adjustable and fixed rates, and a flexible-use, single close program. Pros & Cons Pros * Flexible single close can be used if you already have a loan for the land * Fixed or adjustable rate options Cons * Must make interest-only payments during construction; no payment deferment * Rates and credit score minimums not published on website Overview TD Bank was founded in 1852 in Portland, Maine. Its single close construction loan is flexible and can be used if you already own the land or if you have an existing loan on the land. In that case, they will disperse money to pay that loan's balance off and roll it into their single close loan. Credit score minimums are not published. Credit scores are taken into account along with other factors, such as the size of the down payment, the borrower’s income, and how much existing debt the borrower already carries. The same factors also dictate how TD Bank calculates your interest rate options. For example, you may have an adjustable-rate interest-only loan for the 12-month construction period, which automatically can roll into a fixed-rate loan for a 30-year mortgage on the finished property. Down payment requirements are at least 20% for traditional financing. If you need a flexible construction loan, TD Bank is a great option, with single close loan options for just construction or construction and land. ### Best for Veterans : VA Nationwide Home Loans --- ![VA Nationwide Home Loans Logo]() :fill(white):max_bytes(150000):strip_icc()/VA-Nationwide-Home-Loans-Logo-3f1cd0a16afe4844a7b64ca10d3bbbc0.jpeg) * **Starting interest rate:** Varies * **Minimum credit score:** 640 * **Loan terms:** Varies [Learn More](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation) Why We Chose It Single close convenience in every state with up to 100% financing available makes VA Nationwide Home Loans the best VA construction lender. Pros & Cons Pros * Available in 50 states * No down payment requirements * One-time and two-time close options * Available for second homes or multi-family homes Cons * 640 minimum credit score recommended Overview True to its name, VA Nationwide Home Loans lends in all 50 states. You can check your home’s eligibility for their program using their simple and short online form.  Their featured loan is a single close loan that lets you combine the purchase of the land, the construction of the house, and the mortgage all in a single rate-locked loan. No payments are due during the construction period. VA Nationwide Home Loans could qualify you for a 0% down payment, but you would still need to pay cash for the VA funding fee.  VA Nationwide can offer loans up to $3,000,000 or more with its one-time and two-time close options. VA Nationwide Home Loans is a great option for veterans looking for affordable construction loans available in all 50 states and up to 100% financing. ## The Bottom Line There are several good options to choose from when it comes to construction loans. Our top pick for a construction loan lender is Nationwide Home Loans Group, which offers flexible, affordable construction loans. There are programs with up to 100% financing available, making these loans a great fit for borrowers who are short on cash. This lender also offers loans to borrowers in 50 states, so borrowers will be able to access a loan in most areas of the country. If you're looking to complete the loan process online, Normandy is a good choice, and if you haven't been able to save the way you'd hoped, GO Mortgage Corporation features low down payments. ## Compare the Best Construction Loan Lenders | **Company** | Starting Interest Rate | Minimum Credit Score | Loan Terms (range) | Maximum Loan Amount | | --- | --- | --- | --- | --- | | [Nationwide Home Loans Group](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloans) **Best Overall** | Varies | 640 | Varies | $3,000,000+ on VA loan options | | [FMC Lending](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=fmclending) **Best for Bad Credit Score** | Varies | None | Varies | Varies | | [Nationwide Home Loans, Inc.](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=nationwidehomeloansinc) **Best for First-Time Buyers** | Varies | Varies | Varies | Varies | | [Normandy](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=normandy) **Best Online Borrower Experience** | Varies | Varies | Varies | $3,000,000 | | [GO Mortgage Corporation](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=gomortgage) **Best for Low Down Payments** | Varies | 640 to 680 | 30 years | Varies | | [TD Bank](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=tdbank) **Best for Flexible Use Construction** | Varies | Varies | 30 years | Varies | | [VA Nationwide](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=vanation) **Home Loans** **Best for Veterans** | Varies | 640 | Varies | $3,000,000+ on VA loan options | ## Guide to Choosing the Best Construction Loan Lender ### Determine Your Construction Loan Need Before you apply for a construction loan, you should assess your situation in order to determine exactly what type of construction loan will work best for you. You should consider factors including your savings for a down payment, credit score, and overall loan amount when looking for lenders. It’s a good idea to receive quotes from contractors so you have an estimate of how much the total project will cost. ### Compare Construction Loan Lenders There are a few different factors to keep in mind when selecting a home improvement loan or lender: * **Low rates:** The lower the rates on your construction loan, the less you’ll end up paying in interest over time. You should look for a loan with rates that are as low as possible. * **Flexible down payment requirements:** While some lenders require a standard down payment of 20%, others are more flexible. Depending on how much you have saved up, you should look for a lender with flexible down payment requirements. * **Flexible credit score requirements:** Just because you don’t have a perfect credit score doesn’t mean you can’t get a construction loan. Some lenders allow applications from borrowers with fair credit. * **Geographic location:** Make sure to choose a lender that services your area. * **Customer support:** Look for lenders with a history of high customer satisfaction and robust customer support. ### Apply for a Construction Loan To apply for a construction loan, there are a few types of documentation you’ll need. These include architectural plans and drawings, your builder’s certifications, building code compliance, and a schedule for periodic inspections. You’ll also need to provide a detailed construction budget and timeline. Before you apply, it’s also a good idea to make sure that your finances are in order. You should make sure that your credit score is as high as possible, that you have a low debt-to-income ratio, and that you have enough savings to cover the cost of a down payment and closing fees. ## Frequently Asked Questions * ### What FICO score do you need for a construction loan? It varies between loan lenders, but generally, you will need a minimum score of 640 and ideally higher. The higher your credit score, the higher the likelihood that you'll be approved. However, some construction loan lenders don't have a minimum credit score requirement, such as FMC Lending. * ### What are construction loan interest rates? Interest rate ranges will differ based on whether you have a construction loan to finance just the construction period or whether you have a combined single close loan that blends the construction and the permanent mortgage. The construction-only loan is considered a bit riskier. In general, you can expect construction loans to be a percentage point or two higher than standard mortgage loans. * ### How do I get financed for construction? Before you apply, make sure that your finances are in order. Start by improving your credit score if necessary and the savings required for the down payment and closing fees. Once you're ready, you'll need to have your documentation organized and on hand when you apply for financing, as well as a detailed construction budget and timeline. * ### What are the most common construction loans? There are several types of construction loans: construction-to-permanent, construction-only, renovation, owner-builder, and end loans. Construction-to-permanent loans are the most common and popular type of construction loans for consumers ## Methodology We looked at 24 construction lenders before choosing the best seven. To be named one of our best, we wanted lenders that have a broad geographical reach so that our choices could be used by many. We looked for lenders with expertise in several construction loan programs so that you’d find several options without the need to interview many firms. We selected companies whose low end of their interest rate ranges was closest to traditional permanent financing, because those are the lowest rates available. Finally, we favored lenders with lower down payment requirements and lower credit score minimums to expand your chances of finding a competitive construction loan. :max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg) :max_bytes(150000):strip_icc()/Primary-Image-best-construction-loan-lenders-5078622-b9d100d2c217460b88bb8724fdbc21e5.jpg) Dan Reynolds Photography / Getty Images 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. The Federal Savings Bank. “[About Us](https://www.thefederalsavingsbank.com/about/).” 2. VA Nationwide Home Loans. "[100% VA Construction Loans](https://www.vanationwide.com/va-construction-loans)." 3. Nationwide Home Loans Group. "[Construction Loans](https://www.nationwidehomeloansgroup.com/one-time-close-construction-loans)." 4. FMC Lending. "[Residential Programs](https://www.fundmortgagecapital.com/residential-programs)." 5. Nationwide Home Loans Inc. "[Our Team](https://www.nhlfinance.com/meet-our-team)." 6. U.S. Department of Veteran Affairs. "[Loan Limits](https://www.va.gov/housing-assistance/home-loans/loan-limits/)." 7. Federal Housing Finance Agency. "[FHFA Announces Conforming Loan Limit Values for 2024](https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limit-Values-for-2024.aspx)." 8. Nationwide Home Loans, Inc. "[What Makes Our Construction Loans Different?](https://www.nhlfinance.com/build)" 9. U.S. Department of Housing and Urban Development. "[Loans](https://www.hud.gov/buying/loans)." 10. U.S. Department of Housing and Urban Development. "[Fiscal Year 2022 Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund](https://www.hud.gov/sites/dfiles/Housing/documents/2022FHAAnnualRptMMIFund.pdf)," Page 9. 11. Normandy. "[Self-Build Construction Loan for Borrowers](https://normandy.com/self-build-owner-build-loans/)." 12. LinkedIn. "[GO Mortgage](https://www.linkedin.com/company/go-mortgage?original_referer=https%3A%2F%2Fwww.google.com%2F)." 13. GO Mortgage. "[FHA Loan](https://gomortgage.com/fha-loan/)." 14. GO Mortgage. "[VA Single Close Construction Loan](https://gomortgage.com/va-single-close-construction/)." 15. GO Mortgage. "[Fannie Mae Single Close Construction Loan](https://gomortgage.com/fannie-mae-single-close-construction/)." 16. GO Mortgage. "[Single-Close Construction Matrix](https://f.hubspotusercontent10.net/hubfs/322413/Encompass%20TPO%20docs/TPO%20Guidelines%20and%20Tools/Wholesale/GOMortgage%20SCC%20Products%20Matrix%20-%20Wholesale%20-%20v24%20-%2010.21.21.pdf)." 17. GO Mortgage. "[Single Close Construction Loans](https://gomortgage.com/single-close-construction/)." 18. GO Mortgage. "[Fannie Mae Single Close Construction Loans](https://gomortgage.com/fannie-mae-single-close-construction/)." 19. U.S. Department of Veterans Affairs. "[VA Home Loan Limits](https://www.va.gov/housing-assistance/home-loans/loan-limits/)." 20. TD Bank. "[Company History](https://stories.td.com/us/en/article/company-history)." 21. TD Bank. "[Getting a Construction Loan to Build or Renovate Your Home](https://www.td.com/us/en/personal-banking/mortgage/build-a-home)." 22. U.S. Department of Veterans Affairs. “[VA Funding Fee and Loan Closing Costs](https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/).” 23. VA Nationwide Home Loans. "[VA Construction Loans](https://www.vanationwide.com/va-construction-loans)." Related Articles [![FHA home]() :max_bytes(150000):strip_icc()/GettyImages-1529792128-03b50b785da845aebb6d00b232c45596.jpg) What Is an FHA Loan?](https://www.investopedia.com/what-is-an-fha-loan-8636839) [![Purchase agreement for hours with model home]() :max_bytes(150000):strip_icc()/GettyImages-836251910-e1292ada645c47f0adc877200d4b0f24.jpg) Best Investment Property Loans](https://www.investopedia.com/best-investment-property-loans-5079478) [![man looking at VA loans while working on laptop at home]() :max_bytes(150000):strip_icc()/Primary-Image-best-va-loan-rates-5078748-59c22a1d9080495886acde32aa577a47.jpg) Best VA Loan Rates](https://www.investopedia.com/best-va-loan-rates-5078748) [![Custom GIF shows two mountains in the clouds with one topped with a small house and the other topped with a building that looks like a bank with columns and a dollar sign. Clouds pass by in an orange sky, with the title on the top left "Best Mortgage Lenders"]() :max_bytes(150000):strip_icc()/best-mortgage-lenders-5076852-89240e5162a645e6bdb3f497c7c7ed64.gif) Best Mortgage Lenders of 2024](https://www.investopedia.com/best-mortgage-lenders-5076852) [![Custom illustration shows a title of "Best Mortgage Lenders for Bad Credit" on an orange background with a blue and white columned building and a credit card, pen, and contract paper.]() :max_bytes(150000):strip_icc()/best-mortgage-lenders-for-bad-credit-8d1b78ab6f844a0ea3a29933eebe1fb8.jpg) Best Mortgage Lenders for Bad Credit of 2024](https://www.investopedia.com/best-mortgage-lenders-for-bad-credit-5113497) [![Three people sit in folding chairs under an overhang outside of a mobile home camper vehicle. Around them are trees and rocks.]() :max_bytes(150000):strip_icc()/bestmobilehomeloans-a510aafe2e68494cbcc077f234f580cf.jpg) Best Mobile Home Loans](https://www.investopedia.com/best-mobile-home-loans-5081673) Related Terms [Minimum Down Payment: What it Means, How it Works, Example](https://www.investopedia.com/terms/m/minimum_down_payment.asp) A minimum down payment is the minimum cash contribution that must be made by a borrower toward the purchase of a home to qualify for a mortgage. [more](https://www.investopedia.com/terms/m/minimum_down_payment.asp) [Combination Loan: Meaning, Pros And Cons, Alternatives](https://www.investopedia.com/terms/c/combination_loan.asp) A combination loan can help homebuyers finance new construction or an existing home without having to pay for costly private mortgage insurance. [more](https://www.investopedia.com/terms/c/combination_loan.asp) [Federal Housing Administration (FHA) Loan: Requirements, Limits, How to Qualify](https://www.investopedia.com/terms/f/fhaloan.asp) A Federal Housing Administration (FHA) loan is a mortgage that is insured by the FHA and issued by a bank or other approved lender. [more](https://www.investopedia.com/terms/f/fhaloan.asp) [What Is a Home Mortgage? Definition, Qualification, and Types](https://www.investopedia.com/terms/h/home-mortgage.asp) A home mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a primary or investment residence. [more](https://www.investopedia.com/terms/h/home-mortgage.asp) [FHA 203(k) Loan: Definition, Use, Types, Pros, and Cons](https://www.investopedia.com/terms/f/fha-203k-loan.asp) An FHA 203(k) loan provides money for purchases, repairs, and other related expenses for individuals who want to buy and rehabilitate a damaged home. [more](https://www.investopedia.com/terms/f/fha-203k-loan.asp) [Maximum Loan-to-Value Ratio: Definition, Formula, Examples](https://www.investopedia.com/terms/m/maximum_loan_to_value_ratio.asp) The maximum loan-to-value ratio is the largest allowable ratio of a loan's size to the dollar value of the property that serves as collateral. It can vary depending on the loan program. [more](https://www.investopedia.com/terms/m/maximum_loan_to_value_ratio.asp)

Construction loans allow landowners to borrow money to build a home from the ground up. While a traditional mortgage, also called a permanent loan, will help you buy an existing house, starting with raw land requires a construction loan. While these loans are a bit more difficult to obtain and often attached to higher rates, many lenders can finance your project. The best construction loan lenders offer low rates and flexible loan amounts. They also feature low down payment and credit requirements that make it easier for borrowers to qualify. Top lenders offer construction loans in a wide range of geographic areas across the country. Many lenders also offer multiple different types of construction loans depending on your specific situation. Best Construction Loan Lenders of 2024 Best Overall: Nationwide Home Loans Group Best for Bad Credit Scores: FMC Lending Best for First-Time Buyers: Nationwide Home Loans, Inc. Best Online Borrower Experience: Normandy Best for Low Down Payments: GO Mortgage Corporation Best for Flexible-Use Construction: TD Bank Best for Veterans: VA Nationwide Home Loans Best Construction Loan Lenders Expand Best Construction Loan Lenders Our Top Picks Nationwide Home Loans Group FMC Lending Nationwide Home Loans, Inc. Normandy GO Mortgage Corporation TD Bank VA Nationwide Home Loans See More (4) The Bottom Line Compare Providers Guide to Choosing FAQ Methodology Best Overall : Nationwide Home Loans Group Starting interest rate: VariesMinimum credit score: 640Loan terms: Varies Learn More Why We Chose It Nationwide Home Loans Group is a great overall choice for a construction loan with loans available in all 50 states, low interest rates, and low down payment requirements. Pros & Cons Pros Available in 50 states Low rates Low down payment requirements Cons 640 minimum credit score required Minimum loan amount of $150,000 Overview Nationwide Home Loans Group is powered by The Federal Savings Bank, a veteran-owned, federally-charted bank. The Nationwide Home Loans Group construction loan is available in all 50 states. Their construction loan size minimum is $150,000. No mortgage payments are collected until the construction is complete. The lender requires the borrower’s median of three credit scores to be at least 640. Down payments vary depending on the particular loan program. For example, their VA construction loan can be as low as 0% down, and their FHA loan can be as low as 3.5% down. Compared to most construction lenders requiring 20% down, Nationwide can offer these low down payment programs at low rates in a combined loan in all 50 states. Best for Bad Credit Scores : FMC Lending  FMC Lending Starting interest rate: VariesMinimum credit score: NoneLoan terms: Varies Learn More Why We Chose It If you’re looking for a construction loan and have less than stellar credit, FMC Lending is a great option, featuring fast funding and no minimum credit score requirements. Pros & Cons Pros No credit score minimum Can close in as fast as seven days Stated income, no proof needed Prior bankruptcy is allowed Cons Down payment requirements of 20% to 30% Higher interest rates than other lenders Most loan terms are short and range from one to seven years Overview FMC is a full-service private money lender focused on borrowers who have been through tough times and don’t fit the traditional bank lending criteria. They offer asset-based lending as opposed to credit-based lending, so they can be more creative with their loan programs because the loans are backed by collateral. FMC is very flexible on loan terms. Some programs have only short terms and some can offer very long terms. Everything will vary with your situation and chosen program. Interest rates for their construction loans range tend to be higher than those of a normal mortgage. However, some have no prepayment penalties. With FMC, you’ll be able to roll the purchase and construction costs into a single loan closing.  FMC can finance the combined loan-to-value (CLTV) up to 100%, so you can bring other loans or property collateral to the deal to make it work. FMC is the best option for borrowers with low credit scores because they allow you to apply for a construction loan and a permanent mortgage combined into one program without needing to show proof of your credit score. Best for First-Time Buyers : Nationwide Home Loans, Inc.  Nationwide Home Loans, Inc. Starting interest rate: VariesMinimum credit score: VariesLoan terms: Varies Learn More Why We Chose It Nationwide Home Loans, Inc. is a great option for first-time buyers, with low to no down payment options and helpful customer support. Pros & Cons Pros Low down payment requirements Flexible credit requirements Full-service project coordination Cons Only available in nine states Overview Nationwide Home Loans, Inc., is a regional lender focused on nine states. They have an efficient online presence for borrowers to connect with specialists for each state where they plan to build. The down payment requirements relate to the loan program for which you qualify. If you are a veteran and qualify for a VA construction loan, there is no minimum or maximum limit. For an FHA loan, maximums depend on the area you are in. FHA loan limits are updated annually. Rates for their One Time Close loans are locked in for the term of the loan. You only go through the process once to finance the land, construction, and home mortgage. This not only keeps your closing costs low but also gets you a rate that is closer to the lower permanent financing rates rather than the typical construction loan rates. Credit requirements are flexible because the company caters to self-employed individuals who have trouble showing a steady income, as well as borrowers who have a few nicks and scrapes in their credit history. The down payment requirements range from 0% for VA loans to 3.5% for FHA loans. First-time homebuyers seem to gravitate towards FHA loans because of the low downpayment and easier approval. In fact, in 2022, 83.5% of FHA loans went to first-time homebuyers. Nationwide Home Loans, Inc., wins best for first-time home buyers because they have loan officers that provide a full-service experience, coordinating with appraisers, title companies, the builder, and other third parties necessary to make your construction project a success. Their specialization in low down payment programs, like VA and FHA, and their One Time Close service make them one of the most affordable lenders for first-time home buyers. Best Online Borrower Experience : Normandy  Normandy Starting interest rate: VariesMinimum credit score: VariesLoan terms: Varies Learn More Why We Chose It For borrowers looking to secure a loan from an online lender, Normandy offers a seamless application process, with fast funding and the option to prequalify. Pros & Cons Pros Borrowers can prequalify Flexible loan amounts 30-day average closing time Cons Required down payment of 10% to 20% Only available in 15 states Overview Normandy is headquartered in Rochester, NY, and is fully licensed to offer its construction loan in 15 states. Loan amounts range from $95,000 to $5 million. There are several construction loans, such as a loan if you are the actual builder, another if you are hiring a builder, and loans to finance a newly built home that a builder built on speculation. Normandy also offers renovation construction loans for when the house is built but needs extensive renovation work requiring a licensed contractor. Normandy could qualify you for a 10% down payment for properties appraised at $726,200 or less, 20% down for properties between $726,200 and $1 million, and 25% down for properties over $1 million. You can wrap the land purchase into the construction loan, but you’ll still have to come up with 25% of the land’s purchase price in cash. Normandy’s construction loan rates vary depending on your credit score, the size of your down payment, and your income. You must prequalify to see them. Credit score minimums are not published on their website, but they will contact you with a customized terms proposal when you complete their online prequalification form. Normandy has an easy-to-find section on its homepage for borrowers to apply for pre-qualification, request construction draws, and make payments toward their loans. This convenience makes Normandy our pick as the best online borrower experience. Best for Low Down Payments : GO Mortgage Corporation  GSF Mortgage Corporation Starting interest rate: VariesMinimum credit score: 640 to 680Loan terms: 30 years Learn More Why We Chose It GO Mortgage Corporation features low down payment requirements for construction loans with a dedicated lending team to help you through the process. Pros & Cons Pros Licensed in 40 states Low down payment requirements Experienced with government-backed loan programs Cons 640 to 680 minimum credit score recommended Minimum loan amount of $175,000 Can’t use a loan for investment properties Overview Based in Wisconsin, GO Mortgage started in 1995 and the single close construction loan is its specialty. This loan, available in 40 states, works within the parameters of the government-backed mortgage programs known as the VA, Fannie Mae, FHA, and USDA. Therefore the credit scores, interest rates, down payment percentages, and minimum and maximum loan amounts are regulated by those programs. For example, if GSF qualifies you for the FHA program, your down payment can be as low as 3.5%. For the VA or USDA loan programs, you may qualify for no down payment. If you use a Fannie Mae program, your down payment could be as low as 5%. Loan interest rates for these government programs are very close to each other and will vary depending on your credit score. The minimum loan amount often is $175,000. The minimum credit score for GO's single close construction loan is 640. However, 680 is the minimum score for the Fannie Mae program. There is no maximum loan amount for construction loans, but there are some limitations to how much of the loan the government agency will guarantee. The VA will normally guarantee loans up to $766,550, for 2024. However, in more expensive counties they will guarantee up to $1,125,825 through GO or other lenders. GO Mortgage Corporation has created a business model focused on a highly trained construction lending team with expertise in the low down payment government agency programs, so they have earned our nod for the best construction lender for you if your primary goal is a low down payment. Best for Flexible-Use Construction : TD Bank  TD Bank Starting interest rate: VariesMinimum credit score: VariesLoan terms: 30 years Learn More Why We Chose It TD Bank wins our award for best flexible-use construction lender because of their ability to blend features tailored to what the borrower wants and needs, such as adjustable and fixed rates, and a flexible-use, single close program. Pros & Cons Pros Flexible single close can be used if you already have a loan for the land Fixed or adjustable rate options Cons Must make interest-only payments during construction; no payment deferment Rates and credit score minimums not published on website Overview TD Bank was founded in 1852 in Portland, Maine. Its single close construction loan is flexible and can be used if you already own the land or if you have an existing loan on the land. In that case, they will disperse money to pay that loan's balance off and roll it into their single close loan. Credit score minimums are not published. Credit scores are taken into account along with other factors, such as the size of the down payment, the borrower’s income, and how much existing debt the borrower already carries. The same factors also dictate how TD Bank calculates your interest rate options. For example, you may have an adjustable-rate interest-only loan for the 12-month construction period, which automatically can roll into a fixed-rate loan for a 30-year mortgage on the finished property. Down payment requirements are at least 20% for traditional financing. If you need a flexible construction loan, TD Bank is a great option, with single close loan options for just construction or construction and land. Best for Veterans : VA Nationwide Home Loans Starting interest rate: VariesMinimum credit score: 640Loan terms: Varies Learn More Why We Chose It Single close convenience in every state with up to 100% financing available makes VA Nationwide Home Loans the best VA construction lender. Pros & Cons Pros Available in 50 states No down payment requirements One-time and two-time close options Available for second homes or multi-family homes Cons 640 minimum credit score recommended Overview True to its name, VA Nationwide Home Loans lends in all 50 states. You can check your home’s eligibility for their program using their simple and short online form.  Their featured loan is a single close loan that lets you combine the purchase of the land, the construction of the house, and the mortgage all in a single rate-locked loan. No payments are due during the construction period. VA Nationwide Home Loans could qualify you for a 0% down payment, but you would still need to pay cash for the VA funding fee.  VA Nationwide can offer loans up to $3,000,000 or more with its one-time and two-time close options. VA Nationwide Home Loans is a great option for veterans looking for affordable construction loans available in all 50 states and up to 100% financing. The Bottom Line There are several good options to choose from when it comes to construction loans. Our top pick for a construction loan lender is Nationwide Home Loans Group, which offers flexible, affordable construction loans. There are programs with up to 100% financing available, making these loans a great fit for borrowers who are short on cash. This lender also offers loans to borrowers in 50 states, so borrowers will be able to access a loan in most areas of the country. If you're looking to complete the loan process online, Normandy is a good choice, and if you haven't been able to save the way you'd hoped, GO Mortgage Corporation features low down payments. Compare the Best Construction Loan Lenders Company Starting Interest Rate  Minimum Credit Score  Loan Terms (range)  Maximum Loan Amount  Nationwide Home Loans Group Best Overall Varies 640 Varies $3,000,000+ on VA loan options FMC Lending Best for Bad Credit Score  Varies  None  Varies  Varies  Nationwide Home Loans, Inc. Best for First-Time Buyers  Varies  Varies  Varies  Varies  Normandy Best Online Borrower Experience  Varies  Varies Varies  $3,000,000  GO Mortgage Corporation Best for Low Down Payments  Varies  640 to 680  30 years  Varies  TD Bank Best for Flexible Use Construction  Varies  Varies  30 years  Varies VA Nationwide Home Loans Best for Veterans  Varies  640  Varies $3,000,000+ on VA loan options Guide to Choosing the Best Construction Loan Lender Determine Your Construction Loan Need Before you apply for a construction loan, you should assess your situation in order to determine exactly what type of construction loan will work best for you. You should consider factors including your savings for a down payment, credit score, and overall loan amount when looking for lenders. It’s a good idea to receive quotes from contractors so you have an estimate of how much the total project will cost. Compare Construction Loan Lenders There are a few different factors to keep in mind when selecting a home improvement loan or lender: Low rates: The lower the rates on your construction loan, the less you’ll end up paying in interest over time. You should look for a loan with rates that are as low as possible.Flexible down payment requirements: While some lenders require a standard down payment of 20%, others are more flexible. Depending on how much you have saved up, you should look for a lender with flexible down payment requirements.Flexible credit score requirements: Just because you don’t have a perfect credit score doesn’t mean you can’t get a construction loan. Some lenders allow applications from borrowers with fair credit.Geographic location: Make sure to choose a lender that services your area.Customer support: Look for lenders with a history of high customer satisfaction and robust customer support. Apply for a Construction Loan  To apply for a construction loan, there are a few types of documentation you’ll need. These include architectural plans and drawings, your builder’s certifications, building code compliance, and a schedule for periodic inspections. You’ll also need to provide a detailed construction budget and timeline. Before you apply, it’s also a good idea to make sure that your finances are in order. You should make sure that your credit score is as high as possible, that you have a low debt-to-income ratio, and that you have enough savings to cover the cost of a down payment and closing fees. Frequently Asked Questions What FICO score do you need for a construction loan? It varies between loan lenders, but generally, you will need a minimum score of 640 and ideally higher. The higher your credit score, the higher the likelihood that you'll be approved. However, some construction loan lenders don't have a minimum credit score requirement, such as FMC Lending. What are construction loan interest rates? Interest rate ranges will differ based on whether you have a construction loan to finance just the construction period or whether you have a combined single close loan that blends the construction and the permanent mortgage. The construction-only loan is considered a bit riskier. In general, you can expect construction loans to be a percentage point or two higher than standard mortgage loans. How do I get financed for construction? Before you apply, make sure that your finances are in order. Start by improving your credit score if necessary and the savings required for the down payment and closing fees. Once you're ready, you'll need to have your documentation organized and on hand when you apply for financing, as well as a detailed construction budget and timeline. What are the most common construction loans? There are several types of construction loans: construction-to-permanent, construction-only, renovation, owner-builder, and end loans. Construction-to-permanent loans are the most common and popular type of construction loans for consumers Methodology We looked at 24 construction lenders before choosing the best seven. To be named one of our best, we wanted lenders that have a broad geographical reach so that our choices could be used by many. We looked for lenders with expertise in several construction loan programs so that you’d find several options without the need to interview many firms. We selected companies whose low end of their interest rate ranges was closest to traditional permanent financing, because those are the lowest rates available. Finally, we favored lenders with lower down payment requirements and lower credit score minimums to expand your chances of finding a competitive construction loan. Dan Reynolds Photography / Getty Images 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. The Federal Savings Bank. “About Us.” VA Nationwide Home Loans. "100% VA Construction Loans." Nationwide Home Loans Group. "Construction Loans." FMC Lending. "Residential Programs." Nationwide Home Loans Inc. "Our Team." U.S. Department of Veteran Affairs. "Loan Limits." Federal Housing Finance Agency. "FHFA Announces Conforming Loan Limit Values for 2024." Nationwide Home Loans, Inc. "What Makes Our Construction Loans Different?" U.S. Department of Housing and Urban Development. "Loans." U.S. Department of Housing and Urban Development. "Fiscal Year 2022 Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund," Page 9. Normandy. "Self-Build Construction Loan for Borrowers." LinkedIn. "GO Mortgage." GO Mortgage. "FHA Loan." GO Mortgage. "VA Single Close Construction Loan." GO Mortgage. "Fannie Mae Single Close Construction Loan." GO Mortgage. "Single-Close Construction Matrix." GO Mortgage. "Single Close Construction Loans." GO Mortgage. "Fannie Mae Single Close Construction Loans." U.S. Department of Veterans Affairs. "VA Home Loan Limits." TD Bank. "Company History." TD Bank. "Getting a Construction Loan to Build or Renovate Your Home." U.S. Department of Veterans Affairs. “VA Funding Fee and Loan Closing Costs.” VA Nationwide Home Loans. "VA Construction Loans." Related Articles What Is an FHA Loan? Best Investment Property Loans Best VA Loan Rates Best Mortgage Lenders of 2024 Best Mortgage Lenders for Bad Credit of 2024 Best Mobile Home Loans Related Terms Minimum Down Payment: What it Means, How it Works, Example A minimum down payment is the minimum cash contribution that must be made by a borrower toward the purchase of a home to qualify for a mortgage. more Combination Loan: Meaning, Pros And Cons, Alternatives A combination loan can help homebuyers finance new construction or an existing home without having to pay for costly private mortgage insurance. more Federal Housing Administration (FHA) Loan: Requirements, Limits, How to Qualify A Federal Housing Administration (FHA) loan is a mortgage that is insured by the FHA and issued by a bank or other approved lender. more What Is a Home Mortgage? Definition, Qualification, and Types A home mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a primary or investment residence. more FHA 203(k) Loan: Definition, Use, Types, Pros, and Cons An FHA 203(k) loan provides money for purchases, repairs, and other related expenses for individuals who want to buy and rehabilitate a damaged home. more Maximum Loan-to-Value Ratio: Definition, Formula, Examples The maximum loan-to-value ratio is the largest allowable ratio of a loan's size to the dollar value of the property that serves as collateral. It can vary depending on the loan program. more

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?

<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 are several good alternatives to savings accounts, including certificates of deposit (CDs), money market accounts (MMAs), and U.S. government securities. These are all relatively safe places to invest your money, with deposits guaranteed 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 Corporation (FDIC)</a> or the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua.asp">National Credit Union Administration (NCUA)</a>.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> CDs, MMAs, and U.S. government securities also offer some return on your money in the form of interest. If you prioritize keeping your money safe, you may want to ensure easy access and relatively low fees above high returns—but there are many safe accounts with good yields, so you don't necessarily need to choose between safety and high returns.<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>Deposit insurance for savings accounts covers $250,000, as guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts.</li><li>Certificates of deposit issued by banks and credit unions are also insured for up to $250,000, guaranteeing your deposit and any interest returns you earn.</li><li>Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts.</li><li>U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt.<br/></li></ul></div></div></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-tip" 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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>See 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> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">best MMA rates</a> available today, or learn <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/08/treasuries-fed.asp">how to buy Treasury bonds and bills</a>. If you're still considering savings accounts, check what you could earn with the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a>.<br/></p></div></div></div> <span class="heading-toc" id="toc-certificates-of-deposit"></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"> Certificates of Deposit </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/terms/c/certificateofdeposit.asp">Certificates of deposit</a> issued by banks and credit unions carry up to $250,000 in deposit insurance (assuming the bank or credit union is insured). A CD requires you to lock up your investment for a specified period, from several months to several years. You can't add more money to the CD during this time.<br/> </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 usually pay a penalty if you want to access your money before the CD matures.<span class="ql-inline-citation" data-cite="3"></span> The penalty varies but usually adds up to several months' interest. However, many CD types are available, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp">no-penalty CDs</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/step-up-certificate-of-deposit-5271710">step-up CDs</a>, and raise-your-rate CDs, which can help relieve the interest rate or term-length risks.<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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Typically, CDs with longer terms pay more interest than CDs with shorter terms, although this isn't always true. Depending on the current rate environment, you may find that CDs tend to have better rates than savings accounts, or vice versa. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cd-ladder.asp">CD ladder</a> can help grow your earnings while providing periodic access to your money. With a CD ladder strategy, you open several CDs with different maturities. For example, you might open one 6-month CD, one 12-month CD, and one 18-month CD. As each CD matures, you can decide whether to withdraw or reinvest the money. This strategy may offer you greater flexibility and less risk than opening one CD (with one maturity date).<br/> </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Even savings accounts aren't totally risk-free. For example, if you leave your money in a savings account earning a low interest rate, your money's growth may not keep up with inflation. After considering inflation, the $1,000 you put in last year may be worth less next year. You might also miss out on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">earning a higher return elsewhere</a>.</p></div></div></div> <span class="heading-toc" id="toc-money-market-accounts"></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"> Money Market Accounts </span> </h2> <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/terms/m/moneymarketaccount.asp">Money market accounts</a> are FDIC- or NCUA-insured, up to $250,000 per depositor, per bank. They earn interest and combine many of the features of checking and savings accounts, making them a good choice if you want to grow your money while maintaining easy access to it. MMAs typically come with debit cards and limited check-writing privileges. </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"> Money market accounts often have fees, along with minimum opening deposit requirements and minimum balance requirements. Transaction and withdrawal limits may apply. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">best money market account rates</a> may rival those of the best CDs and savings accounts. </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-us-government-securities"></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"> U.S. Government Securities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The federal government offers three categories of fixed-income securities to consumers and investors. U.S. government securities—such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurynote.asp">Treasury notes</a>, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury securities may pay interest at higher rates than savings accounts, although it depends on the security's duration. </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"> U.S. Treasury Bills </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">U.S. Treasury bills</a>, also called T-bills, are federal, short-term debt obligations with a maturity of one year or less. The longer the maturity, the more interest the investor earns. Investors can purchase T-bills in increments of $100 through the secondary market in various ways, such as through a broker or investment bank or at auction on the TreasuryDirect.gov website.<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_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"> U.S. Treasury Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> U.S. Treasury bonds, also referred to as T-bonds, take the longest to mature of the three types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp">government-issued securities</a>. They also pay the highest interest rates. They are offered to investors for a term of 20 or 30 years to maturity. </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"> Investors can purchase<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasury-general-account.asp"> T-bonds</a> at monthly online auctions held directly by the U.S. Treasury; they are sold in increments of $100. Purchasers of T-bonds receive a fixed interest payment every six months.<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_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_36-0"><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_37-0"><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>You'll lose money if you sell a U.S. government security before it matures. Investors need to consider their timelines carefully before buying.</p></div></div></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"> U.S. Treasury Notes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> U.S. Treasury notes, also called T-notes, are similar to T-bonds. The difference is that T-notes are offered in a wide range of terms (from two years to 10 years). While T-notes do not generate yields as high as T-bonds, they do generate a payment for investors twice a year (or every six months). You can purchase T-notes in increments of $100.<span class="ql-inline-citation" data-cite="6"></span><br> </br></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-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_41-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Safe Places to Keep Your Money" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/GG2UKuYrflQrRh5szTixUs1kRvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/GG2UKuYrflQrRh5szTixUs1kRvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.png" data-srcset="https://www.investopedia.com/thmb/56jKq6sYXJ8az5NyEpPz7yrdxGk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Safe Places to Keep Your Money" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/GG2UKuYrflQrRh5szTixUs1kRvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.png" srcset="https://www.investopedia.com/thmb/56jKq6sYXJ8az5NyEpPz7yrdxGk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.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 / Danie Drankwalter</p></span> </figcaption></figure> <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-advisorinsight" 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_5-0">Advisor Insight</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="internalLink" href="https://www.investopedia.com/mark-struthers-4692621">Mark Struthers, CFA, CFP®</a><br/>Sona Financial, LLC, <em>Minneapolis, MN</em></p> <p>"Safe" is often a misused term. Most consider U.S. government treasuries as safe because if held to maturity, they have a guaranteed return of principal. What is often missed is that inflation can erode the purchasing power of that income stream and principal. Depending on your age and intention, if you have a low risk tolerance and are looking for low-cost, transparent options, then <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seriesibond.asp">I-Bonds</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tips.asp">Treasury Inflation-Protected Securities (TIPs) </a>are great options. If you own them individually, they can be held to maturity, and the government backs the return of principal. Plus, their values/payments are adjusted for inflation.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span></p></div></div></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_44-0"> <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_45-0"><span class="heading-toc" id="toc-where-is-the-smartest-place-to-keep-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Is the Smartest Place to Keep Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The smartest place to keep your money depends on how easily you want to withdraw your money, whether you want your funds to be insured, and the returns you hope to get. Compare rates and terms for:</p><ul><li><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></li><li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">Certificates of deposit (CDs)</a></li><li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-checking-accounts-5070332">High-yield checking accounts</a></li><li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">Money market accounts</a></li><li>Treasury bills</li></ul></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-how-can-i-protect-my-money-from-a-bank-collapse"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Protect My Money From a Bank Collapse?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As long as the financial institution is insured by the FDIC or NCUA, the money you put into a deposit account at a bank or credit union is insured for up to $250,000 per depositor, per bank. If the bank collapses or fails, you can still get your money back within a few days of the bank's closure. If you have more than $250,000, you may want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insure-deposits-over-fdic-limit-8625111">spread it throughout multiple banks to avoid uninsured deposits</a>.</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-where-is-the-safest-place-to-keep-cash"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Is the Safest Place To Keep Cash?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Deposit accounts—like savings accounts, CDs, MMAs, and checking accounts—are a safe place to keep money because consumer deposits are insured for up to $250,000, either by the FDIC or NCUA. If you want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0812/5-places-to-keep-your-money-when-you-dont-trust-the-banks.aspx">store cash at home</a>, you might consider keeping it with copies of your important paper documents in a waterproof, fireproof safe.</p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> If you're seeking a safe place to keep your money besides a savings account, you have several alternatives to explore. Consider how soon and how often you might need to access your cash—many options don't offer the liquidity of a savings account. Depending on the account, you might face withdrawal limits or pay a penalty to withdraw your money before the account reaches maturity. </p></div>

There are several good alternatives to savings accounts, including certificates of deposit (CDs), money market accounts (MMAs), and U.S. government securities. These are all relatively safe places to invest your money, with deposits guaranteed by the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) or the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp). CDs, MMAs, and U.S. government securities also offer some return on your money in the form of interest. If you prioritize keeping your money safe, you may want to ensure easy access and relatively low fees above high returns—but there are many safe accounts with good yields, so you don't necessarily need to choose between safety and high returns. ### Key Takeaways * Deposit insurance for savings accounts covers $250,000, as guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. * Certificates of deposit issued by banks and credit unions are also insured for up to $250,000, guaranteeing your deposit and any interest returns you earn. * Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts. * U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. ### See the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) or [best MMA rates](https://www.investopedia.com/best-money-market-accounts-5096917) available today, or learn [how to buy Treasury bonds and bills](https://www.investopedia.com/articles/bonds/08/treasuries-fed.asp). If you're still considering savings accounts, check what you could earn with the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). ## Certificates of Deposit [Certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) issued by banks and credit unions carry up to $250,000 in deposit insurance (assuming the bank or credit union is insured). A CD requires you to lock up your investment for a specified period, from several months to several years. You can't add more money to the CD during this time. You'll usually pay a penalty if you want to access your money before the CD matures. The penalty varies but usually adds up to several months' interest. However, many CD types are available, including [no-penalty CDs](https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp), [step-up CDs](https://www.investopedia.com/step-up-certificate-of-deposit-5271710), and raise-your-rate CDs, which can help relieve the interest rate or term-length risks. Typically, CDs with longer terms pay more interest than CDs with shorter terms, although this isn't always true. Depending on the current rate environment, you may find that CDs tend to have better rates than savings accounts, or vice versa. A [CD ladder](https://www.investopedia.com/terms/c/cd-ladder.asp) can help grow your earnings while providing periodic access to your money. With a CD ladder strategy, you open several CDs with different maturities. For example, you might open one 6-month CD, one 12-month CD, and one 18-month CD. As each CD matures, you can decide whether to withdraw or reinvest the money. This strategy may offer you greater flexibility and less risk than opening one CD (with one maturity date). ### Even savings accounts aren't totally risk-free. For example, if you leave your money in a savings account earning a low interest rate, your money's growth may not keep up with inflation. After considering inflation, the $1,000 you put in last year may be worth less next year. You might also miss out on [earning a higher return elsewhere](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 FDIC- or NCUA-insured, up to $250,000 per depositor, per bank. They earn interest and combine many of the features of checking and savings accounts, making them a good choice if you want to grow your money while maintaining easy access to it. MMAs typically come with debit cards and limited check-writing privileges. Money market accounts often have fees, along with minimum opening deposit requirements and minimum balance requirements. Transaction and withdrawal limits may apply. The [best money market account rates](https://www.investopedia.com/best-money-market-accounts-5096917) may rival those of the best CDs and savings accounts. ## U.S. Government Securities The federal government offers three categories of fixed-income securities to consumers and investors. U.S. government securities—such as [Treasury notes](https://www.investopedia.com/terms/t/treasurynote.asp), bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury securities may pay interest at higher rates than savings accounts, although it depends on the security's duration. ### U.S. Treasury Bills [U.S. Treasury bills](https://www.investopedia.com/terms/t/treasurybill.asp), also called T-bills, are federal, short-term debt obligations with a maturity of one year or less. The longer the maturity, the more interest the investor earns. Investors can purchase T-bills in increments of $100 through the secondary market in various ways, such as through a broker or investment bank or at auction on the TreasuryDirect.gov website. ### U.S. Treasury Bonds U.S. Treasury bonds, also referred to as T-bonds, take the longest to mature of the three types of [government-issued securities](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp). They also pay the highest interest rates. They are offered to investors for a term of 20 or 30 years to maturity. Investors can purchase [T-bonds](https://www.investopedia.com/terms/t/treasury-general-account.asp) at monthly online auctions held directly by the U.S. Treasury; they are sold in increments of $100. Purchasers of T-bonds receive a fixed interest payment every six months. ### You'll lose money if you sell a U.S. government security before it matures. Investors need to consider their timelines carefully before buying. ### U.S. Treasury Notes U.S. Treasury notes, also called T-notes, are similar to T-bonds. The difference is that T-notes are offered in a wide range of terms (from two years to 10 years). While T-notes do not generate yields as high as T-bonds, they do generate a payment for investors twice a year (or every six months). You can purchase T-notes in increments of $100. ![Safe Places to Keep Your Money]() :max_bytes(150000):strip_icc()/safest-place-for-money.asp_Final-e4dd0e73a9d74d73a2b462e35a634214.png) Investopedia / Danie Drankwalter ### Advisor Insight [Mark Struthers, CFA, CFP®](https://www.investopedia.com/mark-struthers-4692621) Sona Financial, LLC, *Minneapolis, MN* "Safe" is often a misused term. Most consider U.S. government treasuries as safe because if held to maturity, they have a guaranteed return of principal. What is often missed is that inflation can erode the purchasing power of that income stream and principal. Depending on your age and intention, if you have a low risk tolerance and are looking for low-cost, transparent options, then [I-Bonds](https://www.investopedia.com/terms/s/seriesibond.asp) and [Treasury Inflation-Protected Securities (TIPs)](https://www.investopedia.com/terms/t/tips.asp) are great options. If you own them individually, they can be held to maturity, and the government backs the return of principal. Plus, their values/payments are adjusted for inflation. ## Frequently Asked Questions (FAQs) ## Where Is the Smartest Place to Keep Money? The smartest place to keep your money depends on how easily you want to withdraw your money, whether you want your funds to be insured, and the returns you hope to get. Compare rates and terms for: * [High-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) * [Certificates of deposit (CDs)](https://www.investopedia.com/best-cd-rates-4770214) * [High-yield checking accounts](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) * [Money market accounts](https://www.investopedia.com/best-money-market-accounts-5096917) * Treasury bills ## How Can I Protect My Money From a Bank Collapse? As long as the financial institution is insured by the FDIC or NCUA, the money you put into a deposit account at a bank or credit union is insured for up to $250,000 per depositor, per bank. If the bank collapses or fails, you can still get your money back within a few days of the bank's closure. If you have more than $250,000, you may want to [spread it throughout multiple banks to avoid uninsured deposits](https://www.investopedia.com/insure-deposits-over-fdic-limit-8625111). ## Where Is the Safest Place To Keep Cash? Deposit accounts—like savings accounts, CDs, MMAs, and checking accounts—are a safe place to keep money because consumer deposits are insured for up to $250,000, either by the FDIC or NCUA. If you want to [store cash at home](https://www.investopedia.com/financial-edge/0812/5-places-to-keep-your-money-when-you-dont-trust-the-banks.aspx), you might consider keeping it with copies of your important paper documents in a waterproof, fireproof safe. ## The Bottom Line If you're seeking a safe place to keep your money besides a savings account, you have several alternatives to explore. Consider how soon and how often you might need to access your cash—many options don't offer the liquidity of a savings account. Depending on the account, you might face withdrawal limits or pay a penalty to withdraw your money before the account reaches maturity.

There are several good alternatives to savings accounts, including certificates of deposit (CDs), money market accounts (MMAs), and U.S. government securities. These are all relatively safe places to invest your money, with deposits guaranteed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). CDs, MMAs, and U.S. government securities also offer some return on your money in the form of interest. If you prioritize keeping your money safe, you may want to ensure easy access and relatively low fees above high returns—but there are many safe accounts with good yields, so you don't necessarily need to choose between safety and high returns. Key Takeaways Deposit insurance for savings accounts covers $250,000, as guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts.Certificates of deposit issued by banks and credit unions are also insured for up to $250,000, guaranteeing your deposit and any interest returns you earn.Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts.U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. See the best CD rates or best MMA rates available today, or learn how to buy Treasury bonds and bills. If you're still considering savings accounts, check what you could earn with the best high-yield savings accounts. Certificates of Deposit Certificates of deposit issued by banks and credit unions carry up to $250,000 in deposit insurance (assuming the bank or credit union is insured). A CD requires you to lock up your investment for a specified period, from several months to several years. You can't add more money to the CD during this time. You'll usually pay a penalty if you want to access your money before the CD matures. The penalty varies but usually adds up to several months' interest. However, many CD types are available, including no-penalty CDs, step-up CDs, and raise-your-rate CDs, which can help relieve the interest rate or term-length risks. Typically, CDs with longer terms pay more interest than CDs with shorter terms, although this isn't always true. Depending on the current rate environment, you may find that CDs tend to have better rates than savings accounts, or vice versa. A CD ladder can help grow your earnings while providing periodic access to your money. With a CD ladder strategy, you open several CDs with different maturities. For example, you might open one 6-month CD, one 12-month CD, and one 18-month CD. As each CD matures, you can decide whether to withdraw or reinvest the money. This strategy may offer you greater flexibility and less risk than opening one CD (with one maturity date). Even savings accounts aren't totally risk-free. For example, if you leave your money in a savings account earning a low interest rate, your money's growth may not keep up with inflation. After considering inflation, the $1,000 you put in last year may be worth less next year. You might also miss out on earning a higher return elsewhere. Money Market Accounts Money market accounts are FDIC- or NCUA-insured, up to $250,000 per depositor, per bank. They earn interest and combine many of the features of checking and savings accounts, making them a good choice if you want to grow your money while maintaining easy access to it. MMAs typically come with debit cards and limited check-writing privileges. Money market accounts often have fees, along with minimum opening deposit requirements and minimum balance requirements. Transaction and withdrawal limits may apply. The best money market account rates may rival those of the best CDs and savings accounts. U.S. Government Securities The federal government offers three categories of fixed-income securities to consumers and investors. U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury securities may pay interest at higher rates than savings accounts, although it depends on the security's duration. U.S. Treasury Bills U.S. Treasury bills, also called T-bills, are federal, short-term debt obligations with a maturity of one year or less. The longer the maturity, the more interest the investor earns. Investors can purchase T-bills in increments of $100 through the secondary market in various ways, such as through a broker or investment bank or at auction on the TreasuryDirect.gov website. U.S. Treasury Bonds U.S. Treasury bonds, also referred to as T-bonds, take the longest to mature of the three types of government-issued securities. They also pay the highest interest rates. They are offered to investors for a term of 20 or 30 years to maturity. Investors can purchase T-bonds at monthly online auctions held directly by the U.S. Treasury; they are sold in increments of $100. Purchasers of T-bonds receive a fixed interest payment every six months. You'll lose money if you sell a U.S. government security before it matures. Investors need to consider their timelines carefully before buying. U.S. Treasury Notes U.S. Treasury notes, also called T-notes, are similar to T-bonds. The difference is that T-notes are offered in a wide range of terms (from two years to 10 years). While T-notes do not generate yields as high as T-bonds, they do generate a payment for investors twice a year (or every six months). You can purchase T-notes in increments of $100. Investopedia / Danie Drankwalter Advisor Insight Mark Struthers, CFA, CFP®Sona Financial, LLC, Minneapolis, MN "Safe" is often a misused term. Most consider U.S. government treasuries as safe because if held to maturity, they have a guaranteed return of principal. What is often missed is that inflation can erode the purchasing power of that income stream and principal. Depending on your age and intention, if you have a low risk tolerance and are looking for low-cost, transparent options, then I-Bonds and Treasury Inflation-Protected Securities (TIPs) are great options. If you own them individually, they can be held to maturity, and the government backs the return of principal. Plus, their values/payments are adjusted for inflation. Frequently Asked Questions (FAQs) Where Is the Smartest Place to Keep Money? The smartest place to keep your money depends on how easily you want to withdraw your money, whether you want your funds to be insured, and the returns you hope to get. Compare rates and terms for:High-yield savings accountsCertificates of deposit (CDs)High-yield checking accountsMoney market accountsTreasury bills How Can I Protect My Money From a Bank Collapse? As long as the financial institution is insured by the FDIC or NCUA, the money you put into a deposit account at a bank or credit union is insured for up to $250,000 per depositor, per bank. If the bank collapses or fails, you can still get your money back within a few days of the bank's closure. If you have more than $250,000, you may want to spread it throughout multiple banks to avoid uninsured deposits. Where Is the Safest Place To Keep Cash? Deposit accounts—like savings accounts, CDs, MMAs, and checking accounts—are a safe place to keep money because consumer deposits are insured for up to $250,000, either by the FDIC or NCUA. If you want to store cash at home, you might consider keeping it with copies of your important paper documents in a waterproof, fireproof safe. The Bottom Line If you're seeking a safe place to keep your money besides a savings account, you have several alternatives to explore. Consider how soon and how often you might need to access your cash—many options don't offer the liquidity of a savings account. Depending on the account, you might face withdrawal limits or pay a penalty to withdraw your money before the account reaches maturity.

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

Step-Up Bond: Definition, How It Works, Pros & Cons, 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-step-up-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 Step-Up Bond? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A step-up bond is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp" rel="noopener noreferrer">bond</a> that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals. The number and extent of the rate increase, as well as the timing, depends on the terms of the bond. A step-up bond provides investors with the benefits of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp" rel="noopener noreferrer">fixed-income</a> securities while keeping up with rising interest rates. </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"> However, the initial rate offered on a step-up bond could be lower than the rates offered in other fixed-income investments. Although there are many benefits to step-up bonds, investors should also be aware of the inherent risks associated with these debt securities. </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 step-up bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals.</li><li>The number and extent of rate increases–as well as the timing–depends on the terms of the bond.</li><li>Step-up bonds provide investors with periodic interest payments while allowing them the chance to earn a higher rate in the future.</li><li>Some bonds are single step-up bonds that have only one increase in the coupon rate, while others may have multi-step increases.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-step-up-bonds-work"></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 Step-Up Bonds Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Bonds are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp" rel="noopener noreferrer">debt instrument</a> securities or IOUs that corporations and government agencies issue to investors to raise funds for a project or an expansion. Typically, the investor pays for the bond upfront for its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp" rel="noopener noreferrer">face value</a> amount, which could be $1,000 each. The investor would get repaid the $1,000 (called the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp" rel="noopener noreferrer">principal</a> amount), when the bond matures, (called the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp" rel="noopener noreferrer">maturity date</a>). Most bonds pay a periodic interest rate, (called a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp" rel="noopener noreferrer">coupon rate</a>), that's typically fixed over the life of the bond. </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"> For example, if an investor buys a $1,000 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp" rel="noopener noreferrer">Treasury bond</a> with a rate of 2%–maturing in ten years–the investor would be paid interest payments based on the 2% coupon rate. The investor would be repaid the $1,000 principal when the bond matures–or in ten years. </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"> Conversely, a step-up bond pays a lower rate in the early years, and its rate increases over time so that investors receive a higher coupon rate as the maturity date approaches. For example, a five-year step-up bond might have an initial rate of 2.5% for the first two years and a 4.5% coupon rate for the final three years. Because the coupon payment increases over the life of the bond, a step-up bond lets investors take advantage of the stability of bond interest payments while benefiting from increases in the coupon rate. However, as a result of the step-up feature, step-up bonds tend to have lower coupon rates initially, compared to other fixed-rate bonds. </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-step-up-bond-rate-increases"></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"> Step-Up Bond Rate Increases </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The structure of step-up bonds can have either single or multiple rate increases. Single step-up bonds, also known as one-step bonds, have one increase in the coupon rate during the life of the bond. Conversely, the multi-step-up bond can adjust the coupon upward several times within the life of the security. The coupon increases follow a predetermined schedule. </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"> Step-up bonds are similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tips.asp" rel="noopener noreferrer">Treasury Inflation-Protected Securities</a> (TIPS). The principal of a TIPS increases with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp" rel="noopener noreferrer">inflation</a> and decreases with deflation. Inflation is the rate of price increases in the U.S. economy and is measured by the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp" rel="noopener noreferrer">Consumer Price Index</a>. TIPS pay interest semiannually, at a fixed rate, which is applied to the adjusted principal amount. As a result, the interest payment amounts rise with inflation and fall with deflation.<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_19-0"></div> <span class="heading-toc" id="toc-benefits-of-step-up-bonds"></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"> Benefits of Step-Up Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Step-up bonds typically perform better than other fixed-rate investments in a rising-rate market. With each step, bondholders are paid a higher rate, and since there's less risk of losing out on higher market rates, step-ups have less price <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp" rel="noopener noreferrer">volatility</a> or price fluctuations. </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"> It's important to remember that bond prices and interest rates are inversely related, meaning that when interest rates fall, bond prices increase. Conversely, rising interest rates tend to lead to a sell-off in the bond market, and bond prices fall. The reason for the sell-off is that existing fixed-rate bonds are less attractive in a rising-rate market. Investors typically demand higher-yielding bonds as rates rise and dump their lower-rate bonds. Step-up bonds help investors avoid this process since the rate of the bond increases over time. </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"> Step-up bonds sell on the secondary market and are regulated by the <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). As a result, there are usually enough buyers and sellers in the market–called <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>–allowing investors to enter and exit positions with ease. </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>A step-up bond's interest payments increase over the life of the bond.</p></li> <li><p>The SEC regulates step-up bonds.</p></li> <li><p>Step-up bonds tend to have a low risk of default.</p></li> <li><p>The step-up feature reduces exposure to market rate and price volatility.</p></li> <li><p>Step-up bonds are very liquid.</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 rates are not guaranteed as some step-up bonds are callable.</p></li> <li><p>Interest rate risk exists: Market rates can rise faster than the step-up rates.</p></li> <li><p>Noncallable step-ups pay lower coupon rates since there's no risk of early redemption.</p></li> <li><p>Step-ups sold early could incur a loss if the sale price is less than the purchase price.</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-risks-of-step-up-bonds"></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"> Risks of Step-Up Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> On the downside, some step-up bonds are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/callablebond.asp" rel="noopener noreferrer">callable</a>, meaning the issuer can redeem the bond. The callable feature will be triggered when it benefits the issuer meaning if market rates fall, the investor has a chance of the bond's issuer calling back the security. If the bond is recalled, it will be unlikely that the investor will be able to reinvest at the same rate received from the step-up bond. Also, if the investor purchases a new bond, the price will likely be different from the original purchase price of the step-up bond. </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"> Although step-up bonds increase at set intervals in a rising-rate environment, they can still miss out on higher interest rates. If market rates are rising at a faster rate than the step-up increases, the bondholder will experience <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestraterisk.asp" rel="noopener noreferrer">interest rate risk</a>. Also, the investor may have an opportunity cost and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reinvestmentrisk.asp" rel="noopener noreferrer">reinvestment risk</a> if the step-up bond is paying a lower-than-market rate versus other bonds available. </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"> Step-up bonds are usually issued by high-quality corporations and government agencies, which helps to reduce the risk of default, which is the failure to repay the principal and interest. </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"> Bond prices fluctuate periodically. If a step-up bond is sold before its maturity date, the price the investor receives could be lower than the original purchase price leading to a loss. The investor is only guaranteed the principal amount being returned if the bond is held to maturity. </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-a-step-up-bond"></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 a Step-Up Bond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Let's say Apple Inc. (AAPL) offers investors a step-up bond with a five-year maturity. The coupon rate or interest rate is 3% for the first two years and steps up to 4.5% in the following three years. </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"> Shortly after purchasing the bond, let's say overall interest rates rise to 3.5% in the economy after the first year. The step-up bond would have a lower rate of return at 3% versus the overall market. </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 year three, interest rates fall to 2.4% due to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp" rel="noopener noreferrer">Federal Reserve</a> signaling it'll keep market interest rates low to boost the economy for the next few years. The step-up bond would have a higher rate at 4.5% versus the overall market or typical fixed-income securities. </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"> However, if interest rates rose during the life of the step-up bond and consistently exceeded the coupon rate, the bond's return would be lower relative to the overall market. </p></div>

## What Is a Step-Up Bond? A step-up bond is a [bond](https://www.investopedia.com/terms/b/bond.asp) that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals. The number and extent of the rate increase, as well as the timing, depends on the terms of the bond. A step-up bond provides investors with the benefits of [fixed-income](https://www.investopedia.com/terms/f/fixedincome.asp) securities while keeping up with rising interest rates. However, the initial rate offered on a step-up bond could be lower than the rates offered in other fixed-income investments. Although there are many benefits to step-up bonds, investors should also be aware of the inherent risks associated with these debt securities. ### Key Takeaways * A step-up bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals. * The number and extent of rate increases–as well as the timing–depends on the terms of the bond. * Step-up bonds provide investors with periodic interest payments while allowing them the chance to earn a higher rate in the future. * Some bonds are single step-up bonds that have only one increase in the coupon rate, while others may have multi-step increases. ## How Step-Up Bonds Work Bonds are [debt instrument](https://www.investopedia.com/terms/d/debtinstrument.asp) securities or IOUs that corporations and government agencies issue to investors to raise funds for a project or an expansion. Typically, the investor pays for the bond upfront for its [face value](https://www.investopedia.com/terms/f/facevalue.asp) amount, which could be $1,000 each. The investor would get repaid the $1,000 (called the [principal](https://www.investopedia.com/terms/p/principal.asp) amount), when the bond matures, (called the [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp)). Most bonds pay a periodic interest rate, (called a [coupon rate](https://www.investopedia.com/terms/c/coupon-rate.asp)), that's typically fixed over the life of the bond. For example, if an investor buys a $1,000 [Treasury bond](https://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp) with a rate of 2%–maturing in ten years–the investor would be paid interest payments based on the 2% coupon rate. The investor would be repaid the $1,000 principal when the bond matures–or in ten years. Conversely, a step-up bond pays a lower rate in the early years, and its rate increases over time so that investors receive a higher coupon rate as the maturity date approaches. For example, a five-year step-up bond might have an initial rate of 2.5% for the first two years and a 4.5% coupon rate for the final three years. Because the coupon payment increases over the life of the bond, a step-up bond lets investors take advantage of the stability of bond interest payments while benefiting from increases in the coupon rate. However, as a result of the step-up feature, step-up bonds tend to have lower coupon rates initially, compared to other fixed-rate bonds. ## Step-Up Bond Rate Increases The structure of step-up bonds can have either single or multiple rate increases. Single step-up bonds, also known as one-step bonds, have one increase in the coupon rate during the life of the bond. Conversely, the multi-step-up bond can adjust the coupon upward several times within the life of the security. The coupon increases follow a predetermined schedule. Step-up bonds are similar to [Treasury Inflation-Protected Securities](https://www.investopedia.com/terms/t/tips.asp) (TIPS). The principal of a TIPS increases with [inflation](https://www.investopedia.com/terms/i/inflation.asp) and decreases with deflation. Inflation is the rate of price increases in the U.S. economy and is measured by the [Consumer Price Index](https://www.investopedia.com/terms/c/consumerpriceindex.asp). TIPS pay interest semiannually, at a fixed rate, which is applied to the adjusted principal amount. As a result, the interest payment amounts rise with inflation and fall with deflation. ## Benefits of Step-Up Bonds Step-up bonds typically perform better than other fixed-rate investments in a rising-rate market. With each step, bondholders are paid a higher rate, and since there's less risk of losing out on higher market rates, step-ups have less price [volatility](https://www.investopedia.com/terms/v/volatility.asp) or price fluctuations. It's important to remember that bond prices and interest rates are inversely related, meaning that when interest rates fall, bond prices increase. Conversely, rising interest rates tend to lead to a sell-off in the bond market, and bond prices fall. The reason for the sell-off is that existing fixed-rate bonds are less attractive in a rising-rate market. Investors typically demand higher-yielding bonds as rates rise and dump their lower-rate bonds. Step-up bonds help investors avoid this process since the rate of the bond increases over time. Step-up bonds sell on the secondary market and are regulated by the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC). As a result, there are usually enough buyers and sellers in the market–called [liquidity](https://www.investopedia.com/terms/l/liquidity.asp)–allowing investors to enter and exit positions with ease. Pros * A step-up bond's interest payments increase over the life of the bond. * The SEC regulates step-up bonds. * Step-up bonds tend to have a low risk of default. * The step-up feature reduces exposure to market rate and price volatility. * Step-up bonds are very liquid. Cons * Higher rates are not guaranteed as some step-up bonds are callable. * Interest rate risk exists: Market rates can rise faster than the step-up rates. * Noncallable step-ups pay lower coupon rates since there's no risk of early redemption. * Step-ups sold early could incur a loss if the sale price is less than the purchase price. ## Risks of Step-Up Bonds On the downside, some step-up bonds are [callable](https://www.investopedia.com/terms/c/callablebond.asp), meaning the issuer can redeem the bond. The callable feature will be triggered when it benefits the issuer meaning if market rates fall, the investor has a chance of the bond's issuer calling back the security. If the bond is recalled, it will be unlikely that the investor will be able to reinvest at the same rate received from the step-up bond. Also, if the investor purchases a new bond, the price will likely be different from the original purchase price of the step-up bond. Although step-up bonds increase at set intervals in a rising-rate environment, they can still miss out on higher interest rates. If market rates are rising at a faster rate than the step-up increases, the bondholder will experience [interest rate risk](https://www.investopedia.com/terms/i/interestraterisk.asp). Also, the investor may have an opportunity cost and [reinvestment risk](https://www.investopedia.com/terms/r/reinvestmentrisk.asp) if the step-up bond is paying a lower-than-market rate versus other bonds available. Step-up bonds are usually issued by high-quality corporations and government agencies, which helps to reduce the risk of default, which is the failure to repay the principal and interest. Bond prices fluctuate periodically. If a step-up bond is sold before its maturity date, the price the investor receives could be lower than the original purchase price leading to a loss. The investor is only guaranteed the principal amount being returned if the bond is held to maturity. ## Example of a Step-Up Bond Let's say Apple Inc. (AAPL) offers investors a step-up bond with a five-year maturity. The coupon rate or interest rate is 3% for the first two years and steps up to 4.5% in the following three years. Shortly after purchasing the bond, let's say overall interest rates rise to 3.5% in the economy after the first year. The step-up bond would have a lower rate of return at 3% versus the overall market. In year three, interest rates fall to 2.4% due to the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) signaling it'll keep market interest rates low to boost the economy for the next few years. The step-up bond would have a higher rate at 4.5% versus the overall market or typical fixed-income securities. However, if interest rates rose during the life of the step-up bond and consistently exceeded the coupon rate, the bond's return would be lower relative to the overall market.

What Is a Step-Up Bond? A step-up bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals. The number and extent of the rate increase, as well as the timing, depends on the terms of the bond. A step-up bond provides investors with the benefits of fixed-income securities while keeping up with rising interest rates. However, the initial rate offered on a step-up bond could be lower than the rates offered in other fixed-income investments. Although there are many benefits to step-up bonds, investors should also be aware of the inherent risks associated with these debt securities. Key Takeaways A step-up bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals.The number and extent of rate increases–as well as the timing–depends on the terms of the bond.Step-up bonds provide investors with periodic interest payments while allowing them the chance to earn a higher rate in the future.Some bonds are single step-up bonds that have only one increase in the coupon rate, while others may have multi-step increases. How Step-Up Bonds Work Bonds are debt instrument securities or IOUs that corporations and government agencies issue to investors to raise funds for a project or an expansion. Typically, the investor pays for the bond upfront for its face value amount, which could be $1,000 each. The investor would get repaid the $1,000 (called the principal amount), when the bond matures, (called the maturity date). Most bonds pay a periodic interest rate, (called a coupon rate), that's typically fixed over the life of the bond. For example, if an investor buys a $1,000 Treasury bond with a rate of 2%–maturing in ten years–the investor would be paid interest payments based on the 2% coupon rate. The investor would be repaid the $1,000 principal when the bond matures–or in ten years. Conversely, a step-up bond pays a lower rate in the early years, and its rate increases over time so that investors receive a higher coupon rate as the maturity date approaches. For example, a five-year step-up bond might have an initial rate of 2.5% for the first two years and a 4.5% coupon rate for the final three years. Because the coupon payment increases over the life of the bond, a step-up bond lets investors take advantage of the stability of bond interest payments while benefiting from increases in the coupon rate. However, as a result of the step-up feature, step-up bonds tend to have lower coupon rates initially, compared to other fixed-rate bonds. Step-Up Bond Rate Increases The structure of step-up bonds can have either single or multiple rate increases. Single step-up bonds, also known as one-step bonds, have one increase in the coupon rate during the life of the bond. Conversely, the multi-step-up bond can adjust the coupon upward several times within the life of the security. The coupon increases follow a predetermined schedule. Step-up bonds are similar to Treasury Inflation-Protected Securities (TIPS). The principal of a TIPS increases with inflation and decreases with deflation. Inflation is the rate of price increases in the U.S. economy and is measured by the Consumer Price Index. TIPS pay interest semiannually, at a fixed rate, which is applied to the adjusted principal amount. As a result, the interest payment amounts rise with inflation and fall with deflation. Benefits of Step-Up Bonds Step-up bonds typically perform better than other fixed-rate investments in a rising-rate market. With each step, bondholders are paid a higher rate, and since there's less risk of losing out on higher market rates, step-ups have less price volatility or price fluctuations. It's important to remember that bond prices and interest rates are inversely related, meaning that when interest rates fall, bond prices increase. Conversely, rising interest rates tend to lead to a sell-off in the bond market, and bond prices fall. The reason for the sell-off is that existing fixed-rate bonds are less attractive in a rising-rate market. Investors typically demand higher-yielding bonds as rates rise and dump their lower-rate bonds. Step-up bonds help investors avoid this process since the rate of the bond increases over time. Step-up bonds sell on the secondary market and are regulated by the Securities and Exchange Commission (SEC). As a result, there are usually enough buyers and sellers in the market–called liquidity–allowing investors to enter and exit positions with ease. Pros A step-up bond's interest payments increase over the life of the bond. The SEC regulates step-up bonds. Step-up bonds tend to have a low risk of default. The step-up feature reduces exposure to market rate and price volatility. Step-up bonds are very liquid. Cons Higher rates are not guaranteed as some step-up bonds are callable. Interest rate risk exists: Market rates can rise faster than the step-up rates. Noncallable step-ups pay lower coupon rates since there's no risk of early redemption. Step-ups sold early could incur a loss if the sale price is less than the purchase price. Risks of Step-Up Bonds On the downside, some step-up bonds are callable, meaning the issuer can redeem the bond. The callable feature will be triggered when it benefits the issuer meaning if market rates fall, the investor has a chance of the bond's issuer calling back the security. If the bond is recalled, it will be unlikely that the investor will be able to reinvest at the same rate received from the step-up bond. Also, if the investor purchases a new bond, the price will likely be different from the original purchase price of the step-up bond. Although step-up bonds increase at set intervals in a rising-rate environment, they can still miss out on higher interest rates. If market rates are rising at a faster rate than the step-up increases, the bondholder will experience interest rate risk. Also, the investor may have an opportunity cost and reinvestment risk if the step-up bond is paying a lower-than-market rate versus other bonds available. Step-up bonds are usually issued by high-quality corporations and government agencies, which helps to reduce the risk of default, which is the failure to repay the principal and interest. Bond prices fluctuate periodically. If a step-up bond is sold before its maturity date, the price the investor receives could be lower than the original purchase price leading to a loss. The investor is only guaranteed the principal amount being returned if the bond is held to maturity. Example of a Step-Up Bond Let's say Apple Inc. (AAPL) offers investors a step-up bond with a five-year maturity. The coupon rate or interest rate is 3% for the first two years and steps up to 4.5% in the following three years. Shortly after purchasing the bond, let's say overall interest rates rise to 3.5% in the economy after the first year. The step-up bond would have a lower rate of return at 3% versus the overall market. In year three, interest rates fall to 2.4% due to the Federal Reserve signaling it'll keep market interest rates low to boost the economy for the next few years. The step-up bond would have a higher rate at 4.5% versus the overall market or typical fixed-income securities. However, if interest rates rose during the life of the step-up bond and consistently exceeded the coupon rate, the bond's return would be lower relative to the overall market.

https://www.investopedia.com/federal-reserve-preferred-inflation-measure-heated-up-march-8639440

The Federal Reserve's Preferred Measure Of Inflation Heated Up In March

<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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Inflation as measured by Personal Consumption Expenditures headed in the wrong direction in March, heating up to a 2.7% annual rate from 2.5% in February. </li><li>Higher inflation could hurt household finances in another way, by keeping interest rates high on all kinds of loans as the Fed holds interest rates higher for longer to fight inflation.<br/></li><li>The hot PCE report echoes what a different inflation measure, the Consumer Price Index, showed earlier this month.<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"> A government report confirmed what people have already seen on their trips to the gas station and grocery store: inflation is staying too high for comfort.<br/><br/>The cost of living, as measured by the Personal Consumption Expenditures (PCE) index, rose 2.7% over the last year in March, up from a 2.5% annual increase in February, the Bureau of Economic Analysis said Friday.<span class="ql-inline-citation" data-cite="1"></span> The uptick, driven largely by increases in food and energy prices, was slightly higher than the expectations of forecasters, according to a survey of economists by Dow Jones Newswires and the <em>Wall Street Journal.<span class="ql-inline-citation" data-cite="2"></span> </em> </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-other-measures-foretold-the-increase"></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"> Other Measures Foretold the Increase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The Consumer Price Index already showed overheated inflation earlier this month when the Bureau of Labor Statistics released it. But PCE inflation is more significant for the direction of interest rates because it’s closely watched by officials at the Federal Reserve who set the nation’s monetary policy. </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"> "It's going the wrong way," said Dan North, senior economist at Allianz Trade. </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 two major inflation measures are both based on surveys of prices of the things people buy but are calculated differently, with PCE inflation putting less emphasis on housing, for example. Hot inflation as shown by the PCE is bad news for anyone waiting for lower interest rates on things like mortgages and credit cards.  </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 Thursday's report on Gross Domestic Product (GDP) showed higher than expected inflation for the entire quarter, some economic watchers worried it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/todays-gdp-report-not-only-showed-weak-economic-growth-but-worrisome-inflation-8638966">belied a drastic increase in inflation</a>. January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure would drastically change the outcome for March. </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-inflations-core-is-heating-up"></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"> Inflation's Core Is Heating Up </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Fed has been holding the influential fed funds rate at its highest since 2001 to combat inflation, putting upward pressure on interest rates on all kinds of loans. Fed officials have said they’re waiting for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/data-driven-fed-is-making-investors-jumpy-about-inflation-reports-8601759">data showing inflation is firmly on the path to a 2%</a> annual rate before they’ll cut the fed funds rate.  </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 details of Friday's report held another bad sign for interest rates: "core" inflation, which excludes volatile prices for gas and energy, rose 2.8% over the year, the same as in March, and higher than the drop to 2.7% that the median forecast had anticipated. Economists watch core inflation because it is a better indicator of long-term inflation pressures since it leaves out prices that tend to swing up and down for temporary reasons like the weather. </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 report also showed consumers have plenty of firepower to keep spending, and are using it. Personal income rose 0.5% in March from February, up from a 0.3% monthly increase in February, supported by salaries in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/employers-hired-far-more-than-expected-in-march-8625280">labor market that still favors workers</a>. Spending rose even faster at a 0.8% clip, the same as in February. </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"> That's along the same lines as Thursday's report on the Gross Domestic Product, which showed consumer spending was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-the-us-economy-headed-for-a-bout-of-stagflation-8639192">still powering the economy ahead</a>, despite some factors, including rising imports, making economic growth <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gdp-growth-slowed-to-2-2-in-q1-as-high-interest-rates-drag-economy-8638775">seem slower on paper</a>.<br/><br/>"You've got to go under the hood," North said of the GDP report. "The hood is rusty, but underneath, it's really not so bad."<br/> </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"> That too has implications for rate cuts, since consumer spending is the main engine of the country's economy, and if it's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-the-us-economy-headed-for-a-bout-of-stagflation-8639192">going strong</a>, the Fed has less reason to cut interest rates to stimulate growth. </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-fed-cant-get-confident-with-numbers-like-these"></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"> Fed Can't Get Confident with Numbers Like These </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The streak of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/will-the-fed-cut-its-interest-rate-this-year-doubts-are-creeping-in-8603666">bad inflation reports this year</a> combined with evidence that growth is still surging ahead is likely to discourage the Federal Reserve Chair Jerome Powell and other officials from cutting interest rates through at least November, North said.<br/><br/>"If you're Jay Powell, and you're looking at the growth side of the economy, you're saying, 'Well, it's doing fine—look at personal consumption, look at the labor market. It doesn't need any stimulus, so I don't need to cut rates from that perspective,'" he said. "And if I look at the inflation side: To look at that core number, we're at 2.8%. That's not 2%. ...We're a long, long way from that as well. So this just keeps Jay Powell out for several months."<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>

### * Inflation as measured by Personal Consumption Expenditures headed in the wrong direction in March, heating up to a 2.7% annual rate from 2.5% in February. * Higher inflation could hurt household finances in another way, by keeping interest rates high on all kinds of loans as the Fed holds interest rates higher for longer to fight inflation. * The hot PCE report echoes what a different inflation measure, the Consumer Price Index, showed earlier this month. A government report confirmed what people have already seen on their trips to the gas station and grocery store: inflation is staying too high for comfort. The cost of living, as measured by the Personal Consumption Expenditures (PCE) index, rose 2.7% over the last year in March, up from a 2.5% annual increase in February, the Bureau of Economic Analysis said Friday. The uptick, driven largely by increases in food and energy prices, was slightly higher than the expectations of forecasters, according to a survey of economists by Dow Jones Newswires and the *Wall Street Journal.* ## Other Measures Foretold the Increase The Consumer Price Index already showed overheated inflation earlier this month when the Bureau of Labor Statistics released it. But PCE inflation is more significant for the direction of interest rates because it’s closely watched by officials at the Federal Reserve who set the nation’s monetary policy. "It's going the wrong way," said Dan North, senior economist at Allianz Trade. The two major inflation measures are both based on surveys of prices of the things people buy but are calculated differently, with PCE inflation putting less emphasis on housing, for example. Hot inflation as shown by the PCE is bad news for anyone waiting for lower interest rates on things like mortgages and credit cards.  After Thursday's report on Gross Domestic Product (GDP) showed higher than expected inflation for the entire quarter, some economic watchers worried it [belied a drastic increase in inflation](https://www.investopedia.com/todays-gdp-report-not-only-showed-weak-economic-growth-but-worrisome-inflation-8638966). January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure would drastically change the outcome for March. ## Inflation's Core Is Heating Up The Fed has been holding the influential fed funds rate at its highest since 2001 to combat inflation, putting upward pressure on interest rates on all kinds of loans. Fed officials have said they’re waiting for [data showing inflation is firmly on the path to a 2%](https://www.investopedia.com/data-driven-fed-is-making-investors-jumpy-about-inflation-reports-8601759) annual rate before they’ll cut the fed funds rate.  The details of Friday's report held another bad sign for interest rates: "core" inflation, which excludes volatile prices for gas and energy, rose 2.8% over the year, the same as in March, and higher than the drop to 2.7% that the median forecast had anticipated. Economists watch core inflation because it is a better indicator of long-term inflation pressures since it leaves out prices that tend to swing up and down for temporary reasons like the weather. The report also showed consumers have plenty of firepower to keep spending, and are using it. Personal income rose 0.5% in March from February, up from a 0.3% monthly increase in February, supported by salaries in a [labor market that still favors workers](https://www.investopedia.com/employers-hired-far-more-than-expected-in-march-8625280). Spending rose even faster at a 0.8% clip, the same as in February. That's along the same lines as Thursday's report on the Gross Domestic Product, which showed consumer spending was [still powering the economy ahead](https://www.investopedia.com/is-the-us-economy-headed-for-a-bout-of-stagflation-8639192), despite some factors, including rising imports, making economic growth [seem slower on paper](https://www.investopedia.com/gdp-growth-slowed-to-2-2-in-q1-as-high-interest-rates-drag-economy-8638775). "You've got to go under the hood," North said of the GDP report. "The hood is rusty, but underneath, it's really not so bad." That too has implications for rate cuts, since consumer spending is the main engine of the country's economy, and if it's [going strong](https://www.investopedia.com/is-the-us-economy-headed-for-a-bout-of-stagflation-8639192), the Fed has less reason to cut interest rates to stimulate growth. ## Fed Can't Get Confident with Numbers Like These The streak of [bad inflation reports this year](https://www.investopedia.com/will-the-fed-cut-its-interest-rate-this-year-doubts-are-creeping-in-8603666) combined with evidence that growth is still surging ahead is likely to discourage the Federal Reserve Chair Jerome Powell and other officials from cutting interest rates through at least November, North said. "If you're Jay Powell, and you're looking at the growth side of the economy, you're saying, 'Well, it's doing fine—look at personal consumption, look at the labor market. It doesn't need any stimulus, so I don't need to cut rates from that perspective,'" he said. "And if I look at the inflation side: To look at that core number, we're at 2.8%. That's not 2%. ...We're a long, long way from that as well. So this just keeps Jay Powell out for several months." Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Inflation as measured by Personal Consumption Expenditures headed in the wrong direction in March, heating up to a 2.7% annual rate from 2.5% in February. Higher inflation could hurt household finances in another way, by keeping interest rates high on all kinds of loans as the Fed holds interest rates higher for longer to fight inflation.The hot PCE report echoes what a different inflation measure, the Consumer Price Index, showed earlier this month. A government report confirmed what people have already seen on their trips to the gas station and grocery store: inflation is staying too high for comfort.The cost of living, as measured by the Personal Consumption Expenditures (PCE) index, rose 2.7% over the last year in March, up from a 2.5% annual increase in February, the Bureau of Economic Analysis said Friday. The uptick, driven largely by increases in food and energy prices, was slightly higher than the expectations of forecasters, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.  Other Measures Foretold the Increase The Consumer Price Index already showed overheated inflation earlier this month when the Bureau of Labor Statistics released it. But PCE inflation is more significant for the direction of interest rates because it’s closely watched by officials at the Federal Reserve who set the nation’s monetary policy. "It's going the wrong way," said Dan North, senior economist at Allianz Trade. The two major inflation measures are both based on surveys of prices of the things people buy but are calculated differently, with PCE inflation putting less emphasis on housing, for example. Hot inflation as shown by the PCE is bad news for anyone waiting for lower interest rates on things like mortgages and credit cards.  After Thursday's report on Gross Domestic Product (GDP) showed higher than expected inflation for the entire quarter, some economic watchers worried it belied a drastic increase in inflation. January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure would drastically change the outcome for March. Inflation's Core Is Heating Up The Fed has been holding the influential fed funds rate at its highest since 2001 to combat inflation, putting upward pressure on interest rates on all kinds of loans. Fed officials have said they’re waiting for data showing inflation is firmly on the path to a 2% annual rate before they’ll cut the fed funds rate.  The details of Friday's report held another bad sign for interest rates: "core" inflation, which excludes volatile prices for gas and energy, rose 2.8% over the year, the same as in March, and higher than the drop to 2.7% that the median forecast had anticipated. Economists watch core inflation because it is a better indicator of long-term inflation pressures since it leaves out prices that tend to swing up and down for temporary reasons like the weather. The report also showed consumers have plenty of firepower to keep spending, and are using it. Personal income rose 0.5% in March from February, up from a 0.3% monthly increase in February, supported by salaries in a labor market that still favors workers. Spending rose even faster at a 0.8% clip, the same as in February. That's along the same lines as Thursday's report on the Gross Domestic Product, which showed consumer spending was still powering the economy ahead, despite some factors, including rising imports, making economic growth seem slower on paper."You've got to go under the hood," North said of the GDP report. "The hood is rusty, but underneath, it's really not so bad." That too has implications for rate cuts, since consumer spending is the main engine of the country's economy, and if it's going strong, the Fed has less reason to cut interest rates to stimulate growth. Fed Can't Get Confident with Numbers Like These The streak of bad inflation reports this year combined with evidence that growth is still surging ahead is likely to discourage the Federal Reserve Chair Jerome Powell and other officials from cutting interest rates through at least November, North said."If you're Jay Powell, and you're looking at the growth side of the economy, you're saying, 'Well, it's doing fine—look at personal consumption, look at the labor market. It doesn't need any stimulus, so I don't need to cut rates from that perspective,'" he said. "And if I look at the inflation side: To look at that core number, we're at 2.8%. That's not 2%. ...We're a long, long way from that as well. So this just keeps Jay Powell out for several months." Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/tesla-shares-slide-as-ev-maker-reportedly-scales-back-production-in-china-8613179

Tesla Shares Slide as EV Maker Reportedly Scales Back Production in China

<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>Tesla shares lost ground in intraday trading Friday following a report the company has reduced production at its facility in Shanghai, China.</li><li>Factory workers in Shanghai were told to scale back production, operating the factory five days instead of the previous schedule of six and a half days a week, Bloomberg reported.</li><li>The move to reduce production comes amid growth concerns as the EV market has cooled and as Tesla faces rising competition.</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"> 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>) shares were over 2% lower in intraday trading Friday following a report that the company has slowed production at its facility in Shanghai, China. </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"> Production at Tesla's Shanghai facility, where the electric vehicle (EV) maker produces its Model Y and Model 3 vehicles, has been scaled back to operating five days a week from the prior schedule of six and a half days a week, <em>Bloomberg </em>reported.<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 EV maker reportedly told workers and suppliers to expect certain production limits to last through April. Tesla did not immediately respond to a request for comment.<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"> The move to reduce production comes amid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tesla-tumbles-as-bank-calls-it-growth-company-with-no-growth-8608498">growth concerns</a> as the EV market has cooled and as Tesla faces rising competition. Analysts at Wells Fargo (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WFC">WFC</a>) and UBS (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UBS">UBS</a>) <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tesltesla-stock-extends-losses-for-third-day-over-growth-concerns-8609521">downgraded Tesla's stock</a> last week, with UBS analysts calling it a "growth company with no growth." </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"> Analysts at UBS projected the carmaker’s growth could flatline this year before declining in 2025. In the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-elon-musk-s-remarks-during-tesla-s-earnings-call-8549480">company's January earnings call</a>, Tesla CEO Elon Musk said that the high interest rate environment of the last few years has also hampered Tesla's revenue, and suggested the company could see an increase in demand if <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">rates fall this year</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"> Tesla shares were down about 2.2% at $168.88 as of 12:20 p.m. ET Friday. The company has had a rough start to the year, with its stock price down more than 30% so far in 2024. </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 * Tesla shares lost ground in intraday trading Friday following a report the company has reduced production at its facility in Shanghai, China. * Factory workers in Shanghai were told to scale back production, operating the factory five days instead of the previous schedule of six and a half days a week, Bloomberg reported. * The move to reduce production comes amid growth concerns as the EV market has cooled and as Tesla faces rising competition. Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)) shares were over 2% lower in intraday trading Friday following a report that the company has slowed production at its facility in Shanghai, China. Production at Tesla's Shanghai facility, where the electric vehicle (EV) maker produces its Model Y and Model 3 vehicles, has been scaled back to operating five days a week from the prior schedule of six and a half days a week, *Bloomberg* reported. The EV maker reportedly told workers and suppliers to expect certain production limits to last through April. Tesla did not immediately respond to a request for comment. The move to reduce production comes amid [growth concerns](https://www.investopedia.com/tesla-tumbles-as-bank-calls-it-growth-company-with-no-growth-8608498) as the EV market has cooled and as Tesla faces rising competition. Analysts at Wells Fargo ([WFC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WFC)) and UBS ([UBS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UBS)) [downgraded Tesla's stock](https://www.investopedia.com/tesltesla-stock-extends-losses-for-third-day-over-growth-concerns-8609521) last week, with UBS analysts calling it a "growth company with no growth." Analysts at UBS projected the carmaker’s growth could flatline this year before declining in 2025. In the [company's January earnings call](https://www.investopedia.com/4-key-takeaways-from-elon-musk-s-remarks-during-tesla-s-earnings-call-8549480), Tesla CEO Elon Musk said that the high interest rate environment of the last few years has also hampered Tesla's revenue, and suggested the company could see an increase in demand if [rates fall this year](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723). Tesla shares were down about 2.2% at $168.88 as of 12:20 p.m. ET Friday. The company has had a rough start to the year, with its stock price down more than 30% so far in 2024. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Tesla shares lost ground in intraday trading Friday following a report the company has reduced production at its facility in Shanghai, China.Factory workers in Shanghai were told to scale back production, operating the factory five days instead of the previous schedule of six and a half days a week, Bloomberg reported.The move to reduce production comes amid growth concerns as the EV market has cooled and as Tesla faces rising competition. Tesla (TSLA) shares were over 2% lower in intraday trading Friday following a report that the company has slowed production at its facility in Shanghai, China. Production at Tesla's Shanghai facility, where the electric vehicle (EV) maker produces its Model Y and Model 3 vehicles, has been scaled back to operating five days a week from the prior schedule of six and a half days a week, Bloomberg reported. The EV maker reportedly told workers and suppliers to expect certain production limits to last through April. Tesla did not immediately respond to a request for comment. The move to reduce production comes amid growth concerns as the EV market has cooled and as Tesla faces rising competition. Analysts at Wells Fargo (WFC) and UBS (UBS) downgraded Tesla's stock last week, with UBS analysts calling it a "growth company with no growth." Analysts at UBS projected the carmaker’s growth could flatline this year before declining in 2025. In the company's January earnings call, Tesla CEO Elon Musk said that the high interest rate environment of the last few years has also hampered Tesla's revenue, and suggested the company could see an increase in demand if rates fall this year. Tesla shares were down about 2.2% at $168.88 as of 12:20 p.m. ET Friday. The company has had a rough start to the year, with its stock price down more than 30% so far in 2024. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/spot-bitcoin-etf-issuers-unveil-expenses-heres-how-they-compare-8423839

Spot Bitcoin ETF Issuers Unveil Expenses—Here's How They Compare

<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 Securities and Exchange Commission (SEC) is expected to approve the first spot bitcoin exchange-traded fund (ETF) this week.</li><li>The world's top cryptocurrency by market capitalization that would be traded in the new ETFs surged more than 100% in 2023 and analysts see large bitcoin investment inflows for in 2024.</li><li>ETF providers are sharing their proposed fee structures for these new bitcoin instruments as competition heats up, and several are waiving or offering lower-than-usual fee structures.</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 widely expected approval of a spot bitcoin exchange-traded fund (ETF) this week has sparked competition among providers, with some waiving fees until they see strong investor adoption. </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"> BlackRock (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK">BLK</a>), VanEck, ARK Investment Management LLC, and Bitwise Asset Management Inc., are among the firms hoping to launch a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-8358373">spot bitcoin ETF</a>, and their recent Securities and Exchange Commission (SEC) filings show that they are planning to undercut the average market rate for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp">ETF investor fees</a> in the U.S.<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"> Bitwise on Tuesday lowered the bar with disclosure of a planned 0.20% management fee for its spot bitcoin ETF, compared with the 0.37% average for existing U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETF products</a> and mutual funds in 2022, the latest data available, according to Morningstar Inc. investment research data.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span> Given that all ETFs track bitcoin, the fees they charge could help investors set them apart. </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"> Bitwise is followed by VanEck, and ARK Invest's 21Shares with planned 0.25% ETF expense fees, and BlackRock is set to charge 0.30%.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="6"></span> BlackRock added fuel to a rally in bitcoin last year after it submitted its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609">bitcoin ETF application</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 SEC has until Wednesday to decide on the first spot bitcoin ETF application, and a Bloomberg ETF analyst said the chance of rejection by the regulator has fallen to just 5%.<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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/crypto-primer-currencies-commodities-tokens/">Crypto</a> enthusiasts are hopeful that a Bitcoin spot ETF will lead to an increase in institutional and retail investor adoption. Investment bank Standard Chartered Monday said in a research note that it expects investment flows of $50 billion to $100 billion in 2024 alone once an ETF is approved.<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"> ETF providers are hungry for potential <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fund-flow.asp">investment inflows</a> and have heated up the fee arms race with waiver periods. Bitwise said it would waive fees for new spot bitcoin ETFs for the first $1 billion invested for its fund's first six months, while BlackRock set a waiver period of 12 months or the first $5 billion invested.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="8"></span> The 21Shares Bitcoin ETF, released in partnership with ARK Invest, said its waiver would be for six months, or the first $1 billion invested in its bitcoin ETF, with a fee of 0.25% after.<span class="ql-inline-citation" data-cite="6"></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 * The Securities and Exchange Commission (SEC) is expected to approve the first spot bitcoin exchange-traded fund (ETF) this week. * The world's top cryptocurrency by market capitalization that would be traded in the new ETFs surged more than 100% in 2023 and analysts see large bitcoin investment inflows for in 2024. * ETF providers are sharing their proposed fee structures for these new bitcoin instruments as competition heats up, and several are waiving or offering lower-than-usual fee structures. The widely expected approval of a spot bitcoin exchange-traded fund (ETF) this week has sparked competition among providers, with some waiving fees until they see strong investor adoption. BlackRock ([BLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK)), VanEck, ARK Investment Management LLC, and Bitwise Asset Management Inc., are among the firms hoping to launch a [spot bitcoin ETF](https://www.investopedia.com/spot-bitcoin-etfs-8358373), and their recent Securities and Exchange Commission (SEC) filings show that they are planning to undercut the average market rate for [ETF investor fees](https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp) in the U.S. Bitwise on Tuesday lowered the bar with disclosure of a planned 0.20% management fee for its spot bitcoin ETF, compared with the 0.37% average for existing U.S. [ETF products](https://www.investopedia.com/terms/e/etf.asp) and mutual funds in 2022, the latest data available, according to Morningstar Inc. investment research data. Given that all ETFs track bitcoin, the fees they charge could help investors set them apart. Bitwise is followed by VanEck, and ARK Invest's 21Shares with planned 0.25% ETF expense fees, and BlackRock is set to charge 0.30%. BlackRock added fuel to a rally in bitcoin last year after it submitted its [bitcoin ETF application](https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609). The SEC has until Wednesday to decide on the first spot bitcoin ETF application, and a Bloomberg ETF analyst said the chance of rejection by the regulator has fallen to just 5%. [Crypto](https://www.investopedia.com/tech/crypto-primer-currencies-commodities-tokens/) enthusiasts are hopeful that a Bitcoin spot ETF will lead to an increase in institutional and retail investor adoption. Investment bank Standard Chartered Monday said in a research note that it expects investment flows of $50 billion to $100 billion in 2024 alone once an ETF is approved. ETF providers are hungry for potential [investment inflows](https://www.investopedia.com/terms/f/fund-flow.asp) and have heated up the fee arms race with waiver periods. Bitwise said it would waive fees for new spot bitcoin ETFs for the first $1 billion invested for its fund's first six months, while BlackRock set a waiver period of 12 months or the first $5 billion invested. The 21Shares Bitcoin ETF, released in partnership with ARK Invest, said its waiver would be for six months, or the first $1 billion invested in its bitcoin ETF, with a fee of 0.25% after. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The Securities and Exchange Commission (SEC) is expected to approve the first spot bitcoin exchange-traded fund (ETF) this week.The world's top cryptocurrency by market capitalization that would be traded in the new ETFs surged more than 100% in 2023 and analysts see large bitcoin investment inflows for in 2024.ETF providers are sharing their proposed fee structures for these new bitcoin instruments as competition heats up, and several are waiving or offering lower-than-usual fee structures. The widely expected approval of a spot bitcoin exchange-traded fund (ETF) this week has sparked competition among providers, with some waiving fees until they see strong investor adoption. BlackRock (BLK), VanEck, ARK Investment Management LLC, and Bitwise Asset Management Inc., are among the firms hoping to launch a spot bitcoin ETF, and their recent Securities and Exchange Commission (SEC) filings show that they are planning to undercut the average market rate for ETF investor fees in the U.S. Bitwise on Tuesday lowered the bar with disclosure of a planned 0.20% management fee for its spot bitcoin ETF, compared with the 0.37% average for existing U.S. ETF products and mutual funds in 2022, the latest data available, according to Morningstar Inc. investment research data. Given that all ETFs track bitcoin, the fees they charge could help investors set them apart. Bitwise is followed by VanEck, and ARK Invest's 21Shares with planned 0.25% ETF expense fees, and BlackRock is set to charge 0.30%. BlackRock added fuel to a rally in bitcoin last year after it submitted its bitcoin ETF application. The SEC has until Wednesday to decide on the first spot bitcoin ETF application, and a Bloomberg ETF analyst said the chance of rejection by the regulator has fallen to just 5%. Crypto enthusiasts are hopeful that a Bitcoin spot ETF will lead to an increase in institutional and retail investor adoption. Investment bank Standard Chartered Monday said in a research note that it expects investment flows of $50 billion to $100 billion in 2024 alone once an ETF is approved. ETF providers are hungry for potential investment inflows and have heated up the fee arms race with waiver periods. Bitwise said it would waive fees for new spot bitcoin ETFs for the first $1 billion invested for its fund's first six months, while BlackRock set a waiver period of 12 months or the first $5 billion invested. The 21Shares Bitcoin ETF, released in partnership with ARK Invest, said its waiver would be for six months, or the first $1 billion invested in its bitcoin ETF, with a fee of 0.25% after. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/jack-mas-ant-ipo-tests-chinas-tolerance-of-entrepreneurship-5094571

Jack Ma's Ant IPO Tests China's Tolerance of Entrepreneurship

<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 the second-largest economy in the world, China garners a lot of attention. That attention has been heightened due to one of the superstars of China's growth story, Jack Ma, seemingly finding himself the target of China's ruling party. Ma has been largely absent after pulling what was expected to be a massive <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) of his large <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fintech.asp" rel="noopener noreferrer">fintech</a> company Ant. We'll look at what led to the halting of the IPO and what it might signal for entrepreneurship in China. </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>Jack Ma's planned IPO of Ant Group has been called off—reportedly at the behest of President Xi.</li> <li>Ma's companies now find themselves under increasing government scrutiny and proposed new antimonopoly rules.</li> <li>The turn against domestic entrepreneurship in China could make it a less attractive target for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdi.asp" rel="noopener noreferrer">foreign direct investment</a> (FDI).</li> </ul></div></div></div> <span class="heading-toc" id="toc-chinas-take-on-a-market-economy"></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"> China's Take on a Market Economy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> China has made a habit of confounding many of the predictions made about it beyond the main one of growth. Prognosticators and pundits have long made calls on how opening the economy would move China along the road to more of a democratic model. While China has opened up in many, many ways in the past few decades, President Xi Jinping has removed his own term limits and looks to be consolidating more power in the ruling party. So in some ways, China is moving further away from democratic reform even as it continues down the road of opening its economy.<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"> The version of the market economy that China has embraced is similarly uneven. Owning a small to medium-sized business in China is encouraged, and entrepreneurship was a major driver of growth in the economy. Due to the scale of China's economy, many medium-sized businesses are in fact quite large in terms of global ranking. However, large sections of the domestic economy still have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soe.asp" rel="noopener noreferrer">state-owned enterprises</a> (SOEs) at the top, which work in concert with regulators. </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"> Somehow, China still continues to push ahead through what appears to be a maze of contradictions to outside observers. Case in point: we are looking at the seeming censure of Jack Ma, one of China's most successful tech entrepreneurs, but this saga is playing out at the same time as China is poised to give unprecedented access to its financial sector to Wall Street investment banks.<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> <span class="heading-toc" id="toc-alibaba-ant-and-ma"></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"> Alibaba, Ant, and Ma </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Jack Ma is China's richest person, and he created that wealth through Alibaba Holding Group Limited (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=baba" rel="noopener noreferrer">BABA</a>) and its payment and financial service twin Ant Group that grew out of Alipay—a system designed to support the core e-commerce business. The two companies taken together have <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/121714/how-does-alibaba-make-money-simple-guide.asp" rel="noopener noreferrer">an enormous presence in China</a> and have enjoyed surprisingly little regulatory pushback up until now. </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"> There were skirmishes between Ma's companies and the Chinese regulators, but the intensity has been heating up in the past few years. Alibaba now finds itself under an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/antitrust.asp" rel="noopener noreferrer">antitrust</a> investigation, Ant is in the targets of regulators at the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peoples-bank-china-pboc.asp" rel="noopener noreferrer">People's Bank of China</a> (the central bank), and new draft antimonopoly rules seem squarely aimed at Ma's empire, as they deal specifically with consumer data and differential pricing. The question is why this is all happening now.  </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 answer seems to be that Ma upset the wrong people. A speech given by Ma in Shanghai in October where he was very critical of regulators has been reported as the trigger for President Xi personally intervening to halt the IPO and force Ant Group to shrink down to a pure payments service.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Whereas Alibaba sticks largely to e-commerce, Ant's fintech presence ultimately encroaches on an area where SOEs still rule—banking and financial services. So even as China opens up part of its financial sector to foreign financial firms, it is moving to rein in homegrown competition to state-owned commercial banks. </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-what-jack-mas-troubles-mean-for-the-market"></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: What Jack Ma’s Troubles Mean for the Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/factors-drive-investment-in-china.asp" rel="noopener noreferrer">Investors are not going to flee China</a> due to a regulatory crackdown. In fact, The Goldman Sachs Group, Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GS" rel="noopener noreferrer">GS</a>) has already announced that it is all in on buying up the rest of its joining venture in China's financial sector, and its shares are up 20% since the December announcement.<span class="ql-inline-citation" data-cite="2"></span> While the share rise is not solely due to investing further in China, it shows that the market isn't too concerned about China exposure despite Ma's troubles. Alibaba stock is, of course, down, and Ma is staying far away from the limelight. </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"> In a broader sense, however, the actions against Ma's companies are more about how much internal entrepreneurship China's ruling party can stomach rather than how much foreign investment the country will allow. If China is too heavy-handed in its treatment of domestic entrepreneurs, it may throw into question the permanence of its market reforms to date and the political commitment to future ones. That wouldn't be guaranteed to send the Goldman Sachs of the world running given the size of the market, but it might cause second thoughts for more cautious market players. </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 the second-largest economy in the world, China garners a lot of attention. That attention has been heightened due to one of the superstars of China's growth story, Jack Ma, seemingly finding himself the target of China's ruling party. Ma has been largely absent after pulling what was expected to be a massive [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO) of his large [fintech](https://www.investopedia.com/terms/f/fintech.asp) company Ant. We'll look at what led to the halting of the IPO and what it might signal for entrepreneurship in China. ### Key Takeaways * Jack Ma's planned IPO of Ant Group has been called off—reportedly at the behest of President Xi. * Ma's companies now find themselves under increasing government scrutiny and proposed new antimonopoly rules. * The turn against domestic entrepreneurship in China could make it a less attractive target for [foreign direct investment](https://www.investopedia.com/terms/f/fdi.asp) (FDI). ## China's Take on a Market Economy China has made a habit of confounding many of the predictions made about it beyond the main one of growth. Prognosticators and pundits have long made calls on how opening the economy would move China along the road to more of a democratic model. While China has opened up in many, many ways in the past few decades, President Xi Jinping has removed his own term limits and looks to be consolidating more power in the ruling party. So in some ways, China is moving further away from democratic reform even as it continues down the road of opening its economy. The version of the market economy that China has embraced is similarly uneven. Owning a small to medium-sized business in China is encouraged, and entrepreneurship was a major driver of growth in the economy. Due to the scale of China's economy, many medium-sized businesses are in fact quite large in terms of global ranking. However, large sections of the domestic economy still have [state-owned enterprises](https://www.investopedia.com/terms/s/soe.asp) (SOEs) at the top, which work in concert with regulators. Somehow, China still continues to push ahead through what appears to be a maze of contradictions to outside observers. Case in point: we are looking at the seeming censure of Jack Ma, one of China's most successful tech entrepreneurs, but this saga is playing out at the same time as China is poised to give unprecedented access to its financial sector to Wall Street investment banks. ## Alibaba, Ant, and Ma Jack Ma is China's richest person, and he created that wealth through Alibaba Holding Group Limited ([BABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=baba)) and its payment and financial service twin Ant Group that grew out of Alipay—a system designed to support the core e-commerce business. The two companies taken together have [an enormous presence in China](https://www.investopedia.com/articles/investing/121714/how-does-alibaba-make-money-simple-guide.asp) and have enjoyed surprisingly little regulatory pushback up until now. There were skirmishes between Ma's companies and the Chinese regulators, but the intensity has been heating up in the past few years. Alibaba now finds itself under an [antitrust](https://www.investopedia.com/terms/a/antitrust.asp) investigation, Ant is in the targets of regulators at the [People's Bank of China](https://www.investopedia.com/terms/p/peoples-bank-china-pboc.asp) (the central bank), and new draft antimonopoly rules seem squarely aimed at Ma's empire, as they deal specifically with consumer data and differential pricing. The question is why this is all happening now.  The answer seems to be that Ma upset the wrong people. A speech given by Ma in Shanghai in October where he was very critical of regulators has been reported as the trigger for President Xi personally intervening to halt the IPO and force Ant Group to shrink down to a pure payments service. Whereas Alibaba sticks largely to e-commerce, Ant's fintech presence ultimately encroaches on an area where SOEs still rule—banking and financial services. So even as China opens up part of its financial sector to foreign financial firms, it is moving to rein in homegrown competition to state-owned commercial banks. ## The Bottom Line: What Jack Ma’s Troubles Mean for the Market [Investors are not going to flee China](https://www.investopedia.com/articles/economics/09/factors-drive-investment-in-china.asp) due to a regulatory crackdown. In fact, The Goldman Sachs Group, Inc. ([GS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GS)) has already announced that it is all in on buying up the rest of its joining venture in China's financial sector, and its shares are up 20% since the December announcement. While the share rise is not solely due to investing further in China, it shows that the market isn't too concerned about China exposure despite Ma's troubles. Alibaba stock is, of course, down, and Ma is staying far away from the limelight. In a broader sense, however, the actions against Ma's companies are more about how much internal entrepreneurship China's ruling party can stomach rather than how much foreign investment the country will allow. If China is too heavy-handed in its treatment of domestic entrepreneurs, it may throw into question the permanence of its market reforms to date and the political commitment to future ones. That wouldn't be guaranteed to send the Goldman Sachs of the world running given the size of the market, but it might cause second thoughts for more cautious market players. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

As the second-largest economy in the world, China garners a lot of attention. That attention has been heightened due to one of the superstars of China's growth story, Jack Ma, seemingly finding himself the target of China's ruling party. Ma has been largely absent after pulling what was expected to be a massive initial public offering (IPO) of his large fintech company Ant. We'll look at what led to the halting of the IPO and what it might signal for entrepreneurship in China. Key Takeaways Jack Ma's planned IPO of Ant Group has been called off—reportedly at the behest of President Xi. Ma's companies now find themselves under increasing government scrutiny and proposed new antimonopoly rules. The turn against domestic entrepreneurship in China could make it a less attractive target for foreign direct investment (FDI). China's Take on a Market Economy China has made a habit of confounding many of the predictions made about it beyond the main one of growth. Prognosticators and pundits have long made calls on how opening the economy would move China along the road to more of a democratic model. While China has opened up in many, many ways in the past few decades, President Xi Jinping has removed his own term limits and looks to be consolidating more power in the ruling party. So in some ways, China is moving further away from democratic reform even as it continues down the road of opening its economy. The version of the market economy that China has embraced is similarly uneven. Owning a small to medium-sized business in China is encouraged, and entrepreneurship was a major driver of growth in the economy. Due to the scale of China's economy, many medium-sized businesses are in fact quite large in terms of global ranking. However, large sections of the domestic economy still have state-owned enterprises (SOEs) at the top, which work in concert with regulators. Somehow, China still continues to push ahead through what appears to be a maze of contradictions to outside observers. Case in point: we are looking at the seeming censure of Jack Ma, one of China's most successful tech entrepreneurs, but this saga is playing out at the same time as China is poised to give unprecedented access to its financial sector to Wall Street investment banks. Alibaba, Ant, and Ma Jack Ma is China's richest person, and he created that wealth through Alibaba Holding Group Limited (BABA) and its payment and financial service twin Ant Group that grew out of Alipay—a system designed to support the core e-commerce business. The two companies taken together have an enormous presence in China and have enjoyed surprisingly little regulatory pushback up until now. There were skirmishes between Ma's companies and the Chinese regulators, but the intensity has been heating up in the past few years. Alibaba now finds itself under an antitrust investigation, Ant is in the targets of regulators at the People's Bank of China (the central bank), and new draft antimonopoly rules seem squarely aimed at Ma's empire, as they deal specifically with consumer data and differential pricing. The question is why this is all happening now.  The answer seems to be that Ma upset the wrong people. A speech given by Ma in Shanghai in October where he was very critical of regulators has been reported as the trigger for President Xi personally intervening to halt the IPO and force Ant Group to shrink down to a pure payments service. Whereas Alibaba sticks largely to e-commerce, Ant's fintech presence ultimately encroaches on an area where SOEs still rule—banking and financial services. So even as China opens up part of its financial sector to foreign financial firms, it is moving to rein in homegrown competition to state-owned commercial banks. The Bottom Line: What Jack Ma’s Troubles Mean for the Market Investors are not going to flee China due to a regulatory crackdown. In fact, The Goldman Sachs Group, Inc. (GS) has already announced that it is all in on buying up the rest of its joining venture in China's financial sector, and its shares are up 20% since the December announcement. While the share rise is not solely due to investing further in China, it shows that the market isn't too concerned about China exposure despite Ma's troubles. Alibaba stock is, of course, down, and Ma is staying far away from the limelight. In a broader sense, however, the actions against Ma's companies are more about how much internal entrepreneurship China's ruling party can stomach rather than how much foreign investment the country will allow. If China is too heavy-handed in its treatment of domestic entrepreneurs, it may throw into question the permanence of its market reforms to date and the political commitment to future ones. That wouldn't be guaranteed to send the Goldman Sachs of the world running given the size of the market, but it might cause second thoughts for more cautious market players. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/r/retail-repurchase-agreement.asp

Retail Repurchase Agreement: 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-retail-repurchase-agreement"></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 Retail Repurchase Agreement? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A retail repurchase agreement, also known as a “retail repo agreement,” is a financial product that serves as an alternative to traditional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/savings-accounts-4689728" rel="noopener noreferrer">savings accounts</a>. When an investor enters into a retail repurchase agreement with a bank, that investor purchases a share of a pool of securities, usually consisting of U.S. government or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/07/agency_bonds.asp" rel="noopener noreferrer">agency debt</a> with a term of fewer than 90 days. Once the 90-day period has expired, the bank repurchases that share from the investor at a premium. </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 retail repurchase agreement is a savings vehicle similar to money market accounts.</li><li>The agreement is a transaction between an investor and a bank in which the investor purchases assets from the bank over a period shorter than 90 days.</li><li>The bank repurchases the assets at the end of the term, providing a premium to the investor.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-retail-repurchase-agreements-work"></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 Retail Repurchase Agreements Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> From the investor’s perspective, this transaction's profit is analogous to the interest they would otherwise gain on a traditional savings account. This type of transaction is essentially a scaled-down version of the wholesale <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repurchaseagreement.asp" rel="noopener noreferrer">repurchase agreements</a> entered into between banks, although these wholesale agreements typically take place in minimum denominations of $1 million and are often extended for short periods, such as overnight. </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"> Unlike their wholesale counterparts, retail repurchase agreements are sold in small denominations of $1,000 or less. The assets contained in the pool are sold and then repurchased up to 90 days later by the bank. Aside from their size, another major difference between retail repurchase agreements and wholesale repurchase agreements is that the assets act as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp" rel="noopener noreferrer">collateral</a> for wholesale transactions and do not change hands. The most common assets used as collateral in wholesale repurchase agreements are <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 securities</a>, although other collateral may include agency debt, corporate securities, or even <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp" rel="noopener noreferrer">mortgage-backed securities (MBSs)</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 history of the retail and wholesale repurchase markets dates back to the 1970s and 1980s when they arose as a way for large securities firms and banks to raise short-term capital. At that time, interest rates were steadily rising, making it difficult to raise capital in a timely manner through traditional means. Since then, the repo market has grown to become an integral part of the U.S. financial system and is essential for meeting the nation’s banks' daily <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">liquidy</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"> In 1979, U.S. banking regulators exempted retail repurchase agreements from interest rate caps. This led banks and savings and loan institutions to begin offering retail repurchase agreements to their customers at premium rates. These new products were positioned to compete with so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money-marketfund.asp" rel="noopener noreferrer">money market funds</a>, which are often sold as mutual funds to depositors. Importantly, these retail repurchase agreements are not subject to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp" rel="noopener noreferrer">Federal Deposit Insurance Corporation (FDIC)</a> protection. </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-real-world-example-of-a-retail-repurchase-agreement"></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"> Real-World Example of a Retail Repurchase Agreement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Michael has been a regular customer at XYZ Financial for many years. During one of his visits to the bank, the teller informs him that he could earn a higher interest rate if he converts his savings account into a retail repurchase agreement. Under the terms of this agreement, Michael would purchase a share of a pool of assets, which the bank would then repurchase from him at a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp" rel="noopener noreferrer">premium</a> within 90 days. The teller explains to Michael that the assets in question are high-quality U.S. government debts. </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"> Before making his decision, Michael researches retail repurchase agreements to better understand their potential risks. Michael confirms that although the proposed transaction would offer him higher interest than a traditional savings account, he would not be subject to the protection of the FDIC. Moreover, Michael learns that if XYZ Financial were to become bankrupt during the 90-day term, he may have difficulty establishing his specific claim to the agreement's underlying assets. </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"> Suppose Michael does not wish to proceed with the proposed transaction. In that case, he might alternatively put his money into a money market mutual fund, which is a popular alternative to retail repurchase agreements. </p></div>

## What Is a Retail Repurchase Agreement? A retail repurchase agreement, also known as a “retail repo agreement,” is a financial product that serves as an alternative to traditional [savings accounts](https://www.investopedia.com/savings-accounts-4689728). When an investor enters into a retail repurchase agreement with a bank, that investor purchases a share of a pool of securities, usually consisting of U.S. government or [agency debt](https://www.investopedia.com/articles/bonds/07/agency_bonds.asp) with a term of fewer than 90 days. Once the 90-day period has expired, the bank repurchases that share from the investor at a premium. ### Key Takeaways * A retail repurchase agreement is a savings vehicle similar to money market accounts. * The agreement is a transaction between an investor and a bank in which the investor purchases assets from the bank over a period shorter than 90 days. * The bank repurchases the assets at the end of the term, providing a premium to the investor. ## How Retail Repurchase Agreements Work From the investor’s perspective, this transaction's profit is analogous to the interest they would otherwise gain on a traditional savings account. This type of transaction is essentially a scaled-down version of the wholesale [repurchase agreements](https://www.investopedia.com/terms/r/repurchaseagreement.asp) entered into between banks, although these wholesale agreements typically take place in minimum denominations of $1 million and are often extended for short periods, such as overnight. Unlike their wholesale counterparts, retail repurchase agreements are sold in small denominations of $1,000 or less. The assets contained in the pool are sold and then repurchased up to 90 days later by the bank. Aside from their size, another major difference between retail repurchase agreements and wholesale repurchase agreements is that the assets act as [collateral](https://www.investopedia.com/terms/c/collateral.asp) for wholesale transactions and do not change hands. The most common assets used as collateral in wholesale repurchase agreements are [U.S. Treasury securities](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp), although other collateral may include agency debt, corporate securities, or even [mortgage-backed securities (MBSs)](https://www.investopedia.com/terms/m/mbs.asp). The history of the retail and wholesale repurchase markets dates back to the 1970s and 1980s when they arose as a way for large securities firms and banks to raise short-term capital. At that time, interest rates were steadily rising, making it difficult to raise capital in a timely manner through traditional means. Since then, the repo market has grown to become an integral part of the U.S. financial system and is essential for meeting the nation’s banks' daily [liquidy](https://www.investopedia.com/terms/l/liquidity.asp). In 1979, U.S. banking regulators exempted retail repurchase agreements from interest rate caps. This led banks and savings and loan institutions to begin offering retail repurchase agreements to their customers at premium rates. These new products were positioned to compete with so-called [money market funds](https://www.investopedia.com/terms/m/money-marketfund.asp), which are often sold as mutual funds to depositors. Importantly, these retail repurchase agreements are not subject to [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) protection. ## Real-World Example of a Retail Repurchase Agreement Michael has been a regular customer at XYZ Financial for many years. During one of his visits to the bank, the teller informs him that he could earn a higher interest rate if he converts his savings account into a retail repurchase agreement. Under the terms of this agreement, Michael would purchase a share of a pool of assets, which the bank would then repurchase from him at a [premium](https://www.investopedia.com/terms/p/premium.asp) within 90 days. The teller explains to Michael that the assets in question are high-quality U.S. government debts. Before making his decision, Michael researches retail repurchase agreements to better understand their potential risks. Michael confirms that although the proposed transaction would offer him higher interest than a traditional savings account, he would not be subject to the protection of the FDIC. Moreover, Michael learns that if XYZ Financial were to become bankrupt during the 90-day term, he may have difficulty establishing his specific claim to the agreement's underlying assets. Suppose Michael does not wish to proceed with the proposed transaction. In that case, he might alternatively put his money into a money market mutual fund, which is a popular alternative to retail repurchase agreements.

What Is a Retail Repurchase Agreement? A retail repurchase agreement, also known as a “retail repo agreement,” is a financial product that serves as an alternative to traditional savings accounts. When an investor enters into a retail repurchase agreement with a bank, that investor purchases a share of a pool of securities, usually consisting of U.S. government or agency debt with a term of fewer than 90 days. Once the 90-day period has expired, the bank repurchases that share from the investor at a premium. Key Takeaways A retail repurchase agreement is a savings vehicle similar to money market accounts.The agreement is a transaction between an investor and a bank in which the investor purchases assets from the bank over a period shorter than 90 days.The bank repurchases the assets at the end of the term, providing a premium to the investor. How Retail Repurchase Agreements Work From the investor’s perspective, this transaction's profit is analogous to the interest they would otherwise gain on a traditional savings account. This type of transaction is essentially a scaled-down version of the wholesale repurchase agreements entered into between banks, although these wholesale agreements typically take place in minimum denominations of $1 million and are often extended for short periods, such as overnight. Unlike their wholesale counterparts, retail repurchase agreements are sold in small denominations of $1,000 or less. The assets contained in the pool are sold and then repurchased up to 90 days later by the bank. Aside from their size, another major difference between retail repurchase agreements and wholesale repurchase agreements is that the assets act as collateral for wholesale transactions and do not change hands. The most common assets used as collateral in wholesale repurchase agreements are U.S. Treasury securities, although other collateral may include agency debt, corporate securities, or even mortgage-backed securities (MBSs). The history of the retail and wholesale repurchase markets dates back to the 1970s and 1980s when they arose as a way for large securities firms and banks to raise short-term capital. At that time, interest rates were steadily rising, making it difficult to raise capital in a timely manner through traditional means. Since then, the repo market has grown to become an integral part of the U.S. financial system and is essential for meeting the nation’s banks' daily liquidy. In 1979, U.S. banking regulators exempted retail repurchase agreements from interest rate caps. This led banks and savings and loan institutions to begin offering retail repurchase agreements to their customers at premium rates. These new products were positioned to compete with so-called money market funds, which are often sold as mutual funds to depositors. Importantly, these retail repurchase agreements are not subject to Federal Deposit Insurance Corporation (FDIC) protection. Real-World Example of a Retail Repurchase Agreement Michael has been a regular customer at XYZ Financial for many years. During one of his visits to the bank, the teller informs him that he could earn a higher interest rate if he converts his savings account into a retail repurchase agreement. Under the terms of this agreement, Michael would purchase a share of a pool of assets, which the bank would then repurchase from him at a premium within 90 days. The teller explains to Michael that the assets in question are high-quality U.S. government debts. Before making his decision, Michael researches retail repurchase agreements to better understand their potential risks. Michael confirms that although the proposed transaction would offer him higher interest than a traditional savings account, he would not be subject to the protection of the FDIC. Moreover, Michael learns that if XYZ Financial were to become bankrupt during the 90-day term, he may have difficulty establishing his specific claim to the agreement's underlying assets. Suppose Michael does not wish to proceed with the proposed transaction. In that case, he might alternatively put his money into a money market mutual fund, which is a popular alternative to retail repurchase agreements.

https://www.investopedia.com/ask/answers/121514/what-difference-between-pl-statement-and-balance-sheet.asp

Balance Sheet vs. Profit and Loss Statement: 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-balance-sheet-vs-profit-and-loss-statement-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"> Balance Sheet vs. Profit and Loss Statement: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The balance sheet and the profit and loss (P&amp;L) statements are two of the financial statements companies regularly issue. Such statements provide an ongoing record of a company's financial condition and are used by creditors, market analysts, and investors to evaluate a company's financial soundness and growth potential. The third financial statement is called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflowstatement.asp">cash-flow statement</a>. </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 balance sheet reports a company's assets, liabilities, and shareholder equity at a specific point in time.</li><li>A balance sheet gives analysts, investors, and creditors a snapshot of how effectively a company's management uses its resources.</li><li>A profit and loss (P&amp;L) statement summarizes the revenues, costs, and expenses incurred during a specific period.</li><li>A P&amp;L statement provides information about whether a company can generate profit by increasing revenue, reducing costs, or both.</li></ul></div></div></div> <span class="heading-toc" id="toc-balance-sheet"></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"> Balance Sheet  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp">balance sheet</a> reports a company's assets, liabilities, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholdersequity.asp">shareholder equity</a> at a specific time. It provides a basis for computing rates of return and evaluating the company's <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalstructure.asp">capital structure</a>. This financial statement provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. </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 balance sheet shows a company's resources or assets and how those assets are financed—whether through debt under liabilities or by issuing equity, as shown in the shareholder equity section. The balance sheet gives investors and creditors a snapshot of how effectively a company's management uses its resources. Just like the other financial statements, the balance sheet is used for financial analysis and calculating financial ratios. Here are a few examples of line items on a balance sheet. </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"> Assets </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashandcashequivalents.asp"><strong>Cash and Cash Equivalents</strong></a>: These are the most liquid assets, which may include Treasury bills (T-bills), short-term certificates of deposit (CDs), and cash.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketablesecurities.asp"><strong>Marketable Securities</strong></a>: This category includes equity and debt securities for which there is a liquid market.</li> <li><strong>Receivables</strong>: Also known as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountsreceivable.asp">accounts receivable</a>, this represents money owed to the company by customers.</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inventory.asp"><strong>Inventory</strong></a>: This area covers all the goods available for sale.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></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"> Liabilities </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp"><strong>Debt</strong></a>: This includes the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currentportionlongtermdebt.asp">current portion of long-term debt</a> and bank indebtedness</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountspayable.asp"><strong>Payables</strong></a>: This includes both wages and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> owed</li> <li><strong>Taxes</strong>: Accrued and deferred</li> </ul> <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>Total assets should equal total liabilities and shareholders' equity. This is because of the way accounts are credited and debited under accrual accounting.</p></div></div></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"> Shareholder Equity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Shareholder equity is equal to a firm's total assets minus its total liabilities. It is one of the most common financial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/metrics.asp">metrics</a> employed by analysts to determine the financial health of a company. Shareholder equity represents the net value of a company, meaning the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retainedearnings.asp">Retained earnings</a> are recorded under shareholder equity and refer to the percentage of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay its debts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Trial Balance vs. the Balance Sheet </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> It's important to note that the trial balance differs from the balance sheet. This is an internal report that stays in the accounting department. The balance sheet, on the other hand, is a financial statement distributed to other departments, investors, and lenders. </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 trial balance provides financial information at the account level, such as general ledger accounts, and is, therefore, more granular. Eventually, the information in the trial balance is used to prepare the financial statements for the period. </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"> In contrast, the balance sheet aggregates multiple accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/footings.asp">summing up the number of assets, liabilities, and shareholder equity</a> in the accounting records at a specific time. The balance sheet includes outstanding expenses, accrued income, and the value of the closing stock, whereas the trial balance does not. In addition, the balance sheet must adhere to a standard format as described in an accounting framework, such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ifrs.asp">International Financial Reporting Standards (IFRS)</a> or the Generally Accepted Accounting Principles <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gaap.asp">(GAAP)</a>.<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_30-0"></div> <span class="heading-toc" id="toc-profit-and-loss-pl-statement"></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"> Profit and Loss (P&amp;L) Statement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122314/whats-example-pl-statement.asp">P&amp;L statement</a>, more commonly labeled "statement of income" or "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp">income statement,</a>" is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, usually a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscalyear.asp">fiscal year</a> or quarter. These records provide information about a company's ability (or lack thereof) to generate profit by increasing revenue, reducing costs, or both. </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 P&amp;L statement's many other monikers include the "statement of profit and loss," the "statement of operations," the "statement of financial results," and the "income and expense statement." </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"> Top Line and Bottom Line </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The P&amp;L statement <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/difference-between-bottom-line-and-top-line-growth/">provides the top and bottom lines for a company</a>. It begins with an entry for revenue, known as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/topline.asp">top line</a> because it's at the top of the report, and subtracts the costs of doing business, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>Cost of goods sold</li><li>Operating expenses</li><li>Tax expenses</li><li>Interest expenses</li><li>Overhead</li> </ul> <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"> It also lists other expenses, sometimes "extraordinary" or "one-time" expenses. The difference, known as the <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>, is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netincome.asp">net income</a>, also referred to as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profit.asp">profit</a> or <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">earnings</a>.  </p> <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"> Realized Profits and Loss </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The P&amp;L statement reveals the company's realized profits or losses for the specified period by comparing total revenues to the company's total costs and expenses. Over time, it can show a company's ability to increase its profit by reducing costs and expenses or increasing sales. Companies publish P&amp;L statements annually, at the end of the company's fiscal year, and may also publish them on a quarterly basis. Accountants, analysts, and investors study a P&amp;L statement carefully, scrutinizing cash flow and debt financing capabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-subheading__text"> Revenues and Expenses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> From an accounting standpoint, revenues and expenses are listed on the P&amp;L statement when they are incurred<strong>, </strong>not when the money flows in or out. One beneficial aspect of the P&amp;L statement, in particular, is that it uses operating and nonoperating revenues and expenses, as defined 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 (IRS)</a> and GAAP. </p> <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-balance-sheet-vs-pl-statement"></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"> Balance Sheet vs. P&amp;L Statement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Although the balance sheet and the P&amp;L statement contain some of the same financial information—including revenues, expenses, and profits—there are important differences between them. Here's the main one: The balance sheet reports the assets, liabilities, and shareholder equity at a specific <em>point</em> in time, while a P&amp;L statement summarizes a company's revenues, costs, and expenses during a specific <em>period</em>. </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"> Purpose of Each Statement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Each document is built for a slightly different purpose. Balance sheets are built more broadly, revealing what the company owns and owes, as well as any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longterminvestments.asp">long-term investments</a>. Unlike an income statement, the full value of long-term investments or debts appears on the balance sheet. The name "balance sheet" is derived from the way that the three major accounts eventually balance out and equal each other. All assets are listed in one section, and their sum must equal the sum of all <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/total-liabilities.asp">liabilities</a> and the shareholder equity. </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 P&amp;L statement answers a very specific question: Is the company profitable? While accountants use the P&amp;L statement to help gauge the accuracy of financial transactions—and investors use the P&amp;L statement to judge a company's health—the company itself can review its own statement for productive purposes. Close monitoring of financial statements highlights where revenue is strong and where expenses are incurred efficiently, and the opposite is true as well. For example, a company might notice increasing sales but decreasing profits and search for new solutions to reduce costs of operation. </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"> Profit vs. Total Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The P&amp;L statement shows net income, meaning whether or not a company is in the red or black. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/how-companys-stock-price-and-market-cap-determined/">The balance sheet shows how much a company is actually worth</a>, meaning its total value. Though both of these are a little oversimplified, this is often how the P&amp;L statement and the balance sheet tend to be interpreted by investors and lenders. </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"> It's important to note that investors should be careful not to confuse earnings/profits with cash flow. It's possible for a firm to operate profitably without generating cash flow or to generate cash flow without producing profits. </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-is-the-balance-sheet-the-same-as-a-pl"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Balance Sheet the Same as a P&amp;L?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The balance sheet reports the assets, liabilities, and shareholders' equity at a point in time. The profit and loss statement reports how a company made or lost money over a period. So, they are not the same report.</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-what-comes-first-pl-or-balance-sheet"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Comes First, P&amp;L or Balance Sheet?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, publicly traded companies place the balance sheet in front of their P&amp;L in their official reports to follow reporting standards. Private companies can place the statements in the order they see fit.</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-what-is-the-difference-between-the-balance-sheet-and-income-statement"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between the Balance Sheet and Income Statement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The balance sheet demonstrates how all assets, liabilities, and shareholders' equity are accounted for. The income statement, also known as the profit and loss statement, shows where a company's profits and expenses came from and went over the period.</p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> When used together with other financial documents, the balance sheet and P&amp;L statement can be used to assess a company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operationalefficiency.asp">operational efficiency</a>, year-to-year consistency, and organizational direction. For this reason, the numbers reported in each document are scrutinized by investors and the company's executives. While the presentation of these statements varies slightly from industry to industry, large discrepancies between the annual treatment of either document are often considered a red flag. </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"> A firm's ability (or inability) to generate earnings consistently over time is a major driver of stock prices and bond valuations. For this reason, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/06/financialreporting.asp">every investor should be curious about all of the financial statements</a>—including the P&amp;L statement and the balance sheet—of any company of interest. Once reviewed as a group, these financial statements should then be compared with those of other companies in the industry to obtain performance benchmarks and understand any potential market-wide trends. </p></div>

## Balance Sheet vs. Profit and Loss Statement: An Overview The balance sheet and the profit and loss (P&L) statements are two of the financial statements companies regularly issue. Such statements provide an ongoing record of a company's financial condition and are used by creditors, market analysts, and investors to evaluate a company's financial soundness and growth potential. The third financial statement is called the [cash-flow statement](https://www.investopedia.com/terms/c/cashflowstatement.asp). ### Key Takeaways * A balance sheet reports a company's assets, liabilities, and shareholder equity at a specific point in time. * A balance sheet gives analysts, investors, and creditors a snapshot of how effectively a company's management uses its resources. * A profit and loss (P&L) statement summarizes the revenues, costs, and expenses incurred during a specific period. * A P&L statement provides information about whether a company can generate profit by increasing revenue, reducing costs, or both. ## Balance Sheet A [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp) reports a company's assets, liabilities, and [shareholder equity](https://www.investopedia.com/terms/s/shareholdersequity.asp) at a specific time. It provides a basis for computing rates of return and evaluating the company's [capital structure](https://www.investopedia.com/terms/c/capitalstructure.asp). This financial statement provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. The balance sheet shows a company's resources or assets and how those assets are financed—whether through debt under liabilities or by issuing equity, as shown in the shareholder equity section. The balance sheet gives investors and creditors a snapshot of how effectively a company's management uses its resources. Just like the other financial statements, the balance sheet is used for financial analysis and calculating financial ratios. Here are a few examples of line items on a balance sheet. ### Assets * [**Cash and Cash Equivalents**](https://www.investopedia.com/terms/c/cashandcashequivalents.asp): These are the most liquid assets, which may include Treasury bills (T-bills), short-term certificates of deposit (CDs), and cash. * [**Marketable Securities**](https://www.investopedia.com/terms/m/marketablesecurities.asp): This category includes equity and debt securities for which there is a liquid market. * **Receivables**: Also known as [accounts receivable](https://www.investopedia.com/terms/a/accountsreceivable.asp), this represents money owed to the company by customers. * [**Inventory**](https://www.investopedia.com/terms/i/inventory.asp): This area covers all the goods available for sale. ### Liabilities * [**Debt**](https://www.investopedia.com/terms/d/debt.asp): This includes the [current portion of long-term debt](https://www.investopedia.com/terms/c/currentportionlongtermdebt.asp) and bank indebtedness * [**Payables**](https://www.investopedia.com/terms/a/accountspayable.asp): This includes both wages and [dividends](https://www.investopedia.com/terms/d/dividend.asp) owed * **Taxes**: Accrued and deferred ### Total assets should equal total liabilities and shareholders' equity. This is because of the way accounts are credited and debited under accrual accounting. ### Shareholder Equity Shareholder equity is equal to a firm's total assets minus its total liabilities. It is one of the most common financial [metrics](https://www.investopedia.com/terms/m/metrics.asp) employed by analysts to determine the financial health of a company. Shareholder equity represents the net value of a company, meaning the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid. [Retained earnings](https://www.investopedia.com/terms/r/retainedearnings.asp) are recorded under shareholder equity and refer to the percentage of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay its debts. ### Trial Balance vs. the Balance Sheet It's important to note that the trial balance differs from the balance sheet. This is an internal report that stays in the accounting department. The balance sheet, on the other hand, is a financial statement distributed to other departments, investors, and lenders. The trial balance provides financial information at the account level, such as general ledger accounts, and is, therefore, more granular. Eventually, the information in the trial balance is used to prepare the financial statements for the period. In contrast, the balance sheet aggregates multiple accounts, [summing up the number of assets, liabilities, and shareholder equity](https://www.investopedia.com/terms/f/footings.asp) in the accounting records at a specific time. The balance sheet includes outstanding expenses, accrued income, and the value of the closing stock, whereas the trial balance does not. In addition, the balance sheet must adhere to a standard format as described in an accounting framework, such as the [International Financial Reporting Standards (IFRS)](https://www.investopedia.com/terms/i/ifrs.asp) or the Generally Accepted Accounting Principles [(GAAP)](https://www.investopedia.com/terms/g/gaap.asp). ## Profit and Loss (P&L) Statement A [P&L statement](https://www.investopedia.com/ask/answers/122314/whats-example-pl-statement.asp), more commonly labeled "statement of income" or "[income statement,](https://www.investopedia.com/terms/i/incomestatement.asp)" is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, usually a [fiscal year](https://www.investopedia.com/terms/f/fiscalyear.asp) or quarter. These records provide information about a company's ability (or lack thereof) to generate profit by increasing revenue, reducing costs, or both. The P&L statement's many other monikers include the "statement of profit and loss," the "statement of operations," the "statement of financial results," and the "income and expense statement." ### Top Line and Bottom Line The P&L statement [provides the top and bottom lines for a company](https://www.investopedia.com/ask/answers/difference-between-bottom-line-and-top-line-growth/). It begins with an entry for revenue, known as the [top line](https://www.investopedia.com/terms/t/topline.asp) because it's at the top of the report, and subtracts the costs of doing business, including: * Cost of goods sold * Operating expenses * Tax expenses * Interest expenses * Overhead It also lists other expenses, sometimes "extraordinary" or "one-time" expenses. The difference, known as the [bottom line](https://www.investopedia.com/terms/b/bottomline.asp), is [net income](https://www.investopedia.com/terms/n/netincome.asp), also referred to as [profit](https://www.investopedia.com/terms/p/profit.asp) or [earnings](https://www.investopedia.com/terms/e/earnings.asp).  ### Realized Profits and Loss The P&L statement reveals the company's realized profits or losses for the specified period by comparing total revenues to the company's total costs and expenses. Over time, it can show a company's ability to increase its profit by reducing costs and expenses or increasing sales. Companies publish P&L statements annually, at the end of the company's fiscal year, and may also publish them on a quarterly basis. Accountants, analysts, and investors study a P&L statement carefully, scrutinizing cash flow and debt financing capabilities. ### Revenues and Expenses From an accounting standpoint, revenues and expenses are listed on the P&L statement when they are incurred**,** not when the money flows in or out. One beneficial aspect of the P&L statement, in particular, is that it uses operating and nonoperating revenues and expenses, as defined by the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) and GAAP. ## Balance Sheet vs. P&L Statement Although the balance sheet and the P&L statement contain some of the same financial information—including revenues, expenses, and profits—there are important differences between them. Here's the main one: The balance sheet reports the assets, liabilities, and shareholder equity at a specific *point* in time, while a P&L statement summarizes a company's revenues, costs, and expenses during a specific *period*. ### Purpose of Each Statement Each document is built for a slightly different purpose. Balance sheets are built more broadly, revealing what the company owns and owes, as well as any [long-term investments](https://www.investopedia.com/terms/l/longterminvestments.asp). Unlike an income statement, the full value of long-term investments or debts appears on the balance sheet. The name "balance sheet" is derived from the way that the three major accounts eventually balance out and equal each other. All assets are listed in one section, and their sum must equal the sum of all [liabilities](https://www.investopedia.com/terms/t/total-liabilities.asp) and the shareholder equity. The P&L statement answers a very specific question: Is the company profitable? While accountants use the P&L statement to help gauge the accuracy of financial transactions—and investors use the P&L statement to judge a company's health—the company itself can review its own statement for productive purposes. Close monitoring of financial statements highlights where revenue is strong and where expenses are incurred efficiently, and the opposite is true as well. For example, a company might notice increasing sales but decreasing profits and search for new solutions to reduce costs of operation. ### Profit vs. Total Value The P&L statement shows net income, meaning whether or not a company is in the red or black. [The balance sheet shows how much a company is actually worth](https://www.investopedia.com/ask/answers/how-companys-stock-price-and-market-cap-determined/), meaning its total value. Though both of these are a little oversimplified, this is often how the P&L statement and the balance sheet tend to be interpreted by investors and lenders. It's important to note that investors should be careful not to confuse earnings/profits with cash flow. It's possible for a firm to operate profitably without generating cash flow or to generate cash flow without producing profits. ## Is the Balance Sheet the Same as a P&L? The balance sheet reports the assets, liabilities, and shareholders' equity at a point in time. The profit and loss statement reports how a company made or lost money over a period. So, they are not the same report. ## What Comes First, P&L or Balance Sheet? Generally, publicly traded companies place the balance sheet in front of their P&L in their official reports to follow reporting standards. Private companies can place the statements in the order they see fit. ## What Is the Difference Between the Balance Sheet and Income Statement? The balance sheet demonstrates how all assets, liabilities, and shareholders' equity are accounted for. The income statement, also known as the profit and loss statement, shows where a company's profits and expenses came from and went over the period. ## The Bottom Line When used together with other financial documents, the balance sheet and P&L statement can be used to assess a company's [operational efficiency](https://www.investopedia.com/terms/o/operationalefficiency.asp), year-to-year consistency, and organizational direction. For this reason, the numbers reported in each document are scrutinized by investors and the company's executives. While the presentation of these statements varies slightly from industry to industry, large discrepancies between the annual treatment of either document are often considered a red flag. A firm's ability (or inability) to generate earnings consistently over time is a major driver of stock prices and bond valuations. For this reason, [every investor should be curious about all of the financial statements](https://www.investopedia.com/articles/basics/06/financialreporting.asp)—including the P&L statement and the balance sheet—of any company of interest. Once reviewed as a group, these financial statements should then be compared with those of other companies in the industry to obtain performance benchmarks and understand any potential market-wide trends.

Balance Sheet vs. Profit and Loss Statement: An Overview The balance sheet and the profit and loss (P&L) statements are two of the financial statements companies regularly issue. Such statements provide an ongoing record of a company's financial condition and are used by creditors, market analysts, and investors to evaluate a company's financial soundness and growth potential. The third financial statement is called the cash-flow statement. Key Takeaways A balance sheet reports a company's assets, liabilities, and shareholder equity at a specific point in time.A balance sheet gives analysts, investors, and creditors a snapshot of how effectively a company's management uses its resources.A profit and loss (P&L) statement summarizes the revenues, costs, and expenses incurred during a specific period.A P&L statement provides information about whether a company can generate profit by increasing revenue, reducing costs, or both. Balance Sheet  A balance sheet reports a company's assets, liabilities, and shareholder equity at a specific time. It provides a basis for computing rates of return and evaluating the company's capital structure. This financial statement provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. The balance sheet shows a company's resources or assets and how those assets are financed—whether through debt under liabilities or by issuing equity, as shown in the shareholder equity section. The balance sheet gives investors and creditors a snapshot of how effectively a company's management uses its resources. Just like the other financial statements, the balance sheet is used for financial analysis and calculating financial ratios. Here are a few examples of line items on a balance sheet. Assets Cash and Cash Equivalents: These are the most liquid assets, which may include Treasury bills (T-bills), short-term certificates of deposit (CDs), and cash. Marketable Securities: This category includes equity and debt securities for which there is a liquid market. Receivables: Also known as accounts receivable, this represents money owed to the company by customers. Inventory: This area covers all the goods available for sale. Liabilities Debt: This includes the current portion of long-term debt and bank indebtedness Payables: This includes both wages and dividends owed Taxes: Accrued and deferred Total assets should equal total liabilities and shareholders' equity. This is because of the way accounts are credited and debited under accrual accounting. Shareholder Equity Shareholder equity is equal to a firm's total assets minus its total liabilities. It is one of the most common financial metrics employed by analysts to determine the financial health of a company. Shareholder equity represents the net value of a company, meaning the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid. Retained earnings are recorded under shareholder equity and refer to the percentage of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay its debts. Trial Balance vs. the Balance Sheet It's important to note that the trial balance differs from the balance sheet. This is an internal report that stays in the accounting department. The balance sheet, on the other hand, is a financial statement distributed to other departments, investors, and lenders. The trial balance provides financial information at the account level, such as general ledger accounts, and is, therefore, more granular. Eventually, the information in the trial balance is used to prepare the financial statements for the period. In contrast, the balance sheet aggregates multiple accounts, summing up the number of assets, liabilities, and shareholder equity in the accounting records at a specific time. The balance sheet includes outstanding expenses, accrued income, and the value of the closing stock, whereas the trial balance does not. In addition, the balance sheet must adhere to a standard format as described in an accounting framework, such as the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP). Profit and Loss (P&L) Statement A P&L statement, more commonly labeled "statement of income" or "income statement," is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, usually a fiscal year or quarter. These records provide information about a company's ability (or lack thereof) to generate profit by increasing revenue, reducing costs, or both. The P&L statement's many other monikers include the "statement of profit and loss," the "statement of operations," the "statement of financial results," and the "income and expense statement." Top Line and Bottom Line The P&L statement provides the top and bottom lines for a company. It begins with an entry for revenue, known as the top line because it's at the top of the report, and subtracts the costs of doing business, including: Cost of goods soldOperating expensesTax expensesInterest expensesOverhead It also lists other expenses, sometimes "extraordinary" or "one-time" expenses. The difference, known as the bottom line, is net income, also referred to as profit or earnings.  Realized Profits and Loss The P&L statement reveals the company's realized profits or losses for the specified period by comparing total revenues to the company's total costs and expenses. Over time, it can show a company's ability to increase its profit by reducing costs and expenses or increasing sales. Companies publish P&L statements annually, at the end of the company's fiscal year, and may also publish them on a quarterly basis. Accountants, analysts, and investors study a P&L statement carefully, scrutinizing cash flow and debt financing capabilities. Revenues and Expenses From an accounting standpoint, revenues and expenses are listed on the P&L statement when they are incurred, not when the money flows in or out. One beneficial aspect of the P&L statement, in particular, is that it uses operating and nonoperating revenues and expenses, as defined by the Internal Revenue Service (IRS) and GAAP. Balance Sheet vs. P&L Statement Although the balance sheet and the P&L statement contain some of the same financial information—including revenues, expenses, and profits—there are important differences between them. Here's the main one: The balance sheet reports the assets, liabilities, and shareholder equity at a specific point in time, while a P&L statement summarizes a company's revenues, costs, and expenses during a specific period. Purpose of Each Statement Each document is built for a slightly different purpose. Balance sheets are built more broadly, revealing what the company owns and owes, as well as any long-term investments. Unlike an income statement, the full value of long-term investments or debts appears on the balance sheet. The name "balance sheet" is derived from the way that the three major accounts eventually balance out and equal each other. All assets are listed in one section, and their sum must equal the sum of all liabilities and the shareholder equity. The P&L statement answers a very specific question: Is the company profitable? While accountants use the P&L statement to help gauge the accuracy of financial transactions—and investors use the P&L statement to judge a company's health—the company itself can review its own statement for productive purposes. Close monitoring of financial statements highlights where revenue is strong and where expenses are incurred efficiently, and the opposite is true as well. For example, a company might notice increasing sales but decreasing profits and search for new solutions to reduce costs of operation. Profit vs. Total Value The P&L statement shows net income, meaning whether or not a company is in the red or black. The balance sheet shows how much a company is actually worth, meaning its total value. Though both of these are a little oversimplified, this is often how the P&L statement and the balance sheet tend to be interpreted by investors and lenders. It's important to note that investors should be careful not to confuse earnings/profits with cash flow. It's possible for a firm to operate profitably without generating cash flow or to generate cash flow without producing profits. Is the Balance Sheet the Same as a P&L? The balance sheet reports the assets, liabilities, and shareholders' equity at a point in time. The profit and loss statement reports how a company made or lost money over a period. So, they are not the same report. What Comes First, P&L or Balance Sheet? Generally, publicly traded companies place the balance sheet in front of their P&L in their official reports to follow reporting standards. Private companies can place the statements in the order they see fit. What Is the Difference Between the Balance Sheet and Income Statement? The balance sheet demonstrates how all assets, liabilities, and shareholders' equity are accounted for. The income statement, also known as the profit and loss statement, shows where a company's profits and expenses came from and went over the period. The Bottom Line When used together with other financial documents, the balance sheet and P&L statement can be used to assess a company's operational efficiency, year-to-year consistency, and organizational direction. For this reason, the numbers reported in each document are scrutinized by investors and the company's executives. While the presentation of these statements varies slightly from industry to industry, large discrepancies between the annual treatment of either document are often considered a red flag. A firm's ability (or inability) to generate earnings consistently over time is a major driver of stock prices and bond valuations. For this reason, every investor should be curious about all of the financial statements—including the P&L statement and the balance sheet—of any company of interest. Once reviewed as a group, these financial statements should then be compared with those of other companies in the industry to obtain performance benchmarks and understand any potential market-wide trends.

https://www.investopedia.com/terms/s/self-invested-personal-pension-sipp.asp

Self-Invested Personal Pension (SIPP): What It Means, 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-self-invested-personal-pension-sipp"></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 Self-Invested Personal Pension (SIPP)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A self-invested personal pension (SIPP) is a tax-efficient retirement savings account available in the U.K. SIPPs give individuals the freedom to allocate their assets in a wide <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/types-of-investments-in-the-uk-7546224">range of investments</a> approved by the country’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp">Her Majesty’s Revenue and Customs</a> (HMRC), a non-ministerial department of the U.K. government responsible for tax collection and the payment of some forms of state support. Approved investments include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).<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"> This is in contrast to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/employer_sponsored_plan.asp">company-sponsored pensions</a>, where the company chooses a short list of investment options. SIPPs were introduced in 1989 and have become increasingly popular in Great Britain because of the end of lifetime careers and lifetime final salary pensions.<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_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 self-invested personal pension, or SIPP, is a defined-contribution retirement plan offered to taxpayers in the United Kingdom.</li><li>SIPP participants defer a portion of pre-tax income where they can invest in stocks, bonds, and ETFs, among other approved assets in a tax-advantaged manner.</li><li>Like the 401(k) plan in the U.S., SIPP plans were created as an alternative to company-sponsored defined-benefit pensions.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-self-invested-personal-pensions"></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 Self-Invested Personal Pensions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The self-invested personal pension illustrates some of the differences between retirement plans in the U.S. versus the U.K. In the U.S., retirement plan tax relief works in one of two ways. The first option is to invest pre-tax dollars, enjoy tax-free growth within the account, then pay taxes on withdrawals, as with a traditional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/401k.asp">IRA or 401(k)</a>. The second option is to invest after-tax dollars, enjoy tax-free growth within the account, and withdraw money tax-free, as with a Roth IRA or Roth 401(k).<span class="ql-inline-citation" data-cite="7"></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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The SIPP employs a third option. In the U.K., taxpayers are eligible to claim tax relief on pension contributions on 100% of their earnings, up to £60,000 annually. This relief comes in the form of a refund that is contributed toward the pension.<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"> That means that for an eligible taxpayer to put £100 into their account, they must only contribute £80. The government adds the remaining £20 to their SIPP. For example, an individual who pays the basic rate of 20% and contributes £8,000 to their SIPP account. This person is eligible to reclaim £2,000 from the HMRC, which will then be deposited into their SIPP account. There is no tax relief for pension contributions exceeding the £60,000 threshold.<span class="ql-inline-citation" data-cite="8"></span><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_14-0"></div> <span class="heading-toc" id="toc-higher-earners-and-tapered-annual-allowances"></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"> Higher Earners and Tapered Annual Allowances </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> There are additional considerations for taxpayers who earn higher amounts and pay higher-rate or additional-rate taxes. These taxpayers pay rates of 40% and 45%, respectively, on income exceeding certain thresholds. For 2023/2024, the higher rate is charged on income exceeding £37,700 and additional-rate on income exceeding £125,140.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Taxpayers who pay these rates qualify for additional tax relief on SIPP contributions. Like taxpayers who pay the 20% rate, those who pay the higher rates would only have to contribute £80 to their SIPP to add £100 to the account. </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 government adds the remaining £20; however, higher-rate taxpayers can then claim additional relief, getting £20 or £25 back when they submit their tax return. That results in an overall out-of-pocket cost of £60 or £55 for every £100 added to the SIPP. </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"> Very high earners will see their SIPP allowance decrease until it reaches £10,000. Rules regarding tapering are complicated but generally apply to taxpayers whose threshold income exceeds £200,000 and whose adjusted income exceeds £260,000. In this scenario, the SIPP allowance will drop by £1 for every £2 earned until it hits its minimum of £10,000.<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_23-0"></div> <span class="heading-toc" id="toc-unused-allowance-carry-forward"></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"> Unused Allowance Carry Forward </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A useful provision of the SIPP is the option to carry forward unused allowances for up to three years. Unlike American retirement accounts, which are generally use-it-or-lose-it, with a SIPP, you can skip making contributions for a year or two and make it up later. </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're allowed to carry forward unused allowances for up to three tax years. For example, if you're a normal earner and make no contributions in 2023/2024, you're allowed to contribute up to £120,000 in 2024/2025, £60,000 in carried-forward allowance, and £60,000 for the current year.<span class="ql-inline-citation" data-cite="10"></span><br/> </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-sipp-fee-management"></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"> SIPP Fee Management </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> As with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pep.asp">other investment accounts</a>, managing self-invested personal pension fees is important. Individuals should see whether a SIPP charges a fixed annual fee, a percentage of the portfolio value, trading commissions, or other fees before opening an account. </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 is important to choose a low-fee option to avoid harming long-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">investment returns</a>. For example, a fixed annual fee might be cheaper for someone with a high-value portfolio than an annual percentage fee. </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"> Account-holders can manage SIPP investments themselves online or hire an investment manager. </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-withdrawals-from-a-sipp"></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"> Withdrawals From a SIPP </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Individuals participating in a self-invested personal pension can start withdrawing funds at age 55, even if they are still employed. Typically, individuals can take up to 25% of their funds tax-free.<span class="ql-inline-citation" data-cite="1"></span> The plan's payout depends on the performance of the invested contributions, categorizing the SIPP as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tier-1-and-tier-2-pensions-7548609">Tier 2 pension</a>. </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 rest is taxed as income. Once funds are deposited in a SIPP, they can grow free of U.K. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains</a> and income taxes. Immediate tax relief in the form of additional funds added to the SIPP or relief claimed on the taxpayer's tax return will depend on the individual’s specific circumstances.<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_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-is-there-a-minimum-income-requirement-to-contribute-to-a-sipp"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Minimum Income Requirement to Contribute to a SIPP?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Taxpayers can contribute up to the lesser of their pension allowance or 100% of their income to a SIPP each year; however, low and non-earners can still contribute up to £3,600 each year; £2,880 from their savings and £720 in tax relief from the government.<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_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-can-you-have-a-sipp-and-a-workplace-pension"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Have a SIPP and a Workplace Pension?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, if your employer offers a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/types-of-pensions-in-the-uk-7547657">workplace pension</a>, you can have both a SIPP and workplace pension. Keep in mind that they share an annual contribution allowance.</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-are-there-other-limits-on-pension-contributions"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Other Limits on Pension Contributions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, in addition to the annual allowance, taxpayers may contribute no more than £1,073,100 to pensions in their lifetime. This amount is frozen until 2025/2026 when it will be reviewed and potentially adjusted. With an annual allowance of £60,000, it would take almost 18 years of maximum contributions to reach this limit.<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_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"> SIPPs are an option for U.K. taxpayers who want to save for retirement without using a workplace pension. They offer valuable tax benefits, both in the form of immediate tax relief and tax-free growth. </p></div>

## What Is a Self-Invested Personal Pension (SIPP)? A self-invested personal pension (SIPP) is a tax-efficient retirement savings account available in the U.K. SIPPs give individuals the freedom to allocate their assets in a wide [range of investments](https://www.investopedia.com/types-of-investments-in-the-uk-7546224) approved by the country’s [Her Majesty’s Revenue and Customs](https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp) (HMRC), a non-ministerial department of the U.K. government responsible for tax collection and the payment of some forms of state support. Approved investments include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).  This is in contrast to [company-sponsored pensions](https://www.investopedia.com/terms/e/employer_sponsored_plan.asp), where the company chooses a short list of investment options. SIPPs were introduced in 1989 and have become increasingly popular in Great Britain because of the end of lifetime careers and lifetime final salary pensions. ### Key Takeaways * A self-invested personal pension, or SIPP, is a defined-contribution retirement plan offered to taxpayers in the United Kingdom. * SIPP participants defer a portion of pre-tax income where they can invest in stocks, bonds, and ETFs, among other approved assets in a tax-advantaged manner. * Like the 401(k) plan in the U.S., SIPP plans were created as an alternative to company-sponsored defined-benefit pensions. ## Understanding Self-Invested Personal Pensions The self-invested personal pension illustrates some of the differences between retirement plans in the U.S. versus the U.K. In the U.S., retirement plan tax relief works in one of two ways. The first option is to invest pre-tax dollars, enjoy tax-free growth within the account, then pay taxes on withdrawals, as with a traditional [IRA or 401(k)](https://www.investopedia.com/ask/answers/12/401k.asp). The second option is to invest after-tax dollars, enjoy tax-free growth within the account, and withdraw money tax-free, as with a Roth IRA or Roth 401(k). The SIPP employs a third option. In the U.K., taxpayers are eligible to claim tax relief on pension contributions on 100% of their earnings, up to £60,000 annually. This relief comes in the form of a refund that is contributed toward the pension. That means that for an eligible taxpayer to put £100 into their account, they must only contribute £80. The government adds the remaining £20 to their SIPP. For example, an individual who pays the basic rate of 20% and contributes £8,000 to their SIPP account. This person is eligible to reclaim £2,000 from the HMRC, which will then be deposited into their SIPP account. There is no tax relief for pension contributions exceeding the £60,000 threshold. ## Higher Earners and Tapered Annual Allowances There are additional considerations for taxpayers who earn higher amounts and pay higher-rate or additional-rate taxes. These taxpayers pay rates of 40% and 45%, respectively, on income exceeding certain thresholds. For 2023/2024, the higher rate is charged on income exceeding £37,700 and additional-rate on income exceeding £125,140. Taxpayers who pay these rates qualify for additional tax relief on SIPP contributions. Like taxpayers who pay the 20% rate, those who pay the higher rates would only have to contribute £80 to their SIPP to add £100 to the account. The government adds the remaining £20; however, higher-rate taxpayers can then claim additional relief, getting £20 or £25 back when they submit their tax return. That results in an overall out-of-pocket cost of £60 or £55 for every £100 added to the SIPP. Very high earners will see their SIPP allowance decrease until it reaches £10,000. Rules regarding tapering are complicated but generally apply to taxpayers whose threshold income exceeds £200,000 and whose adjusted income exceeds £260,000. In this scenario, the SIPP allowance will drop by £1 for every £2 earned until it hits its minimum of £10,000. ## Unused Allowance Carry Forward A useful provision of the SIPP is the option to carry forward unused allowances for up to three years. Unlike American retirement accounts, which are generally use-it-or-lose-it, with a SIPP, you can skip making contributions for a year or two and make it up later. You're allowed to carry forward unused allowances for up to three tax years. For example, if you're a normal earner and make no contributions in 2023/2024, you're allowed to contribute up to £120,000 in 2024/2025, £60,000 in carried-forward allowance, and £60,000 for the current year. ## SIPP Fee Management As with [other investment accounts](https://www.investopedia.com/terms/p/pep.asp), managing self-invested personal pension fees is important. Individuals should see whether a SIPP charges a fixed annual fee, a percentage of the portfolio value, trading commissions, or other fees before opening an account. It is important to choose a low-fee option to avoid harming long-term [investment returns](https://www.investopedia.com/terms/r/return.asp). For example, a fixed annual fee might be cheaper for someone with a high-value portfolio than an annual percentage fee. Account-holders can manage SIPP investments themselves online or hire an investment manager. ## Withdrawals From a SIPP Individuals participating in a self-invested personal pension can start withdrawing funds at age 55, even if they are still employed. Typically, individuals can take up to 25% of their funds tax-free. The plan's payout depends on the performance of the invested contributions, categorizing the SIPP as a [Tier 2 pension](https://www.investopedia.com/tier-1-and-tier-2-pensions-7548609). The rest is taxed as income. Once funds are deposited in a SIPP, they can grow free of U.K. [capital gains](https://www.investopedia.com/terms/c/capital_gains_tax.asp) and income taxes. Immediate tax relief in the form of additional funds added to the SIPP or relief claimed on the taxpayer's tax return will depend on the individual’s specific circumstances. ## Is There a Minimum Income Requirement to Contribute to a SIPP? Taxpayers can contribute up to the lesser of their pension allowance or 100% of their income to a SIPP each year; however, low and non-earners can still contribute up to £3,600 each year; £2,880 from their savings and £720 in tax relief from the government. ## Can You Have a SIPP and a Workplace Pension? Yes, if your employer offers a [workplace pension](https://www.investopedia.com/types-of-pensions-in-the-uk-7547657), you can have both a SIPP and workplace pension. Keep in mind that they share an annual contribution allowance. ## Are There Other Limits on Pension Contributions? Yes, in addition to the annual allowance, taxpayers may contribute no more than £1,073,100 to pensions in their lifetime. This amount is frozen until 2025/2026 when it will be reviewed and potentially adjusted. With an annual allowance of £60,000, it would take almost 18 years of maximum contributions to reach this limit. ## The Bottom Line SIPPs are an option for U.K. taxpayers who want to save for retirement without using a workplace pension. They offer valuable tax benefits, both in the form of immediate tax relief and tax-free growth.

What Is a Self-Invested Personal Pension (SIPP)? A self-invested personal pension (SIPP) is a tax-efficient retirement savings account available in the U.K. SIPPs give individuals the freedom to allocate their assets in a wide range of investments approved by the country’s Her Majesty’s Revenue and Customs (HMRC), a non-ministerial department of the U.K. government responsible for tax collection and the payment of some forms of state support. Approved investments include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).  This is in contrast to company-sponsored pensions, where the company chooses a short list of investment options. SIPPs were introduced in 1989 and have become increasingly popular in Great Britain because of the end of lifetime careers and lifetime final salary pensions. Key Takeaways A self-invested personal pension, or SIPP, is a defined-contribution retirement plan offered to taxpayers in the United Kingdom.SIPP participants defer a portion of pre-tax income where they can invest in stocks, bonds, and ETFs, among other approved assets in a tax-advantaged manner.Like the 401(k) plan in the U.S., SIPP plans were created as an alternative to company-sponsored defined-benefit pensions. Understanding Self-Invested Personal Pensions The self-invested personal pension illustrates some of the differences between retirement plans in the U.S. versus the U.K. In the U.S., retirement plan tax relief works in one of two ways. The first option is to invest pre-tax dollars, enjoy tax-free growth within the account, then pay taxes on withdrawals, as with a traditional IRA or 401(k). The second option is to invest after-tax dollars, enjoy tax-free growth within the account, and withdraw money tax-free, as with a Roth IRA or Roth 401(k). The SIPP employs a third option. In the U.K., taxpayers are eligible to claim tax relief on pension contributions on 100% of their earnings, up to £60,000 annually. This relief comes in the form of a refund that is contributed toward the pension. That means that for an eligible taxpayer to put £100 into their account, they must only contribute £80. The government adds the remaining £20 to their SIPP. For example, an individual who pays the basic rate of 20% and contributes £8,000 to their SIPP account. This person is eligible to reclaim £2,000 from the HMRC, which will then be deposited into their SIPP account. There is no tax relief for pension contributions exceeding the £60,000 threshold. Higher Earners and Tapered Annual Allowances There are additional considerations for taxpayers who earn higher amounts and pay higher-rate or additional-rate taxes. These taxpayers pay rates of 40% and 45%, respectively, on income exceeding certain thresholds. For 2023/2024, the higher rate is charged on income exceeding £37,700 and additional-rate on income exceeding £125,140. Taxpayers who pay these rates qualify for additional tax relief on SIPP contributions. Like taxpayers who pay the 20% rate, those who pay the higher rates would only have to contribute £80 to their SIPP to add £100 to the account. The government adds the remaining £20; however, higher-rate taxpayers can then claim additional relief, getting £20 or £25 back when they submit their tax return. That results in an overall out-of-pocket cost of £60 or £55 for every £100 added to the SIPP. Very high earners will see their SIPP allowance decrease until it reaches £10,000. Rules regarding tapering are complicated but generally apply to taxpayers whose threshold income exceeds £200,000 and whose adjusted income exceeds £260,000. In this scenario, the SIPP allowance will drop by £1 for every £2 earned until it hits its minimum of £10,000. Unused Allowance Carry Forward A useful provision of the SIPP is the option to carry forward unused allowances for up to three years. Unlike American retirement accounts, which are generally use-it-or-lose-it, with a SIPP, you can skip making contributions for a year or two and make it up later. You're allowed to carry forward unused allowances for up to three tax years. For example, if you're a normal earner and make no contributions in 2023/2024, you're allowed to contribute up to £120,000 in 2024/2025, £60,000 in carried-forward allowance, and £60,000 for the current year. SIPP Fee Management As with other investment accounts, managing self-invested personal pension fees is important. Individuals should see whether a SIPP charges a fixed annual fee, a percentage of the portfolio value, trading commissions, or other fees before opening an account. It is important to choose a low-fee option to avoid harming long-term investment returns. For example, a fixed annual fee might be cheaper for someone with a high-value portfolio than an annual percentage fee. Account-holders can manage SIPP investments themselves online or hire an investment manager. Withdrawals From a SIPP Individuals participating in a self-invested personal pension can start withdrawing funds at age 55, even if they are still employed. Typically, individuals can take up to 25% of their funds tax-free. The plan's payout depends on the performance of the invested contributions, categorizing the SIPP as a Tier 2 pension. The rest is taxed as income. Once funds are deposited in a SIPP, they can grow free of U.K. capital gains and income taxes. Immediate tax relief in the form of additional funds added to the SIPP or relief claimed on the taxpayer's tax return will depend on the individual’s specific circumstances. Is There a Minimum Income Requirement to Contribute to a SIPP? Taxpayers can contribute up to the lesser of their pension allowance or 100% of their income to a SIPP each year; however, low and non-earners can still contribute up to £3,600 each year; £2,880 from their savings and £720 in tax relief from the government. Can You Have a SIPP and a Workplace Pension? Yes, if your employer offers a workplace pension, you can have both a SIPP and workplace pension. Keep in mind that they share an annual contribution allowance. Are There Other Limits on Pension Contributions? Yes, in addition to the annual allowance, taxpayers may contribute no more than £1,073,100 to pensions in their lifetime. This amount is frozen until 2025/2026 when it will be reviewed and potentially adjusted. With an annual allowance of £60,000, it would take almost 18 years of maximum contributions to reach this limit. The Bottom Line SIPPs are an option for U.K. taxpayers who want to save for retirement without using a workplace pension. They offer valuable tax benefits, both in the form of immediate tax relief and tax-free growth.

https://www.investopedia.com/articles/pf/08/inheritance-for-children.asp

Passing an Inheritance to Children: What You Must Do First

<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"> Deciding whether or not to leave an inheritance for your children can impact the amount of money that you save, the retirement plans that you choose, and how you take qualified retirement plan distributions. </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, beyond a desire that you may have to leave some wealth to your children, there are some essential personal financial issues to deal with first. </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>Whether or not you leave an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inheritance.asp">inheritance</a> for your children can impact how you save and take retirement plan distributions.</li> <li>Before deciding to leave an inheritance, consider important personal financial issues, including your income needs and potential healthcare costs.</li> <li>Retirees risk running out of money if they live long lives, so preparation is key.</li> <li>Be sure to consider any tax implications of leaving an inheritance.</li> <li>Establishing a trust and gifting assets to loved ones can be effective ways to transfer assets, but there are rules and limitations.</li> </ul></div></div></div> <span class="heading-toc" id="toc-consider-your-income-needs"></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"> Consider Your Income Needs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Some retirees give away their retirement savings without considering their own income needs. Before you make gifts to others, it's important to assess how much you need to spend on yourself. Retirement calculators such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.aarp.org/work/retirement-planning/retirement_calculator.html">those available from AARP</a> can help you to determine how much you need to save and how much you can withdraw each year once you retire. </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"> Be sure to take into account the impact of inflation and taxes and maintain a diversified portfolio of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthfund.asp">growth</a> and income investments that can help your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> keep pace with inflation. </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-plan-for-rising-healthcare-costs"></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"> Plan for Rising Healthcare Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The biggest risks to your retirement income and your children's inheritance are unexpected illness and high healthcare 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"> Government programs are often of little assistance when it comes to paying for nursing homes and other forms of long-term medical care. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">Medicare</a> covers a limited amount of nursing home care, and Medicaid requires that you spend almost all of your own money before it pays for long-term care.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> You cannot simply transfer assets to family members to qualify for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicaid.asp">Medicaid</a>, as the program restricts benefits if asset transfers were made within several years prior to a nursing homestay.<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"> Some people protect their assets from the costs of catastrophic illness with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ltcinsurance.asp">long-term care insurance</a> policy, which can be purchased either individually, through an insurance agent, or through a group plan with an employer. However, these policies are very expensive and have a number of coverage limitations, so you should consider them carefully. </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-invest-for-a-long-life"></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"> Invest for a Long Life </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> What if you outlive your retirement fund? When you are over 90 years old, your children and grandchildren may celebrate every one of your birthdays gratefully. But if you have spent your nest egg, they may also be paying some or all of your bills. </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"> With longer life expectancies, it's essential to manage investments and retirement-plan withdrawals to avoid depleting assets during your lifetime. </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"> As a solution, you could buy an immediate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annuity.asp">annuity</a> with some of your retirement funds to ensure that you receive a guaranteed amount of money for at least as long as you live. Certain pension and retirement plans may allow you to stretch payments that you receive over single or joint life expectancies rather than receive the proceeds as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lumpsumdistribution.asp">lump sum</a>. </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-consider-the-tax-implications"></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"> Consider the Tax Implications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If you expect to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092515/i-just-inherited-money-now-what.asp">inherit assets from your parents</a>, you may be in a better position financially than someone who does not expect to receive an inheritance. </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"> Keep in mind that certain inherited assets, such as stocks and <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>, are eligible for favorable tax treatment called a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stepupinbasis.asp">step-up in basis</a>. If you are leaving assets to others, this tax treatment could mean significant savings for heirs.<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> <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"> Inherited IRAs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Also, be aware that if you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inherited_ira.asp">inherit an IRA</a>, you may have to abide by certain rules regarding when you take distributions. </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"> A proposed IRS regulation requires that non-spousal beneficiaries of an IRA inherited from an owner who died in 2020 or later, and had started taking RMDs, take annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a> from the IRA. And the IRA must be emptied by the end of the 10th calendar year following the year of the IRA owner's death. However, the enactment of this proposed rule was delayed in 2023.<span class="ql-inline-citation" data-cite="28"></span><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_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><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_39-0"><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>As of January 2024, the IRS proposed regulation regarding inherited IRAs and annual RMDs had not been finalized. Keep your eyes on <em>Investopedia</em> for updates. Or contact your financial advisor or tax advisor and request that they update you with relevant news from the IRS about inherited IRAs and RMDs.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The 10-year rule eliminates what was previously called the "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stretch-ira.asp">stretch IRA</a>," a financial planning tactic that allowed beneficiaries to stretch their RMDs over their life expectancy and extend the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxdeferred.asp">tax-deferred</a> status of an inherited IRA. </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"> Exceptions to this proposed rule are beneficiaries designated as the surviving spouse, a child of the IRA owner who has not reached the age of majority, disabled or chronically ill individuals, and individuals who are not more than 10 years younger than the IRA owner.<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_43-0"></div> <span class="heading-toc" id="toc-consider-a-trust"></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"> Consider a Trust </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> It may make sense to set up a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trust.asp">trust</a> to control distributions from the estate to the surviving spouse and children in certain situations. If you or your spouse have children from previous relationships and you don't have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prenuptialagreement.asp">prenuptial agreement</a>, trusts can ensure that specific assets are passed to designated children. </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"> Children who are well off may prefer that you keep every penny of your nest egg rather than hand it over during your lifetime. Discuss the transfer of your estate with them. </p> <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-choose-investments-wisely"></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"> Choose Investments Wisely </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Those with very large <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estate.asp">estates</a> may expect children to pass inherited assets to grandchildren. A portfolio designed to last multiple generations should grow, preserve capital, and generate income with investments like growth and income <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equities</a> and a portfolio of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondladdering.asp">laddered bonds</a>. </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"> Inheritors who wish an estate to last several generations should withdraw income only and avoid dipping into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</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"> Estimate the amount of the inheritance you will leave to your children by considering rising prices or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> as well as years of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounded</a> investment growth. </p> <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-note" 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 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>The AARP recommends that parents be up front with children about a planned inheritance to manage financial expectations and to smooth bumps in the road that the future transition of funds may cause between siblings.<span class="ql-inline-citation" data-cite="25"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-leave-your-legacy"></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"> How to Leave Your Legacy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Once you have considered all your options, there are several methods by which to pass along funds to your loved ones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-subheading__text"> Gift Assets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Gifting assets is one way to allow loved ones to make use of your money while you are still alive. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gift.asp">Gifts</a> qualifying for the annual exclusion from <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>—often called "annual exclusion gifts"—are entirely tax-free and do not require filing a gift tax return.<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_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> A separate annual exclusion applies to each person to whom you make a gift. The annual gift tax exclusion is $18,000 for 2024, up from $17,000 for 2023.<span class="ql-inline-citation" data-cite="27"></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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> While gift recipients will not receive a step-up in cost basis, any <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> will be taxed at their applicable rate, which may be lower than yours. </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"> Some people gift to children or grandchildren using custodial accounts set up under the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/utma.asp">Uniform Transfers to Minors Act (UTMA)</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ugma.asp">Uniform Gifts to Minors Act (UGMA)</a>. However, depending on a recipient's earned income and status as a student, the earnings in the account may be taxed at the donor's tax rate rather than the child's rate. Others may opt to open a joint account with the minor child or buy <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savings-bond-plan.asp">savings bonds</a> in the child's name.<span class="ql-inline-citation" data-cite="16"></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_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bequest.asp">Bequests</a> made to charities are not subject to any limitations and are deductible from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/ordinaryincome.asp">ordinary income</a>.<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_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"> Create a Trust </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trust.asp">Trusts</a> protect your children's interests, and the assets in them avoid <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/probate.asp">probate</a> (which maintains privacy). You can appoint a company, such as the one that helped you establish the trust, or a knowledgeable and trusted person as the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a> to manage assets and control distributions from the trust. </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"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irrevocabletrust.asp">irrevocable trust</a> is considered a gift, so you can't control it or take it back. However, with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revocabletrust.asp">revocable</a> living trust, you own and control the assets while you are alive. When you die, they pass to beneficiaries as part of your estate.<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_76-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-subheading__text"> Defer Income </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Retirement accounts such as deductible <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRAs</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plans</a> defer taxes on capital gains, interest, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> from investments until the money is withdrawn. At that point, it is taxed as ordinary income. </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"> If you anticipate being in a higher tax bracket at retirement than you are now, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth IRA</a> allows earnings to accumulate tax-free, and there are no taxes on withdrawals.<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_81-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-subheading__text"> Life Insurance or Tax-Deferred Variable Annuities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> With <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp">life insurance</a>, your beneficiaries receive the proceeds tax-free, without having to go through probate or worrying about stock market fluctuations.<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_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedannuity.asp">Fixed</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableannuity.asp">variable annuities</a> allow you to participate in the stock market through mutual funds or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed-income</a> investments and have a life insurance component. However, these policies often carry hidden charges and fees, so it's important to shop around and study them carefully. </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"> Additionally, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secure-act-4688468">SECURE Act</a> made annuities that are held in a 401(k) plan portable. This means that people who inherit an annuity that's part of a 401(k) can transfer the annuity into another direct trustee-to-trustee plan. This eliminates the need for the beneficiary to immediately liquidate the annuity, which could trigger surrender charges and fees.<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_88-0"></div> <span class="heading-toc" id="toc-estate-planning-legal-details"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> Estate Planning Legal Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Make sure that you take care of the legal details below to ensure that your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estateplanning.asp">estate plan</a> will work the way you want it to. An estate attorney or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial_plan.asp">financial planner</a> who specializes in estate planning may be helpful in explaining these details further. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-subheading__text"> Beneficiaries </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> <li>Review the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp">beneficiaries</a> on all accounts.</li> <li>Changing beneficiaries may require your spouse's consent.</li> <li>List secondary beneficiaries in case your primary beneficiary dies before you.</li> <li>Your retirement accounts pass to beneficiaries without going through probate court; however, if you leave a retirement account to your estate, it may have to go through probate before the assets can be distributed.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <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"> Probate </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> <li>Know the probate laws in your state. </li><li>Investment accounts without a joint owner or documented beneficiary may have to go through probate to change ownership, a potentially long and costly process.</li> </ul> <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"> Wills </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> <li>Draw up a will.</li> <li>Dying without a will (called "dying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intestate.asp" rel="noopener noreferrer">intestate</a>") means that state law determines how your investments are divided among relatives.</li> <li>If you have no living relatives and no will, your assets <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/escheat.asp" rel="noopener noreferrer">escheat</a> back to your state of residence.</li> </ul> <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-is-the-best-way-to-leave-an-inheritance-to-your-children"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Way To Leave an Inheritance to Your Children?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are many ways to leave an inheritance to your children and what is best will be different for every family. One good way is to leave the inheritance in a trust. The trust can be set up with some provisions, such as making distributions over time. A trust can also remove the issue of probate, allowing the inheritance to pass without issue.</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-how-much-can-you-inherit-from-your-parents-without-paying-taxes"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Can You Inherit From Your Parents Without Paying Taxes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The federal government does not charge an inheritance tax, but some states do. The federal government does charge an estate tax that is passed onto beneficiaries. In 2024, the estate tax is only levied on estates with a value greater than $13.61 million in 2024 (up from $12.92 million in 2023). The portion that is greater than these exclusion amounts is the portion that is taxed.<span class="ql-inline-citation" data-cite="21"></span></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-should-you-leave-an-inheritance-to-your-children"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should You Leave an Inheritance to Your Children?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>This decision will differ for every family depending on the relationship of the family members. In general, leaving an inheritance to your children can help them through life, ease their financial burden, and represent your love and care.<br/></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"> Whether or not to leave your children an inheritance requires thought and planning. The above suggestions may not be right for everyone, so it's important to consult an attorney or tax advisor to determine what makes the most sense for you. </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"> Evaluating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distribution.asp">distribution</a> options for your nest egg can help to ensure that your wishes are followed while maximizing flexibility for your heirs. </p></div>

Deciding whether or not to leave an inheritance for your children can impact the amount of money that you save, the retirement plans that you choose, and how you take qualified retirement plan distributions. However, beyond a desire that you may have to leave some wealth to your children, there are some essential personal financial issues to deal with first. ### Key Takeaways * Whether or not you leave an [inheritance](https://www.investopedia.com/terms/i/inheritance.asp) for your children can impact how you save and take retirement plan distributions. * Before deciding to leave an inheritance, consider important personal financial issues, including your income needs and potential healthcare costs. * Retirees risk running out of money if they live long lives, so preparation is key. * Be sure to consider any tax implications of leaving an inheritance. * Establishing a trust and gifting assets to loved ones can be effective ways to transfer assets, but there are rules and limitations. ## Consider Your Income Needs Some retirees give away their retirement savings without considering their own income needs. Before you make gifts to others, it's important to assess how much you need to spend on yourself. Retirement calculators such as [those available from AARP](https://www.aarp.org/work/retirement-planning/retirement_calculator.html) can help you to determine how much you need to save and how much you can withdraw each year once you retire. Be sure to take into account the impact of inflation and taxes and maintain a diversified portfolio of [growth](https://www.investopedia.com/terms/g/growthfund.asp) and income investments that can help your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) keep pace with inflation. ## Plan for Rising Healthcare Costs The biggest risks to your retirement income and your children's inheritance are unexpected illness and high healthcare costs. Government programs are often of little assistance when it comes to paying for nursing homes and other forms of long-term medical care. [Medicare](https://www.investopedia.com/terms/m/medicare.asp) covers a limited amount of nursing home care, and Medicaid requires that you spend almost all of your own money before it pays for long-term care. You cannot simply transfer assets to family members to qualify for [Medicaid](https://www.investopedia.com/terms/m/medicaid.asp), as the program restricts benefits if asset transfers were made within several years prior to a nursing homestay. Some people protect their assets from the costs of catastrophic illness with a [long-term care insurance](https://www.investopedia.com/terms/l/ltcinsurance.asp) policy, which can be purchased either individually, through an insurance agent, or through a group plan with an employer. However, these policies are very expensive and have a number of coverage limitations, so you should consider them carefully. ## Invest for a Long Life What if you outlive your retirement fund? When you are over 90 years old, your children and grandchildren may celebrate every one of your birthdays gratefully. But if you have spent your nest egg, they may also be paying some or all of your bills. With longer life expectancies, it's essential to manage investments and retirement-plan withdrawals to avoid depleting assets during your lifetime. As a solution, you could buy an immediate [annuity](https://www.investopedia.com/terms/a/annuity.asp) with some of your retirement funds to ensure that you receive a guaranteed amount of money for at least as long as you live. Certain pension and retirement plans may allow you to stretch payments that you receive over single or joint life expectancies rather than receive the proceeds as a [lump sum](https://www.investopedia.com/terms/l/lumpsumdistribution.asp). ## Consider the Tax Implications If you expect to [inherit assets from your parents](https://www.investopedia.com/articles/personal-finance/092515/i-just-inherited-money-now-what.asp), you may be in a better position financially than someone who does not expect to receive an inheritance. Keep in mind that certain inherited assets, such as stocks and [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), are eligible for favorable tax treatment called a [step-up in basis](https://www.investopedia.com/terms/s/stepupinbasis.asp). If you are leaving assets to others, this tax treatment could mean significant savings for heirs. ### Inherited IRAs Also, be aware that if you [inherit an IRA](https://www.investopedia.com/terms/i/inherited_ira.asp), you may have to abide by certain rules regarding when you take distributions. A proposed IRS regulation requires that non-spousal beneficiaries of an IRA inherited from an owner who died in 2020 or later, and had started taking RMDs, take annual [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) from the IRA. And the IRA must be emptied by the end of the 10th calendar year following the year of the IRA owner's death. However, the enactment of this proposed rule was delayed in 2023. ### As of January 2024, the IRS proposed regulation regarding inherited IRAs and annual RMDs had not been finalized. Keep your eyes on *Investopedia* for updates. Or contact your financial advisor or tax advisor and request that they update you with relevant news from the IRS about inherited IRAs and RMDs. The 10-year rule eliminates what was previously called the "[stretch IRA](https://www.investopedia.com/terms/s/stretch-ira.asp)," a financial planning tactic that allowed beneficiaries to stretch their RMDs over their life expectancy and extend the [tax-deferred](https://www.investopedia.com/terms/t/taxdeferred.asp) status of an inherited IRA. Exceptions to this proposed rule are beneficiaries designated as the surviving spouse, a child of the IRA owner who has not reached the age of majority, disabled or chronically ill individuals, and individuals who are not more than 10 years younger than the IRA owner. ## Consider a Trust It may make sense to set up a [trust](https://www.investopedia.com/terms/t/trust.asp) to control distributions from the estate to the surviving spouse and children in certain situations. If you or your spouse have children from previous relationships and you don't have a [prenuptial agreement](https://www.investopedia.com/terms/p/prenuptialagreement.asp), trusts can ensure that specific assets are passed to designated children. Children who are well off may prefer that you keep every penny of your nest egg rather than hand it over during your lifetime. Discuss the transfer of your estate with them. ## Choose Investments Wisely Those with very large [estates](https://www.investopedia.com/terms/e/estate.asp) may expect children to pass inherited assets to grandchildren. A portfolio designed to last multiple generations should grow, preserve capital, and generate income with investments like growth and income [equities](https://www.investopedia.com/terms/e/equity.asp) and a portfolio of [laddered bonds](https://www.investopedia.com/terms/b/bondladdering.asp). Inheritors who wish an estate to last several generations should withdraw income only and avoid dipping into [principal](https://www.investopedia.com/terms/p/principal.asp).  Estimate the amount of the inheritance you will leave to your children by considering rising prices or [inflation](https://www.investopedia.com/terms/i/inflation.asp) as well as years of [compounded](https://www.investopedia.com/terms/c/compounding.asp) investment growth. ### The AARP recommends that parents be up front with children about a planned inheritance to manage financial expectations and to smooth bumps in the road that the future transition of funds may cause between siblings. ## How to Leave Your Legacy Once you have considered all your options, there are several methods by which to pass along funds to your loved ones. ### Gift Assets Gifting assets is one way to allow loved ones to make use of your money while you are still alive. [Gifts](https://www.investopedia.com/terms/g/gift.asp) qualifying for the annual exclusion from [gift tax](https://www.investopedia.com/terms/g/gifttax.asp)—often called "annual exclusion gifts"—are entirely tax-free and do not require filing a gift tax return. A separate annual exclusion applies to each person to whom you make a gift. The annual gift tax exclusion is $18,000 for 2024, up from $17,000 for 2023. While gift recipients will not receive a step-up in cost basis, any [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) will be taxed at their applicable rate, which may be lower than yours. Some people gift to children or grandchildren using custodial accounts set up under the [Uniform Transfers to Minors Act (UTMA)](https://www.investopedia.com/terms/u/utma.asp) or [Uniform Gifts to Minors Act (UGMA)](https://www.investopedia.com/terms/u/ugma.asp). However, depending on a recipient's earned income and status as a student, the earnings in the account may be taxed at the donor's tax rate rather than the child's rate. Others may opt to open a joint account with the minor child or buy [savings bonds](https://www.investopedia.com/terms/s/savings-bond-plan.asp) in the child's name. [Bequests](https://www.investopedia.com/terms/b/bequest.asp) made to charities are not subject to any limitations and are deductible from [ordinary income](https://www.investopedia.com/terms/o/ordinaryincome.asp). ### Create a Trust [Trusts](https://www.investopedia.com/terms/t/trust.asp) protect your children's interests, and the assets in them avoid [probate](https://www.investopedia.com/terms/p/probate.asp) (which maintains privacy). You can appoint a company, such as the one that helped you establish the trust, or a knowledgeable and trusted person as the [trustee](https://www.investopedia.com/terms/t/trustee.asp) to manage assets and control distributions from the trust. An [irrevocable trust](https://www.investopedia.com/terms/i/irrevocabletrust.asp) is considered a gift, so you can't control it or take it back. However, with a [revocable](https://www.investopedia.com/terms/r/revocabletrust.asp) living trust, you own and control the assets while you are alive. When you die, they pass to beneficiaries as part of your estate. ### Defer Income Retirement accounts such as deductible [IRAs](https://www.investopedia.com/terms/i/ira.asp) and [401(k) plans](https://www.investopedia.com/terms/1/401kplan.asp) defer taxes on capital gains, interest, or [dividends](https://www.investopedia.com/terms/d/dividend.asp) from investments until the money is withdrawn. At that point, it is taxed as ordinary income. If you anticipate being in a higher tax bracket at retirement than you are now, a [Roth IRA](https://www.investopedia.com/terms/r/rothira.asp) allows earnings to accumulate tax-free, and there are no taxes on withdrawals. ### Life Insurance or Tax-Deferred Variable Annuities With [life insurance](https://www.investopedia.com/terms/l/lifeinsurance.asp), your beneficiaries receive the proceeds tax-free, without having to go through probate or worrying about stock market fluctuations. [Fixed](https://www.investopedia.com/terms/f/fixedannuity.asp) or [variable annuities](https://www.investopedia.com/terms/v/variableannuity.asp) allow you to participate in the stock market through mutual funds or [fixed-income](https://www.investopedia.com/terms/f/fixedincome.asp) investments and have a life insurance component. However, these policies often carry hidden charges and fees, so it's important to shop around and study them carefully. Additionally, the [SECURE Act](https://www.investopedia.com/secure-act-4688468) made annuities that are held in a 401(k) plan portable. This means that people who inherit an annuity that's part of a 401(k) can transfer the annuity into another direct trustee-to-trustee plan. This eliminates the need for the beneficiary to immediately liquidate the annuity, which could trigger surrender charges and fees. ## Estate Planning Legal Details Make sure that you take care of the legal details below to ensure that your [estate plan](https://www.investopedia.com/terms/e/estateplanning.asp) will work the way you want it to. An estate attorney or a [financial planner](https://www.investopedia.com/terms/f/financial_plan.asp) who specializes in estate planning may be helpful in explaining these details further. ### Beneficiaries * Review the [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp) on all accounts. * Changing beneficiaries may require your spouse's consent. * List secondary beneficiaries in case your primary beneficiary dies before you. * Your retirement accounts pass to beneficiaries without going through probate court; however, if you leave a retirement account to your estate, it may have to go through probate before the assets can be distributed. ### Probate * Know the probate laws in your state. * Investment accounts without a joint owner or documented beneficiary may have to go through probate to change ownership, a potentially long and costly process. ### Wills * Draw up a will. * Dying without a will (called "dying [intestate](https://www.investopedia.com/terms/i/intestate.asp)") means that state law determines how your investments are divided among relatives. * If you have no living relatives and no will, your assets [escheat](https://www.investopedia.com/terms/e/escheat.asp) back to your state of residence. ## What Is the Best Way To Leave an Inheritance to Your Children? There are many ways to leave an inheritance to your children and what is best will be different for every family. One good way is to leave the inheritance in a trust. The trust can be set up with some provisions, such as making distributions over time. A trust can also remove the issue of probate, allowing the inheritance to pass without issue. ## How Much Can You Inherit From Your Parents Without Paying Taxes? The federal government does not charge an inheritance tax, but some states do. The federal government does charge an estate tax that is passed onto beneficiaries. In 2024, the estate tax is only levied on estates with a value greater than $13.61 million in 2024 (up from $12.92 million in 2023). The portion that is greater than these exclusion amounts is the portion that is taxed. ## Should You Leave an Inheritance to Your Children? This decision will differ for every family depending on the relationship of the family members. In general, leaving an inheritance to your children can help them through life, ease their financial burden, and represent your love and care. ## The Bottom Line Whether or not to leave your children an inheritance requires thought and planning. The above suggestions may not be right for everyone, so it's important to consult an attorney or tax advisor to determine what makes the most sense for you. Evaluating [distribution](https://www.investopedia.com/terms/d/distribution.asp) options for your nest egg can help to ensure that your wishes are followed while maximizing flexibility for your heirs.

Deciding whether or not to leave an inheritance for your children can impact the amount of money that you save, the retirement plans that you choose, and how you take qualified retirement plan distributions. However, beyond a desire that you may have to leave some wealth to your children, there are some essential personal financial issues to deal with first. Key Takeaways Whether or not you leave an inheritance for your children can impact how you save and take retirement plan distributions. Before deciding to leave an inheritance, consider important personal financial issues, including your income needs and potential healthcare costs. Retirees risk running out of money if they live long lives, so preparation is key. Be sure to consider any tax implications of leaving an inheritance. Establishing a trust and gifting assets to loved ones can be effective ways to transfer assets, but there are rules and limitations. Consider Your Income Needs Some retirees give away their retirement savings without considering their own income needs. Before you make gifts to others, it's important to assess how much you need to spend on yourself. Retirement calculators such as those available from AARP can help you to determine how much you need to save and how much you can withdraw each year once you retire. Be sure to take into account the impact of inflation and taxes and maintain a diversified portfolio of growth and income investments that can help your portfolio keep pace with inflation. Plan for Rising Healthcare Costs The biggest risks to your retirement income and your children's inheritance are unexpected illness and high healthcare costs. Government programs are often of little assistance when it comes to paying for nursing homes and other forms of long-term medical care. Medicare covers a limited amount of nursing home care, and Medicaid requires that you spend almost all of your own money before it pays for long-term care. You cannot simply transfer assets to family members to qualify for Medicaid, as the program restricts benefits if asset transfers were made within several years prior to a nursing homestay. Some people protect their assets from the costs of catastrophic illness with a long-term care insurance policy, which can be purchased either individually, through an insurance agent, or through a group plan with an employer. However, these policies are very expensive and have a number of coverage limitations, so you should consider them carefully. Invest for a Long Life What if you outlive your retirement fund? When you are over 90 years old, your children and grandchildren may celebrate every one of your birthdays gratefully. But if you have spent your nest egg, they may also be paying some or all of your bills. With longer life expectancies, it's essential to manage investments and retirement-plan withdrawals to avoid depleting assets during your lifetime. As a solution, you could buy an immediate annuity with some of your retirement funds to ensure that you receive a guaranteed amount of money for at least as long as you live. Certain pension and retirement plans may allow you to stretch payments that you receive over single or joint life expectancies rather than receive the proceeds as a lump sum. Consider the Tax Implications If you expect to inherit assets from your parents, you may be in a better position financially than someone who does not expect to receive an inheritance. Keep in mind that certain inherited assets, such as stocks and mutual funds, are eligible for favorable tax treatment called a step-up in basis. If you are leaving assets to others, this tax treatment could mean significant savings for heirs. Inherited IRAs Also, be aware that if you inherit an IRA, you may have to abide by certain rules regarding when you take distributions. A proposed IRS regulation requires that non-spousal beneficiaries of an IRA inherited from an owner who died in 2020 or later, and had started taking RMDs, take annual required minimum distributions (RMDs) from the IRA. And the IRA must be emptied by the end of the 10th calendar year following the year of the IRA owner's death. However, the enactment of this proposed rule was delayed in 2023. As of January 2024, the IRS proposed regulation regarding inherited IRAs and annual RMDs had not been finalized. Keep your eyes on Investopedia for updates. Or contact your financial advisor or tax advisor and request that they update you with relevant news from the IRS about inherited IRAs and RMDs. The 10-year rule eliminates what was previously called the "stretch IRA," a financial planning tactic that allowed beneficiaries to stretch their RMDs over their life expectancy and extend the tax-deferred status of an inherited IRA. Exceptions to this proposed rule are beneficiaries designated as the surviving spouse, a child of the IRA owner who has not reached the age of majority, disabled or chronically ill individuals, and individuals who are not more than 10 years younger than the IRA owner. Consider a Trust It may make sense to set up a trust to control distributions from the estate to the surviving spouse and children in certain situations. If you or your spouse have children from previous relationships and you don't have a prenuptial agreement, trusts can ensure that specific assets are passed to designated children. Children who are well off may prefer that you keep every penny of your nest egg rather than hand it over during your lifetime. Discuss the transfer of your estate with them. Choose Investments Wisely Those with very large estates may expect children to pass inherited assets to grandchildren. A portfolio designed to last multiple generations should grow, preserve capital, and generate income with investments like growth and income equities and a portfolio of laddered bonds. Inheritors who wish an estate to last several generations should withdraw income only and avoid dipping into principal.  Estimate the amount of the inheritance you will leave to your children by considering rising prices or inflation as well as years of compounded investment growth. The AARP recommends that parents be up front with children about a planned inheritance to manage financial expectations and to smooth bumps in the road that the future transition of funds may cause between siblings. How to Leave Your Legacy Once you have considered all your options, there are several methods by which to pass along funds to your loved ones. Gift Assets Gifting assets is one way to allow loved ones to make use of your money while you are still alive. Gifts qualifying for the annual exclusion from gift tax—often called "annual exclusion gifts"—are entirely tax-free and do not require filing a gift tax return. A separate annual exclusion applies to each person to whom you make a gift. The annual gift tax exclusion is $18,000 for 2024, up from $17,000 for 2023. While gift recipients will not receive a step-up in cost basis, any capital gains will be taxed at their applicable rate, which may be lower than yours. Some people gift to children or grandchildren using custodial accounts set up under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). However, depending on a recipient's earned income and status as a student, the earnings in the account may be taxed at the donor's tax rate rather than the child's rate. Others may opt to open a joint account with the minor child or buy savings bonds in the child's name. Bequests made to charities are not subject to any limitations and are deductible from ordinary income. Create a Trust Trusts protect your children's interests, and the assets in them avoid probate (which maintains privacy). You can appoint a company, such as the one that helped you establish the trust, or a knowledgeable and trusted person as the trustee to manage assets and control distributions from the trust. An irrevocable trust is considered a gift, so you can't control it or take it back. However, with a revocable living trust, you own and control the assets while you are alive. When you die, they pass to beneficiaries as part of your estate. Defer Income Retirement accounts such as deductible IRAs and 401(k) plans defer taxes on capital gains, interest, or dividends from investments until the money is withdrawn. At that point, it is taxed as ordinary income. If you anticipate being in a higher tax bracket at retirement than you are now, a Roth IRA allows earnings to accumulate tax-free, and there are no taxes on withdrawals. Life Insurance or Tax-Deferred Variable Annuities With life insurance, your beneficiaries receive the proceeds tax-free, without having to go through probate or worrying about stock market fluctuations. Fixed or variable annuities allow you to participate in the stock market through mutual funds or fixed-income investments and have a life insurance component. However, these policies often carry hidden charges and fees, so it's important to shop around and study them carefully. Additionally, the SECURE Act made annuities that are held in a 401(k) plan portable. This means that people who inherit an annuity that's part of a 401(k) can transfer the annuity into another direct trustee-to-trustee plan. This eliminates the need for the beneficiary to immediately liquidate the annuity, which could trigger surrender charges and fees. Estate Planning Legal Details Make sure that you take care of the legal details below to ensure that your estate plan will work the way you want it to. An estate attorney or a financial planner who specializes in estate planning may be helpful in explaining these details further. Beneficiaries Review the beneficiaries on all accounts. Changing beneficiaries may require your spouse's consent. List secondary beneficiaries in case your primary beneficiary dies before you. Your retirement accounts pass to beneficiaries without going through probate court; however, if you leave a retirement account to your estate, it may have to go through probate before the assets can be distributed. Probate Know the probate laws in your state. Investment accounts without a joint owner or documented beneficiary may have to go through probate to change ownership, a potentially long and costly process. Wills Draw up a will. Dying without a will (called "dying intestate") means that state law determines how your investments are divided among relatives. If you have no living relatives and no will, your assets escheat back to your state of residence. What Is the Best Way To Leave an Inheritance to Your Children? There are many ways to leave an inheritance to your children and what is best will be different for every family. One good way is to leave the inheritance in a trust. The trust can be set up with some provisions, such as making distributions over time. A trust can also remove the issue of probate, allowing the inheritance to pass without issue. How Much Can You Inherit From Your Parents Without Paying Taxes? The federal government does not charge an inheritance tax, but some states do. The federal government does charge an estate tax that is passed onto beneficiaries. In 2024, the estate tax is only levied on estates with a value greater than $13.61 million in 2024 (up from $12.92 million in 2023). The portion that is greater than these exclusion amounts is the portion that is taxed. Should You Leave an Inheritance to Your Children? This decision will differ for every family depending on the relationship of the family members. In general, leaving an inheritance to your children can help them through life, ease their financial burden, and represent your love and care. The Bottom Line Whether or not to leave your children an inheritance requires thought and planning. The above suggestions may not be right for everyone, so it's important to consult an attorney or tax advisor to determine what makes the most sense for you. Evaluating distribution options for your nest egg can help to ensure that your wishes are followed while maximizing flexibility for your heirs.

https://www.investopedia.com/credible-student-loans-review-4798535

Credible Student Loans Review

<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"> <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-2x1 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:50.0%;"> <img alt="Credible" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/sZt-np6Rgz2JjAck42W4ZkwJGIA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEQAEAPMAACFXoShWoShWoyhWpFi/kpKn0vv9/P///f///yFXoSFXoSFXoSFXoSFXoSFXoSFXoSwAAAAAEQAEAEMIKgARCBxIkMABgggEDBTAUCGCgwIbMkxYQACAiQcmJmwo0ICAARgDOGQYEAA7')" width="1500"/> <noscript> <img alt="Credible" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/sZt-np6Rgz2JjAck42W4ZkwJGIA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p> Credible</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <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-tracking-container="false" href="https://www.credible.com/student-loans/?utm_source=investopedia&amp;utm_medium=referral&amp;utm_campaign=private_student_loans" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Get a Quote</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"> Credible can simplify the process of shopping for private student loans. You can view personalized prequalified rates* from leading student loan lenders by filling out one form without affecting your credit. However, Credible doesn’t offer any special discounts or incentives, so you won’t qualify for lower rates by going through Credible than you’d get working directly with the lender.  </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 &amp; 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 &amp; 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_1-0-3"> <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>Compare undergraduate loan rates from up to eight lenders at once</p></li> <li><p>No origination or prepayment fees</p></li> <li><p>$200 best rate guarantee. Terms apply</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>Repayment policies vary by lender</p></li> <li><p>No special incentives for Credible users</p></li> <li><p>International students must have a co-signer</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_1-0-5"> <li>Credible was founded in 2012.<span class="ql-inline-citation" data-cite="3"></span> </li><li>It offers private student loans and student loan refinancing.</li><li>Credible can also connect parent borrowers to private loans. </li><li>There is no fee to use Credible’s platform. </li><li>Rates, repayment options, and loan forgiveness or hardship options vary based on the lender.</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_1-0-7"> Unlike other student loan companies that underwrite and disburse loans, Credible is a loan marketplace. Through its platform, borrowers can fill out one simple form and get connected to leading private student loan companies and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loan-refinance-companies-4782684">student loan refinancing lenders</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_1-0-8"> Credible can connect borrowers to potential loans anywhere in the country. However, some of its partner lenders may not be available in all 50 states.  </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"> In 2019, the Fox Corporation acquired 67% of the equity in Credible for approximately $260 million.<span class="ql-inline-citation" data-cite="5"></span>   </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_1-0-10"> <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">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 2012 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.credible.com </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Loans Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Undergraduate, graduate, parent, refinancing </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Service</span> <span class="definition-list__item-content definition-list__item-content-3"> Chat. Phone: (866) 540-6005. Email: support@credible.com </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="Credible" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/sZt-np6Rgz2JjAck42W4ZkwJGIA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhEQAEAPMAACFXoShWoShWoyhWpFi/kpKn0vv9/P///f///yFXoSFXoSFXoSFXoSFXoSFXoSFXoSwAAAAAEQAEAEMIKgARCBxIkMABgggEDBTAUCGCgwIbMkxYQACAiQcmJmwo0ICAARgDOGQYEAA7')" width="1500"/> <noscript> <img alt="Credible" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/sZt-np6Rgz2JjAck42W4ZkwJGIA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p> Credible</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <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-tracking-container="false" href="https://www.credible.com/student-loans/?utm_source=investopedia&amp;utm_medium=referral&amp;utm_campaign=private_student_loans" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Get a Quote</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-Credible Student Loans Review" 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"> Credible Student Loans Review</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-Quick Look" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-credible-student-loan-rates-quick-look" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Quick Look</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-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0-1" 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_3-0-2"> <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-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-2" 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_3-0-3"> <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-Lenders Available" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-lenders-available-through-credible" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Lenders Available</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-Eligibility and Approval" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-loan-eligibility-and-approval" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Eligibility and Approval</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-Fees and Repayment" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-loan-fees-and-repayment-options" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Fees and Repayment</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-Refinancing" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-is-student-loan-refinancing-available" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Refinancing</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-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-applying-for-a-credible-student-loan" id="mntl-toc__list-item-link_3-0-8" 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_3-0-9"> <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-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternative-choices" id="mntl-toc__list-item-link_3-0-9" 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_3-0-10"> <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-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-10" 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_3-0-11"> <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-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-11" 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"> <span class="heading-toc" id="toc-credible-student-loan-rates-quick-look"></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"> <span class="mntl-sc-block-heading__text"> Credible Student Loan Rates: Quick Look </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_2-0-1"> Credible offers the following rates through its partner lenders, as of February, 2024.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="13"></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_2-0-2"> <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>Loan Type</b></th> <th><b>Variable APR</b></th> <th><b>Fixed APR</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Undergraduate loan</b></td> <td>4.98%–16.85%</td> <td>4.07%–16.49%</td> </tr> <tr> <td><b>Graduate loan</b></td> <td>4.98%–16.70% </td> <td>4.07%–16.49% </td> </tr> <tr> <td><b>Refinance loan</b></td> <td>5.28% to 12.43% </td> <td>5.24% to 10.98% </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-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_2-0-3"> <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_2-0-4"> <li><strong>Compare undergraduate loan rates from up to eight lenders at once: </strong>While some marketplaces only connect you with a handful of lenders, Credible offers personalized prequalified rates* from up to eight leading companies. With more partner lenders, there is a better chance of finding a good deal on a loan. </li><li><strong>No origination or prepayment fees: </strong>None of Credible’s partner lenders charge origination fees or prepayment penalties.<span class="ql-inline-citation" data-cite="13"></span> </li><li><strong>$200 best rate guarantee:</strong> Credible backs its private student loan marketplace with a $200 best rate guarantee. If Credible cannot give you the best rate and you take out a loan elsewhere, Credible will send you a $200 gift card. Terms apply.<span class="ql-inline-citation" data-cite="7"></span> </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_2-0-5"> <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_2-0-6"> <li><strong>Repayment policies vary by lender: </strong>Because Credible is a marketplace rather than a lender, co-signer releases, financial hardship issues, and loan discharges are handled differently based on the lender issuing the loan. </li><li><strong>No special incentives for Credible users: </strong>With some loan marketplace platforms, customers may qualify for additional interest rate discounts or cash-back bonuses. But with Credible, there’s no added bonus for using the platform to compare rates. </li><li><strong>International students must have a co-signer: </strong>Although some lenders will work with international students who don’t have co-signers, Credible does not. International students must have a co-signer who is a U.S. citizen or permanent resident to qualify for a loan through Credible’s platform.<span class="ql-inline-citation" data-cite="8"></span> </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-lenders-available-through-credible"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> Lenders Available Through Credible </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_2-0-8"> As a lending marketplace, Credible partners with banks, credit unions, and other financial institutions to offer loans. Its private student loan partners include:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ascent-student-loans-review-4801060">Ascent</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citizens-bank-student-loans-review-4800080">Citizens Bank</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/college-ave-student-loans-review-4798530">College Ave Student Loans</a></li> <li>Custom Choice</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/edvestinu-student-loans-review-6891192">EDvestinU</a></li> <li>INvestEd</li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mefa-student-loans-review-5069957">MEFA</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sallie-mae-student-loans-review-4800305">Sallie Mae</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendkey-student-loans-review-4802314">LendKey</a> (refinancing only)</li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/rhode-island-student-loan-authority-risla-review-4799313">RISLA</a> (refinancing only)</li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/education-loan-finance-student-loans-review-4846168">ELFI</a> (refinancing only)</li> <li>Brazos (refinancing only)</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-loan-eligibility-and-approval"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-heading__text"> Loan Eligibility and Approval </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <div class="comp theme-warning 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_2-0-11"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Private student loans tend to have higher interest rates and fewer borrower protections than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp">federal student loans</a>, so make sure to use the maximum amount of federal aid first.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> Through Credible, borrowers can find private student loans to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574">pay for undergraduate or graduate degrees</a>. Parents borrowing to pay for a child’s college education can also find a loan through Credible’s platform.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> Although loan eligibility requirements can vary by lender, Credible’s partners typically require borrowers to meet the following criteria:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-14"> <li>Students must be enrolled at least part-time</li><li>You must be the age of majority in your state or have a co-signer</li><li>Students must be U.S. citizens or permanent residents; international students may qualify for a loan if they have a creditworthy co-signer who is a U.S. citizen or permanent resident </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"> Are Cosigners Required? </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_2-0-16"> Borrowers have to meet lender credit and income requirements. For college students who may not have much income or credit yet, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-signer</a> can improve their chances of getting a loan.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> International students may qualify for private student loans if they add a co-signer to their application who is a U.S. citizen or permanent resident.  </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_2-0-18"> <span class="mntl-sc-block-subheading__text"> Is Loan Pre-Qualification Available? </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_2-0-19"> Through Credible, you can fill out one form and view options from multiple lenders without affecting your credit. Once you find the right loan, Credible will direct you to the lender’s website to complete the full application. At that time, the lender will perform a hard credit check.  </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_2-0-20"> <span class="mntl-sc-block-subheading__text"> Length of Time for Loan Approval and Disbursement </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_2-0-21"> The length of time it takes to get approved and for loans to be disbursed varies by lender. In general, the lender will pay the money to your college. If there is money left over after covering tuition and other fees, the school may issue the remainder to you by check or by electronic transfer.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-loan-fees-and-repayment-options"></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"> Loan Fees and Repayment Options </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_2-0-23"> Because Credible is a marketplace rather than a lender, the lender that underwrites your loan—not Credible—determines the fees and repayment options. </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_2-0-24"> <span class="mntl-sc-block-subheading__text"> Loan Fees </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_2-0-25"> None of Credible’s partners charge application fees, origination fees, or prepayment penalties.<span class="ql-inline-citation" data-cite="16"></span> But there may be late fees or returned payment fees. </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_2-0-26"> <span class="mntl-sc-block-subheading__text"> Loan Discounts </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"> Some of Credible’s partners offer special discounts, such as autopay discounts. With some lenders, you can qualify for a 0.25% interest rate reduction by enrolling in automatic payments, or get additional discounts by showing proof of graduation or taking out multiple loans.<span class="ql-inline-citation" data-cite="17"></span>  </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_2-0-28"> <span class="mntl-sc-block-subheading__text"> Repayment Options </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_2-0-29"> With federal student loans, you don’t have to make payments while you’re in school, but that’s not always the case with private student loans. Some of Credible’s partners allow you to defer payments until after you graduate, but not all of its partners may offer that option. Depending on the lender, you may be able to choose one of the following repayment plans:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-30"> <li><strong>Immediate full payment: </strong>Under an immediate repayment plan, you make payments against the interest and principal while you’re in school. Although the payments are higher than with other plans while you’re a student, this option has the lowest overall cost. </li><li><strong>Fixed: </strong>With a fixed payment plan, you only pay a fixed amount per month, such as $25, while you’re in school. After you graduate, you make payments against the principal and interest. </li><li><strong>Interest-only: </strong>If you choose an interest-only repayment plan, you make payments against the interest that accrues each month while you’re in school. After graduation or dropping out of college, you make payments against the principal and interest. </li><li><strong>Deferred: </strong>If a lender offers a deferred payment plan, you can postpone making any payments until after you graduate. There is often a six-month grace period after graduation before payments are required, as well.</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_2-0-31"> <span class="mntl-sc-block-subheading__text"> Rewards </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_2-0-32"> Credible does not have a rewards or referral program, although certain of its partner lenders may.  </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_2-0-33"> <span class="mntl-sc-block-subheading__text"> Loan Forbearance and Discharge Options </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_2-0-34"> When shopping for a private student loan through Credible, be sure to check the following lender policies before signing a loan agreement:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-35"> <li><strong>Financial hardship forbearance: </strong>Some private student loan companies—but not all—offer forbearance to borrowers that experience financial issues, such as a job loss. This option allows you to make reduced payments or even skip payments for a few months.</li><li><strong>Loan discharge for death or disability: </strong>Although federal student loans are discharged in cases of death and permanent disability, that’s not always the case with private student loans. Check with your lender to see how your loans will be handled if you or your co-signer pass away or become totally and permanently disabled. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-is-student-loan-refinancing-available"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-36"> <span class="mntl-sc-block-heading__text"> Is Student Loan Refinancing Available? </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_2-0-37"> In addition to private student loans, Credible also connects borrowers to student loan refinancing lenders. Credible’s partner lenders offer the following refinancing options:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-38"> <li>Undergraduate loan refinancing</li><li>Graduate loan refinancing</li><li>Parent loan refinancing</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-39"> Eligibility requirements vary by lender, but some of Credible’s partners allow borrowers to refinance their loans if they didn’t graduate or if they’re still in school. Borrowers can refinance their loans and get either a fixed or variable-rate loan, and loan terms can be as long as 20 years.<span class="ql-inline-citation" data-cite="10"></span>  </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_2-0-40"> <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_2-0-41"> Credible has a strong reputation among customers. Consumers submitted just 25 complaints about Credible to the Consumer Financial Protection Bureau and only three of them were about student loans, far fewer than you typically see for a student loan company.<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_2-0-42"> Credible’s customer support team can be reached by phone, email, or online chat:  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-43"> <li><strong>Email</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="mailto:support@credible.com">support@credible.com</a></li> <li><strong>Phone:</strong> 866-540-6005</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-44"> Because Credible doesn’t issue loans, you will be in contact with another company once you have a loan in repayment. If you have problems with your account or need help with your payments, you’ll have to contact the lender that issued the loan or the loan servicer that manages it.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-applying-for-a-credible-student-loan"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-45"> <span class="mntl-sc-block-heading__text"> Applying for a Credible Student Loan  </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <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_2-0-46"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Before turning to Credible or any student loan company, make sure to explore all of your federal and state <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-financial-aid-work-4782003">financial aid</a> options first. Fill out the <a data-component="link" data-ordinal="2" 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 (FAFSA)</a> and contact your college’s financial aid office to ensure you maximize all available aid before turning to private loans.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-47"> With Credible, you can get quotes for private student loans and refinancing by filling out one simple form. The form will prompt you to enter the following information: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-48"> <li>Your name</li><li>Date of birth</li><li>Address</li><li>Citizenship status</li><li>College name</li><li>Degree type</li><li>Expected graduation date</li><li>Monthly housing payment</li><li>Employment status and income</li><li>Desired loan amount</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-49"> Credible will use your information and a soft credit check to show you potential loans from multiple lenders.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-50"> If you find a loan that meets your needs and you want to apply for it, you can select that loan and Credible will redirect you to the lender’s website to fill out the full application. At that time, the lender may request additional information, and you’ll also need to consent to a hard credit check.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternative-choices"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-51"> <span class="mntl-sc-block-heading__text"> Alternative Choices </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_2-0-52"> <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>Credible</b></th> <th><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mefa-student-loans-review-5069957" rel="noopener noreferrer">MEFA</a></b></th> <th><b><a class="in-cell-link" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-student-loans-review-4799276" rel="noopener noreferrer">SoFi</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Loan Types Offered</b></td> <td>Undergraduate; graduate; parent; professional</td> <td>Undergraduate; graduate </td> <td>Undergraduate; graduate; med; law, health, vet</td> </tr> <tr> <td><b>Undergraduate Fixed APR</b></td> <td>4.07%–16.49% </td> <td>5.35%–7.95% </td> <td>4.44%–14.70%</td> </tr> <tr> <td><b>Undergraduate Variable APR</b></td> <td>4.98%–16.85% </td> <td>N/A </td> <td>5.99%–14.70%</td> </tr> <tr> <td><b>Origination/Administrative Fee</b></td> <td>None </td> <td>None </td> <td>None</td> </tr> <tr> <td><b>Repayment Options</b></td> <td>Varies by lender </td> <td>Deferment; interest-only; immediate; deferment with co-borrower release</td> <td>Deferment; interest-only; immediate; full payment</td> </tr> <tr> <td><b>Refinancing Available</b></td> <td>Yes</td> <td>Yes </td> <td>Yes</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-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_2-0-53"> <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_2-0-54"> If you need a private student loan and aren’t sure where to start, Credible can be a useful solution. It partners with many major lenders, and it provides you with quotes from up to eight of its partner lenders (for undergrad loans) so you can find the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loans-4775346">best private student loans</a> and terms for your education. Although Credible doesn’t give borrowers special discounts or bonuses for using the platform, it can streamline the process of finding a loan.  </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_2-0-55"> <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-retailer-type="other" data-tracking-container="true" href="https://www.credible.com/student-loans/?utm_source=investopedia&amp;utm_medium=referral&amp;utm_campaign=private_student_loans" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Get a Quote</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_2-0-56"> <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_2-0-57"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of student loan lenders. We collected thousands of data points across 30 lenders—including loan types, interest rates, fees, loan amounts, and repayment terms—to ensure that we help readers make the right borrowing decision for their education needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-58"> <em>*Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.</em> </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-3"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/about" rel="nofollow sponsored">Simplicity. Choice. Unbiased Support</a>." </p></li> <li class="mntl-sources__source" id="citation-5"><p>Fox Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://investor.foxcorporation.com/static-files/1ed7c450-e52a-4259-8631-80db9e79be32">2022 Annual Report</a>," Page 75.</p></li> <li class="mntl-sources__source" id="citation-14"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/refinance-student-loans" rel="nofollow sponsored">Refinance Student Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-13"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/student-loans" rel="nofollow sponsored">Private Student Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-7"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/a/student-loan-best-rate-guarantee-offer" rel="nofollow sponsored">Credible Private Student Loans Best Rate Guarantee</a>." </p></li> <li class="mntl-sources__source" id="citation-8"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/faqs" rel="nofollow sponsored">Frequently Asked Questions Student Loans</a>," Click "Can I Use Credible if I Am an International Student?"</p></li> <li class="mntl-sources__source" id="citation-16"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/student-loans" rel="nofollow sponsored">Private Student Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/student-loans" rel="nofollow sponsored">Private Student Loans</a>," Click "View Details."</p></li> <li class="mntl-sources__source" id="citation-10"><p>Credible. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credible.com/blog/best-student-loan-refinance-companies/" rel="nofollow sponsored">10 Best Student Loan Refinance Companies: Reviewed and Rated</a>." </p></li> <li class="mntl-sources__source" id="citation-12"><p>Consumer Financial Protection Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/data-research/consumer-complaints/search/?chartType=line&amp;company=Credible%20Labs%20Inc.&amp;dateInterval=Month&amp;dateRange=All&amp;date_received_max=2023-03-02&amp;date_received_min=2011-12-01&amp;lens=Product&amp;searchField=all&amp;subLens=sub_product&amp;tab=Trends">Complaint Database - Credible Labs</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 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</div></div>

:fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg) :fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg)  Credible [Get a Quote](https://www.credible.com/student-loans/?utm_source=investopedia&utm_medium=referral&utm_campaign=private_student_loans) **Our Take** Credible can simplify the process of shopping for private student loans. You can view personalized prequalified rates\* from leading student loan lenders by filling out one form without affecting your credit. However, Credible doesn’t offer any special discounts or incentives, so you won’t qualify for lower rates by going through Credible than you’d get working directly with the lender.  * Pros & Cons * Key Takeaways * Company Overview Pros & Cons Pros * Compare undergraduate loan rates from up to eight lenders at once * No origination or prepayment fees * $200 best rate guarantee. Terms apply Cons * Repayment policies vary by lender * No special incentives for Credible users * International students must have a co-signer Key Takeaways * Credible was founded in 2012. * It offers private student loans and student loan refinancing. * Credible can also connect parent borrowers to private loans. * There is no fee to use Credible’s platform. * Rates, repayment options, and loan forgiveness or hardship options vary based on the lender. Company Overview Unlike other student loan companies that underwrite and disburse loans, Credible is a loan marketplace. Through its platform, borrowers can fill out one simple form and get connected to leading private student loan companies and [student loan refinancing lenders](https://www.investopedia.com/best-student-loan-refinance-companies-4782684).  Credible can connect borrowers to potential loans anywhere in the country. However, some of its partner lenders may not be available in all 50 states.  In 2019, the Fox Corporation acquired 67% of the equity in Credible for approximately $260 million.   * Year Founded 2012 * Official Website www.credible.com * Loans Offered Undergraduate, graduate, parent, refinancing * Customer Service Chat. Phone: (866) 540-6005. Email: support@credible.com :fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg) :fill(white):max_bytes(150000):strip_icc()/credible-logo-d7a4df83e453492fb4dfb4f7f4ae5045.jpg)  Credible [Get a Quote](https://www.credible.com/student-loans/?utm_source=investopedia&utm_medium=referral&utm_campaign=private_student_loans) Table of Contents View All Credible Student Loans Review * [Quick Look](#toc-credible-student-loan-rates-quick-look) * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Lenders Available](#toc-lenders-available-through-credible) * [Eligibility and Approval](#toc-loan-eligibility-and-approval) * [Fees and Repayment](#toc-loan-fees-and-repayment-options) * [Refinancing](#toc-is-student-loan-refinancing-available) * [Customer Service](#toc-customer-service) * [How to Apply](#toc-applying-for-a-credible-student-loan) * [Alternatives](#toc-alternative-choices) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) ## Credible Student Loan Rates: Quick Look Credible offers the following rates through its partner lenders, as of February, 2024. | **Loan Type** | **Variable APR** | **Fixed APR** | | --- | --- | --- | | **Undergraduate loan** | 4.98%–16.85% | 4.07%–16.49% | | **Graduate loan** | 4.98%–16.70% | 4.07%–16.49% | | **Refinance loan** | 5.28% to 12.43% | 5.24% to 10.98% | ## Pros Explained * **Compare undergraduate loan rates from up to eight lenders at once:** While some marketplaces only connect you with a handful of lenders, Credible offers personalized prequalified rates\* from up to eight leading companies. With more partner lenders, there is a better chance of finding a good deal on a loan. * **No origination or prepayment fees:** None of Credible’s partner lenders charge origination fees or prepayment penalties. * **$200 best rate guarantee:** Credible backs its private student loan marketplace with a $200 best rate guarantee. If Credible cannot give you the best rate and you take out a loan elsewhere, Credible will send you a $200 gift card. Terms apply. ## Cons Explained * **Repayment policies vary by lender:** Because Credible is a marketplace rather than a lender, co-signer releases, financial hardship issues, and loan discharges are handled differently based on the lender issuing the loan. * **No special incentives for Credible users:** With some loan marketplace platforms, customers may qualify for additional interest rate discounts or cash-back bonuses. But with Credible, there’s no added bonus for using the platform to compare rates. * **International students must have a co-signer:** Although some lenders will work with international students who don’t have co-signers, Credible does not. International students must have a co-signer who is a U.S. citizen or permanent resident to qualify for a loan through Credible’s platform. ## Lenders Available Through Credible As a lending marketplace, Credible partners with banks, credit unions, and other financial institutions to offer loans. Its private student loan partners include:  * [Ascent](https://www.investopedia.com/ascent-student-loans-review-4801060) * [Citizens Bank](https://www.investopedia.com/citizens-bank-student-loans-review-4800080) * [College Ave Student Loans](https://www.investopedia.com/college-ave-student-loans-review-4798530) * Custom Choice * [EDvestinU](https://www.investopedia.com/edvestinu-student-loans-review-6891192) * INvestEd * [MEFA](https://www.investopedia.com/mefa-student-loans-review-5069957) * [Sallie Mae](https://www.investopedia.com/sallie-mae-student-loans-review-4800305) * [LendKey](https://www.investopedia.com/lendkey-student-loans-review-4802314) (refinancing only) * [RISLA](https://www.investopedia.com/rhode-island-student-loan-authority-risla-review-4799313) (refinancing only) * [ELFI](https://www.investopedia.com/education-loan-finance-student-loans-review-4846168) (refinancing only) * Brazos (refinancing only) ## Loan Eligibility and Approval Private student loans tend to have higher interest rates and fewer borrower protections than [federal student loans](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp), so make sure to use the maximum amount of federal aid first. Through Credible, borrowers can find private student loans to [pay for undergraduate or graduate degrees](https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574). Parents borrowing to pay for a child’s college education can also find a loan through Credible’s platform.  Although loan eligibility requirements can vary by lender, Credible’s partners typically require borrowers to meet the following criteria:  * Students must be enrolled at least part-time * You must be the age of majority in your state or have a co-signer * Students must be U.S. citizens or permanent residents; international students may qualify for a loan if they have a creditworthy co-signer who is a U.S. citizen or permanent resident ### Are Cosigners Required? Borrowers have to meet lender credit and income requirements. For college students who may not have much income or credit yet, a [co-signer](https://www.investopedia.com/terms/c/co_sign.asp) can improve their chances of getting a loan.  International students may qualify for private student loans if they add a co-signer to their application who is a U.S. citizen or permanent resident.  ### Is Loan Pre-Qualification Available? Through Credible, you can fill out one form and view options from multiple lenders without affecting your credit. Once you find the right loan, Credible will direct you to the lender’s website to complete the full application. At that time, the lender will perform a hard credit check.  ### Length of Time for Loan Approval and Disbursement The length of time it takes to get approved and for loans to be disbursed varies by lender. In general, the lender will pay the money to your college. If there is money left over after covering tuition and other fees, the school may issue the remainder to you by check or by electronic transfer.  ## Loan Fees and Repayment Options Because Credible is a marketplace rather than a lender, the lender that underwrites your loan—not Credible—determines the fees and repayment options. ### Loan Fees None of Credible’s partners charge application fees, origination fees, or prepayment penalties. But there may be late fees or returned payment fees. ### Loan Discounts Some of Credible’s partners offer special discounts, such as autopay discounts. With some lenders, you can qualify for a 0.25% interest rate reduction by enrolling in automatic payments, or get additional discounts by showing proof of graduation or taking out multiple loans.  ### Repayment Options With federal student loans, you don’t have to make payments while you’re in school, but that’s not always the case with private student loans. Some of Credible’s partners allow you to defer payments until after you graduate, but not all of its partners may offer that option. Depending on the lender, you may be able to choose one of the following repayment plans:  * **Immediate full payment:** Under an immediate repayment plan, you make payments against the interest and principal while you’re in school. Although the payments are higher than with other plans while you’re a student, this option has the lowest overall cost. * **Fixed:** With a fixed payment plan, you only pay a fixed amount per month, such as $25, while you’re in school. After you graduate, you make payments against the principal and interest. * **Interest-only:** If you choose an interest-only repayment plan, you make payments against the interest that accrues each month while you’re in school. After graduation or dropping out of college, you make payments against the principal and interest. * **Deferred:** If a lender offers a deferred payment plan, you can postpone making any payments until after you graduate. There is often a six-month grace period after graduation before payments are required, as well. ### Rewards Credible does not have a rewards or referral program, although certain of its partner lenders may.  ### Loan Forbearance and Discharge Options When shopping for a private student loan through Credible, be sure to check the following lender policies before signing a loan agreement:  * **Financial hardship forbearance:** Some private student loan companies—but not all—offer forbearance to borrowers that experience financial issues, such as a job loss. This option allows you to make reduced payments or even skip payments for a few months. * **Loan discharge for death or disability:** Although federal student loans are discharged in cases of death and permanent disability, that’s not always the case with private student loans. Check with your lender to see how your loans will be handled if you or your co-signer pass away or become totally and permanently disabled. ## Is Student Loan Refinancing Available? In addition to private student loans, Credible also connects borrowers to student loan refinancing lenders. Credible’s partner lenders offer the following refinancing options:  * Undergraduate loan refinancing * Graduate loan refinancing * Parent loan refinancing Eligibility requirements vary by lender, but some of Credible’s partners allow borrowers to refinance their loans if they didn’t graduate or if they’re still in school. Borrowers can refinance their loans and get either a fixed or variable-rate loan, and loan terms can be as long as 20 years.  ## Customer Service Credible has a strong reputation among customers. Consumers submitted just 25 complaints about Credible to the Consumer Financial Protection Bureau and only three of them were about student loans, far fewer than you typically see for a student loan company.  Credible’s customer support team can be reached by phone, email, or online chat:  * **Email**: [support@credible.com](mailto:support@credible.com) * **Phone:** 866-540-6005 Because Credible doesn’t issue loans, you will be in contact with another company once you have a loan in repayment. If you have problems with your account or need help with your payments, you’ll have to contact the lender that issued the loan or the loan servicer that manages it.  ## Applying for a Credible Student Loan Before turning to Credible or any student loan company, make sure to explore all of your federal and state [financial aid](https://www.investopedia.com/how-does-financial-aid-work-4782003) options first. Fill out the [Free Application for Federal Student Aid (FAFSA)](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp) and contact your college’s financial aid office to ensure you maximize all available aid before turning to private loans. With Credible, you can get quotes for private student loans and refinancing by filling out one simple form. The form will prompt you to enter the following information: * Your name * Date of birth * Address * Citizenship status * College name * Degree type * Expected graduation date * Monthly housing payment * Employment status and income * Desired loan amount Credible will use your information and a soft credit check to show you potential loans from multiple lenders.  If you find a loan that meets your needs and you want to apply for it, you can select that loan and Credible will redirect you to the lender’s website to fill out the full application. At that time, the lender may request additional information, and you’ll also need to consent to a hard credit check.  ## Alternative Choices | | **Credible** | **[MEFA](https://www.investopedia.com/mefa-student-loans-review-5069957)** | **[SoFi](https://www.investopedia.com/sofi-student-loans-review-4799276)** | | --- | --- | --- | --- | | **Loan Types Offered** | Undergraduate; graduate; parent; professional | Undergraduate; graduate | Undergraduate; graduate; med; law, health, vet | | **Undergraduate Fixed APR** | 4.07%–16.49% | 5.35%–7.95% | 4.44%–14.70% | | **Undergraduate Variable APR** | 4.98%–16.85% | N/A | 5.99%–14.70% | | **Origination/Administrative Fee** | None | None | None | | **Repayment Options** | Varies by lender | Deferment; interest-only; immediate; deferment with co-borrower release | Deferment; interest-only; immediate; full payment | | **Refinancing Available** | Yes | Yes | Yes | ## Final Verdict If you need a private student loan and aren’t sure where to start, Credible can be a useful solution. It partners with many major lenders, and it provides you with quotes from up to eight of its partner lenders (for undergrad loans) so you can find the [best private student loans](https://www.investopedia.com/best-student-loans-4775346) and terms for your education. Although Credible doesn’t give borrowers special discounts or bonuses for using the platform, it can streamline the process of finding a loan.  [Get a Quote](https://www.credible.com/student-loans/?utm_source=investopedia&utm_medium=referral&utm_campaign=private_student_loans) ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of student loan lenders. We collected thousands of data points across 30 lenders—including loan types, interest rates, fees, loan amounts, and repayment terms—to ensure that we help readers make the right borrowing decision for their education needs. *\*Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.* 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. Credible. "[Simplicity. Choice. Unbiased Support](https://www.credible.com/about)." 2. Fox Corporation. "[2022 Annual Report](https://investor.foxcorporation.com/static-files/1ed7c450-e52a-4259-8631-80db9e79be32)," Page 75. 3. Credible. "[Refinance Student Loans](https://www.credible.com/refinance-student-loans)." 4. Credible. "[Private Student Loans](https://www.credible.com/student-loans)." 5. Credible. "[Credible Private Student Loans Best Rate Guarantee](https://www.credible.com/a/student-loan-best-rate-guarantee-offer)." 6. Credible. "[Frequently Asked Questions Student Loans](https://www.credible.com/faqs)," Click "Can I Use Credible if I Am an International Student?" 7. Credible. "[Private Student Loans](https://www.credible.com/student-loans)." 8. Credible. "[Private Student Loans](https://www.credible.com/student-loans)," Click "View Details." 9. Credible. "[10 Best Student Loan Refinance Companies: Reviewed and Rated](https://www.credible.com/blog/best-student-loan-refinance-companies/)." 10. Consumer Financial Protection Bureau. "[Complaint Database - Credible Labs](https://www.consumerfinance.gov/data-research/consumer-complaints/search/?chartType=line&company=Credible%20Labs%20Inc.&dateInterval=Month&dateRange=All&date_received_max=2023-03-02&date_received_min=2011-12-01&lens=Product&searchField=all&subLens=sub_product&tab=Trends)." 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 Credible Get a Quote Our Take Credible can simplify the process of shopping for private student loans. You can view personalized prequalified rates* from leading student loan lenders by filling out one form without affecting your credit. However, Credible doesn’t offer any special discounts or incentives, so you won’t qualify for lower rates by going through Credible than you’d get working directly with the lender.  Pros & Cons Key Takeaways Company Overview Pros & Cons Pros Compare undergraduate loan rates from up to eight lenders at once No origination or prepayment fees $200 best rate guarantee. Terms apply Cons Repayment policies vary by lender No special incentives for Credible users International students must have a co-signer Key Takeaways Credible was founded in 2012. It offers private student loans and student loan refinancing.Credible can also connect parent borrowers to private loans. There is no fee to use Credible’s platform. Rates, repayment options, and loan forgiveness or hardship options vary based on the lender. Company Overview Unlike other student loan companies that underwrite and disburse loans, Credible is a loan marketplace. Through its platform, borrowers can fill out one simple form and get connected to leading private student loan companies and student loan refinancing lenders.  Credible can connect borrowers to potential loans anywhere in the country. However, some of its partner lenders may not be available in all 50 states.  In 2019, the Fox Corporation acquired 67% of the equity in Credible for approximately $260 million.   Year Founded 2012 Official Website www.credible.com Loans Offered Undergraduate, graduate, parent, refinancing Customer Service Chat. Phone: (866) 540-6005. Email: support@credible.com  Credible Get a Quote Table of Contents View All Credible Student Loans Review Quick Look Pros Explained Cons Explained Lenders Available Eligibility and Approval Fees and Repayment Refinancing Customer Service How to Apply Alternatives Final Verdict Methodology Credible Student Loan Rates: Quick Look Credible offers the following rates through its partner lenders, as of February, 2024. Loan Type Variable APR Fixed APR Undergraduate loan 4.98%–16.85% 4.07%–16.49% Graduate loan 4.98%–16.70%  4.07%–16.49%  Refinance loan 5.28% to 12.43%  5.24% to 10.98%  Pros Explained Compare undergraduate loan rates from up to eight lenders at once: While some marketplaces only connect you with a handful of lenders, Credible offers personalized prequalified rates* from up to eight leading companies. With more partner lenders, there is a better chance of finding a good deal on a loan. No origination or prepayment fees: None of Credible’s partner lenders charge origination fees or prepayment penalties. $200 best rate guarantee: Credible backs its private student loan marketplace with a $200 best rate guarantee. If Credible cannot give you the best rate and you take out a loan elsewhere, Credible will send you a $200 gift card. Terms apply.  Cons Explained Repayment policies vary by lender: Because Credible is a marketplace rather than a lender, co-signer releases, financial hardship issues, and loan discharges are handled differently based on the lender issuing the loan. No special incentives for Credible users: With some loan marketplace platforms, customers may qualify for additional interest rate discounts or cash-back bonuses. But with Credible, there’s no added bonus for using the platform to compare rates. International students must have a co-signer: Although some lenders will work with international students who don’t have co-signers, Credible does not. International students must have a co-signer who is a U.S. citizen or permanent resident to qualify for a loan through Credible’s platform.  Lenders Available Through Credible As a lending marketplace, Credible partners with banks, credit unions, and other financial institutions to offer loans. Its private student loan partners include:  Ascent Citizens Bank College Ave Student Loans Custom Choice EDvestinU INvestEd MEFA Sallie Mae LendKey (refinancing only) RISLA (refinancing only) ELFI (refinancing only) Brazos (refinancing only) Loan Eligibility and Approval Private student loans tend to have higher interest rates and fewer borrower protections than federal student loans, so make sure to use the maximum amount of federal aid first. Through Credible, borrowers can find private student loans to pay for undergraduate or graduate degrees. Parents borrowing to pay for a child’s college education can also find a loan through Credible’s platform.  Although loan eligibility requirements can vary by lender, Credible’s partners typically require borrowers to meet the following criteria:  Students must be enrolled at least part-timeYou must be the age of majority in your state or have a co-signerStudents must be U.S. citizens or permanent residents; international students may qualify for a loan if they have a creditworthy co-signer who is a U.S. citizen or permanent resident  Are Cosigners Required? Borrowers have to meet lender credit and income requirements. For college students who may not have much income or credit yet, a co-signer can improve their chances of getting a loan.  International students may qualify for private student loans if they add a co-signer to their application who is a U.S. citizen or permanent resident.  Is Loan Pre-Qualification Available? Through Credible, you can fill out one form and view options from multiple lenders without affecting your credit. Once you find the right loan, Credible will direct you to the lender’s website to complete the full application. At that time, the lender will perform a hard credit check.  Length of Time for Loan Approval and Disbursement The length of time it takes to get approved and for loans to be disbursed varies by lender. In general, the lender will pay the money to your college. If there is money left over after covering tuition and other fees, the school may issue the remainder to you by check or by electronic transfer.  Loan Fees and Repayment Options Because Credible is a marketplace rather than a lender, the lender that underwrites your loan—not Credible—determines the fees and repayment options. Loan Fees None of Credible’s partners charge application fees, origination fees, or prepayment penalties. But there may be late fees or returned payment fees. Loan Discounts Some of Credible’s partners offer special discounts, such as autopay discounts. With some lenders, you can qualify for a 0.25% interest rate reduction by enrolling in automatic payments, or get additional discounts by showing proof of graduation or taking out multiple loans.  Repayment Options With federal student loans, you don’t have to make payments while you’re in school, but that’s not always the case with private student loans. Some of Credible’s partners allow you to defer payments until after you graduate, but not all of its partners may offer that option. Depending on the lender, you may be able to choose one of the following repayment plans:  Immediate full payment: Under an immediate repayment plan, you make payments against the interest and principal while you’re in school. Although the payments are higher than with other plans while you’re a student, this option has the lowest overall cost. Fixed: With a fixed payment plan, you only pay a fixed amount per month, such as $25, while you’re in school. After you graduate, you make payments against the principal and interest. Interest-only: If you choose an interest-only repayment plan, you make payments against the interest that accrues each month while you’re in school. After graduation or dropping out of college, you make payments against the principal and interest. Deferred: If a lender offers a deferred payment plan, you can postpone making any payments until after you graduate. There is often a six-month grace period after graduation before payments are required, as well. Rewards Credible does not have a rewards or referral program, although certain of its partner lenders may.  Loan Forbearance and Discharge Options When shopping for a private student loan through Credible, be sure to check the following lender policies before signing a loan agreement:  Financial hardship forbearance: Some private student loan companies—but not all—offer forbearance to borrowers that experience financial issues, such as a job loss. This option allows you to make reduced payments or even skip payments for a few months.Loan discharge for death or disability: Although federal student loans are discharged in cases of death and permanent disability, that’s not always the case with private student loans. Check with your lender to see how your loans will be handled if you or your co-signer pass away or become totally and permanently disabled.  Is Student Loan Refinancing Available? In addition to private student loans, Credible also connects borrowers to student loan refinancing lenders. Credible’s partner lenders offer the following refinancing options:  Undergraduate loan refinancingGraduate loan refinancingParent loan refinancing Eligibility requirements vary by lender, but some of Credible’s partners allow borrowers to refinance their loans if they didn’t graduate or if they’re still in school. Borrowers can refinance their loans and get either a fixed or variable-rate loan, and loan terms can be as long as 20 years.  Customer Service Credible has a strong reputation among customers. Consumers submitted just 25 complaints about Credible to the Consumer Financial Protection Bureau and only three of them were about student loans, far fewer than you typically see for a student loan company.  Credible’s customer support team can be reached by phone, email, or online chat:  Email: support@credible.com Phone: 866-540-6005 Because Credible doesn’t issue loans, you will be in contact with another company once you have a loan in repayment. If you have problems with your account or need help with your payments, you’ll have to contact the lender that issued the loan or the loan servicer that manages it.  Applying for a Credible Student Loan  Before turning to Credible or any student loan company, make sure to explore all of your federal and state financial aid options first. Fill out the Free Application for Federal Student Aid (FAFSA) and contact your college’s financial aid office to ensure you maximize all available aid before turning to private loans. With Credible, you can get quotes for private student loans and refinancing by filling out one simple form. The form will prompt you to enter the following information: Your nameDate of birthAddressCitizenship statusCollege nameDegree typeExpected graduation dateMonthly housing paymentEmployment status and incomeDesired loan amount Credible will use your information and a soft credit check to show you potential loans from multiple lenders.  If you find a loan that meets your needs and you want to apply for it, you can select that loan and Credible will redirect you to the lender’s website to fill out the full application. At that time, the lender may request additional information, and you’ll also need to consent to a hard credit check.  Alternative Choices Credible MEFA SoFi Loan Types Offered Undergraduate; graduate; parent; professional Undergraduate; graduate  Undergraduate; graduate; med; law, health, vet Undergraduate Fixed APR 4.07%–16.49%  5.35%–7.95%  4.44%–14.70% Undergraduate Variable APR 4.98%–16.85%  N/A  5.99%–14.70% Origination/Administrative Fee None  None  None Repayment Options Varies by lender  Deferment; interest-only; immediate; deferment with co-borrower release Deferment; interest-only; immediate; full payment Refinancing Available Yes Yes  Yes Final Verdict If you need a private student loan and aren’t sure where to start, Credible can be a useful solution. It partners with many major lenders, and it provides you with quotes from up to eight of its partner lenders (for undergrad loans) so you can find the best private student loans and terms for your education. Although Credible doesn’t give borrowers special discounts or bonuses for using the platform, it can streamline the process of finding a loan.  Get a Quote Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of student loan lenders. We collected thousands of data points across 30 lenders—including loan types, interest rates, fees, loan amounts, and repayment terms—to ensure that we help readers make the right borrowing decision for their education needs. *Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time. 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. Credible. "Simplicity. Choice. Unbiased Support."  Fox Corporation. "2022 Annual Report," Page 75. Credible. "Refinance Student Loans." Credible. "Private Student Loans." Credible. "Credible Private Student Loans Best Rate Guarantee."  Credible. "Frequently Asked Questions Student Loans," Click "Can I Use Credible if I Am an International Student?" Credible. "Private Student Loans." Credible. "Private Student Loans," Click "View Details." Credible. "10 Best Student Loan Refinance Companies: Reviewed and Rated."  Consumer Financial Protection Bureau. "Complaint Database - Credible Labs."  Related Articles LendKey Student Loans Review Best Graduate Student Loans of 2024 Best Private Student Loans and Current Rates of May 2024 Best MBA Student Loans MPOWER Financing Student Loans Review Best Student Loan Refinance Companies for May 2024

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

Flipper: What it Means, How it Works, Risks

<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-flipper"></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 Flipper? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A flipper describes an investor who buys a stock, often at an <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a> (IPO), in order to sell it for a quick profit. A flipper may also refer to somebody who buys and sells homes or properties for quick profits, often after refurbishing them. </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/f/flipping.asp">Flipping</a>, whether in stocks or real estate, is highly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculativerisk.asp">speculative</a> and is often frowned upon by regulators. </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 flipper, generally, is somebody who purchases an asset or investment for a very short period of time, hoping to sell it for a quick profit.</li><li>In stocks, flipping is most associated with IPOs, whereby buyers at the IPO price turn around and sell it on its first days of trading, hopefully at a higher price, in the stock market.</li><li>Real estate flipping involves purchasing properties, often to renovate, and re-sell them, often in a period of a year or less.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-flippers"></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 Flippers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Stock flippers may hold a stock for as little as 24-48 hours, and they are therefore exposed to short-term upturns and downturns in the market. Unlike long-term investors, who typically ignore short-term ups and downs in the market, these short-term investors depend on these sudden market shifts to make their profits. With IPOs, it is <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> who are most often given the chance to purchase shares, and often they engage in flipping. </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"> Because of the risk of flipping by company insiders, IPOs will restrict company owners and early investors from selling their shares until a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lockup-period.asp">lock-up period</a> has transpired, often several weeks or months following the IPO date.<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"> Real estate flippers often buy rundown homes at low prices and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-not-to-fix-when-selling-a-house-5212050">renovate them</a> in order to sell them at much higher prices. Typically flippers face a host of challenges. These include problems with borrowing, insurance, renovations, inspections, and market conditions. All of these present hazards that can make profitability a challenge unless skillfully managed. </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-risks-of-real-estate-flipping"></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"> Risks of Real Estate Flipping </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flipping.asp">Flipping</a> is most strongly associated with real estate, where it refers to a strategy of purchasing properties and selling them in a short time frame (generally less than a year) for a profit. In real estate, flipping usually falls into one of two types. The first type is where real estate investors target properties that are in a rapidly appreciating market and resell with little or no additional investment in the physical property. This is a play on the market conditions rather than the property itself. The second type is a quick fix flip where a real estate investor uses his knowledge of what buyers want to improve undervalued properties with renovations and/or cosmetic changes, known as a reno flip. </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"> Flipping has made fortunes in real estate, but it does seem to spawn more infomercials than it does easily replicated results. Flipping in a hot market is the riskier of the two, as hot markets can cool unexpectedly. If market conditions change before the property can be sold, then the real estate investor is left holding a depreciating asset. Flipping after improving an undervalued property is less dependent on market timing, but market conditions can still play a role. </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 the reno flip, the investor makes an additional capital infusion into the investment that should increase the property value by more than the combined cost of the purchase, the renovations, the carrying costs during the reno, and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingcosts.asp">closing costs</a>. Although flipping sounds simple and straightforward in principle, it does require more than a casual understanding of real estate to be done profitably. </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-flipping-and-wholesaling"></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"> Flipping and Wholesaling </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Depending on your perspective, real estate flipping can also encompass <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/100214/what-goal-real-estate-wholesaling.asp">wholesaling</a>. In wholesaling, a person with an eye for undervalued (and therefore flippable) real estate enters into a contract to buy a property subject to an inspection period and then sells the rights of the contract to a real estate investor for a fee or percentage. This is a more formalized relationship than with a traditional <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bird-dog.asp">bird dog</a>, and the property in question may or may not be flipped by the eventual buyer. </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 wholesaler is not limited to looking at properties solely for the purpose of flipping. Wholesalers also scout income properties and longer-term appreciation plays for real estate investors. </p></div>

## What Is a Flipper? A flipper describes an investor who buys a stock, often at an [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), in order to sell it for a quick profit. A flipper may also refer to somebody who buys and sells homes or properties for quick profits, often after refurbishing them. [Flipping](https://www.investopedia.com/terms/f/flipping.asp), whether in stocks or real estate, is highly [speculative](https://www.investopedia.com/terms/s/speculativerisk.asp) and is often frowned upon by regulators. ### Key Takeaways * A flipper, generally, is somebody who purchases an asset or investment for a very short period of time, hoping to sell it for a quick profit. * In stocks, flipping is most associated with IPOs, whereby buyers at the IPO price turn around and sell it on its first days of trading, hopefully at a higher price, in the stock market. * Real estate flipping involves purchasing properties, often to renovate, and re-sell them, often in a period of a year or less. ## Understanding Flippers Stock flippers may hold a stock for as little as 24-48 hours, and they are therefore exposed to short-term upturns and downturns in the market. Unlike long-term investors, who typically ignore short-term ups and downs in the market, these short-term investors depend on these sudden market shifts to make their profits. With IPOs, it is [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) who are most often given the chance to purchase shares, and often they engage in flipping. Because of the risk of flipping by company insiders, IPOs will restrict company owners and early investors from selling their shares until a [lock-up period](https://www.investopedia.com/terms/l/lockup-period.asp) has transpired, often several weeks or months following the IPO date. Real estate flippers often buy rundown homes at low prices and [renovate them](https://www.investopedia.com/what-not-to-fix-when-selling-a-house-5212050) in order to sell them at much higher prices. Typically flippers face a host of challenges. These include problems with borrowing, insurance, renovations, inspections, and market conditions. All of these present hazards that can make profitability a challenge unless skillfully managed. ## Risks of Real Estate Flipping [Flipping](https://www.investopedia.com/terms/f/flipping.asp) is most strongly associated with real estate, where it refers to a strategy of purchasing properties and selling them in a short time frame (generally less than a year) for a profit. In real estate, flipping usually falls into one of two types. The first type is where real estate investors target properties that are in a rapidly appreciating market and resell with little or no additional investment in the physical property. This is a play on the market conditions rather than the property itself. The second type is a quick fix flip where a real estate investor uses his knowledge of what buyers want to improve undervalued properties with renovations and/or cosmetic changes, known as a reno flip. Flipping has made fortunes in real estate, but it does seem to spawn more infomercials than it does easily replicated results. Flipping in a hot market is the riskier of the two, as hot markets can cool unexpectedly. If market conditions change before the property can be sold, then the real estate investor is left holding a depreciating asset. Flipping after improving an undervalued property is less dependent on market timing, but market conditions can still play a role. In the reno flip, the investor makes an additional capital infusion into the investment that should increase the property value by more than the combined cost of the purchase, the renovations, the carrying costs during the reno, and the [closing costs](https://www.investopedia.com/terms/c/closingcosts.asp). Although flipping sounds simple and straightforward in principle, it does require more than a casual understanding of real estate to be done profitably. ## Flipping and Wholesaling Depending on your perspective, real estate flipping can also encompass [wholesaling](https://www.investopedia.com/ask/answers/100214/what-goal-real-estate-wholesaling.asp). In wholesaling, a person with an eye for undervalued (and therefore flippable) real estate enters into a contract to buy a property subject to an inspection period and then sells the rights of the contract to a real estate investor for a fee or percentage. This is a more formalized relationship than with a traditional [bird dog](https://www.investopedia.com/terms/b/bird-dog.asp), and the property in question may or may not be flipped by the eventual buyer. A wholesaler is not limited to looking at properties solely for the purpose of flipping. Wholesalers also scout income properties and longer-term appreciation plays for real estate investors.

What Is a Flipper? A flipper describes an investor who buys a stock, often at an initial public offering (IPO), in order to sell it for a quick profit. A flipper may also refer to somebody who buys and sells homes or properties for quick profits, often after refurbishing them. Flipping, whether in stocks or real estate, is highly speculative and is often frowned upon by regulators. Key Takeaways A flipper, generally, is somebody who purchases an asset or investment for a very short period of time, hoping to sell it for a quick profit.In stocks, flipping is most associated with IPOs, whereby buyers at the IPO price turn around and sell it on its first days of trading, hopefully at a higher price, in the stock market.Real estate flipping involves purchasing properties, often to renovate, and re-sell them, often in a period of a year or less. Understanding Flippers Stock flippers may hold a stock for as little as 24-48 hours, and they are therefore exposed to short-term upturns and downturns in the market. Unlike long-term investors, who typically ignore short-term ups and downs in the market, these short-term investors depend on these sudden market shifts to make their profits. With IPOs, it is institutional investors who are most often given the chance to purchase shares, and often they engage in flipping. Because of the risk of flipping by company insiders, IPOs will restrict company owners and early investors from selling their shares until a lock-up period has transpired, often several weeks or months following the IPO date. Real estate flippers often buy rundown homes at low prices and renovate them in order to sell them at much higher prices. Typically flippers face a host of challenges. These include problems with borrowing, insurance, renovations, inspections, and market conditions. All of these present hazards that can make profitability a challenge unless skillfully managed. Risks of Real Estate Flipping Flipping is most strongly associated with real estate, where it refers to a strategy of purchasing properties and selling them in a short time frame (generally less than a year) for a profit. In real estate, flipping usually falls into one of two types. The first type is where real estate investors target properties that are in a rapidly appreciating market and resell with little or no additional investment in the physical property. This is a play on the market conditions rather than the property itself. The second type is a quick fix flip where a real estate investor uses his knowledge of what buyers want to improve undervalued properties with renovations and/or cosmetic changes, known as a reno flip. Flipping has made fortunes in real estate, but it does seem to spawn more infomercials than it does easily replicated results. Flipping in a hot market is the riskier of the two, as hot markets can cool unexpectedly. If market conditions change before the property can be sold, then the real estate investor is left holding a depreciating asset. Flipping after improving an undervalued property is less dependent on market timing, but market conditions can still play a role. In the reno flip, the investor makes an additional capital infusion into the investment that should increase the property value by more than the combined cost of the purchase, the renovations, the carrying costs during the reno, and the closing costs. Although flipping sounds simple and straightforward in principle, it does require more than a casual understanding of real estate to be done profitably. Flipping and Wholesaling Depending on your perspective, real estate flipping can also encompass wholesaling. In wholesaling, a person with an eye for undervalued (and therefore flippable) real estate enters into a contract to buy a property subject to an inspection period and then sells the rights of the contract to a real estate investor for a fee or percentage. This is a more formalized relationship than with a traditional bird dog, and the property in question may or may not be flipped by the eventual buyer. A wholesaler is not limited to looking at properties solely for the purpose of flipping. Wholesalers also scout income properties and longer-term appreciation plays for real estate investors.

https://www.investopedia.com/most-women-would-pay-for-friends-meal-spotting-them-usd24-on-average-8647062

Most Women Would Pay For a Friend's Meal, Spotting Them $24 On Average

<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>Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024 <em>Her Money Mindset</em> Survey.</li><li>Over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime.</li><li>Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other.</li><li>One in three women in a relationship said they know more about money than their partner.</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_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="2024 Her Money Mindset Survey infographic" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/F0DXfEQBHkP8OdjKH8GrQhQS-FE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/F0DXfEQBHkP8OdjKH8GrQhQS-FE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg" data-srcset="https://www.investopedia.com/thmb/2C-ZwTHCzpZ3Qkf-zd6_JK5HBCk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg 750w" data-tracking-container="true" height="2000" id="mntl-sc-block-image_1-0" width="3000"/> <noscript> <img alt="2024 Her Money Mindset Survey infographic" class="img--noscript universal-image__image" height="2000" sizes="750px" src="https://www.investopedia.com/thmb/F0DXfEQBHkP8OdjKH8GrQhQS-FE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg" srcset="https://www.investopedia.com/thmb/2C-ZwTHCzpZ3Qkf-zd6_JK5HBCk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg 750w" width="3000"/> </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>Alice Morgan / Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024<em> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nearly-half-of-women-say-they-have-less-than-usd250-left-each-month-after-paying-bills-8647057">Her Money Mindset</a></em><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nearly-half-of-women-say-they-have-less-than-usd250-left-each-month-after-paying-bills-8647057"> Survey</a>. </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"> The survey found that 92% of women would pay for a friend’s meal, with 14% saying they would cover $50 or more. That number was slightly higher among Millennials and younger women, with 18% saying they would cover a friend’s meal worth $50 or more.  </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 generosity doesn’t stop there—over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime. About 41% have helped someone cover a major transportation expense, while 40% have helped with a housing expense. Over half (52%) said they have helped family members cover a major expense. </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 asked what role money played in their friendships, one woman answered, “We have loaned each other money for bills, getting food, fixing cars/home issues. We sometimes take a small trip together and we either split the cost or the other pays for everything. It has been a special bond and a bigger lifeline for us both.” </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-women-more-likely-to-ask-friends-for-a-loan-than-their-significant-other"></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"> Women More Likely To Ask Friends for a Loan Than Their Significant Other </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The women surveyed also said they were more likely to have asked a friend for a loan than a significant other. Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other. Seventy percent of the women surveyed said they talk to their friends about money at least sometimes, and half of those say it’s had a positive impact on their friendships.  </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Gg1M8/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Half of Those Who Talk With Their Friends About Money Discuss Budgeting or Future Plans"></iframe></div> <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"> However, not all respondents described their experiences with friends and money so positively. Thirty percent of women said money has played a part in ruining a friendship, and 23% said they’ve lied to their friends about how much money they make.  </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_19-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/yzf2n/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Most Who Never Talk With Their Friends About Money Don't Think It's Appropriate"></iframe></div> <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"> About 30% of those surveyed said they never talk with their friends about money, with the number increasing to 40% among Gen X women or older, or those who reported having mostly male friends (41%). Among those who don’t talk to their friends about money, most said it’s because they feel it is inappropriate or awkward. </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-1-in-3-women-say-they-know-more-about-money-than-their-partner"></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"> 1 in 3 Women Say They Know More About Money Than Their Partner </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> When it comes to financial knowledge, one in three women in a relationship said they know more about money than their partner. Half of the women in the survey are married or living with a significant other, with 33% married to men and 18% married to women. A majority of women who are married or living with a partner said they share finances with their significant other.  </p> <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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_26-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/QKGLr/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="1 in 5 Women Who Live With Their Partners Are Responsible For Investing Decisions "></iframe></div> <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"> Almost all of the women surveyed (97%) talk to their partners about finances, and 1 in 3 who live with a significant other said they’re more likely to be responsible for regular spending decisions than their partner. Nearly one-quarter of those living with their partner said they’re more responsible for long-term planning decisions than their partner. </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"> Methodology </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Real Simple and Investopedia surveyed 2,002 American women (aged 18+) from Jan. 9 to Jan. 22, 2024. The survey was fielded online via a self-administered questionnaire to an opt-in panel of respondents from a market research vendor. Quotas were implemented in sampling using benchmarks from American Community Survey (ACS) from the U.S. Census Bureau for region, age groups, race/ethnicity, and household income. Respondents must have reported at least partially managing their own finances in order to qualify. </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 * Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024 *Her Money Mindset* Survey. * Over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime. * Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other. * One in three women in a relationship said they know more about money than their partner. ![2024 Her Money Mindset Survey infographic]() :max_bytes(150000):strip_icc()/IMG_4762-17fb638582fb444b91430e80667511bc.jpg) Alice Morgan / Investopedia Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024 *[Her Money Mindset](https://www.investopedia.com/nearly-half-of-women-say-they-have-less-than-usd250-left-each-month-after-paying-bills-8647057)* [Survey](https://www.investopedia.com/nearly-half-of-women-say-they-have-less-than-usd250-left-each-month-after-paying-bills-8647057). The survey found that 92% of women would pay for a friend’s meal, with 14% saying they would cover $50 or more. That number was slightly higher among Millennials and younger women, with 18% saying they would cover a friend’s meal worth $50 or more.  The generosity doesn’t stop there—over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime. About 41% have helped someone cover a major transportation expense, while 40% have helped with a housing expense. Over half (52%) said they have helped family members cover a major expense. When asked what role money played in their friendships, one woman answered, “We have loaned each other money for bills, getting food, fixing cars/home issues. We sometimes take a small trip together and we either split the cost or the other pays for everything. It has been a special bond and a bigger lifeline for us both.” ## Women More Likely To Ask Friends for a Loan Than Their Significant Other The women surveyed also said they were more likely to have asked a friend for a loan than a significant other. Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other. Seventy percent of the women surveyed said they talk to their friends about money at least sometimes, and half of those say it’s had a positive impact on their friendships.  However, not all respondents described their experiences with friends and money so positively. Thirty percent of women said money has played a part in ruining a friendship, and 23% said they’ve lied to their friends about how much money they make.  About 30% of those surveyed said they never talk with their friends about money, with the number increasing to 40% among Gen X women or older, or those who reported having mostly male friends (41%). Among those who don’t talk to their friends about money, most said it’s because they feel it is inappropriate or awkward. ## 1 in 3 Women Say They Know More About Money Than Their Partner When it comes to financial knowledge, one in three women in a relationship said they know more about money than their partner. Half of the women in the survey are married or living with a significant other, with 33% married to men and 18% married to women. A majority of women who are married or living with a partner said they share finances with their significant other.  Almost all of the women surveyed (97%) talk to their partners about finances, and 1 in 3 who live with a significant other said they’re more likely to be responsible for regular spending decisions than their partner. Nearly one-quarter of those living with their partner said they’re more responsible for long-term planning decisions than their partner. ### Methodology Real Simple and Investopedia surveyed 2,002 American women (aged 18+) from Jan. 9 to Jan. 22, 2024. The survey was fielded online via a self-administered questionnaire to an opt-in panel of respondents from a market research vendor. Quotas were implemented in sampling using benchmarks from American Community Survey (ACS) from the U.S. Census Bureau for region, age groups, race/ethnicity, and household income. Respondents must have reported at least partially managing their own finances in order to qualify. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024 Her Money Mindset Survey.Over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime.Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other.One in three women in a relationship said they know more about money than their partner. Alice Morgan / Investopedia Women in the U.S. would spend $24 on average to cover the cost of a friend’s meal, according to Investopedia and Real Simple’s 2024 Her Money Mindset Survey. The survey found that 92% of women would pay for a friend’s meal, with 14% saying they would cover $50 or more. That number was slightly higher among Millennials and younger women, with 18% saying they would cover a friend’s meal worth $50 or more.  The generosity doesn’t stop there—over two-thirds of women surveyed said they have covered a "significant" expense for someone else in their lifetime. About 41% have helped someone cover a major transportation expense, while 40% have helped with a housing expense. Over half (52%) said they have helped family members cover a major expense. When asked what role money played in their friendships, one woman answered, “We have loaned each other money for bills, getting food, fixing cars/home issues. We sometimes take a small trip together and we either split the cost or the other pays for everything. It has been a special bond and a bigger lifeline for us both.” Women More Likely To Ask Friends for a Loan Than Their Significant Other The women surveyed also said they were more likely to have asked a friend for a loan than a significant other. Nearly one-quarter of women surveyed have asked a friend for a loan, versus 17% who asked a significant other. Seventy percent of the women surveyed said they talk to their friends about money at least sometimes, and half of those say it’s had a positive impact on their friendships.  However, not all respondents described their experiences with friends and money so positively. Thirty percent of women said money has played a part in ruining a friendship, and 23% said they’ve lied to their friends about how much money they make.  About 30% of those surveyed said they never talk with their friends about money, with the number increasing to 40% among Gen X women or older, or those who reported having mostly male friends (41%). Among those who don’t talk to their friends about money, most said it’s because they feel it is inappropriate or awkward. 1 in 3 Women Say They Know More About Money Than Their Partner When it comes to financial knowledge, one in three women in a relationship said they know more about money than their partner. Half of the women in the survey are married or living with a significant other, with 33% married to men and 18% married to women. A majority of women who are married or living with a partner said they share finances with their significant other.  Almost all of the women surveyed (97%) talk to their partners about finances, and 1 in 3 who live with a significant other said they’re more likely to be responsible for regular spending decisions than their partner. Nearly one-quarter of those living with their partner said they’re more responsible for long-term planning decisions than their partner. Methodology Real Simple and Investopedia surveyed 2,002 American women (aged 18+) from Jan. 9 to Jan. 22, 2024. The survey was fielded online via a self-administered questionnaire to an opt-in panel of respondents from a market research vendor. Quotas were implemented in sampling using benchmarks from American Community Survey (ACS) from the U.S. Census Bureau for region, age groups, race/ethnicity, and household income. Respondents must have reported at least partially managing their own finances in order to qualify. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/mortgage-amortization-calculator-5118201

Mortgage Amortization Calculator

<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"><div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_1-0"><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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Although your monthly payment will be the same each month, the amount going toward principal will increase each month and the amount going toward interest will decrease each month as you pay down your balance. The calculator’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amortization.asp">amortization schedule</a> (click above to open it)<strong> </strong>will show you the details. </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 people need a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-4689703">mortgage</a> to buy a home. The median U.S. home costs more than $350,000 as of February 2022, and few people have that much extra cash lying around.<span class="ql-inline-citation" data-cite="1"></span> What’s more, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage-rate.asp">mortgage rates</a> are so low that even people with plenty of savings may prefer to borrow for a home purchase to maintain the financial security of having well-funded <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency savings</a> and retirement accounts. And, of course, there’s the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/11/calculate-the-mortgage-interest-math.asp">tax deduction for mortgage interest</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"> With our mortgage amortization calculator, you can see your estimated monthly payment and how the total cost of your mortgage will change depending on your interest rate. Try out different inputs for home price, down payment, interest rate, and loan term to understand the long-term impact of a mortgage before you sign the paperwork. This calculator can help you whether you’re <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/homebuying-guide-4776300">buying a home</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinancing</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"> A mortgage amortization calculator will show you the long-term cost of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp">fixed-rate mortgage</a> by compiling the total <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 you will pay over the life of your mortgage. It also itemizes the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> and interest of each monthly payment to show you how your mortgage payments are structured. </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-mortgage-amortization-calculator-results-explained"></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"> Mortgage Amortization Calculator Results Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <strong>Monthly payment:</strong> See what you will pay for principal and interest each month. Keep in mind that there are many other monthly expenses associated with homeownership: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeowners-insurance.asp">homeowners insurance</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/propertytax.asp">property taxes</a>, utilities, maintenance, and repairs. Depending on your neighborhood and property type, you may also pay <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/08/homeowners-associations-tips.asp">homeowners association</a> fees. If you put down less than 20%, then your lender may require you to pay <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/insurance/qualified-insurance-premium/">mortgage insurance premiums</a>. </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>Total principal paid:</strong> The mortgage size (the amount that you borrow) and the total principal paid are the same thing. This amount is equal to the home’s purchase price minus your down payment, plus any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingcosts.asp">closing costs</a> that you finance. </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"> <strong>Total interest paid:</strong> The biggest part of your total borrowing cost if you keep your loan for the full term (usually 15 or 30 years) is your total interest paid. You can add your mortgage closing costs and mortgage insurance premiums (if any) to total interest paid to understand the true long-term cost of borrowing. </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>Estimated final payment date: </strong>You don’t really need a calculator to give yourself the estimated payoff date of your loan. Just add 15 or 30 years to the date when you start paying your loan. If you make your first payment on March 1, 2021, then your 30-year mortgage will be paid off by March 1, 2051. But we’ll save you the math and let the calculator tell you the estimated payoff date. </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"> <strong>Running total of interest: </strong>When you expand the amortization schedule that the calculator creates, you’ll see a column showing how much interest you’ve paid by each point in your mortgage. It might be $5,000 by March 1, 2022; $9,500 by March 1, 2023; and so on. </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>Total remaining balance:</strong> Expanding the amortization schedule will also show you how close you are to paying off your loan principal each month. After one year, you might still owe $196,000 on a $200,000 mortgage; after two years, $192,000; after 10 years, $155,000; and so on. </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-speed-up-mortgage-amortization"></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 Speed Up Mortgage Amortization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Are you horrified by the total interest cost that the calculator shows you? That’s normal. It’s one thing to know that your monthly payment is $900, and another to see that you’re going to pay $123,000 in interest over the next 30 years. Fortunately, you have several options to speed up mortgage amortization—to pay off your loan faster and save money. </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"> <strong>Choose a shorter loan term:</strong> If you select <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042015/pros-and-cons-15year-mortgage.asp">a shorter amortization period for your mortgage</a>—for example, 15 years instead of 30—then you will save considerably on interest over the life of the loan and own your home sooner. Also, interest rates on shorter-term loans are often lower compared to longer-term loans. A shorter-term mortgage may be a good option if you can handle higher monthly payments without hardship for the entire loan term. If not, there’s another option. </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"> <strong>Make extra principal payments:</strong> To keep your mortgage term the same and avoid tying yourself to higher monthly payments, you can make one extra principal payment per year in the amount of your normal monthly payment. You’ll shave about five years off a 30-year mortgage this way. If you have a financial hardship one year, you can skip the extra payment. If you get a large bonus or tax refund one year, you can double up on the extra payment. You’ll have more control—but less accountability—if you choose this strategy for speeding up mortgage amortization. </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-understanding-mortgage-amortization"></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"> Understanding Mortgage Amortization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> A mortgage amortization schedule is calculated using the loan amount, loan term, and interest rate. If you know these three things, you can use Excel’s PMT function to calculate your monthly payment. For a 30-year, $150,000 mortgage with a 3.5% interest rate, the equation to enter in an Excel cell would be =PMT(3.5%/12,360,150000). The result will be $673.57. </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"> Once you know your monthly payment, you can calculate how much of your monthly payment is going toward principal and how much is going toward interest using this formula: </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>Principal Payment = Total Monthly Payment - [Outstanding Loan Balance × (Interest Rate / 12 Months)]</strong> </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"> Multiply $150,000 by 3.5%/12 to get $437.50. That’s your interest payment for your first monthly payment. </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"> Subtract that from your monthly payment to get your principal payment: $236.07. </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"> Check your math: $437.50 + $236.07 = $673.57, the total monthly payment that we calculated above. </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"> Next month, your loan balance will be $236.07 smaller because that’s how much of your payment goes toward principal. To see how much of next month’s monthly payment goes toward principal and interest, repeat the calculation with a principal amount of $149,763.93, the result of subtracting $236.07 from $150,000. </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"> This time, your interest payment will be $436.81, and your principal payment will be $236.76. </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"> Just repeat this process another 358 times and you’ll have yourself an amortization table for a 30-year loan. </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"> Now you know why using a mortgage amortization calculator is so much easier. But some people may have an easier time wrapping their head around mortgage amortization by understanding how the math behind the calculator works. </p></div>

Although your monthly payment will be the same each month, the amount going toward principal will increase each month and the amount going toward interest will decrease each month as you pay down your balance. The calculator’s [amortization schedule](https://www.investopedia.com/terms/a/amortization.asp) (click above to open it)will show you the details. Most people need a [mortgage](https://www.investopedia.com/mortgage-4689703) to buy a home. The median U.S. home costs more than $350,000 as of February 2022, and few people have that much extra cash lying around. What’s more, [mortgage rates](https://www.investopedia.com/terms/m/mortgage-rate.asp) are so low that even people with plenty of savings may prefer to borrow for a home purchase to maintain the financial security of having well-funded [emergency savings](https://www.investopedia.com/terms/e/emergency_fund.asp) and retirement accounts. And, of course, there’s the [tax deduction for mortgage interest](https://www.investopedia.com/articles/mortgages-real-estate/11/calculate-the-mortgage-interest-math.asp). With our mortgage amortization calculator, you can see your estimated monthly payment and how the total cost of your mortgage will change depending on your interest rate. Try out different inputs for home price, down payment, interest rate, and loan term to understand the long-term impact of a mortgage before you sign the paperwork. This calculator can help you whether you’re [buying a home](https://www.investopedia.com/homebuying-guide-4776300) or [refinancing](https://www.investopedia.com/terms/r/refinance.asp). A mortgage amortization calculator will show you the long-term cost of a [fixed-rate mortgage](https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp) by compiling the total [interest](https://www.investopedia.com/terms/i/interest.asp) that you will pay over the life of your mortgage. It also itemizes the [principal](https://www.investopedia.com/terms/p/principal.asp) and interest of each monthly payment to show you how your mortgage payments are structured. ## Mortgage Amortization Calculator Results Explained **Monthly payment:** See what you will pay for principal and interest each month. Keep in mind that there are many other monthly expenses associated with homeownership: [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp), [property taxes](https://www.investopedia.com/terms/p/propertytax.asp), utilities, maintenance, and repairs. Depending on your neighborhood and property type, you may also pay [homeowners association](https://www.investopedia.com/articles/mortgages-real-estate/08/homeowners-associations-tips.asp) fees. If you put down less than 20%, then your lender may require you to pay [mortgage insurance premiums](https://www.investopedia.com/mortgage/insurance/qualified-insurance-premium/). **Total principal paid:** The mortgage size (the amount that you borrow) and the total principal paid are the same thing. This amount is equal to the home’s purchase price minus your down payment, plus any [closing costs](https://www.investopedia.com/terms/c/closingcosts.asp) that you finance. **Total interest paid:** The biggest part of your total borrowing cost if you keep your loan for the full term (usually 15 or 30 years) is your total interest paid. You can add your mortgage closing costs and mortgage insurance premiums (if any) to total interest paid to understand the true long-term cost of borrowing. **Estimated final payment date:** You don’t really need a calculator to give yourself the estimated payoff date of your loan. Just add 15 or 30 years to the date when you start paying your loan. If you make your first payment on March 1, 2021, then your 30-year mortgage will be paid off by March 1, 2051. But we’ll save you the math and let the calculator tell you the estimated payoff date. **Running total of interest:** When you expand the amortization schedule that the calculator creates, you’ll see a column showing how much interest you’ve paid by each point in your mortgage. It might be $5,000 by March 1, 2022; $9,500 by March 1, 2023; and so on. **Total remaining balance:** Expanding the amortization schedule will also show you how close you are to paying off your loan principal each month. After one year, you might still owe $196,000 on a $200,000 mortgage; after two years, $192,000; after 10 years, $155,000; and so on. ## How to Speed Up Mortgage Amortization Are you horrified by the total interest cost that the calculator shows you? That’s normal. It’s one thing to know that your monthly payment is $900, and another to see that you’re going to pay $123,000 in interest over the next 30 years. Fortunately, you have several options to speed up mortgage amortization—to pay off your loan faster and save money. **Choose a shorter loan term:** If you select [a shorter amortization period for your mortgage](https://www.investopedia.com/articles/personal-finance/042015/pros-and-cons-15year-mortgage.asp)—for example, 15 years instead of 30—then you will save considerably on interest over the life of the loan and own your home sooner. Also, interest rates on shorter-term loans are often lower compared to longer-term loans. A shorter-term mortgage may be a good option if you can handle higher monthly payments without hardship for the entire loan term. If not, there’s another option. **Make extra principal payments:** To keep your mortgage term the same and avoid tying yourself to higher monthly payments, you can make one extra principal payment per year in the amount of your normal monthly payment. You’ll shave about five years off a 30-year mortgage this way. If you have a financial hardship one year, you can skip the extra payment. If you get a large bonus or tax refund one year, you can double up on the extra payment. You’ll have more control—but less accountability—if you choose this strategy for speeding up mortgage amortization. ## Understanding Mortgage Amortization A mortgage amortization schedule is calculated using the loan amount, loan term, and interest rate. If you know these three things, you can use Excel’s PMT function to calculate your monthly payment. For a 30-year, $150,000 mortgage with a 3.5% interest rate, the equation to enter in an Excel cell would be =PMT(3.5%/12,360,150000). The result will be $673.57. Once you know your monthly payment, you can calculate how much of your monthly payment is going toward principal and how much is going toward interest using this formula: **Principal Payment = Total Monthly Payment - [Outstanding Loan Balance × (Interest Rate / 12 Months)]** Multiply $150,000 by 3.5%/12 to get $437.50. That’s your interest payment for your first monthly payment. Subtract that from your monthly payment to get your principal payment: $236.07. Check your math: $437.50 + $236.07 = $673.57, the total monthly payment that we calculated above. Next month, your loan balance will be $236.07 smaller because that’s how much of your payment goes toward principal. To see how much of next month’s monthly payment goes toward principal and interest, repeat the calculation with a principal amount of $149,763.93, the result of subtracting $236.07 from $150,000. This time, your interest payment will be $436.81, and your principal payment will be $236.76. Just repeat this process another 358 times and you’ll have yourself an amortization table for a 30-year loan. Now you know why using a mortgage amortization calculator is so much easier. But some people may have an easier time wrapping their head around mortgage amortization by understanding how the math behind the calculator works.

Although your monthly payment will be the same each month, the amount going toward principal will increase each month and the amount going toward interest will decrease each month as you pay down your balance. The calculator’s amortization schedule (click above to open it) will show you the details. Most people need a mortgage to buy a home. The median U.S. home costs more than $350,000 as of February 2022, and few people have that much extra cash lying around. What’s more, mortgage rates are so low that even people with plenty of savings may prefer to borrow for a home purchase to maintain the financial security of having well-funded emergency savings and retirement accounts. And, of course, there’s the tax deduction for mortgage interest. With our mortgage amortization calculator, you can see your estimated monthly payment and how the total cost of your mortgage will change depending on your interest rate. Try out different inputs for home price, down payment, interest rate, and loan term to understand the long-term impact of a mortgage before you sign the paperwork. This calculator can help you whether you’re buying a home or refinancing. A mortgage amortization calculator will show you the long-term cost of a fixed-rate mortgage by compiling the total interest that you will pay over the life of your mortgage. It also itemizes the principal and interest of each monthly payment to show you how your mortgage payments are structured. Mortgage Amortization Calculator Results Explained Monthly payment: See what you will pay for principal and interest each month. Keep in mind that there are many other monthly expenses associated with homeownership: homeowners insurance, property taxes, utilities, maintenance, and repairs. Depending on your neighborhood and property type, you may also pay homeowners association fees. If you put down less than 20%, then your lender may require you to pay mortgage insurance premiums. Total principal paid: The mortgage size (the amount that you borrow) and the total principal paid are the same thing. This amount is equal to the home’s purchase price minus your down payment, plus any closing costs that you finance. Total interest paid: The biggest part of your total borrowing cost if you keep your loan for the full term (usually 15 or 30 years) is your total interest paid. You can add your mortgage closing costs and mortgage insurance premiums (if any) to total interest paid to understand the true long-term cost of borrowing. Estimated final payment date: You don’t really need a calculator to give yourself the estimated payoff date of your loan. Just add 15 or 30 years to the date when you start paying your loan. If you make your first payment on March 1, 2021, then your 30-year mortgage will be paid off by March 1, 2051. But we’ll save you the math and let the calculator tell you the estimated payoff date. Running total of interest: When you expand the amortization schedule that the calculator creates, you’ll see a column showing how much interest you’ve paid by each point in your mortgage. It might be $5,000 by March 1, 2022; $9,500 by March 1, 2023; and so on. Total remaining balance: Expanding the amortization schedule will also show you how close you are to paying off your loan principal each month. After one year, you might still owe $196,000 on a $200,000 mortgage; after two years, $192,000; after 10 years, $155,000; and so on. How to Speed Up Mortgage Amortization Are you horrified by the total interest cost that the calculator shows you? That’s normal. It’s one thing to know that your monthly payment is $900, and another to see that you’re going to pay $123,000 in interest over the next 30 years. Fortunately, you have several options to speed up mortgage amortization—to pay off your loan faster and save money. Choose a shorter loan term: If you select a shorter amortization period for your mortgage—for example, 15 years instead of 30—then you will save considerably on interest over the life of the loan and own your home sooner. Also, interest rates on shorter-term loans are often lower compared to longer-term loans. A shorter-term mortgage may be a good option if you can handle higher monthly payments without hardship for the entire loan term. If not, there’s another option. Make extra principal payments: To keep your mortgage term the same and avoid tying yourself to higher monthly payments, you can make one extra principal payment per year in the amount of your normal monthly payment. You’ll shave about five years off a 30-year mortgage this way. If you have a financial hardship one year, you can skip the extra payment. If you get a large bonus or tax refund one year, you can double up on the extra payment. You’ll have more control—but less accountability—if you choose this strategy for speeding up mortgage amortization. Understanding Mortgage Amortization A mortgage amortization schedule is calculated using the loan amount, loan term, and interest rate. If you know these three things, you can use Excel’s PMT function to calculate your monthly payment. For a 30-year, $150,000 mortgage with a 3.5% interest rate, the equation to enter in an Excel cell would be =PMT(3.5%/12,360,150000). The result will be $673.57. Once you know your monthly payment, you can calculate how much of your monthly payment is going toward principal and how much is going toward interest using this formula: Principal Payment = Total Monthly Payment - [Outstanding Loan Balance × (Interest Rate / 12 Months)] Multiply $150,000 by 3.5%/12 to get $437.50. That’s your interest payment for your first monthly payment. Subtract that from your monthly payment to get your principal payment: $236.07. Check your math: $437.50 + $236.07 = $673.57, the total monthly payment that we calculated above. Next month, your loan balance will be $236.07 smaller because that’s how much of your payment goes toward principal. To see how much of next month’s monthly payment goes toward principal and interest, repeat the calculation with a principal amount of $149,763.93, the result of subtracting $236.07 from $150,000. This time, your interest payment will be $436.81, and your principal payment will be $236.76. Just repeat this process another 358 times and you’ll have yourself an amortization table for a 30-year loan. Now you know why using a mortgage amortization calculator is so much easier. But some people may have an easier time wrapping their head around mortgage amortization by understanding how the math behind the calculator works.

https://www.investopedia.com/wells-fargo-introduces-new-rewards-credit-card-5497998

Wells Fargo Introduces New Rewards Credit Card

<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, Wells Fargo announced the launch of a new rewards credit card, the Wells Fargo Autograph Credit Card. The rewards credit card offers bonus rewards on several everyday spending categories, including select recurring monthly charges. The card is set to be available for new applications on July 13. </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>Wells Fargo has announced a new rewards credit card, the Autograph Credit Card.</li><li>The new card will offer 3 points per dollar on six different everyday spending categories, similar to what the discontinued Wells Fargo Propel Credit Card offered before being shut down last year.</li><li>New cardholders will also be able to take advantage of a welcome bonus and an introductory 0% APR promotion.</li></ul></div></div></div> <span class="heading-toc" id="toc-wells-fargo-autograph-credit-card-details"></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"> Wells Fargo Autograph Credit Card Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Credit card companies are jostling for consumer spending, offering more rewards and unique bonus categories to set themselves apart from the competition. </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 new Wells Fargo Autograph Credit Card has some of that, though it's still not necessarily the only card you'll want to have in your wallet. </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"> As a new cardholder, you'll earn 30,000 bonus points worth $300 after you spend $1,500 in the first three months. That's solid for a card with no annual fee. Similar options offer welcome bonuses up to $200, making this one stand out. But at the same time, the $1,500 spending requirement is double or even triple what you'll find with similar cards. Make sure you can afford to spend at least $500 per month before you apply. </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"> Cardholders will also earn 3 points per dollar on the following spending categories: </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>Restaurants</li><li>Travel</li><li>Gas stations</li><li>Transit</li><li>Popular streaming services</li><li>Phone plans</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"> It's not uncommon for a rewards credit card to offer bonus cash back, points or miles on certain categories, but it's hard to find one that offers at least 3 points per dollar on this many areas of your budget. Additionally, it's rare for a credit card to offer bonus rewards on phone plans. </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"> Keep in mind, though, that all non-bonus spending earns just 1 point per dollar, so it may make sense to pair this card with one that offers 1.5% or 2% back on all of your purchases. You can redeem your points earned with this card for travel, gift cards, statement credits or online shopping via PayPal. </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 card also offers an introductory 0% APR for 12 months, but it only applies to purchases, not balance transfers. After the promotional period ends, the variable APR will depend on your creditworthiness. </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 card doesn't offer a lot in terms of benefits,<span class="ql-inline-citation" data-cite="1"></span> but you will get cell phone protection worth up to $600 per claim (with a $25 deductible) if you use your card to pay your phone bill.<br/> </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-is-the-new-wells-fargo-credit-card-right-for-you"></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"> Is the New Wells Fargo Credit Card Right for You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The Wells Fargo Autograph Credit Card is a solid choice for someone who prefers a card with no annual fee. The bonus rewards are impressive for those categories, and while the 0% APR promotion isn't the best out there, it may be enough to meet your needs. </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"> Where the card falls short is its base rewards rate of 1 point per dollar. This is common for tiered rewards credit cards, but if you want to avoid earning a mediocre rate on most of your spending, it's recommended to pair this card with another rewards card that offers a high flat rewards rate.<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, Wells Fargo announced the launch of a new rewards credit card, the Wells Fargo Autograph Credit Card. The rewards credit card offers bonus rewards on several everyday spending categories, including select recurring monthly charges. The card is set to be available for new applications on July 13. ### Key Takeaways * Wells Fargo has announced a new rewards credit card, the Autograph Credit Card. * The new card will offer 3 points per dollar on six different everyday spending categories, similar to what the discontinued Wells Fargo Propel Credit Card offered before being shut down last year. * New cardholders will also be able to take advantage of a welcome bonus and an introductory 0% APR promotion. ## Wells Fargo Autograph Credit Card Details Credit card companies are jostling for consumer spending, offering more rewards and unique bonus categories to set themselves apart from the competition. The new Wells Fargo Autograph Credit Card has some of that, though it's still not necessarily the only card you'll want to have in your wallet. As a new cardholder, you'll earn 30,000 bonus points worth $300 after you spend $1,500 in the first three months. That's solid for a card with no annual fee. Similar options offer welcome bonuses up to $200, making this one stand out. But at the same time, the $1,500 spending requirement is double or even triple what you'll find with similar cards. Make sure you can afford to spend at least $500 per month before you apply. Cardholders will also earn 3 points per dollar on the following spending categories: * Restaurants * Travel * Gas stations * Transit * Popular streaming services * Phone plans It's not uncommon for a rewards credit card to offer bonus cash back, points or miles on certain categories, but it's hard to find one that offers at least 3 points per dollar on this many areas of your budget. Additionally, it's rare for a credit card to offer bonus rewards on phone plans. Keep in mind, though, that all non-bonus spending earns just 1 point per dollar, so it may make sense to pair this card with one that offers 1.5% or 2% back on all of your purchases. You can redeem your points earned with this card for travel, gift cards, statement credits or online shopping via PayPal. The card also offers an introductory 0% APR for 12 months, but it only applies to purchases, not balance transfers. After the promotional period ends, the variable APR will depend on your creditworthiness. The card doesn't offer a lot in terms of benefits, but you will get cell phone protection worth up to $600 per claim (with a $25 deductible) if you use your card to pay your phone bill. ## Is the New Wells Fargo Credit Card Right for You? The Wells Fargo Autograph Credit Card is a solid choice for someone who prefers a card with no annual fee. The bonus rewards are impressive for those categories, and while the 0% APR promotion isn't the best out there, it may be enough to meet your needs. Where the card falls short is its base rewards rate of 1 point per dollar. This is common for tiered rewards credit cards, but if you want to avoid earning a mediocre rate on most of your spending, it's recommended to pair this card with another rewards card that offers a high flat rewards rate. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Today, Wells Fargo announced the launch of a new rewards credit card, the Wells Fargo Autograph Credit Card. The rewards credit card offers bonus rewards on several everyday spending categories, including select recurring monthly charges. The card is set to be available for new applications on July 13. Key Takeaways Wells Fargo has announced a new rewards credit card, the Autograph Credit Card.The new card will offer 3 points per dollar on six different everyday spending categories, similar to what the discontinued Wells Fargo Propel Credit Card offered before being shut down last year.New cardholders will also be able to take advantage of a welcome bonus and an introductory 0% APR promotion. Wells Fargo Autograph Credit Card Details Credit card companies are jostling for consumer spending, offering more rewards and unique bonus categories to set themselves apart from the competition. The new Wells Fargo Autograph Credit Card has some of that, though it's still not necessarily the only card you'll want to have in your wallet. As a new cardholder, you'll earn 30,000 bonus points worth $300 after you spend $1,500 in the first three months. That's solid for a card with no annual fee. Similar options offer welcome bonuses up to $200, making this one stand out. But at the same time, the $1,500 spending requirement is double or even triple what you'll find with similar cards. Make sure you can afford to spend at least $500 per month before you apply. Cardholders will also earn 3 points per dollar on the following spending categories: RestaurantsTravelGas stationsTransitPopular streaming servicesPhone plans It's not uncommon for a rewards credit card to offer bonus cash back, points or miles on certain categories, but it's hard to find one that offers at least 3 points per dollar on this many areas of your budget. Additionally, it's rare for a credit card to offer bonus rewards on phone plans. Keep in mind, though, that all non-bonus spending earns just 1 point per dollar, so it may make sense to pair this card with one that offers 1.5% or 2% back on all of your purchases. You can redeem your points earned with this card for travel, gift cards, statement credits or online shopping via PayPal. The card also offers an introductory 0% APR for 12 months, but it only applies to purchases, not balance transfers. After the promotional period ends, the variable APR will depend on your creditworthiness. The card doesn't offer a lot in terms of benefits, but you will get cell phone protection worth up to $600 per claim (with a $25 deductible) if you use your card to pay your phone bill. Is the New Wells Fargo Credit Card Right for You? The Wells Fargo Autograph Credit Card is a solid choice for someone who prefers a card with no annual fee. The bonus rewards are impressive for those categories, and while the 0% APR promotion isn't the best out there, it may be enough to meet your needs. Where the card falls short is its base rewards rate of 1 point per dollar. This is common for tiered rewards credit cards, but if you want to avoid earning a mediocre rate on most of your spending, it's recommended to pair this card with another rewards card that offers a high flat rewards rate. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/the-express-podcast-183-8633549

A Century Year-Old Financial Advice Business Faces the Future

<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=MERE5009476796" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="A Century Year-Old Financial Advice Business Faces the Future"></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"> Over the past 100 years, Edward Jones has become a ubiquitous financial advice business with over 15,000 locations in North America overseeing $2 trillion in household assets. Penny Pennington, CEO and managing partner of Edward Jones joins The Express to talk about what American families are doing with their money, what they are worried about, and how they intend to transfer their wealth to their kids and grandkids. Plus, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vix.asp">volatility</a> is back after a long nap, and it is shaking up individual stocks and the major averages. Is this the beginning of a correction, or just the natural cycle of capital markets in the 21st century? </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="externalLink" href="https://www.costco.com/1-oz-gold-bar-pamp-suisse-lady-fortuna-veriscan-new-in-assay.product.4000186760.html" rel="nofollow">https://www.costco.com/1-oz-gold-bar-pamp-suisse-lady-fortuna-veriscan-new-in-assay.product.4000186760.html</a><br/><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8630573">https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8630573</a><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.edwardjones.com/us-en/why-edward-jones/news-media/thought-leadership/firm-leadership/penny-pennington">https://www.edwardjones.com/us-en/why-edward-jones/news-media/thought-leadership/firm-leadership/penny-pennington</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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cfraresearch.com/insights/">https://www.cfraresearch.com/insights/</a><br/> </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"> <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) Over the past 100 years, Edward Jones has become a ubiquitous financial advice business with over 15,000 locations in North America overseeing $2 trillion in household assets. Penny Pennington, CEO and managing partner of Edward Jones joins The Express to talk about what American families are doing with their money, what they are worried about, and how they intend to transfer their wealth to their kids and grandkids. Plus, [volatility](https://www.investopedia.com/terms/v/vix.asp) is back after a long nap, and it is shaking up individual stocks and the major averages. Is this the beginning of a correction, or just the natural cycle of capital markets in the 21st century? **Link for Show Notes:** <https://www.costco.com/1-oz-gold-bar-pamp-suisse-lady-fortuna-veriscan-new-in-assay.product.4000186760.html> <https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8630573><https://www.edwardjones.com/us-en/why-edward-jones/news-media/thought-leadership/firm-leadership/penny-pennington> <https://www.cfraresearch.com/insights/> **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 Over the past 100 years, Edward Jones has become a ubiquitous financial advice business with over 15,000 locations in North America overseeing $2 trillion in household assets. Penny Pennington, CEO and managing partner of Edward Jones joins The Express to talk about what American families are doing with their money, what they are worried about, and how they intend to transfer their wealth to their kids and grandkids. Plus, volatility is back after a long nap, and it is shaking up individual stocks and the major averages. Is this the beginning of a correction, or just the natural cycle of capital markets in the 21st century? Link for Show Notes: https://www.costco.com/1-oz-gold-bar-pamp-suisse-lady-fortuna-veriscan-new-in-assay.product.4000186760.htmlhttps://www.investopedia.com/what-to-expect-in-the-markets-this-week-8630573https://www.edwardjones.com/us-en/why-edward-jones/news-media/thought-leadership/firm-leadership/penny-pennington https://www.cfraresearch.com/insights/ Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/articles/investing-strategy/062816/5-investing-strategies-if-market-crashes-hdge-bis.asp

Investing Strategies for Market Crashes

<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"> Equities in the United States have been in a bull market since 2009, with stocks reaching new peaks following the 2008 financial crisis. As of the end of May 2016, the Dow Jones Industrial Average (DJIA) had a seven-year return of 109.19%, and the S&amp;P 500 Index had a seven-year return of 136.40%. With valuations inflating, many investors are concerned about the potential risks of a market crash, which is typically characterized by losses of over 20% over a prolonged 12-month period. While these crashes are often <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/timeline-of-stock-market-crashes-5217820">few and far between</a>, wise investors are prepared with strategies to mitigate potential losses. In the case of a market downturn, the following five investing strategies can help you to protect your investments. </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-fixed-income-and-treasuries"></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"> Fixed Income and Treasuries </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Seeking fixed-income safe havens, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ustreasury.asp">Treasurys</a> specifically, is the most basic way to protect your investments from market downturns. If valuations are rising and economic indicators are lagging, then the market is reporting a disconnect and valuations will surely fall as they are efficiently priced over time. For investors, raising cash from mutual funds and other liquid investments and transferring them to Treasurys when anticipating or experiencing the effects of a market downturn can greatly protect against losses. Treasurys can always be relied upon for investors as a safe haven since Treasurys essentially have no risk. More specifically, investing your cash in Treasury Inflation-Protected Securities (TIPS) ensures a rate of return while still beating inflation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <span class="heading-toc" id="toc-hard-assets"></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"> Hard Assets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Another safe haven for investors is hard assets such as real estate. Securing and investing in real estate property at a stable value can give you peace of mind in the case of a market downturn. With real estate, your investment is backed by a hard asset with tangible value. At the same time, homeowners should also be cautious of added financial burdens related to real estate. Added burdens such as additional home equity lines of credit can harm a homeowner’s credit profile and increase interest payments, adding risk during a potential market downturn. </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-hedging-with-put-options"></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"> Hedging with Put Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> If you are tied to some of your higher-risk investments, the best way to hedge against potential market losses is to buy put options. Put options provide you with an option to sell when security levels reach a specified low point. The available range of offerings for put options is wide, providing a number of investments for hedging. If covering direct stock investments, investors can buy corresponding put options. If identical options are not available, then investors can turn to more sophisticated synthetic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/putoption.asp">put option</a> strategies that replicate a portfolio through put options providing for comprehensive selling in a market downturn. For more general protection, investors can also utilize index put options that can be exercised when a market index reaches a specified low. Put options come with a cost, like all types of insurance, and the risk of entering into a put option that expires unexercised is the loss you incur from the put option's cost with no exercised benefit. </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-selling-calls"></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"> Selling Calls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A reverse strategy for buying put options to protect against a market crash includes selling call options. When selling call options, a seller expects the price of a security to fall and seeks to identify a buyer who is willing to buy the call option for the right to buy the security at a specified price. The seller of the call option benefits from the buyer’s purchase of the security at a higher price than the seller anticipates it to be valued in the trading market. Similar to put options, call options are traded for specified securities and indexes. More complex call option selling strategies can also be developed to synthetically replicate and protect specified investment positions. </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-inverse-strategies"></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"> Inverse Strategies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A final option for investors who foresee a market crash on the horizon is to invest in market-hedged products providing for protection from specific downside risks. A number of these investments exist, with some of the most well-known of these investments being <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp">inverse exchange-traded funds</a> (ETFs) and leveraged inverse ETFs. Examples include the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE) and the ProShares UltraShort NASDAQ Biotechnology ETF (NASDAQ: BIS). These funds take an active inverse market position that seeks to benefit from a market downturn or crash. Leveraged inverse ETFs take the short-side protection one step further by employing leverage to enhance the gains from short-selling positions. These inverse funds are designed specifically for situations where severe losses can be incurred from a market downturn. </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-key-takeaways"></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"> Key Takeaways </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Overall, these five options provide investors with varying levels of liquidity for managing a potential market crash. Hard assets can provide security through tangible value. Shifting assets to safe havens, such as Treasurys, provides a liquid and simplistic approach that can be enacted relatively quickly if investors foresee signs of a market downturn or crash. Put options, call options and inverse strategies are slightly more sophisticated to employ. Put and call options can primarily be traded actively, allowing for investment coverage relatively quickly. Similarly, inverse strategies are typically traded daily with high levels of liquidity, allowing for comprehensive coverage through block investment trades. Both indexed options and inverse strategy funds are good to include as an added layer of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/importance-diversification/">risk</a> protection through all market cycles in any portfolio; however, they can be even more optimally utilized in the case of a market crash. With options requiring synthetic strategies to cover portfolio risks, trading can be more complicated with less-allowable liquidity for immediate market downturns. </p></div>

Equities in the United States have been in a bull market since 2009, with stocks reaching new peaks following the 2008 financial crisis. As of the end of May 2016, the Dow Jones Industrial Average (DJIA) had a seven-year return of 109.19%, and the S&P 500 Index had a seven-year return of 136.40%. With valuations inflating, many investors are concerned about the potential risks of a market crash, which is typically characterized by losses of over 20% over a prolonged 12-month period. While these crashes are often [few and far between](https://www.investopedia.com/timeline-of-stock-market-crashes-5217820), wise investors are prepared with strategies to mitigate potential losses. In the case of a market downturn, the following five investing strategies can help you to protect your investments. ## Fixed Income and Treasuries Seeking fixed-income safe havens, such as [Treasurys](https://www.investopedia.com/terms/u/ustreasury.asp) specifically, is the most basic way to protect your investments from market downturns. If valuations are rising and economic indicators are lagging, then the market is reporting a disconnect and valuations will surely fall as they are efficiently priced over time. For investors, raising cash from mutual funds and other liquid investments and transferring them to Treasurys when anticipating or experiencing the effects of a market downturn can greatly protect against losses. Treasurys can always be relied upon for investors as a safe haven since Treasurys essentially have no risk. More specifically, investing your cash in Treasury Inflation-Protected Securities (TIPS) ensures a rate of return while still beating inflation. ## Hard Assets Another safe haven for investors is hard assets such as real estate. Securing and investing in real estate property at a stable value can give you peace of mind in the case of a market downturn. With real estate, your investment is backed by a hard asset with tangible value. At the same time, homeowners should also be cautious of added financial burdens related to real estate. Added burdens such as additional home equity lines of credit can harm a homeowner’s credit profile and increase interest payments, adding risk during a potential market downturn. ## Hedging with Put Options If you are tied to some of your higher-risk investments, the best way to hedge against potential market losses is to buy put options. Put options provide you with an option to sell when security levels reach a specified low point. The available range of offerings for put options is wide, providing a number of investments for hedging. If covering direct stock investments, investors can buy corresponding put options. If identical options are not available, then investors can turn to more sophisticated synthetic [put option](https://www.investopedia.com/terms/p/putoption.asp) strategies that replicate a portfolio through put options providing for comprehensive selling in a market downturn. For more general protection, investors can also utilize index put options that can be exercised when a market index reaches a specified low. Put options come with a cost, like all types of insurance, and the risk of entering into a put option that expires unexercised is the loss you incur from the put option's cost with no exercised benefit. ## Selling Calls A reverse strategy for buying put options to protect against a market crash includes selling call options. When selling call options, a seller expects the price of a security to fall and seeks to identify a buyer who is willing to buy the call option for the right to buy the security at a specified price. The seller of the call option benefits from the buyer’s purchase of the security at a higher price than the seller anticipates it to be valued in the trading market. Similar to put options, call options are traded for specified securities and indexes. More complex call option selling strategies can also be developed to synthetically replicate and protect specified investment positions. ## Inverse Strategies A final option for investors who foresee a market crash on the horizon is to invest in market-hedged products providing for protection from specific downside risks. A number of these investments exist, with some of the most well-known of these investments being [inverse exchange-traded funds](https://www.investopedia.com/terms/i/inverse-etf.asp) (ETFs) and leveraged inverse ETFs. Examples include the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE) and the ProShares UltraShort NASDAQ Biotechnology ETF (NASDAQ: BIS). These funds take an active inverse market position that seeks to benefit from a market downturn or crash. Leveraged inverse ETFs take the short-side protection one step further by employing leverage to enhance the gains from short-selling positions. These inverse funds are designed specifically for situations where severe losses can be incurred from a market downturn. ## Key Takeaways Overall, these five options provide investors with varying levels of liquidity for managing a potential market crash. Hard assets can provide security through tangible value. Shifting assets to safe havens, such as Treasurys, provides a liquid and simplistic approach that can be enacted relatively quickly if investors foresee signs of a market downturn or crash. Put options, call options and inverse strategies are slightly more sophisticated to employ. Put and call options can primarily be traded actively, allowing for investment coverage relatively quickly. Similarly, inverse strategies are typically traded daily with high levels of liquidity, allowing for comprehensive coverage through block investment trades. Both indexed options and inverse strategy funds are good to include as an added layer of [risk](https://www.investopedia.com/investing/importance-diversification/) protection through all market cycles in any portfolio; however, they can be even more optimally utilized in the case of a market crash. With options requiring synthetic strategies to cover portfolio risks, trading can be more complicated with less-allowable liquidity for immediate market downturns.

Equities in the United States have been in a bull market since 2009, with stocks reaching new peaks following the 2008 financial crisis. As of the end of May 2016, the Dow Jones Industrial Average (DJIA) had a seven-year return of 109.19%, and the S&P 500 Index had a seven-year return of 136.40%. With valuations inflating, many investors are concerned about the potential risks of a market crash, which is typically characterized by losses of over 20% over a prolonged 12-month period. While these crashes are often few and far between, wise investors are prepared with strategies to mitigate potential losses. In the case of a market downturn, the following five investing strategies can help you to protect your investments. Fixed Income and Treasuries Seeking fixed-income safe havens, such as Treasurys specifically, is the most basic way to protect your investments from market downturns. If valuations are rising and economic indicators are lagging, then the market is reporting a disconnect and valuations will surely fall as they are efficiently priced over time. For investors, raising cash from mutual funds and other liquid investments and transferring them to Treasurys when anticipating or experiencing the effects of a market downturn can greatly protect against losses. Treasurys can always be relied upon for investors as a safe haven since Treasurys essentially have no risk. More specifically, investing your cash in Treasury Inflation-Protected Securities (TIPS) ensures a rate of return while still beating inflation. Hard Assets Another safe haven for investors is hard assets such as real estate. Securing and investing in real estate property at a stable value can give you peace of mind in the case of a market downturn. With real estate, your investment is backed by a hard asset with tangible value. At the same time, homeowners should also be cautious of added financial burdens related to real estate. Added burdens such as additional home equity lines of credit can harm a homeowner’s credit profile and increase interest payments, adding risk during a potential market downturn. Hedging with Put Options If you are tied to some of your higher-risk investments, the best way to hedge against potential market losses is to buy put options. Put options provide you with an option to sell when security levels reach a specified low point. The available range of offerings for put options is wide, providing a number of investments for hedging. If covering direct stock investments, investors can buy corresponding put options. If identical options are not available, then investors can turn to more sophisticated synthetic put option strategies that replicate a portfolio through put options providing for comprehensive selling in a market downturn. For more general protection, investors can also utilize index put options that can be exercised when a market index reaches a specified low. Put options come with a cost, like all types of insurance, and the risk of entering into a put option that expires unexercised is the loss you incur from the put option's cost with no exercised benefit. Selling Calls A reverse strategy for buying put options to protect against a market crash includes selling call options. When selling call options, a seller expects the price of a security to fall and seeks to identify a buyer who is willing to buy the call option for the right to buy the security at a specified price. The seller of the call option benefits from the buyer’s purchase of the security at a higher price than the seller anticipates it to be valued in the trading market. Similar to put options, call options are traded for specified securities and indexes. More complex call option selling strategies can also be developed to synthetically replicate and protect specified investment positions. Inverse Strategies A final option for investors who foresee a market crash on the horizon is to invest in market-hedged products providing for protection from specific downside risks. A number of these investments exist, with some of the most well-known of these investments being inverse exchange-traded funds (ETFs) and leveraged inverse ETFs. Examples include the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE) and the ProShares UltraShort NASDAQ Biotechnology ETF (NASDAQ: BIS). These funds take an active inverse market position that seeks to benefit from a market downturn or crash. Leveraged inverse ETFs take the short-side protection one step further by employing leverage to enhance the gains from short-selling positions. These inverse funds are designed specifically for situations where severe losses can be incurred from a market downturn. Key Takeaways Overall, these five options provide investors with varying levels of liquidity for managing a potential market crash. Hard assets can provide security through tangible value. Shifting assets to safe havens, such as Treasurys, provides a liquid and simplistic approach that can be enacted relatively quickly if investors foresee signs of a market downturn or crash. Put options, call options and inverse strategies are slightly more sophisticated to employ. Put and call options can primarily be traded actively, allowing for investment coverage relatively quickly. Similarly, inverse strategies are typically traded daily with high levels of liquidity, allowing for comprehensive coverage through block investment trades. Both indexed options and inverse strategy funds are good to include as an added layer of risk protection through all market cycles in any portfolio; however, they can be even more optimally utilized in the case of a market crash. With options requiring synthetic strategies to cover portfolio risks, trading can be more complicated with less-allowable liquidity for immediate market downturns.

https://www.investopedia.com/terms/h/highbetaindex.asp

High Beta Index

<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-high-beta-index"></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 High Beta Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A high beta index is a basket of stocks that exhibits greater volatility than a broad market index such as the S&amp;P 500 Index. The S&amp;P 500 High Beta Index is the most well-known of these indexes. It tracks the performance of 100 companies in the S&amp;P 500 that are the most sensitive to changes in market returns.<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 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 the amount of volatility or systematic risk an asset exhibits compared to the market as a whole. Besides the flagship large-cap index, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp" rel="noopener noreferrer">Standard and Poor's</a> offers a number of high beta variations for small-cap, mid-cap and other market indexes.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <span class="heading-toc" id="toc-high-beta-index-explained"></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"> High Beta Index Explained </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> High beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an individual stock. A beta of 1 indicates the asset moves in line with the market. Anything less than 1 represents an asset less volatile than the market, while greater than 1 suggests a more volatile asset. </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"> For example, a beta of 1.2 means the asset is 20% more volatile than the market. Conversely, a beta of 0.70 is theoretically 30% less volatile than the market. Beta is measured against a widely followed index such as 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 Index</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"> Gaining exposure to a high beta index requires an investment vehicle such as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp" rel="noopener noreferrer">exchange traded fund</a> (ETF). The Invesco S&amp;P 500 High Beta ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=sphb" rel="noopener noreferrer">SPHB</a>) is a widely traded asset that tracks volatile assets in the broader market. The ETF has underperformed the underlying S&amp;P 500 Index since its inception.<span class="ql-inline-citation" data-cite="4"></span> Financial companies constitute nearly 30% of the fund's assets, with Discover Financial Services (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dfs" rel="noopener noreferrer">DFS</a>), Lincoln National Corp (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=lnc" rel="noopener noreferrer">LNC</a>) and Invesco (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ivz" rel="noopener noreferrer">IVZ</a>) among its largest holdings.<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> <span class="heading-toc" id="toc-limitations-of-a-high-beta-index"></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"> Limitations of a High Beta Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Contrary to popular belief, high beta or volatility doesn't necessarily translate into greater returns. For many years, the High Beta S&amp;P 500 Index has underperformed its underlying benchmark.<span class="ql-inline-citation" data-cite="5"></span> This occurred during a period of unyielding improvement in the broader market. </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"> Instead, research shows that low volatility stocks tend to earn greater risk-adjusted returns than high volatility stocks. The reason low beta tends to outperform can be attributed to investment <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioralfinance.asp" rel="noopener noreferrer">behavioral biases</a>, such as the representative heuristic and overconfidence. In addition, sector selection and other fundamental criteria play an important role in the volatility and performance of a high beta index. </p></div>

## What Is a High Beta Index? A high beta index is a basket of stocks that exhibits greater volatility than a broad market index such as the S&P 500 Index. The S&P 500 High Beta Index is the most well-known of these indexes. It tracks the performance of 100 companies in the S&P 500 that are the most sensitive to changes in market returns. [Beta](https://www.investopedia.com/terms/b/beta.asp) is the amount of volatility or systematic risk an asset exhibits compared to the market as a whole. Besides the flagship large-cap index, [Standard and Poor's](https://www.investopedia.com/terms/s/sp.asp) offers a number of high beta variations for small-cap, mid-cap and other market indexes.  ## High Beta Index Explained High beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an individual stock. A beta of 1 indicates the asset moves in line with the market. Anything less than 1 represents an asset less volatile than the market, while greater than 1 suggests a more volatile asset. For example, a beta of 1.2 means the asset is 20% more volatile than the market. Conversely, a beta of 0.70 is theoretically 30% less volatile than the market. Beta is measured against a widely followed index such as the [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp).  Gaining exposure to a high beta index requires an investment vehicle such as an [exchange traded fund](https://www.investopedia.com/terms/e/etf.asp) (ETF). The Invesco S&P 500 High Beta ETF ([SPHB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=sphb)) is a widely traded asset that tracks volatile assets in the broader market. The ETF has underperformed the underlying S&P 500 Index since its inception. Financial companies constitute nearly 30% of the fund's assets, with Discover Financial Services ([DFS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dfs)), Lincoln National Corp ([LNC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=lnc)) and Invesco ([IVZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ivz)) among its largest holdings. ## Limitations of a High Beta Index Contrary to popular belief, high beta or volatility doesn't necessarily translate into greater returns. For many years, the High Beta S&P 500 Index has underperformed its underlying benchmark. This occurred during a period of unyielding improvement in the broader market. Instead, research shows that low volatility stocks tend to earn greater risk-adjusted returns than high volatility stocks. The reason low beta tends to outperform can be attributed to investment [behavioral biases](https://www.investopedia.com/terms/b/behavioralfinance.asp), such as the representative heuristic and overconfidence. In addition, sector selection and other fundamental criteria play an important role in the volatility and performance of a high beta index.

What Is a High Beta Index? A high beta index is a basket of stocks that exhibits greater volatility than a broad market index such as the S&P 500 Index. The S&P 500 High Beta Index is the most well-known of these indexes. It tracks the performance of 100 companies in the S&P 500 that are the most sensitive to changes in market returns. Beta is the amount of volatility or systematic risk an asset exhibits compared to the market as a whole. Besides the flagship large-cap index, Standard and Poor's offers a number of high beta variations for small-cap, mid-cap and other market indexes.  High Beta Index Explained High beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an individual stock. A beta of 1 indicates the asset moves in line with the market. Anything less than 1 represents an asset less volatile than the market, while greater than 1 suggests a more volatile asset. For example, a beta of 1.2 means the asset is 20% more volatile than the market. Conversely, a beta of 0.70 is theoretically 30% less volatile than the market. Beta is measured against a widely followed index such as the S&P 500 Index.  Gaining exposure to a high beta index requires an investment vehicle such as an exchange traded fund (ETF). The Invesco S&P 500 High Beta ETF (SPHB) is a widely traded asset that tracks volatile assets in the broader market. The ETF has underperformed the underlying S&P 500 Index since its inception. Financial companies constitute nearly 30% of the fund's assets, with Discover Financial Services (DFS), Lincoln National Corp (LNC) and Invesco (IVZ) among its largest holdings. Limitations of a High Beta Index Contrary to popular belief, high beta or volatility doesn't necessarily translate into greater returns. For many years, the High Beta S&P 500 Index has underperformed its underlying benchmark. This occurred during a period of unyielding improvement in the broader market. Instead, research shows that low volatility stocks tend to earn greater risk-adjusted returns than high volatility stocks. The reason low beta tends to outperform can be attributed to investment behavioral biases, such as the representative heuristic and overconfidence. In addition, sector selection and other fundamental criteria play an important role in the volatility and performance of a high beta index.

https://www.investopedia.com/top-cds-today-may-13-2024-leaders-include-a-5-rate-you-can-keep-until-2027-8647680

Top CDs Today, May 13, 2024 - Leaders Include a 5% Rate You Can Keep Until 2027

<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>Options to earn at least 5% are available in every CD term up to 3 years—meaning you could lock in a 5% return that's guaranteed until 2027.</li> <li>The highest CD rates overall continue to be 5.65% APY from <a class="pseudoStyle" 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.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">MutualOne Bank</a> on a 3-month term and 5.55% on 6 months from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>.</li> <li>At the longer end of CD durations, <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">BMO Alto</a> raised its 5-year CD rate Friday to 4.80% APY, taking the national lead in that term.</li> <li>Today's <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers rates.</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"> 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_4-0"></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_5-0"><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_6-0"></div> <span class="heading-toc" id="toc-lock-in-530-or-morefor-as-long-as-23-months"></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"> Lock In 5.30% or More—For as Long as 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Today's highest <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> rate overall continues to be 5.65% APY. Available from MutualOne Bank for a short 3-month term, it will guarantee your return until August. </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"> Prefer a longer rate lock? The runner-up is Newtek Bank. Its nation-leading 6-month CD pays 5.55% APY—stretching your rate guarantee almost to Thanksgiving. </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"> Six more CDs in our daily ranking are paying 5.50% or better, on terms up to 9 months. Or grab <a 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.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human's</a> choose-your-term offer of 5.25%, available for 18 to 23 months. At its longest duration, that would extend your rate guarantee until spring 2026.<br/> </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_14-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/VOkwG/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Range of the Top 15 CD Rates per Term"></iframe></div> <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-long-cd-terms-secure-your-rate-to-2027or-beyond"></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"> Long CD Terms Secure 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_17-0"> Choosing a CD term of two years or longer 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%. That would guarantee your return until 2027. Or you can opt to secure a rate in the mid-to-high 4% range for as far as 4 or 5 years down the road. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_19-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 95px;"></colgroup> <colgroup span="1" style="width: 93px;"></colgroup> <colgroup span="1" style="width: 99px;"></colgroup> <colgroup span="1" style="width: 110px;"></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Friday'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>5.65% APY</td> <td>5.65% APY</td> <td>No change</td> <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.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">MutualOne 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-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-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.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" 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-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.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="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-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.nasafcu.com/personal/checking-savings/certificates/certificates---rates&amp;lender=NASA%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">NASA Federal Credit Union</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>5.25% APY</td> <td>5.25% APY</td> <td>No change</td> <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.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer 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-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.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">DollarSavingsDirect</a>, and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&amp;lender=Transportation%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Transportation Federal Credit Union</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>4.86% APY</td> <td>4.86% APY</td> <td>No change</td> <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.wellbyfinancial.com/savings/certificates/&amp;lender=Wellby%20Financial&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Wellby Financial</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>4.80% APY</td> <td>4.80% APY</td> <td>No change</td> <td><a class="pseudoStyle" 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://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">BMO Alto</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_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>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-20-year-highs"></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"> CD Rates Are Still Near 20-Year Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">our daily ranking</a> that paid at least 5.50% APY was 30. Today that count sits at eight. </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"> But don't lose sight of how much certificates of deposit (CDs) still pay 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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> 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_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_30-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/01sHO/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="CD rates now vs. peak vs. January 2022"></iframe></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-jumbo-cds-offer-a-rate-bump-in-some-terms"></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"> Jumbo CDs Offer a Rate Bump in Some Terms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> 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 State Department Federal Credit Union offers 5.41% APY for 15 months. </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"> 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 eight 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_36-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_37-0"> <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" rel="noopener noreferrer">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" rel="noopener noreferrer">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" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.65% 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>5.25% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.25% APY</td> <td>5.40% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>5.00% APY</td> <td>5.25% APY*</td> <td>4.91% 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>4.70% APY</td> <td>4.86% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.80% APY*</td> <td>4.65% 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_38-0"></div> <span class="heading-toc" id="toc-where-will-cd-rates-go-in-2024"></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"> Where Will CD Rates Go in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> 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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> 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_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_44-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Aq6PK/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="CD rates since December 2021"></iframe></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"> But since its last rate hike in July, the Fed has been in a holding pattern. As was almost universally expected, the Federal Reserve's rate-setting committee <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">announced on May 1</a> that it is maintaining the federal funds rate at its current level.<span class="ql-inline-citation" data-cite="43"></span> It's the sixth meeting in a row in which the central bank has held its benchmark rate steady.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> 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. Yet, 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. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_50-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/W86Fc/3/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Inflation proving stubborn"></iframe></div> <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"> The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z">longer than originally expected</a> to lower the fed funds rate. </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"> "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope."<span class="ql-inline-citation" data-cite="45"></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"> It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool.<span class="ql-inline-citation" data-cite="44"></span> That's three meetings away. </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"> New inflation data will be reported this Wednesday, with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cpi-inflation-april-2024-preview-8646157">eagerly awaited release</a> of April's Consumer Price Index (CPI). But in the meantime, multiple Fed officials have indicated they are in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908">"wait-and-see" mode</a>. </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"> As a result, CD rates could continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields 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_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12.<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_63-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_65-0"><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_67-0"><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_69-0"><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_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_71-0"><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_72-0"><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_73-0"> <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_74-0"> 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_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> 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>

### Key Takeaways * Options to earn at least 5% are available in every CD term up to 3 years—meaning you could lock in a 5% return that's guaranteed until 2027. * The highest CD rates overall continue to be 5.65% APY from [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) on a 3-month term and 5.55% on 6 months from [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * At the longer end of CD durations, [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) raised its 5-year CD rate Friday to 4.80% APY, taking the national lead in that term. * Today's [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers 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% or More—For as Long as 23 Months Today's highest [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) rate overall continues to be 5.65% APY. Available from MutualOne Bank for a short 3-month term, it will guarantee your return until August. Prefer a longer rate lock? The runner-up is Newtek Bank. Its nation-leading 6-month CD pays 5.55% APY—stretching your rate guarantee almost to Thanksgiving. Six more CDs in our daily ranking are paying 5.50% or better, on terms up to 9 months. Or grab [Credit Human's](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) choose-your-term offer of 5.25%, available for 18 to 23 months. At its longest duration, that would extend your rate guarantee until spring 2026. ## Long CD Terms Secure Your Rate to 2027—Or Beyond Choosing a CD term of two years or longer 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%. That would guarantee your return until 2027. Or you can opt to secure a rate in the mid-to-high 4% range for as far as 4 or 5 years down the road. | **CD Terms** | **Friday'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) | 5.65% APY | 5.65% APY | No change | [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [NASA Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates/certificates---rates&lender=NASA%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [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) | 5.25% APY | 5.25% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), and [Transportation Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://transfcu.org/share-certificate/&lender=Transportation%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.86% APY | 4.86% APY | No change | [Wellby Financial](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellbyfinancial.com/savings/certificates/&lender=Wellby%20Financial&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [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) | 4.80% APY | 4.80% APY | No change | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 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 20-Year Highs CD rates have inched lower since they climbed to a historic peak of 6.50% in October. At the start of February, the number of CDs in [our daily ranking](https://www.investopedia.com/best-cd-rates-4770214) that paid at least 5.50% APY was 30. Today that count sits at eight. But don't lose sight of how much certificates of deposit (CDs) still pay 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 CDs Offer a Rate Bump in Some Terms 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 State Department Federal Credit Union offers 5.41% APY for 15 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 eight 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 | 5.65% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.40% APY | 5.25% APY | 5.50% APY\* | | 18 months | 5.25% APY | 5.40% APY | 5.41% APY\* | | 2 years | 5.00% APY | 5.25% APY\* | 4.91% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.70% APY | 4.86% APY\* | 4.48% APY | | 5 years | 4.80% APY\* | 4.65% 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 Will CD Rates Go 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. As was almost universally expected, the Federal Reserve's rate-setting committee [announced on May 1](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. Yet, 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. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take [longer than originally expected](https://www.investopedia.com/us-economy-news-today-may-1-8641676#toc-2024-05-01t185349358z) to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data will be reported this Wednesday, with the [eagerly awaited release](https://www.investopedia.com/cpi-inflation-april-2024-preview-8646157) of April's Consumer Price Index (CPI). But in the meantime, multiple Fed officials have indicated they are in ["wait-and-see" mode](https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908). As a result, CD rates could continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. [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 Options to earn at least 5% are available in every CD term up to 3 years—meaning you could lock in a 5% return that's guaranteed until 2027. The highest CD rates overall continue to be 5.65% APY from MutualOne Bank on a 3-month term and 5.55% on 6 months from Newtek Bank. At the longer end of CD durations, BMO Alto raised its 5-year CD rate Friday to 4.80% APY, taking the national lead in that term. Today's best CD rates are slightly below their historic peak of last fall, inching down in anticipation of Fed rate cuts. But recent inflation readings suggest it could be a while before the Fed lowers 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% or More—For as Long as 23 Months Today's highest certificate of deposit (CD) rate overall continues to be 5.65% APY. Available from MutualOne Bank for a short 3-month term, it will guarantee your return until August. Prefer a longer rate lock? The runner-up is Newtek Bank. Its nation-leading 6-month CD pays 5.55% APY—stretching your rate guarantee almost to Thanksgiving. Six more CDs in our daily ranking are paying 5.50% or better, on terms up to 9 months. Or grab Credit Human's choose-your-term offer of 5.25%, available for 18 to 23 months. At its longest duration, that would extend your rate guarantee until spring 2026. Long CD Terms Secure Your Rate to 2027—Or Beyond Choosing a CD term of two years or longer 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%. That would guarantee your return until 2027. Or you can opt to secure a rate in the mid-to-high 4% range for as far as 4 or 5 years down the road. CD Terms Friday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.65% APY 5.65% APY No change MutualOne Bank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change NexBank 18 months 5.40% APY 5.40% APY No change NASA Federal Credit Union 2 years 5.25% APY 5.25% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect, and Transportation Federal Credit Union 4 years 4.86% APY 4.86% APY No change Wellby Financial 5 years 4.80% APY 4.80% APY No change BMO Alto 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 20-Year Highs CD rates have inched lower since they climbed to a historic peak 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 eight. But don't lose sight of how much certificates of deposit (CDs) still pay 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 CDs Offer a Rate Bump in Some Terms 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 State Department Federal Credit Union offers 5.41% APY for 15 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 eight 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 5.65% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.40% APY 5.25% APY 5.50% APY* 18 months 5.25% APY 5.40% APY 5.41% APY* 2 years 5.00% APY 5.25% APY* 4.91% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.70% APY 4.86% APY* 4.48% APY 5 years 4.80% APY* 4.65% 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 Will CD Rates Go 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. As was almost universally expected, the Federal Reserve's rate-setting committee announced on May 1 that it is maintaining the federal funds rate at its current level. It's the sixth meeting in a row in which the central bank has held its benchmark rate steady. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. Yet, 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. The Fed's written statement on May 1 left out discussion of projected rate cuts. When asked about this during his press conference following release of the statement, Fed Chair Jerome Powell responded that the stalled progress against inflation means it will take longer than originally expected to lower the fed funds rate. "My colleagues and I today said that we didn't see progress in the first quarter," Powell said. "And I've said that it appears then that it's going to take longer for us to reach that point of confidence. So I don't know how long it will take. When we get that confidence, then rate cuts will be in scope." It therefore seems likely the fed funds rate will stay where it is for some number of months—although with great uncertainty on when exactly the Fed will first cut rates. Following the latest Fed statement and comments from Powell, a majority of fed funds futures traders are betting it will take until Sept. 18 for the first rate cut to be implemented, according to CME Group's FedWatch Tool. That's three meetings away. New inflation data will be reported this Wednesday, with the eagerly awaited release of April's Consumer Price Index (CPI). But in the meantime, multiple Fed officials have indicated they are in "wait-and-see" mode. As a result, CD rates could continue their current plateau. If at some point the Fed signals it's ready to start cutting rates, that would drive CD yields down more quickly. But it appears that could be months away. The central bank will hold five more rate-setting meetings in 2024, with the next one scheduled to conclude June 12. 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/calculate-principal-and-interest-5211981

How to Calculate Principal and Interest

<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"> To calculate principal and interest, you can use some straightforward math, but you'll need to know your loan type first. Interest is typically calculated in one of two ways: as simple interest or on an amortized schedule. With simple interest, the amount of your interest payments remains the same and with amortized interest, you pay more toward interest at the beginning of the loan. Learn more about how to calculate the principal and interest of a loan like a mortgage.<br/> </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>To calculate simple interest, multiply the principal by the interest rate and then multiply by the loan term.</li><li>Divide the principal by the months in the loan term to get your monthly principal payment on a simple interest loan.</li><li>Calculating amortized loans requires several steps. You can use a loan calculator to help you calculate amortized interest payments.</li><li>With fixed-rate loans, your monthly payment will be consistent with both simple or amortized interest.</li></ul></div></div></div> <span class="heading-toc" id="toc-principal-and-interest"></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"> Principal and Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> When you make a loan payment, part of it goes toward interest payments and part goes to pay down your principal. Understanding how banks calculate these components can help you understand how you will pay your loan down.<br/> </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"> Principal </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The principal is the original loan amount not including any interest. For example, with mortgages, let's suppose you purchase a $350,000 home and put down $50,000 in cash. That means you’re borrowing $300,000 of principal from the lender, which you'll need to pay back over the length of the loan. </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"> Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The interest is the amount that bank also charges for lending you those funds. Generally, shorter term, fixed-rate loans like personal loans use a simple interest calculation. Longer-term loans like mortgages and some auto loans are amortized. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></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"> Example of mortgage interest calculation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Let’s say the loan in the example above is a 30-year mortgage with a 4% annual interest rate that is amortized. Since you’re making monthly, rather than annual, payments throughout the year, the 4% interest rate gets divided by 12 and multiplied by the outstanding principal on your loan. In this example, your first monthly payment would include $1,000 of interest ($300,000 x 0.04 annual interest rate ÷ 12 months).  </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 you plug your purchase price, your down payment, the length of your loan, and your APR into the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Investopedia Mortgage Calculator</a>, you will see that your monthly payments to the lender would equal $1,432.25. As we noted earlier, $1,000 of your first payment strictly covers the interest cost, meaning the remaining $432.25 is paying down your outstanding loan balance or principal.   </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 example above doesn't include other costs, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage-insurance.asp">mortgage insurance</a> and property taxes held in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-know-about-your-escrow-balance-5194261">escrow</a>, which are not paid to the lender.<br/> </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-how-amortization-works"></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"> How Amortization Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp">fixed-rate loan</a>, your mortgage payment stays the same each month. In theory, that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">interest rate</a> is being multiplied by a shrinking principal balance. The reason the amount you pay does not decline is that lenders use <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amortization.asp">amortization</a> when calculating your payment, which is a way of keeping your monthly bill consistent.<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_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 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>With amortization, your monthly payment is comprised of mostly interest in the early years with a smaller portion of the payment going toward reducing the principal. </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"> Example of Amortization </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Sticking with our earlier example and assuming you don’t refinance, your loan payment will be the same 15 years later. But your principal balance will be reduced. In 15 years, you would have a remaining balance of approximately $193,000 of the principal on your loan. </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"> Multiplying $193,000 by the interest rate (0.04 ÷ 12 months), the interest portion of the payment is now only $645.43. However, you’re paying off a bigger portion of the principal, meaning $786.82 of the $1,432.25 monthly payment is going toward the principal. </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 table below shows the monthly payments at various points in the 30-year mortgage. You'll notice that the interest portion of the monthly payment declines while the principal portion increases over the life of the loan. You can use an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amortization-calculator-5086959">amortization calculator</a> to help you determine your own loan's interest and principal amounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_33-0"> <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=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Mortgage Loan Amortization With Principal and Interest Breakdown </th> </tr> </thead> <tbody data-check="-1"> <tr> <td> Year</td> <td> Principal</td> <td> Interest</td> <td>Monthly Payment</td> </tr> <tr> <td>Year One</td> <td> $432.25</td> <td> $1,000</td> <td>$1,432.25</td> </tr> <tr> <td> 15 Years</td> <td> $786.82</td> <td>$645.43 </td> <td>$1,432.25</td> </tr> <tr> <td> 20 Years</td> <td> $960.70</td> <td> $471.54</td> <td>$1,432.25</td> </tr> <tr> <td> 30 Years</td> <td>$1,427.49 </td> <td> $4.76</td> <td>$1,432.25</td> </tr> </tbody> </table> </div></figure> <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"> During the last year of your mortgage, you’re paying off mostly principal and very little interest. By leveling out your payments like this, lenders are making your payments more manageable. If you paid the same amount in principal over the course of the loan, you’d have to make much higher monthly payments right after taking out the loan and those amounts would plummet at the tail end of the repayment. <br> </br></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"> If you’re wondering how much you’ll pay toward principal versus interest over time, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Investopedia Mortgage Calculator</a> also shows the breakdown of your payments over the length of your loan. <br/> </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-adjustable-rate-mortgages"></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"> Adjustable-Rate Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <br>If you take out a fixed-rate mortgage and only pay the amount due, your total monthly payment will stay the same over the course of your loan. The portion of your payment attributed to interest will gradually go down, as more of your payment gets allocated to the principal. But the total amount you owe won’t change.<span class="ql-inline-citation" data-cite="6"></span> </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"> However, it doesn’t work that way for borrowers who take out an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp">adjustable-rate mortgage (ARM)</a>. They pay a given interest rate during the initial period of the loan. But after a certain length of time—say, one year or five years, depending on the loan—the mortgage “resets” to a new interest rate. Often, the initial rate is set below the market rate at the time you borrow and then increases following the reset.<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_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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Your monthly payment can change on an adjustable-rate mortgage. That’s because your outstanding principal is being multiplied by a different interest rate. </p></div></div></div> <span class="heading-toc" id="toc-interest-rate-vs-apr"></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"> Interest Rate vs. APR  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <br/>When receiving a loan offer, you may come across a term called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a>. The APR and the actual interest rate that the lender is charging you are two separate things, so it’s important to understand the distinction.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Unlike the interest rate, the APR factors in the total annual cost of taking out the loan, including fees such as mortgage insurance, <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>, loan <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fees</a>, and some <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/closing-costs/">closing costs</a>. It averages the total cost of borrowing over the duration of the loan.  </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"> It’s important to realize that your monthly payment is based on your interest rate, not the annual percentage rate. However, lenders are required by law to disclose the APR on the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-estimate-5120625">loan estimate</a> they provide after you submit an application, so that you can have a more accurate picture of how much you’re actually paying to borrow that money.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Some lenders may charge you a lower interest rate but charge higher upfront fees, so including the APR helps provide a more holistic comparison of different loan offers. Because the APR includes associated fees, it’s higher than the actual interest rate. </p> <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-frequently-asked-questions-faqs"></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"> Frequently Asked Questions (FAQs) </span> </h2> <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-how-is-my-interest-payment-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is My Interest Payment Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Lenders multiply your outstanding balance by your annual interest rate, but divide by 12 because you’re making monthly payments. So if you owe $300,000 on your mortgage and your rate is 4%, you’ll initially owe $1,000 in interest per month ($300,000 x 0.04 ÷ 12). The rest of your mortgage payment is applied to your principal. </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-is-amortization"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Amortization?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Amortizing a mortgage allows borrowers to make fixed payments on their loan, even though their outstanding balance keeps getting lower. Early on, most of your monthly payment goes toward interest, with only a small percentage reducing your principal. At the tail end of repayment, that switches—more of your payment reduces your outstanding balance and only a small percentage of it covers interest.<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_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-whats-the-difference-between-interest-rate-and-apr"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Difference Between Interest Rate and APR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The interest rate is the amount that the lender actually charges you as a percent of your loan amount. By contrast, the annual percentage rate (APR) is a way of expressing the total cost of borrowing. Therefore, APR incorporates expenses such as loan origination fees and mortgage insurance. Some loans offer a relatively low interest rate but have a higher APR because of other fees.<span class="ql-inline-citation" data-cite="7"></span> <br/></p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> You likely know how much you're paying to the mortgage servicer each month. But figuring out how that money is divided between principal and interest can help you understand how your loan will be paid down. You can make those calculations yourself or turn to an online loan calculator.<br> </br></p></div>

To calculate principal and interest, you can use some straightforward math, but you'll need to know your loan type first. Interest is typically calculated in one of two ways: as simple interest or on an amortized schedule. With simple interest, the amount of your interest payments remains the same and with amortized interest, you pay more toward interest at the beginning of the loan. Learn more about how to calculate the principal and interest of a loan like a mortgage. ### Key Takeaways * To calculate simple interest, multiply the principal by the interest rate and then multiply by the loan term. * Divide the principal by the months in the loan term to get your monthly principal payment on a simple interest loan. * Calculating amortized loans requires several steps. You can use a loan calculator to help you calculate amortized interest payments. * With fixed-rate loans, your monthly payment will be consistent with both simple or amortized interest. ## Principal and Interest When you make a loan payment, part of it goes toward interest payments and part goes to pay down your principal. Understanding how banks calculate these components can help you understand how you will pay your loan down. ### Principal The principal is the original loan amount not including any interest. For example, with mortgages, let's suppose you purchase a $350,000 home and put down $50,000 in cash. That means you’re borrowing $300,000 of principal from the lender, which you'll need to pay back over the length of the loan. ### Interest The interest is the amount that bank also charges for lending you those funds. Generally, shorter term, fixed-rate loans like personal loans use a simple interest calculation. Longer-term loans like mortgages and some auto loans are amortized. ### Example of mortgage interest calculation Let’s say the loan in the example above is a 30-year mortgage with a 4% annual interest rate that is amortized. Since you’re making monthly, rather than annual, payments throughout the year, the 4% interest rate gets divided by 12 and multiplied by the outstanding principal on your loan. In this example, your first monthly payment would include $1,000 of interest ($300,000 x 0.04 annual interest rate ÷ 12 months).  If you plug your purchase price, your down payment, the length of your loan, and your APR into the [Investopedia Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794), you will see that your monthly payments to the lender would equal $1,432.25. As we noted earlier, $1,000 of your first payment strictly covers the interest cost, meaning the remaining $432.25 is paying down your outstanding loan balance or principal.   The example above doesn't include other costs, such as [mortgage insurance](https://www.investopedia.com/terms/m/mortgage-insurance.asp) and property taxes held in [escrow](https://www.investopedia.com/what-to-know-about-your-escrow-balance-5194261), which are not paid to the lender. ## How Amortization Works If you have a [fixed-rate loan](https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp), your mortgage payment stays the same each month. In theory, that [interest rate](https://www.investopedia.com/mortgage-rates-5094943) is being multiplied by a shrinking principal balance. The reason the amount you pay does not decline is that lenders use [amortization](https://www.investopedia.com/terms/a/amortization.asp) when calculating your payment, which is a way of keeping your monthly bill consistent. ### Note With amortization, your monthly payment is comprised of mostly interest in the early years with a smaller portion of the payment going toward reducing the principal.  ### Example of Amortization Sticking with our earlier example and assuming you don’t refinance, your loan payment will be the same 15 years later. But your principal balance will be reduced. In 15 years, you would have a remaining balance of approximately $193,000 of the principal on your loan. Multiplying $193,000 by the interest rate (0.04 ÷ 12 months), the interest portion of the payment is now only $645.43. However, you’re paying off a bigger portion of the principal, meaning $786.82 of the $1,432.25 monthly payment is going toward the principal. The table below shows the monthly payments at various points in the 30-year mortgage. You'll notice that the interest portion of the monthly payment declines while the principal portion increases over the life of the loan. You can use an [amortization calculator](https://www.investopedia.com/amortization-calculator-5086959) to help you determine your own loan's interest and principal amounts. | Mortgage Loan Amortization With Principal and Interest Breakdown | | | | | --- | --- | --- | --- | | Year | Principal | Interest | Monthly Payment | | Year One | $432.25 | $1,000 | $1,432.25 | | 15 Years | $786.82 | $645.43 | $1,432.25 | | 20 Years | $960.70 | $471.54 | $1,432.25 | | 30 Years | $1,427.49 | $4.76 | $1,432.25 | During the last year of your mortgage, you’re paying off mostly principal and very little interest. By leveling out your payments like this, lenders are making your payments more manageable. If you paid the same amount in principal over the course of the loan, you’d have to make much higher monthly payments right after taking out the loan and those amounts would plummet at the tail end of the repayment.  If you’re wondering how much you’ll pay toward principal versus interest over time, the [Investopedia Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794) also shows the breakdown of your payments over the length of your loan.  ## Adjustable-Rate Mortgages If you take out a fixed-rate mortgage and only pay the amount due, your total monthly payment will stay the same over the course of your loan. The portion of your payment attributed to interest will gradually go down, as more of your payment gets allocated to the principal. But the total amount you owe won’t change. However, it doesn’t work that way for borrowers who take out an [adjustable-rate mortgage (ARM)](https://www.investopedia.com/terms/a/arm.asp). They pay a given interest rate during the initial period of the loan. But after a certain length of time—say, one year or five years, depending on the loan—the mortgage “resets” to a new interest rate. Often, the initial rate is set below the market rate at the time you borrow and then increases following the reset. ### Your monthly payment can change on an adjustable-rate mortgage. That’s because your outstanding principal is being multiplied by a different interest rate.  ## Interest Rate vs. APR When receiving a loan offer, you may come across a term called the [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp). The APR and the actual interest rate that the lender is charging you are two separate things, so it’s important to understand the distinction.  Unlike the interest rate, the APR factors in the total annual cost of taking out the loan, including fees such as mortgage insurance, [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), loan [origination fees](https://www.investopedia.com/terms/o/origination-fee.asp), and some [closing costs](https://www.investopedia.com/mortgage/mortgage-guide/closing-costs/). It averages the total cost of borrowing over the duration of the loan.  It’s important to realize that your monthly payment is based on your interest rate, not the annual percentage rate. However, lenders are required by law to disclose the APR on the [loan estimate](https://www.investopedia.com/loan-estimate-5120625) they provide after you submit an application, so that you can have a more accurate picture of how much you’re actually paying to borrow that money. Some lenders may charge you a lower interest rate but charge higher upfront fees, so including the APR helps provide a more holistic comparison of different loan offers. Because the APR includes associated fees, it’s higher than the actual interest rate. ## Frequently Asked Questions (FAQs) ## How Is My Interest Payment Calculated? Lenders multiply your outstanding balance by your annual interest rate, but divide by 12 because you’re making monthly payments. So if you owe $300,000 on your mortgage and your rate is 4%, you’ll initially owe $1,000 in interest per month ($300,000 x 0.04 ÷ 12). The rest of your mortgage payment is applied to your principal.  ## What Is Amortization? Amortizing a mortgage allows borrowers to make fixed payments on their loan, even though their outstanding balance keeps getting lower. Early on, most of your monthly payment goes toward interest, with only a small percentage reducing your principal. At the tail end of repayment, that switches—more of your payment reduces your outstanding balance and only a small percentage of it covers interest.  ## What’s the Difference Between Interest Rate and APR? The interest rate is the amount that the lender actually charges you as a percent of your loan amount. By contrast, the annual percentage rate (APR) is a way of expressing the total cost of borrowing. Therefore, APR incorporates expenses such as loan origination fees and mortgage insurance. Some loans offer a relatively low interest rate but have a higher APR because of other fees.  ## The Bottom Line You likely know how much you're paying to the mortgage servicer each month. But figuring out how that money is divided between principal and interest can help you understand how your loan will be paid down. You can make those calculations yourself or turn to an online loan calculator.

To calculate principal and interest, you can use some straightforward math, but you'll need to know your loan type first. Interest is typically calculated in one of two ways: as simple interest or on an amortized schedule. With simple interest, the amount of your interest payments remains the same and with amortized interest, you pay more toward interest at the beginning of the loan. Learn more about how to calculate the principal and interest of a loan like a mortgage. Key Takeaways To calculate simple interest, multiply the principal by the interest rate and then multiply by the loan term.Divide the principal by the months in the loan term to get your monthly principal payment on a simple interest loan.Calculating amortized loans requires several steps. You can use a loan calculator to help you calculate amortized interest payments.With fixed-rate loans, your monthly payment will be consistent with both simple or amortized interest. Principal and Interest When you make a loan payment, part of it goes toward interest payments and part goes to pay down your principal. Understanding how banks calculate these components can help you understand how you will pay your loan down. Principal The principal is the original loan amount not including any interest. For example, with mortgages, let's suppose you purchase a $350,000 home and put down $50,000 in cash. That means you’re borrowing $300,000 of principal from the lender, which you'll need to pay back over the length of the loan. Interest The interest is the amount that bank also charges for lending you those funds. Generally, shorter term, fixed-rate loans like personal loans use a simple interest calculation. Longer-term loans like mortgages and some auto loans are amortized. Example of mortgage interest calculation Let’s say the loan in the example above is a 30-year mortgage with a 4% annual interest rate that is amortized. Since you’re making monthly, rather than annual, payments throughout the year, the 4% interest rate gets divided by 12 and multiplied by the outstanding principal on your loan. In this example, your first monthly payment would include $1,000 of interest ($300,000 x 0.04 annual interest rate ÷ 12 months).  If you plug your purchase price, your down payment, the length of your loan, and your APR into the Investopedia Mortgage Calculator, you will see that your monthly payments to the lender would equal $1,432.25. As we noted earlier, $1,000 of your first payment strictly covers the interest cost, meaning the remaining $432.25 is paying down your outstanding loan balance or principal.   The example above doesn't include other costs, such as mortgage insurance and property taxes held in escrow, which are not paid to the lender. How Amortization Works If you have a fixed-rate loan, your mortgage payment stays the same each month. In theory, that interest rate is being multiplied by a shrinking principal balance. The reason the amount you pay does not decline is that lenders use amortization when calculating your payment, which is a way of keeping your monthly bill consistent. Note With amortization, your monthly payment is comprised of mostly interest in the early years with a smaller portion of the payment going toward reducing the principal.  Example of Amortization Sticking with our earlier example and assuming you don’t refinance, your loan payment will be the same 15 years later. But your principal balance will be reduced. In 15 years, you would have a remaining balance of approximately $193,000 of the principal on your loan. Multiplying $193,000 by the interest rate (0.04 ÷ 12 months), the interest portion of the payment is now only $645.43. However, you’re paying off a bigger portion of the principal, meaning $786.82 of the $1,432.25 monthly payment is going toward the principal. The table below shows the monthly payments at various points in the 30-year mortgage. You'll notice that the interest portion of the monthly payment declines while the principal portion increases over the life of the loan. You can use an amortization calculator to help you determine your own loan's interest and principal amounts. Mortgage Loan Amortization With Principal and Interest Breakdown  Year  Principal  Interest Monthly Payment Year One  $432.25  $1,000 $1,432.25  15 Years  $786.82 $645.43  $1,432.25  20 Years  $960.70  $471.54 $1,432.25  30 Years $1,427.49   $4.76 $1,432.25 During the last year of your mortgage, you’re paying off mostly principal and very little interest. By leveling out your payments like this, lenders are making your payments more manageable. If you paid the same amount in principal over the course of the loan, you’d have to make much higher monthly payments right after taking out the loan and those amounts would plummet at the tail end of the repayment.  If you’re wondering how much you’ll pay toward principal versus interest over time, the Investopedia Mortgage Calculator also shows the breakdown of your payments over the length of your loan.  Adjustable-Rate Mortgages If you take out a fixed-rate mortgage and only pay the amount due, your total monthly payment will stay the same over the course of your loan. The portion of your payment attributed to interest will gradually go down, as more of your payment gets allocated to the principal. But the total amount you owe won’t change. However, it doesn’t work that way for borrowers who take out an adjustable-rate mortgage (ARM). They pay a given interest rate during the initial period of the loan. But after a certain length of time—say, one year or five years, depending on the loan—the mortgage “resets” to a new interest rate. Often, the initial rate is set below the market rate at the time you borrow and then increases following the reset. Your monthly payment can change on an adjustable-rate mortgage. That’s because your outstanding principal is being multiplied by a different interest rate.  Interest Rate vs. APR  When receiving a loan offer, you may come across a term called the annual percentage rate (APR). The APR and the actual interest rate that the lender is charging you are two separate things, so it’s important to understand the distinction.  Unlike the interest rate, the APR factors in the total annual cost of taking out the loan, including fees such as mortgage insurance, discount points, loan origination fees, and some closing costs. It averages the total cost of borrowing over the duration of the loan.  It’s important to realize that your monthly payment is based on your interest rate, not the annual percentage rate. However, lenders are required by law to disclose the APR on the loan estimate they provide after you submit an application, so that you can have a more accurate picture of how much you’re actually paying to borrow that money. Some lenders may charge you a lower interest rate but charge higher upfront fees, so including the APR helps provide a more holistic comparison of different loan offers. Because the APR includes associated fees, it’s higher than the actual interest rate. Frequently Asked Questions (FAQs) How Is My Interest Payment Calculated? Lenders multiply your outstanding balance by your annual interest rate, but divide by 12 because you’re making monthly payments. So if you owe $300,000 on your mortgage and your rate is 4%, you’ll initially owe $1,000 in interest per month ($300,000 x 0.04 ÷ 12). The rest of your mortgage payment is applied to your principal.  What Is Amortization? Amortizing a mortgage allows borrowers to make fixed payments on their loan, even though their outstanding balance keeps getting lower. Early on, most of your monthly payment goes toward interest, with only a small percentage reducing your principal. At the tail end of repayment, that switches—more of your payment reduces your outstanding balance and only a small percentage of it covers interest.  What’s the Difference Between Interest Rate and APR? The interest rate is the amount that the lender actually charges you as a percent of your loan amount. By contrast, the annual percentage rate (APR) is a way of expressing the total cost of borrowing. Therefore, APR incorporates expenses such as loan origination fees and mortgage insurance. Some loans offer a relatively low interest rate but have a higher APR because of other fees.  The Bottom Line You likely know how much you're paying to the mortgage servicer each month. But figuring out how that money is divided between principal and interest can help you understand how your loan will be paid down. You can make those calculations yourself or turn to an online loan calculator.

https://www.investopedia.com/chatgpt-venture-capital-7092317

OpenAI's ChatGPT Has Plenty to Say, Except on Parent's $29 Billion Valuation

<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>Deal would double OpenAI's valuation from just two years ago.</li><li>Microsoft stands to benefit from the firm's potential.</li><li>Questions remain, however, about what artificial intelligence can achieve.</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"> ChatGPT, the bot that upended <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> upon its release two months ago, is happy to answer just about any question — except how much it's worth.<br/><br/>"I'm sorry, but I don't have information about the value or worth of ChatGPT or any other specific language model," it responded when posed that very query.<br/><br/>The bot's human creators at parent OpenAI have a pretty specific answer: $29 billion, more than double its valuation two years ago. </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"> OpenAI has entered talks to sell existing shares to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapital.asp">venture capital</a> firms Thrive Capital and Founders Fund, <em>The Wall Street Journal</em> reported.<em> </em> The firms would buy shares in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tenderoffer.asp">tender offer</a> from existing shareholders, including employees, that would value the company at $29 billion.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The tender deal reportedly could total $300 million. A similar deal in 2021 valued the company at $14 billion. </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"> If completed, the deal would represent one of the few market bright spots for a technology sector facing myriad challenges. Technology startups have struggled in recent months, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/market-values-plunge-for-tech-startups-7090310">with many laying off workers amid plunging valuations in private market transactions</a>. Layoffs have increased among large tech firms as well, as the tech-heavy <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">Nasdaq Composite Index</a> lost a third of its value last year. </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-write-me-an-essay"></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"> Write Me An Essay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> OpenAI has quickly captured the public's fascination with ChatGPT, a language processing tool that interacts with users via human-like conversations. The program has won acclaim -- and some derision -- for its ability to answer complex questions. </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"> For example, it has shown the capability to write complete essays based on user requests -- even though the chatbot's main page warns that it "may occasionally generate incorrect information" and "harmful instructions or biased content."<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"> Still, its essays are good enough that New York Public Schools have outlawed student use of ChatGPT.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Microsoft invested $1 billion in OpenAI in a 2019 deal that made it the startup's preferred partner in helping it market new technologies. In addition to ChatGPT, OpenAI last year introduced Dall-E 2, an image-generation system, and the company has said it one day hopes to market programs that fully mirror human intelligence and capabilities. </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-ais-elusive-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"> AI's Elusive Potential </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Led by tech investor Sam Altman, the firm has generated tens of millions of dollars in revenue, <em>The Journal </em>reported, through selling its artificial intelligence software to developers. But questions remain about the money-making potential of OpenAI's technology. </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 report issued by Deloitte in October found that while 94% of business leaders surveyed called AI "critical" to their organizations' success in the next five years, half of those surveyed reported low achievement from the AI they've employed so far.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Nonetheless, AI's potential remains appealing, and most analysts agree tech firms who supply it ultimately will benefit. </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 a research note released this week, Gia Luria, a tech analyst with D.A. Davidson, issued a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/target-prices-and-sound-investing/">price target</a> of $270 per share for Microsoft. Luria cited the "unprecedented activity" associated with ChatGPT's release as a key reason for his "buy" rating on the stock, which rose as much as 0.6% to $223.65 per share in Friday trading. </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"> "We believe Microsoft's investment in OpenAI will translate to significant underappreciated upside," Luria stated in his report. "Longer-term, we believe incorporating ChatGPT into Bing (Microsoft's search engine) may provide Microsoft with a once-a-decade opportunity to unseat Google's Search dominance."<span class="ql-inline-citation" data-cite="2"></span> </p></div>

### KEY TAKEAWAYS * Deal would double OpenAI's valuation from just two years ago. * Microsoft stands to benefit from the firm's potential. * Questions remain, however, about what artificial intelligence can achieve. ChatGPT, the bot that upended [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) upon its release two months ago, is happy to answer just about any question — except how much it's worth. "I'm sorry, but I don't have information about the value or worth of ChatGPT or any other specific language model," it responded when posed that very query. The bot's human creators at parent OpenAI have a pretty specific answer: $29 billion, more than double its valuation two years ago. OpenAI has entered talks to sell existing shares to [venture capital](https://www.investopedia.com/terms/v/venturecapital.asp) firms Thrive Capital and Founders Fund, *The Wall Street Journal* reported. The firms would buy shares in a [tender offer](https://www.investopedia.com/terms/t/tenderoffer.asp) from existing shareholders, including employees, that would value the company at $29 billion. The tender deal reportedly could total $300 million. A similar deal in 2021 valued the company at $14 billion. If completed, the deal would represent one of the few market bright spots for a technology sector facing myriad challenges. Technology startups have struggled in recent months, [with many laying off workers amid plunging valuations in private market transactions](https://www.investopedia.com/market-values-plunge-for-tech-startups-7090310). Layoffs have increased among large tech firms as well, as the tech-heavy [Nasdaq Composite Index](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) lost a third of its value last year. ## Write Me An Essay OpenAI has quickly captured the public's fascination with ChatGPT, a language processing tool that interacts with users via human-like conversations. The program has won acclaim -- and some derision -- for its ability to answer complex questions. For example, it has shown the capability to write complete essays based on user requests -- even though the chatbot's main page warns that it "may occasionally generate incorrect information" and "harmful instructions or biased content." Still, its essays are good enough that New York Public Schools have outlawed student use of ChatGPT. Microsoft invested $1 billion in OpenAI in a 2019 deal that made it the startup's preferred partner in helping it market new technologies. In addition to ChatGPT, OpenAI last year introduced Dall-E 2, an image-generation system, and the company has said it one day hopes to market programs that fully mirror human intelligence and capabilities. ## AI's Elusive Potential Led by tech investor Sam Altman, the firm has generated tens of millions of dollars in revenue, *The Journal* reported, through selling its artificial intelligence software to developers. But questions remain about the money-making potential of OpenAI's technology. A report issued by Deloitte in October found that while 94% of business leaders surveyed called AI "critical" to their organizations' success in the next five years, half of those surveyed reported low achievement from the AI they've employed so far. Nonetheless, AI's potential remains appealing, and most analysts agree tech firms who supply it ultimately will benefit. In a research note released this week, Gia Luria, a tech analyst with D.A. Davidson, issued a [price target](https://www.investopedia.com/investing/target-prices-and-sound-investing/) of $270 per share for Microsoft. Luria cited the "unprecedented activity" associated with ChatGPT's release as a key reason for his "buy" rating on the stock, which rose as much as 0.6% to $223.65 per share in Friday trading. "We believe Microsoft's investment in OpenAI will translate to significant underappreciated upside," Luria stated in his report. "Longer-term, we believe incorporating ChatGPT into Bing (Microsoft's search engine) may provide Microsoft with a once-a-decade opportunity to unseat Google's Search dominance."

KEY TAKEAWAYS Deal would double OpenAI's valuation from just two years ago.Microsoft stands to benefit from the firm's potential.Questions remain, however, about what artificial intelligence can achieve. ChatGPT, the bot that upended artificial intelligence (AI) upon its release two months ago, is happy to answer just about any question — except how much it's worth."I'm sorry, but I don't have information about the value or worth of ChatGPT or any other specific language model," it responded when posed that very query.The bot's human creators at parent OpenAI have a pretty specific answer: $29 billion, more than double its valuation two years ago. OpenAI has entered talks to sell existing shares to venture capital firms Thrive Capital and Founders Fund, The Wall Street Journal reported. The firms would buy shares in a tender offer from existing shareholders, including employees, that would value the company at $29 billion. The tender deal reportedly could total $300 million. A similar deal in 2021 valued the company at $14 billion. If completed, the deal would represent one of the few market bright spots for a technology sector facing myriad challenges. Technology startups have struggled in recent months, with many laying off workers amid plunging valuations in private market transactions. Layoffs have increased among large tech firms as well, as the tech-heavy Nasdaq Composite Index lost a third of its value last year. Write Me An Essay OpenAI has quickly captured the public's fascination with ChatGPT, a language processing tool that interacts with users via human-like conversations. The program has won acclaim -- and some derision -- for its ability to answer complex questions. For example, it has shown the capability to write complete essays based on user requests -- even though the chatbot's main page warns that it "may occasionally generate incorrect information" and "harmful instructions or biased content." Still, its essays are good enough that New York Public Schools have outlawed student use of ChatGPT. Microsoft invested $1 billion in OpenAI in a 2019 deal that made it the startup's preferred partner in helping it market new technologies. In addition to ChatGPT, OpenAI last year introduced Dall-E 2, an image-generation system, and the company has said it one day hopes to market programs that fully mirror human intelligence and capabilities. AI's Elusive Potential Led by tech investor Sam Altman, the firm has generated tens of millions of dollars in revenue, The Journal reported, through selling its artificial intelligence software to developers. But questions remain about the money-making potential of OpenAI's technology. A report issued by Deloitte in October found that while 94% of business leaders surveyed called AI "critical" to their organizations' success in the next five years, half of those surveyed reported low achievement from the AI they've employed so far. Nonetheless, AI's potential remains appealing, and most analysts agree tech firms who supply it ultimately will benefit. In a research note released this week, Gia Luria, a tech analyst with D.A. Davidson, issued a price target of $270 per share for Microsoft. Luria cited the "unprecedented activity" associated with ChatGPT's release as a key reason for his "buy" rating on the stock, which rose as much as 0.6% to $223.65 per share in Friday trading. "We believe Microsoft's investment in OpenAI will translate to significant underappreciated upside," Luria stated in his report. "Longer-term, we believe incorporating ChatGPT into Bing (Microsoft's search engine) may provide Microsoft with a once-a-decade opportunity to unseat Google's Search dominance."

https://www.investopedia.com/video-game-maker-keywords-studios-soars-after-eqt-takeover-talks-8650960

Video Game Maker Keywords Studios Soars After EQT Takeover Talks

<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>Video game maker Keywords Studios said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share.</li><li>Keywords Studios shares surged 60% in London trading following the news.</li><li>The possible offer is about 73% over Keywords' closing share price on Friday.</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"> London-listed Keywords Studios surged 60% in intraday trading Monday after the video game maker said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share.<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 potential takeover would value the company at GBP2.03 billion ($2.58 billion), according to <em>The Wall Street Journal</em>, and would mark the latest loss to the London Stock Exchange of a key company.<span class="ql-inline-citation" data-cite="2"></span> British chip designer Arm Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM">ARM</a>) left the London bourse and began trading on the Nasdaq last September, and its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs</a>) have nearly doubled since. </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-eqt-had-made-several-previous-proposals"></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"> EQT Had Made Several Previous Proposals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> This follows "four previous unsolicited proposals from EQT in recent months, which the Board rejected, and represents a significant increase from the initial proposal," Keywords Studios said. </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 offer translates to a premium of 73% over Keywords' closing share price of GBP14.70 on Friday. </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"> Keywords said its board would recommend the EQT bid if a firm offer is announced. Under British law, EQT has until June 15 to either make a firm offer or walk away, the statement said. </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 * Video game maker Keywords Studios said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share. * Keywords Studios shares surged 60% in London trading following the news. * The possible offer is about 73% over Keywords' closing share price on Friday. London-listed Keywords Studios surged 60% in intraday trading Monday after the video game maker said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share. The potential takeover would value the company at GBP2.03 billion ($2.58 billion), according to *The Wall Street Journal*, and would mark the latest loss to the London Stock Exchange of a key company. British chip designer Arm Holdings ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM)) left the London bourse and began trading on the Nasdaq last September, and its [American depositary receipts (ADRs](https://www.investopedia.com/terms/a/adr.asp)) have nearly doubled since. ## EQT Had Made Several Previous Proposals This follows "four previous unsolicited proposals from EQT in recent months, which the Board rejected, and represents a significant increase from the initial proposal," Keywords Studios said. The possible offer translates to a premium of 73% over Keywords' closing share price of GBP14.70 on Friday. Keywords said its board would recommend the EQT bid if a firm offer is announced. Under British law, EQT has until June 15 to either make a firm offer or walk away, the statement said. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

KEY TAKEAWAYS Video game maker Keywords Studios said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share.Keywords Studios shares surged 60% in London trading following the news.The possible offer is about 73% over Keywords' closing share price on Friday. London-listed Keywords Studios surged 60% in intraday trading Monday after the video game maker said it was "in advanced discussions" to be acquired by private equity firm EQT for 25.50 British pounds per share. The potential takeover would value the company at GBP2.03 billion ($2.58 billion), according to The Wall Street Journal, and would mark the latest loss to the London Stock Exchange of a key company. British chip designer Arm Holdings (ARM) left the London bourse and began trading on the Nasdaq last September, and its American depositary receipts (ADRs) have nearly doubled since. EQT Had Made Several Previous Proposals This follows "four previous unsolicited proposals from EQT in recent months, which the Board rejected, and represents a significant increase from the initial proposal," Keywords Studios said. The possible offer translates to a premium of 73% over Keywords' closing share price of GBP14.70 on Friday. Keywords said its board would recommend the EQT bid if a firm offer is announced. Under British law, EQT has until June 15 to either make a firm offer or walk away, the statement said. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

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

Exchange Controls: Meaning & How Companies Get Around Them

<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-exchange-controls"></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 Exchange Controls? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Exchange <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/control.asp">controls</a> are government-imposed limitations on the purchase and/or sale of currencies. These controls allow countries to better stabilize their economies by limiting in-flows and out-flows of currency, which can create exchange rate volatility. Not every nation may employ the measures, at least legitimately; the 14th article of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/imf.asp">International Monetary Fund's</a> Articles of Agreement allows only countries with so-called transitional economies to employ exchange controls. </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-exchange-controls"></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 Exchange Controls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Many western European countries implemented exchange controls in the years immediately following World War II. The measures were gradually phased out, however, as the post-war economies on the continent steadily strengthened; the United Kingdom, for example, removed the last of its restrictions in October 1979. Countries with weak and/or developing economies generally use foreign exchange controls to limit speculation against their currencies. They often simultaneously introduce capital controls, which limit the amount of foreign investment in the country. </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-note" 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 no-title" 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>Countries with weak or developing economies may put controls on how much local currency can be exchanged or exported—or ban a foreign currency altogether—to prevent speculation.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Exchange controls can be enforced in a few common ways. A government may ban the use of a particular foreign currency and prohibit locals from possessing it. Alternatively, they can impose fixed exchange rates to discourage speculation, restrict any or all foreign exchange to a government-approved exchanger, or limit the amount of currency that can be imported to or exported from the country. </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-measures-to-thwart-controls"></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"> Measures to Thwart Controls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> One tactic companies use to work around currency controls, and to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> currency exposures, is to use what are known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardcontract.asp">forward contracts</a>. With these arrangements, the hedger arranges to buy or sell a given amount of an un-tradable currency on a given forward date, at an agreed rate against a major currency. At <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a>, the gain or loss is settled in the major currency because settling in the other currency is prohibited by controls. </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 exchange controls in many developing nations do not permit forward contracts, or allow them only to be used by residents for limited purposes, such as to buy essential imports. Consequently, in countries with exchange controls, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nondeliverableswap.asp">non-deliverable forwards</a> are usually executed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offshore.asp">offshore</a> because local currency regulations cannot be enforced outside of the country. Countries, where active offshore NDF markets have operated, include China, the Philippines, South Korea, and Argentina. </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-exchange-controls-in-iceland"></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"> Exchange Controls in Iceland </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Iceland offers a recent notable example of the use of exchange controls during a financial crisis. A small country of about 334,000 people, Iceland saw its economy collapse in 2008. Its fishing-based economy had gradually been turned into essentially a giant hedge fund by its three largest banks (Landsbanki, Kaupthing, and Glitnir), whose assets measured 14 times that of the country's entire economic output. </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 country benefited, at least initially, from a huge inflow of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a> taking advantage of the high-interest rates paid by the banks. However, when the crisis hit, investors needing cash pulled their money out of Iceland, causing the local currency, the krona, to plummet. The banks also collapsed, and the economy received a rescue package from the IMF. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Lifting the Exchange Controls and Imposing New Ones </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Under the exchange controls, investors who held high-yield offshore krona accounts were not able to bring the money back into the country. In March 2017, the Central Bank lifted most of the exchange controls on the krona, allowing the cross-border movement of Icelandic and foreign currency once again. However, the Central Bank also imposed new reserve requirements and updated its foreign exchange rules to control the flow of hot money into the nation’s economy. </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"> In an effort to settle disputes with foreign investors who had been unable to liquidate their Icelandic holdings while the exchange controls were in place, the Central Bank offered to buy their currency holdings at an exchange rate discounted about 20 percent from the normal exchange rate at the time. Icelandic lawmakers also required foreign holders of krona-denominated government bonds to sell them back to Iceland at a discounted rate, or have their profits impounded in low-interest accounts indefinitely upon the bonds’ maturity. </p></div>

## What Are Exchange Controls? Exchange [controls](https://www.investopedia.com/terms/c/control.asp) are government-imposed limitations on the purchase and/or sale of currencies. These controls allow countries to better stabilize their economies by limiting in-flows and out-flows of currency, which can create exchange rate volatility. Not every nation may employ the measures, at least legitimately; the 14th article of the [International Monetary Fund's](https://www.investopedia.com/terms/i/imf.asp) Articles of Agreement allows only countries with so-called transitional economies to employ exchange controls. ## Understanding Exchange Controls Many western European countries implemented exchange controls in the years immediately following World War II. The measures were gradually phased out, however, as the post-war economies on the continent steadily strengthened; the United Kingdom, for example, removed the last of its restrictions in October 1979. Countries with weak and/or developing economies generally use foreign exchange controls to limit speculation against their currencies. They often simultaneously introduce capital controls, which limit the amount of foreign investment in the country. ### Countries with weak or developing economies may put controls on how much local currency can be exchanged or exported—or ban a foreign currency altogether—to prevent speculation. Exchange controls can be enforced in a few common ways. A government may ban the use of a particular foreign currency and prohibit locals from possessing it. Alternatively, they can impose fixed exchange rates to discourage speculation, restrict any or all foreign exchange to a government-approved exchanger, or limit the amount of currency that can be imported to or exported from the country. ## Measures to Thwart Controls One tactic companies use to work around currency controls, and to [hedge](https://www.investopedia.com/terms/h/hedge.asp) currency exposures, is to use what are known as [forward contracts](https://www.investopedia.com/terms/f/forwardcontract.asp). With these arrangements, the hedger arranges to buy or sell a given amount of an un-tradable currency on a given forward date, at an agreed rate against a major currency. At [maturity](https://www.investopedia.com/terms/m/maturity.asp), the gain or loss is settled in the major currency because settling in the other currency is prohibited by controls. The exchange controls in many developing nations do not permit forward contracts, or allow them only to be used by residents for limited purposes, such as to buy essential imports. Consequently, in countries with exchange controls, [non-deliverable forwards](https://www.investopedia.com/terms/n/nondeliverableswap.asp) are usually executed [offshore](https://www.investopedia.com/terms/o/offshore.asp) because local currency regulations cannot be enforced outside of the country. Countries, where active offshore NDF markets have operated, include China, the Philippines, South Korea, and Argentina. ## Exchange Controls in Iceland Iceland offers a recent notable example of the use of exchange controls during a financial crisis. A small country of about 334,000 people, Iceland saw its economy collapse in 2008. Its fishing-based economy had gradually been turned into essentially a giant hedge fund by its three largest banks (Landsbanki, Kaupthing, and Glitnir), whose assets measured 14 times that of the country's entire economic output. The country benefited, at least initially, from a huge inflow of [capital](https://www.investopedia.com/terms/c/capital.asp) taking advantage of the high-interest rates paid by the banks. However, when the crisis hit, investors needing cash pulled their money out of Iceland, causing the local currency, the krona, to plummet. The banks also collapsed, and the economy received a rescue package from the IMF. ### Lifting the Exchange Controls and Imposing New Ones Under the exchange controls, investors who held high-yield offshore krona accounts were not able to bring the money back into the country. In March 2017, the Central Bank lifted most of the exchange controls on the krona, allowing the cross-border movement of Icelandic and foreign currency once again. However, the Central Bank also imposed new reserve requirements and updated its foreign exchange rules to control the flow of hot money into the nation’s economy. In an effort to settle disputes with foreign investors who had been unable to liquidate their Icelandic holdings while the exchange controls were in place, the Central Bank offered to buy their currency holdings at an exchange rate discounted about 20 percent from the normal exchange rate at the time. Icelandic lawmakers also required foreign holders of krona-denominated government bonds to sell them back to Iceland at a discounted rate, or have their profits impounded in low-interest accounts indefinitely upon the bonds’ maturity.

What Are Exchange Controls? Exchange controls are government-imposed limitations on the purchase and/or sale of currencies. These controls allow countries to better stabilize their economies by limiting in-flows and out-flows of currency, which can create exchange rate volatility. Not every nation may employ the measures, at least legitimately; the 14th article of the International Monetary Fund's Articles of Agreement allows only countries with so-called transitional economies to employ exchange controls. Understanding Exchange Controls Many western European countries implemented exchange controls in the years immediately following World War II. The measures were gradually phased out, however, as the post-war economies on the continent steadily strengthened; the United Kingdom, for example, removed the last of its restrictions in October 1979. Countries with weak and/or developing economies generally use foreign exchange controls to limit speculation against their currencies. They often simultaneously introduce capital controls, which limit the amount of foreign investment in the country. Countries with weak or developing economies may put controls on how much local currency can be exchanged or exported—or ban a foreign currency altogether—to prevent speculation. Exchange controls can be enforced in a few common ways. A government may ban the use of a particular foreign currency and prohibit locals from possessing it. Alternatively, they can impose fixed exchange rates to discourage speculation, restrict any or all foreign exchange to a government-approved exchanger, or limit the amount of currency that can be imported to or exported from the country. Measures to Thwart Controls One tactic companies use to work around currency controls, and to hedge currency exposures, is to use what are known as forward contracts. With these arrangements, the hedger arranges to buy or sell a given amount of an un-tradable currency on a given forward date, at an agreed rate against a major currency. At maturity, the gain or loss is settled in the major currency because settling in the other currency is prohibited by controls. The exchange controls in many developing nations do not permit forward contracts, or allow them only to be used by residents for limited purposes, such as to buy essential imports. Consequently, in countries with exchange controls, non-deliverable forwards are usually executed offshore because local currency regulations cannot be enforced outside of the country. Countries, where active offshore NDF markets have operated, include China, the Philippines, South Korea, and Argentina. Exchange Controls in Iceland Iceland offers a recent notable example of the use of exchange controls during a financial crisis. A small country of about 334,000 people, Iceland saw its economy collapse in 2008. Its fishing-based economy had gradually been turned into essentially a giant hedge fund by its three largest banks (Landsbanki, Kaupthing, and Glitnir), whose assets measured 14 times that of the country's entire economic output. The country benefited, at least initially, from a huge inflow of capital taking advantage of the high-interest rates paid by the banks. However, when the crisis hit, investors needing cash pulled their money out of Iceland, causing the local currency, the krona, to plummet. The banks also collapsed, and the economy received a rescue package from the IMF. Lifting the Exchange Controls and Imposing New Ones Under the exchange controls, investors who held high-yield offshore krona accounts were not able to bring the money back into the country. In March 2017, the Central Bank lifted most of the exchange controls on the krona, allowing the cross-border movement of Icelandic and foreign currency once again. However, the Central Bank also imposed new reserve requirements and updated its foreign exchange rules to control the flow of hot money into the nation’s economy. In an effort to settle disputes with foreign investors who had been unable to liquidate their Icelandic holdings while the exchange controls were in place, the Central Bank offered to buy their currency holdings at an exchange rate discounted about 20 percent from the normal exchange rate at the time. Icelandic lawmakers also required foreign holders of krona-denominated government bonds to sell them back to Iceland at a discounted rate, or have their profits impounded in low-interest accounts indefinitely upon the bonds’ maturity.

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

Back Months: What They are, 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-back-months"></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 Back Months? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In 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">commodity futures markets</a>, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. By contrast, so-called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-month-contract.asp" rel="noopener noreferrer">front months</a> are those closest to the present date. </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>Back month futures contracts are those whose delivery date is among the latest available.</li><li>They are the opposite of front month futures contracts.</li><li>Back month contracts tend to be more expensive than front month contracts, because they incorporate additional risk premiums due to time and relative liquidity.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-back-months-work"></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 Back Months Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The commodity futures markets are a large and important part of the global financial system. Through them, users of commodities—such as manufacturers who rely on commodities to produce their products—can plan ahead by buying several months’ worth of materials ahead of time. Likewise, traders can use the commodity futures markets to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculation.asp" rel="noopener noreferrer">speculate</a> on commodity prices or to engage in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp" rel="noopener noreferrer">risk hedging</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"> Depending on their specific needs, buyers might have a preference for contracts that are relatively close at hand or far in the future. The contracts that have delivery dates farthest into the future are known as the back month contracts for that commodity. These contracts are identical to the other months’ contracts with respect to the quantity and quality of the commodities that underlie them. However, their prices are often different, primarily because of the increased <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/investment-uncertainty/" rel="noopener noreferrer">uncertainty</a> associated with back month futures contracts. </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"> Given the wide variety of factors that can affect commodity prices—including production delays, weather patterns, and even political risks—it makes sense that futures with delivery dates further into the future would generally be more expensive. This dynamic is further reinforced by the fact that back month contracts tend to have less <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp" rel="noopener noreferrer">trading volume</a> than front month contracts. This relative <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">illiquidity</a> adds to their riskiness, and tends to add to their price. Of course, if market participants believe that the price of the commodity will decline over time, then back month contracts might be cheaper than front month contracts, in spite of these factors. </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-back-months"></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 Back Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> To illustrate, suppose that you are in the market to purchase wheat futures. It is April 15, and the next wheat futures contracts expire on May 30. You anticipate the price of wheat to increase in June, so instead of buying the front month contract of May, you buy a contract as far out as possible—in this case, November. </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 this scenario, the November contract would be considered a back month contract, and you would be obligated to take delivery of the wheat at that time unless you sell out of the futures contract beforehand. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_18-0"><span class="heading-toc" id="toc-what-is-the-difference-between-front-month-and-back-month"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Front Month and Back Month?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The main difference between front month and back month contracts relies on the expiration date. Front month contracts have a closest expiration date, while back month contracts have expiration dates far away in the future. In other words, back month contracts have later expiration dates than front month contracts.</p></div> </div> <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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_20-0"><span class="heading-toc" id="toc-whats-the-price-for-back-month-contracts"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the Price for Back Month Contracts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Contracts that expire in back months have different prices, unlike front month contracts. Also, they are usually more expensive, because of the uncertainty associated with this type of contract.<br/></p></div> </div> <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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_22-0"><span class="heading-toc" id="toc-who-uses-futures-contracts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Uses Futures Contracts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Futures contracts are used by two types of market participants: hedgers and speculators. Hedgers are producers or purchasers of an underlying asset that use futures contracts to guarantee or lock the price at which the commodity is sold or purchased. This ensures that they have a buyer and a satisfactory price, hedging against any changes in the market and thus reducing market uncertainty. Speculators, on the other hand, can use futures contracts to bet on the future price of some asset or commodity and thus engage in risk hedging.</p></div> </div> <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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Back months contracts are futures contracts with a delivery date that is due far into the future. They are the opposite of front month futures contracts, which have a closest expiration date. Back month contracts are usually more expensive than front month contracts, because they incorporate additional risk and are less liquid. </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"> Back month contracts can be used by commodity producers for hedging purposes. They can also be used by traders who want to take a longer-term position in a commodity. </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"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. 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>

## What Are Back Months? In the [commodity futures markets](https://www.investopedia.com/terms/c/commodityfuturescontract.asp), the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. By contrast, so-called [front months](https://www.investopedia.com/terms/f/front-month-contract.asp) are those closest to the present date. ### Key Takeaways * Back month futures contracts are those whose delivery date is among the latest available. * They are the opposite of front month futures contracts. * Back month contracts tend to be more expensive than front month contracts, because they incorporate additional risk premiums due to time and relative liquidity. ## How Back Months Work The commodity futures markets are a large and important part of the global financial system. Through them, users of commodities—such as manufacturers who rely on commodities to produce their products—can plan ahead by buying several months’ worth of materials ahead of time. Likewise, traders can use the commodity futures markets to [speculate](https://www.investopedia.com/terms/s/speculation.asp) on commodity prices or to engage in [risk hedging](https://www.investopedia.com/terms/h/hedge.asp). Depending on their specific needs, buyers might have a preference for contracts that are relatively close at hand or far in the future. The contracts that have delivery dates farthest into the future are known as the back month contracts for that commodity. These contracts are identical to the other months’ contracts with respect to the quantity and quality of the commodities that underlie them. However, their prices are often different, primarily because of the increased [uncertainty](https://www.investopedia.com/investing/investment-uncertainty/) associated with back month futures contracts. Given the wide variety of factors that can affect commodity prices—including production delays, weather patterns, and even political risks—it makes sense that futures with delivery dates further into the future would generally be more expensive. This dynamic is further reinforced by the fact that back month contracts tend to have less [trading volume](https://www.investopedia.com/terms/v/volume.asp) than front month contracts. This relative [illiquidity](https://www.investopedia.com/terms/l/liquidity.asp) adds to their riskiness, and tends to add to their price. Of course, if market participants believe that the price of the commodity will decline over time, then back month contracts might be cheaper than front month contracts, in spite of these factors. ## Example of Back Months To illustrate, suppose that you are in the market to purchase wheat futures. It is April 15, and the next wheat futures contracts expire on May 30. You anticipate the price of wheat to increase in June, so instead of buying the front month contract of May, you buy a contract as far out as possible—in this case, November. In this scenario, the November contract would be considered a back month contract, and you would be obligated to take delivery of the wheat at that time unless you sell out of the futures contract beforehand. ## What Is the Difference Between Front Month and Back Month? The main difference between front month and back month contracts relies on the expiration date. Front month contracts have a closest expiration date, while back month contracts have expiration dates far away in the future. In other words, back month contracts have later expiration dates than front month contracts. ## What's the Price for Back Month Contracts? Contracts that expire in back months have different prices, unlike front month contracts. Also, they are usually more expensive, because of the uncertainty associated with this type of contract. ## Who Uses Futures Contracts? Futures contracts are used by two types of market participants: hedgers and speculators. Hedgers are producers or purchasers of an underlying asset that use futures contracts to guarantee or lock the price at which the commodity is sold or purchased. This ensures that they have a buyer and a satisfactory price, hedging against any changes in the market and thus reducing market uncertainty. Speculators, on the other hand, can use futures contracts to bet on the future price of some asset or commodity and thus engage in risk hedging. ## The Bottom Line Back months contracts are futures contracts with a delivery date that is due far into the future. They are the opposite of front month futures contracts, which have a closest expiration date. Back month contracts are usually more expensive than front month contracts, because they incorporate additional risk and are less liquid. Back month contracts can be used by commodity producers for hedging purposes. They can also be used by traders who want to take a longer-term position in a commodity. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.*

What Are Back Months? In the commodity futures markets, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. By contrast, so-called front months are those closest to the present date. Key Takeaways Back month futures contracts are those whose delivery date is among the latest available.They are the opposite of front month futures contracts.Back month contracts tend to be more expensive than front month contracts, because they incorporate additional risk premiums due to time and relative liquidity. How Back Months Work The commodity futures markets are a large and important part of the global financial system. Through them, users of commodities—such as manufacturers who rely on commodities to produce their products—can plan ahead by buying several months’ worth of materials ahead of time. Likewise, traders can use the commodity futures markets to speculate on commodity prices or to engage in risk hedging. Depending on their specific needs, buyers might have a preference for contracts that are relatively close at hand or far in the future. The contracts that have delivery dates farthest into the future are known as the back month contracts for that commodity. These contracts are identical to the other months’ contracts with respect to the quantity and quality of the commodities that underlie them. However, their prices are often different, primarily because of the increased uncertainty associated with back month futures contracts. Given the wide variety of factors that can affect commodity prices—including production delays, weather patterns, and even political risks—it makes sense that futures with delivery dates further into the future would generally be more expensive. This dynamic is further reinforced by the fact that back month contracts tend to have less trading volume than front month contracts. This relative illiquidity adds to their riskiness, and tends to add to their price. Of course, if market participants believe that the price of the commodity will decline over time, then back month contracts might be cheaper than front month contracts, in spite of these factors. Example of Back Months To illustrate, suppose that you are in the market to purchase wheat futures. It is April 15, and the next wheat futures contracts expire on May 30. You anticipate the price of wheat to increase in June, so instead of buying the front month contract of May, you buy a contract as far out as possible—in this case, November. In this scenario, the November contract would be considered a back month contract, and you would be obligated to take delivery of the wheat at that time unless you sell out of the futures contract beforehand. What Is the Difference Between Front Month and Back Month? The main difference between front month and back month contracts relies on the expiration date. Front month contracts have a closest expiration date, while back month contracts have expiration dates far away in the future. In other words, back month contracts have later expiration dates than front month contracts. What's the Price for Back Month Contracts? Contracts that expire in back months have different prices, unlike front month contracts. Also, they are usually more expensive, because of the uncertainty associated with this type of contract. Who Uses Futures Contracts? Futures contracts are used by two types of market participants: hedgers and speculators. Hedgers are producers or purchasers of an underlying asset that use futures contracts to guarantee or lock the price at which the commodity is sold or purchased. This ensures that they have a buyer and a satisfactory price, hedging against any changes in the market and thus reducing market uncertainty. Speculators, on the other hand, can use futures contracts to bet on the future price of some asset or commodity and thus engage in risk hedging. The Bottom Line Back months contracts are futures contracts with a delivery date that is due far into the future. They are the opposite of front month futures contracts, which have a closest expiration date. Back month contracts are usually more expensive than front month contracts, because they incorporate additional risk and are less liquid. Back month contracts can be used by commodity producers for hedging purposes. They can also be used by traders who want to take a longer-term position in a commodity. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.

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

Calendar Spreads in Futures and Options Trading 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"> A calendar spread is an options or futures strategy where an investor simultaneously enters long and short positions on the same underlying asset but with different delivery dates. In a typical calendar spread, you would buy a longer-term contract and go short with a nearer-term option with the same strike price. If two different strike prices are used for each month, it is known as a diagonal spread. Calendar spreads are also called inter-delivery, intra-market, time, or horizontal spreads.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Essentially, a calendar spread involves a dual wager on a security's price and volatility across different points in time. Rather than solely predicting whether an underlying asset like a stock will rise or fall, it profits from the passage of time itself.<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_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The mechanics involve simultaneously buying and selling options on the same underlying asset but with different expiration dates. Typically, an investor sells a shorter-term option while purchasing a longer-dated one with the same strike price (the price at which the option can be exercised). </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"> Calendar spreads aim to generate profit when an asset's price remains relatively stable. The option sold first will decay in value more quickly because of its closer expiration, hopefully offsetting the cost of the longer-dated option purchase. In addition, the strategy aims to capture changes in "implied volatility," a factor often tied to the uncertainty that affects option premiums. </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>A calendar spread is a derivatives strategy that involves buying a longer-dated contract to sell a shorter-dated contract.</li><li>Calendar spreads allow traders to construct a trade that minimizes the effects of time.</li><li>They are most profitable when the underlying asset does not change much until after the near-month option expires.</li><li> These are also called horizontal, inter-delivery, intra-market, or time spreads.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-calendar-spreads"></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 Calendar Spreads </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Before getting underway, let's give you a cheat sheet for some key terms. </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><strong>Call option</strong>: A contract giving the buyer the right, but not the obligation, to purchase an underlying asset at a set price, called the strike price, by a specific date, called the expiration.</li><li><strong>Put option</strong>: A contract allowing the buyer the right to sell an underlying asset at a strike price before the expiration date.</li><li><strong>Long position</strong>: Holding an option you bought means you are "long" in that option.</li><li><strong>Short position</strong>: Selling an option contract you don't yet own creates a "short" position.</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"> The typical calendar spread trade involves the sale of an option (either a call or put) with a near-term expiration date and simultaneously buying an option (call or put) with a longer-term expiration. Both options are of the same type and typically use the same strike price. Let's break this down: </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>Sell near-term put/call.</li><li>Buy longer-term put/call.</li><li>It's preferable but not necessary that its implied volatility is low.</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"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reverse-calendar-spread.asp">reverse calendar spread</a> takes the opposite position and involves buying a short-term option and selling a longer-term option on the same underlying security.<span class="ql-inline-citation" data-cite="6"></span> Investors executing a reverse calendar spread buy a near-term option and at the same time sell a longer-dated option on the same underlying asset and at the same price. </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 reversal hints at the difference in expectations. A reverse calendar spread generally anticipates a significant move (up or down) in the underlying asset's price. It can also aim to profit from an expected spike in implied volatility, which could boost the value of options even without a large change in the underlying asset itself. Crucially, the purchased near-term option needs to surge in value sufficiently to surpass the slower decay of the option sold further out in time. Timing and the magnitude of the anticipated move are thus key factors in a reverse calendar spread's success. </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-executing-the-calendar-spread"></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"> Executing the Calendar Spread </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The calendar spread strategy aims to profit from the passage of time or an increase in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/iv.asp">implied volatility</a> in a directionally neutral strategy. </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"> For a regular calendar spread, since the goal is to profit from time and volatility, the strike price should be as near as possible to the underlying asset's price. The trade takes advantage of how near- and long-dated options act when time and volatility change. An increase in implied volatility, all other things being equal, would positively impact this strategy because longer-term options are more sensitive to changes in volatility (that is, it has a higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vega.asp">vega</a>). The caveat is that the two options can and probably will trade at different implied volatilities. </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"> The passage of time, all else being equal, would positively affect this strategy at the beginning of the trade until the short-term option expires. After that, the strategy is only a long call whose value erodes as time elapses. In general, an option's rate of time decay (its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/theta.asp">theta</a>) increases as its expiration draws nearer. </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-maximum-risk-and-profit-on-a-calendar-spread"></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"> Maximum Risk and Profit on a Calendar Spread </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For a debit spread, the maximum loss is the amount paid for the strategy. The option sold is closer to its expiration and, therefore, has a lower price than the option bought, yielding a net debit or cost. The ideal would be a steady to slightly declining underlying asset price during the life of the near-term option followed by a strong move higher during the life of the far-term option or a sharp increase in implied volatility. </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"> At the expiration of the near-term option, the maximum gain comes when the underlying asset is at or slightly below the strike price of the expiring option. If the asset is above that, the expiring option would have intrinsic value. Once the near-term option expires as worthless, the trader is left with a simple long-call position, which has no limit on its potential profit. A trader with a bullish longer-term outlook can reduce the cost of purchasing a longer-term call option. </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"> Here are different ways to employ the strategy, including regular and reverse calendar spreads: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li><strong>Long call calendar spread</strong>: You buy a longer-term call option and sell a shorter-term call option at the same strike price. This is a wager on a moderate price increase or rising volatility in the underlying asset price.</li><li><strong>Short call calendar spread</strong>: You sell a shorter-term call option and buy a longer-dated one at the same strike price. Profits would come if there's a stable price or decreasing volatility for the underlying asset.</li><li><strong>Long put calendar spread</strong>: You buy a longer-term put and sell a near-term put option, both at the same strike price. This strategy anticipates a moderate drop in price or a volatility increase in the underlying asset price.</li><li><strong>Short put calendar spread</strong>: You sell a shorter-term put option and buy a longer-term put with the same strike price. Profits come from stable or an increase in the underlying asset price or falling volatility.</li> </ul> <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"> Note that long spreads usually have a set maximum loss, while short spreads carry greater risk should the underlying asset move sharply against the position.<span class="ql-inline-citation" data-cite="7"></span> We put this in a chart below. (All spreads require the same options strike prices.)<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_41-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_42-0"> <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">Calendar Spread Cheat Sheet</th> </tr> </thead> <tbody data-check="-1"> <tr> <td></td> <td><b>Long Call Calendar Spread</b></td> <td><b>Short Call Calendar Spread</b></td> <td><b>Long Put Calendar Spread</b></td> <td><b>Short Put Calendar Spread</b></td> </tr> <tr> <td><b>Description</b></td> <td>Buy a longer-term call option; sell a shorter-term call option</td> <td>Sell a short longer-dated call; buy a longer call with the same</td> <td>Buy longer-term put; sell a near-term put</td> <td>Sell a shorter-term put; buy a longer-term put</td> </tr> <tr> <td><b>Pay or Collect Premium?</b></td> <td>Pay</td> <td>Collect premium</td> <td>Pay</td> <td>Collect premium</td> </tr> <tr> <td><b>Changes Expected in Underlying Assets</b></td> <td>Moderate ↑ in price or ↑ in volatility</td> <td>Stable price or ↓ in volatility</td> <td>Moderate ↓ in price or ↑ in volatility</td> <td>Stable or ↑ in price or ↓in volatility</td> </tr> <tr> <td><b>Maximum Risk</b></td> <td>Cost of the spread</td> <td>Unlimited</td> <td>Cost of the spread</td> <td>Unlimited</td> </tr> <tr> <td><b>Maximum Profit</b></td> <td>Unlimited</td> <td>Net premium</td> <td>Unlimited</td> <td>Net premium</td> </tr> </tbody> </table> </div></figure> <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-difference-in-using-american-vs-european-style-options"></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"> Difference in Using American vs. European-Style Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Regarding index options and the possibility of early exercise, it is essential to differentiate between American and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanoption.asp">European-style options</a>. This characteristic of European style options means the risk of early assignment is eliminated, so the maximum loss is the initial premium paid, barring any unusual circumstances. </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"> However, when dealing with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/americanoption.asp">American-style options</a>, the possibility of early exercise requires another consideration in a calendar spread. The primary effect of early exercise on a calendar spread and its maximum loss relates to the short leg of the spread, as the holder of the option that the trader wrote or shorted might decide to exercise the right to buy or sell, depending on whether the option is a call or put. The trader must fulfill the terms of the option contract. Thus, the original calendar spread would no longer exist, which changes the maximum loss. Hence, the early exercise of American-style options adds a layer of risk that requires more active management. Traders would need to adjust their positions to mitigate potential losses. </p> <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-pros-and-cons-of-calendar-spreads"></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"> Pros and Cons of Calendar Spreads </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Calendar spreads have advantages and disadvantages, making them suitable for certain market conditions and strategies while posing risks for others. </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-comparisonlist mntl-block" id="mntl-sc-block_52-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_53-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros and Cons of Calendar Spreads</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>Income Generation</p></li> <li><p>Flexibility</p></li> <li><p>Limited risk for regular calendar spreads</p></li> <li><p>Managing volatility with time</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>Limited profit potential</p></li> <li><p>Complexity</p></li> <li><p>Transaction costs and execution risks</p></li> <li><p>Impact of dividends and interest rates</p></li> </ul> </div> </div></div> <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"> Advantages </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li><strong>Income generation</strong>: Calendar spreads can generate income from the premium collected on the short option. This strategy can be particularly good in a sideways or rangebound market, which is when the underlying asset price doesn't change much.</li><li><strong>Flexibility</strong>: There is flexibility to trade based on expectations of volatility and time decay. You can capitalize on the accelerated time decay of the near-term option relative to the longer-term option.</li><li><strong>Limited risk</strong>: The maximum loss is limited in the long call and long put calendar spreads to the net premium paid for the spread. This predefined risk for the long call and long put calendar spreads makes managing the potential downside easier.</li><li><strong>Managing volatility with time</strong>: This spread is ideal for when you expect an increase in volatility, but not right away. The value of the longer-dated option can increase with a rise in implied volatility, potentially leading to profits.<span class="ql-inline-citation" data-cite="6"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_58-0"> <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_59-0"> <li><strong>Limited profit potential</strong>: While the risk can be limited for long call and long put calendar spreads, so are the profits for short call and short put calendar spreads. </li><li><strong>Complexity</strong>: Managing calendar spreads requires a good understanding of options, including how time decay and changes in volatility affect option prices. This complexity can make it challenging for less experienced traders.</li><li><strong>Cost and execution risks</strong>: The strategy involves several transactions, which means more transaction costs. Execution risk is also a factor; misalignment in executing the two legs can modify the intended position.</li><li><strong>Impact of dividends and interest rates</strong>: Unexpected dividends can affect the optimal strike price and profit for equity options. Interest rate changes can also impact the cost of the options, especially for the longer-term options in the spread.<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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Calendar spreads are good for traders looking to profit from time decay and volatility differences between short and long-term options. However, the strategy requires careful management and an understanding of options, and its effectiveness can be influenced by transaction costs, execution risks, and changes in the market, such as from dividends and interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-example-of-a-calendar-spread"></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"> Example of a Calendar Spread </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Suppose that Exxon Mobile (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM">XOM</a>) stock is trading at $89.05 in mid-January. You can do the following calendar spread: </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>Sell the February 89 call for $0.97 ($97 for one contract)</li><li>Buy the March 89 call for $2.22 ($222 for one contract)</li> </ul> <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 net cost of the spread is thus as follows: 2.22 - 0.97 = $1.25, or $125 for one spread. </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"> This calendar spread will pay the most if XOM shares remain relatively flat until the February options expire, allowing you to collect the premium for the option that was sold. Then, if the stock increases between then and the March expiry, the second leg will profit. The ideal would be for the price to become more volatile in the near term but to generally rise, closing just below 95 at the February expiration. This allows the February option to expire as worthless while still allowing you to profit from increases in the price until the March expiration. </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"> Since this is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitspread.asp">debit spread</a>, the maximum loss is the amount paid for the strategy. The option sold is closer to expiration and thus has a lower price than the option bought, yielding a net debit. In this case, you hope to capture gains from a rising price (up to but not beyond $95) between the purchase and the February expiration. </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 you were to simply buy the March expiration, the cost would have been $222, but by employing this spread, the cost is only $125, resulting in less risk. Depending on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strikeprice.asp">strike price</a> and contract type, the strategy can be used to profit from neutral, bullish, or bearish market trends.<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_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-are-there-any-other-options-spreads-or-strategies-in-futures-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Any Other Options Spreads or Strategies in Futures Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Traders have a variety of spread strategies on options and futures to hedge, speculate, or generate income. These strategies can be complex and require a solid understanding of the underlying market. Some common options spreads and strategies include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/optioninvestor/09/profit-out-of-the-money-butterfly.asp">butterfly spreads</a>, straddles and strangles, inter-commodity spreads, covered calls, and protective puts.</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-is-the-difference-between-a-long-calendar-spread-and-a-short-calendar-spread"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Long Calendar Spread and a Short Calendar Spread?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The main difference lies in the initial position taken with the options involved. A long calendar spread is generally done to capitalize on the relative time decay of options with different expirations in a low-volatility environment with limited risk. By contrast, a short calendar spread aims to take advantage of high volatility in the near term but carries a higher risk because of the potential for significant losses if the market moves sharply.<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_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-best-time-frames-for-calendar-spreads"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Best Time Frames for Calendar Spreads?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The optimal time frame for a calendar spread depends on market conditions, the underlying asset, and your objectives. You should consider volatility expectations, earnings and similar events, and the overall market.</p><p><br/></p><p>It is critical for you to monitor and adjust your positions as market conditions change. Successful traders often use historical data, implied volatility metrics, and their expectation of market sentiment about upcoming macro and micro events to fine-tune their choice of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expiration</a> dates for both legs of the calendar spread.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_82-0"> <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_83-0"> Calendar spreads in futures and options trading are highly sophisticated strategies that cater to traders who leverage differences in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timedecay.asp">time decay</a> and volatility between contracts with different expiration dates. A calendar spread involves the simultaneous purchase and sale of options of the same type and strike price but with varying expirations, capitalizing on the accelerated decay of the near-term option relative to the longer-term option. </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"> These strategies can effectively help to mitigate risk, reduce the cost of the spread and offer some income through premiums. However, their success demands in-depth knowledge of volatility, interest rates, and risk management, making calendar spreads a potent yet complex tool for experienced traders aiming to navigate short-term price moves or prepare for long-term shifts in the market. </p></div>

A calendar spread is an options or futures strategy where an investor simultaneously enters long and short positions on the same underlying asset but with different delivery dates. In a typical calendar spread, you would buy a longer-term contract and go short with a nearer-term option with the same strike price. If two different strike prices are used for each month, it is known as a diagonal spread. Calendar spreads are also called inter-delivery, intra-market, time, or horizontal spreads. Essentially, a calendar spread involves a dual wager on a security's price and volatility across different points in time. Rather than solely predicting whether an underlying asset like a stock will rise or fall, it profits from the passage of time itself. The mechanics involve simultaneously buying and selling options on the same underlying asset but with different expiration dates. Typically, an investor sells a shorter-term option while purchasing a longer-dated one with the same strike price (the price at which the option can be exercised). Calendar spreads aim to generate profit when an asset's price remains relatively stable. The option sold first will decay in value more quickly because of its closer expiration, hopefully offsetting the cost of the longer-dated option purchase. In addition, the strategy aims to capture changes in "implied volatility," a factor often tied to the uncertainty that affects option premiums. ### Key Takeaways * A calendar spread is a derivatives strategy that involves buying a longer-dated contract to sell a shorter-dated contract. * Calendar spreads allow traders to construct a trade that minimizes the effects of time. * They are most profitable when the underlying asset does not change much until after the near-month option expires. * These are also called horizontal, inter-delivery, intra-market, or time spreads. ## Understanding Calendar Spreads Before getting underway, let's give you a cheat sheet for some key terms. * **Call option**: A contract giving the buyer the right, but not the obligation, to purchase an underlying asset at a set price, called the strike price, by a specific date, called the expiration. * **Put option**: A contract allowing the buyer the right to sell an underlying asset at a strike price before the expiration date. * **Long position**: Holding an option you bought means you are "long" in that option. * **Short position**: Selling an option contract you don't yet own creates a "short" position. The typical calendar spread trade involves the sale of an option (either a call or put) with a near-term expiration date and simultaneously buying an option (call or put) with a longer-term expiration. Both options are of the same type and typically use the same strike price. Let's break this down: * Sell near-term put/call. * Buy longer-term put/call. * It's preferable but not necessary that its implied volatility is low. A [reverse calendar spread](https://www.investopedia.com/terms/r/reverse-calendar-spread.asp) takes the opposite position and involves buying a short-term option and selling a longer-term option on the same underlying security. Investors executing a reverse calendar spread buy a near-term option and at the same time sell a longer-dated option on the same underlying asset and at the same price. This reversal hints at the difference in expectations. A reverse calendar spread generally anticipates a significant move (up or down) in the underlying asset's price. It can also aim to profit from an expected spike in implied volatility, which could boost the value of options even without a large change in the underlying asset itself. Crucially, the purchased near-term option needs to surge in value sufficiently to surpass the slower decay of the option sold further out in time. Timing and the magnitude of the anticipated move are thus key factors in a reverse calendar spread's success. ## Executing the Calendar Spread The calendar spread strategy aims to profit from the passage of time or an increase in [implied volatility](https://www.investopedia.com/terms/i/iv.asp) in a directionally neutral strategy. For a regular calendar spread, since the goal is to profit from time and volatility, the strike price should be as near as possible to the underlying asset's price. The trade takes advantage of how near- and long-dated options act when time and volatility change. An increase in implied volatility, all other things being equal, would positively impact this strategy because longer-term options are more sensitive to changes in volatility (that is, it has a higher [vega](https://www.investopedia.com/terms/v/vega.asp)). The caveat is that the two options can and probably will trade at different implied volatilities. The passage of time, all else being equal, would positively affect this strategy at the beginning of the trade until the short-term option expires. After that, the strategy is only a long call whose value erodes as time elapses. In general, an option's rate of time decay (its [theta](https://www.investopedia.com/terms/t/theta.asp)) increases as its expiration draws nearer. ## Maximum Risk and Profit on a Calendar Spread For a debit spread, the maximum loss is the amount paid for the strategy. The option sold is closer to its expiration and, therefore, has a lower price than the option bought, yielding a net debit or cost. The ideal would be a steady to slightly declining underlying asset price during the life of the near-term option followed by a strong move higher during the life of the far-term option or a sharp increase in implied volatility. At the expiration of the near-term option, the maximum gain comes when the underlying asset is at or slightly below the strike price of the expiring option. If the asset is above that, the expiring option would have intrinsic value. Once the near-term option expires as worthless, the trader is left with a simple long-call position, which has no limit on its potential profit. A trader with a bullish longer-term outlook can reduce the cost of purchasing a longer-term call option. Here are different ways to employ the strategy, including regular and reverse calendar spreads: * **Long call calendar spread**: You buy a longer-term call option and sell a shorter-term call option at the same strike price. This is a wager on a moderate price increase or rising volatility in the underlying asset price. * **Short call calendar spread**: You sell a shorter-term call option and buy a longer-dated one at the same strike price. Profits would come if there's a stable price or decreasing volatility for the underlying asset. * **Long put calendar spread**: You buy a longer-term put and sell a near-term put option, both at the same strike price. This strategy anticipates a moderate drop in price or a volatility increase in the underlying asset price. * **Short put calendar spread**: You sell a shorter-term put option and buy a longer-term put with the same strike price. Profits come from stable or an increase in the underlying asset price or falling volatility. Note that long spreads usually have a set maximum loss, while short spreads carry greater risk should the underlying asset move sharply against the position. We put this in a chart below. (All spreads require the same options strike prices.) | Calendar Spread Cheat Sheet | | | | | | --- | --- | --- | --- | --- | | | **Long Call Calendar Spread** | **Short Call Calendar Spread** | **Long Put Calendar Spread** | **Short Put Calendar Spread** | | **Description** | Buy a longer-term call option; sell a shorter-term call option | Sell a short longer-dated call; buy a longer call with the same | Buy longer-term put; sell a near-term put | Sell a shorter-term put; buy a longer-term put | | **Pay or Collect Premium?** | Pay | Collect premium | Pay | Collect premium | | **Changes Expected in Underlying Assets** | Moderate ↑ in price or ↑ in volatility | Stable price or ↓ in volatility | Moderate ↓ in price or ↑ in volatility | Stable or ↑ in price or ↓in volatility | | **Maximum Risk** | Cost of the spread | Unlimited | Cost of the spread | Unlimited | | **Maximum Profit** | Unlimited | Net premium | Unlimited | Net premium | ## Difference in Using American vs. European-Style Options Regarding index options and the possibility of early exercise, it is essential to differentiate between American and [European-style options](https://www.investopedia.com/terms/e/europeanoption.asp). This characteristic of European style options means the risk of early assignment is eliminated, so the maximum loss is the initial premium paid, barring any unusual circumstances. However, when dealing with [American-style options](https://www.investopedia.com/terms/a/americanoption.asp), the possibility of early exercise requires another consideration in a calendar spread. The primary effect of early exercise on a calendar spread and its maximum loss relates to the short leg of the spread, as the holder of the option that the trader wrote or shorted might decide to exercise the right to buy or sell, depending on whether the option is a call or put. The trader must fulfill the terms of the option contract. Thus, the original calendar spread would no longer exist, which changes the maximum loss. Hence, the early exercise of American-style options adds a layer of risk that requires more active management. Traders would need to adjust their positions to mitigate potential losses. ## Pros and Cons of Calendar Spreads Calendar spreads have advantages and disadvantages, making them suitable for certain market conditions and strategies while posing risks for others. ### Pros and Cons of Calendar Spreads Pros * Income Generation * Flexibility * Limited risk for regular calendar spreads * Managing volatility with time Cons * Limited profit potential * Complexity * Transaction costs and execution risks * Impact of dividends and interest rates ### Advantages * **Income generation**: Calendar spreads can generate income from the premium collected on the short option. This strategy can be particularly good in a sideways or rangebound market, which is when the underlying asset price doesn't change much. * **Flexibility**: There is flexibility to trade based on expectations of volatility and time decay. You can capitalize on the accelerated time decay of the near-term option relative to the longer-term option. * **Limited risk**: The maximum loss is limited in the long call and long put calendar spreads to the net premium paid for the spread. This predefined risk for the long call and long put calendar spreads makes managing the potential downside easier. * **Managing volatility with time**: This spread is ideal for when you expect an increase in volatility, but not right away. The value of the longer-dated option can increase with a rise in implied volatility, potentially leading to profits. ### Disadvantages * **Limited profit potential**: While the risk can be limited for long call and long put calendar spreads, so are the profits for short call and short put calendar spreads. * **Complexity**: Managing calendar spreads requires a good understanding of options, including how time decay and changes in volatility affect option prices. This complexity can make it challenging for less experienced traders. * **Cost and execution risks**: The strategy involves several transactions, which means more transaction costs. Execution risk is also a factor; misalignment in executing the two legs can modify the intended position. * **Impact of dividends and interest rates**: Unexpected dividends can affect the optimal strike price and profit for equity options. Interest rate changes can also impact the cost of the options, especially for the longer-term options in the spread. Calendar spreads are good for traders looking to profit from time decay and volatility differences between short and long-term options. However, the strategy requires careful management and an understanding of options, and its effectiveness can be influenced by transaction costs, execution risks, and changes in the market, such as from dividends and interest rates. ## Example of a Calendar Spread Suppose that Exxon Mobile ([XOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM)) stock is trading at $89.05 in mid-January. You can do the following calendar spread: * Sell the February 89 call for $0.97 ($97 for one contract) * Buy the March 89 call for $2.22 ($222 for one contract) The net cost of the spread is thus as follows: 2.22 - 0.97 = $1.25, or $125 for one spread. This calendar spread will pay the most if XOM shares remain relatively flat until the February options expire, allowing you to collect the premium for the option that was sold. Then, if the stock increases between then and the March expiry, the second leg will profit. The ideal would be for the price to become more volatile in the near term but to generally rise, closing just below 95 at the February expiration. This allows the February option to expire as worthless while still allowing you to profit from increases in the price until the March expiration. Since this is a [debit spread](https://www.investopedia.com/terms/d/debitspread.asp), the maximum loss is the amount paid for the strategy. The option sold is closer to expiration and thus has a lower price than the option bought, yielding a net debit. In this case, you hope to capture gains from a rising price (up to but not beyond $95) between the purchase and the February expiration. If you were to simply buy the March expiration, the cost would have been $222, but by employing this spread, the cost is only $125, resulting in less risk. Depending on the [strike price](https://www.investopedia.com/terms/s/strikeprice.asp) and contract type, the strategy can be used to profit from neutral, bullish, or bearish market trends. ## Are There Any Other Options Spreads or Strategies in Futures Trading? Traders have a variety of spread strategies on options and futures to hedge, speculate, or generate income. These strategies can be complex and require a solid understanding of the underlying market. Some common options spreads and strategies include [butterfly spreads](https://www.investopedia.com/articles/optioninvestor/09/profit-out-of-the-money-butterfly.asp), straddles and strangles, inter-commodity spreads, covered calls, and protective puts. ## What Is the Difference Between a Long Calendar Spread and a Short Calendar Spread? The main difference lies in the initial position taken with the options involved. A long calendar spread is generally done to capitalize on the relative time decay of options with different expirations in a low-volatility environment with limited risk. By contrast, a short calendar spread aims to take advantage of high volatility in the near term but carries a higher risk because of the potential for significant losses if the market moves sharply. ## What Are the Best Time Frames for Calendar Spreads? The optimal time frame for a calendar spread depends on market conditions, the underlying asset, and your objectives. You should consider volatility expectations, earnings and similar events, and the overall market. It is critical for you to monitor and adjust your positions as market conditions change. Successful traders often use historical data, implied volatility metrics, and their expectation of market sentiment about upcoming macro and micro events to fine-tune their choice of [expiration](https://www.investopedia.com/terms/e/expirationdate.asp) dates for both legs of the calendar spread. ### The Bottom Line Calendar spreads in futures and options trading are highly sophisticated strategies that cater to traders who leverage differences in [time decay](https://www.investopedia.com/terms/t/timedecay.asp) and volatility between contracts with different expiration dates. A calendar spread involves the simultaneous purchase and sale of options of the same type and strike price but with varying expirations, capitalizing on the accelerated decay of the near-term option relative to the longer-term option. These strategies can effectively help to mitigate risk, reduce the cost of the spread and offer some income through premiums. However, their success demands in-depth knowledge of volatility, interest rates, and risk management, making calendar spreads a potent yet complex tool for experienced traders aiming to navigate short-term price moves or prepare for long-term shifts in the market.

A calendar spread is an options or futures strategy where an investor simultaneously enters long and short positions on the same underlying asset but with different delivery dates. In a typical calendar spread, you would buy a longer-term contract and go short with a nearer-term option with the same strike price. If two different strike prices are used for each month, it is known as a diagonal spread. Calendar spreads are also called inter-delivery, intra-market, time, or horizontal spreads. Essentially, a calendar spread involves a dual wager on a security's price and volatility across different points in time. Rather than solely predicting whether an underlying asset like a stock will rise or fall, it profits from the passage of time itself. The mechanics involve simultaneously buying and selling options on the same underlying asset but with different expiration dates. Typically, an investor sells a shorter-term option while purchasing a longer-dated one with the same strike price (the price at which the option can be exercised). Calendar spreads aim to generate profit when an asset's price remains relatively stable. The option sold first will decay in value more quickly because of its closer expiration, hopefully offsetting the cost of the longer-dated option purchase. In addition, the strategy aims to capture changes in "implied volatility," a factor often tied to the uncertainty that affects option premiums. Key Takeaways A calendar spread is a derivatives strategy that involves buying a longer-dated contract to sell a shorter-dated contract.Calendar spreads allow traders to construct a trade that minimizes the effects of time.They are most profitable when the underlying asset does not change much until after the near-month option expires. These are also called horizontal, inter-delivery, intra-market, or time spreads. Understanding Calendar Spreads Before getting underway, let's give you a cheat sheet for some key terms. Call option: A contract giving the buyer the right, but not the obligation, to purchase an underlying asset at a set price, called the strike price, by a specific date, called the expiration.Put option: A contract allowing the buyer the right to sell an underlying asset at a strike price before the expiration date.Long position: Holding an option you bought means you are "long" in that option.Short position: Selling an option contract you don't yet own creates a "short" position. The typical calendar spread trade involves the sale of an option (either a call or put) with a near-term expiration date and simultaneously buying an option (call or put) with a longer-term expiration. Both options are of the same type and typically use the same strike price. Let's break this down: Sell near-term put/call.Buy longer-term put/call.It's preferable but not necessary that its implied volatility is low. A reverse calendar spread takes the opposite position and involves buying a short-term option and selling a longer-term option on the same underlying security. Investors executing a reverse calendar spread buy a near-term option and at the same time sell a longer-dated option on the same underlying asset and at the same price. This reversal hints at the difference in expectations. A reverse calendar spread generally anticipates a significant move (up or down) in the underlying asset's price. It can also aim to profit from an expected spike in implied volatility, which could boost the value of options even without a large change in the underlying asset itself. Crucially, the purchased near-term option needs to surge in value sufficiently to surpass the slower decay of the option sold further out in time. Timing and the magnitude of the anticipated move are thus key factors in a reverse calendar spread's success. Executing the Calendar Spread The calendar spread strategy aims to profit from the passage of time or an increase in implied volatility in a directionally neutral strategy. For a regular calendar spread, since the goal is to profit from time and volatility, the strike price should be as near as possible to the underlying asset's price. The trade takes advantage of how near- and long-dated options act when time and volatility change. An increase in implied volatility, all other things being equal, would positively impact this strategy because longer-term options are more sensitive to changes in volatility (that is, it has a higher vega). The caveat is that the two options can and probably will trade at different implied volatilities. The passage of time, all else being equal, would positively affect this strategy at the beginning of the trade until the short-term option expires. After that, the strategy is only a long call whose value erodes as time elapses. In general, an option's rate of time decay (its theta) increases as its expiration draws nearer. Maximum Risk and Profit on a Calendar Spread For a debit spread, the maximum loss is the amount paid for the strategy. The option sold is closer to its expiration and, therefore, has a lower price than the option bought, yielding a net debit or cost. The ideal would be a steady to slightly declining underlying asset price during the life of the near-term option followed by a strong move higher during the life of the far-term option or a sharp increase in implied volatility. At the expiration of the near-term option, the maximum gain comes when the underlying asset is at or slightly below the strike price of the expiring option. If the asset is above that, the expiring option would have intrinsic value. Once the near-term option expires as worthless, the trader is left with a simple long-call position, which has no limit on its potential profit. A trader with a bullish longer-term outlook can reduce the cost of purchasing a longer-term call option. Here are different ways to employ the strategy, including regular and reverse calendar spreads: Long call calendar spread: You buy a longer-term call option and sell a shorter-term call option at the same strike price. This is a wager on a moderate price increase or rising volatility in the underlying asset price.Short call calendar spread: You sell a shorter-term call option and buy a longer-dated one at the same strike price. Profits would come if there's a stable price or decreasing volatility for the underlying asset.Long put calendar spread: You buy a longer-term put and sell a near-term put option, both at the same strike price. This strategy anticipates a moderate drop in price or a volatility increase in the underlying asset price.Short put calendar spread: You sell a shorter-term put option and buy a longer-term put with the same strike price. Profits come from stable or an increase in the underlying asset price or falling volatility. Note that long spreads usually have a set maximum loss, while short spreads carry greater risk should the underlying asset move sharply against the position. We put this in a chart below. (All spreads require the same options strike prices.) Calendar Spread Cheat Sheet Long Call Calendar Spread Short Call Calendar Spread Long Put Calendar Spread Short Put Calendar Spread Description Buy a longer-term call option; sell a shorter-term call option Sell a short longer-dated call; buy a longer call with the same Buy longer-term put; sell a near-term put Sell a shorter-term put; buy a longer-term put Pay or Collect Premium? Pay Collect premium Pay Collect premium Changes Expected in Underlying Assets Moderate ↑ in price or ↑ in volatility Stable price or ↓ in volatility Moderate ↓ in price or ↑ in volatility Stable or ↑ in price or ↓in volatility Maximum Risk Cost of the spread Unlimited Cost of the spread Unlimited Maximum Profit Unlimited Net premium Unlimited Net premium Difference in Using American vs. European-Style Options Regarding index options and the possibility of early exercise, it is essential to differentiate between American and European-style options. This characteristic of European style options means the risk of early assignment is eliminated, so the maximum loss is the initial premium paid, barring any unusual circumstances. However, when dealing with American-style options, the possibility of early exercise requires another consideration in a calendar spread. The primary effect of early exercise on a calendar spread and its maximum loss relates to the short leg of the spread, as the holder of the option that the trader wrote or shorted might decide to exercise the right to buy or sell, depending on whether the option is a call or put. The trader must fulfill the terms of the option contract. Thus, the original calendar spread would no longer exist, which changes the maximum loss. Hence, the early exercise of American-style options adds a layer of risk that requires more active management. Traders would need to adjust their positions to mitigate potential losses. Pros and Cons of Calendar Spreads Calendar spreads have advantages and disadvantages, making them suitable for certain market conditions and strategies while posing risks for others. Pros and Cons of Calendar Spreads Pros Income Generation Flexibility Limited risk for regular calendar spreads Managing volatility with time Cons Limited profit potential Complexity Transaction costs and execution risks Impact of dividends and interest rates Advantages Income generation: Calendar spreads can generate income from the premium collected on the short option. This strategy can be particularly good in a sideways or rangebound market, which is when the underlying asset price doesn't change much.Flexibility: There is flexibility to trade based on expectations of volatility and time decay. You can capitalize on the accelerated time decay of the near-term option relative to the longer-term option.Limited risk: The maximum loss is limited in the long call and long put calendar spreads to the net premium paid for the spread. This predefined risk for the long call and long put calendar spreads makes managing the potential downside easier.Managing volatility with time: This spread is ideal for when you expect an increase in volatility, but not right away. The value of the longer-dated option can increase with a rise in implied volatility, potentially leading to profits. Disadvantages Limited profit potential: While the risk can be limited for long call and long put calendar spreads, so are the profits for short call and short put calendar spreads. Complexity: Managing calendar spreads requires a good understanding of options, including how time decay and changes in volatility affect option prices. This complexity can make it challenging for less experienced traders.Cost and execution risks: The strategy involves several transactions, which means more transaction costs. Execution risk is also a factor; misalignment in executing the two legs can modify the intended position.Impact of dividends and interest rates: Unexpected dividends can affect the optimal strike price and profit for equity options. Interest rate changes can also impact the cost of the options, especially for the longer-term options in the spread. Calendar spreads are good for traders looking to profit from time decay and volatility differences between short and long-term options. However, the strategy requires careful management and an understanding of options, and its effectiveness can be influenced by transaction costs, execution risks, and changes in the market, such as from dividends and interest rates. Example of a Calendar Spread Suppose that Exxon Mobile (XOM) stock is trading at $89.05 in mid-January. You can do the following calendar spread: Sell the February 89 call for $0.97 ($97 for one contract)Buy the March 89 call for $2.22 ($222 for one contract) The net cost of the spread is thus as follows: 2.22 - 0.97 = $1.25, or $125 for one spread. This calendar spread will pay the most if XOM shares remain relatively flat until the February options expire, allowing you to collect the premium for the option that was sold. Then, if the stock increases between then and the March expiry, the second leg will profit. The ideal would be for the price to become more volatile in the near term but to generally rise, closing just below 95 at the February expiration. This allows the February option to expire as worthless while still allowing you to profit from increases in the price until the March expiration. Since this is a debit spread, the maximum loss is the amount paid for the strategy. The option sold is closer to expiration and thus has a lower price than the option bought, yielding a net debit. In this case, you hope to capture gains from a rising price (up to but not beyond $95) between the purchase and the February expiration. If you were to simply buy the March expiration, the cost would have been $222, but by employing this spread, the cost is only $125, resulting in less risk. Depending on the strike price and contract type, the strategy can be used to profit from neutral, bullish, or bearish market trends. Are There Any Other Options Spreads or Strategies in Futures Trading? Traders have a variety of spread strategies on options and futures to hedge, speculate, or generate income. These strategies can be complex and require a solid understanding of the underlying market. Some common options spreads and strategies include butterfly spreads, straddles and strangles, inter-commodity spreads, covered calls, and protective puts. What Is the Difference Between a Long Calendar Spread and a Short Calendar Spread? The main difference lies in the initial position taken with the options involved. A long calendar spread is generally done to capitalize on the relative time decay of options with different expirations in a low-volatility environment with limited risk. By contrast, a short calendar spread aims to take advantage of high volatility in the near term but carries a higher risk because of the potential for significant losses if the market moves sharply. What Are the Best Time Frames for Calendar Spreads? The optimal time frame for a calendar spread depends on market conditions, the underlying asset, and your objectives. You should consider volatility expectations, earnings and similar events, and the overall market.It is critical for you to monitor and adjust your positions as market conditions change. Successful traders often use historical data, implied volatility metrics, and their expectation of market sentiment about upcoming macro and micro events to fine-tune their choice of expiration dates for both legs of the calendar spread. The Bottom Line Calendar spreads in futures and options trading are highly sophisticated strategies that cater to traders who leverage differences in time decay and volatility between contracts with different expiration dates. A calendar spread involves the simultaneous purchase and sale of options of the same type and strike price but with varying expirations, capitalizing on the accelerated decay of the near-term option relative to the longer-term option. These strategies can effectively help to mitigate risk, reduce the cost of the spread and offer some income through premiums. However, their success demands in-depth knowledge of volatility, interest rates, and risk management, making calendar spreads a potent yet complex tool for experienced traders aiming to navigate short-term price moves or prepare for long-term shifts in the market.

https://www.investopedia.com/terms/m/mmax-account.asp

Money Market Account Xtra (MMAX)

<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-money-market-account-xtra-mmax-accounts"></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 Money Market Account Xtra (MMAX) Accounts? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A Money Market Account Xtra (MMAX) account is a type of <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarket.asp">money market bank account</a>. It is popular among parties wishing to make large deposits while also benefiting from the insurance coverage provided by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation</a> (FDIC). </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"> Whereas the FDIC typically only insures up to $250,000 per account, MMAX accounts can receive FDIC insurance for up to $5 million. </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 MMAX account is a type of bank account that allows depositors to enjoy FDIC insurance of up to $5 million.</li><li>These accounts are made possible by distributing the deposited funds across a network of participating banking institutions.</li><li>MMAX accounts typically pay interest that is in between that of a savings account and a corporate bond.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-mmax-accounts"></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 MMAX Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> MMAX accounts function by pooling together a network of participating financial institutions. Specifically, these accounts are administered by the Institutional Deposits Corporation (IDC), which oversees a network of participating banks.  </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"> Through this network, the IDC can offer MMAX accounts in which the deposited funds are effectively placed in multiple accounts held at the participating financial institutions. Because each account is eligible for up to $250,000 in FDIC insurance, the MMAX account can combine multiple accounts to obtain total insurance coverage of up to $5 million.<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"> Because MMAX accounts involve coordination among multiple participating institutions, MMAX account holders are restricted to no more than six withdrawals per month. In exchange, MMAX depositors benefit from the higher insurance limit while also enjoying interest income <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042716/money-market-account-vs-highinterest-checking-account-which-better.asp">higher than most checking or savings accounts</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"> MMAX accounts are popular among institutional banking customers who wish to obtain higher yields than traditional bank accounts. Although the MMAX accounts do entail lower liquidity than a traditional money market account, they are still quite liquid compared to alternative holdings, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatebond.asp">corporate bonds</a>. </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>MMAX accounts also offer limited check-writing abilities.</p></div></div></div> <span class="heading-toc" id="toc-example-of-an-mmax-account"></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 an MMAX Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Emma is the owner of a large corporation. As a conservatively-minded operator, she is careful to maintain a large amount of liquid assets to help her company respond to any short-term liquidity needs. To that end, she keeps cash balances ranging between $500,000 and $1 million at her bank, XYZ Financial. </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"> Although Emma may need to draw down the funds to deal with unanticipated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalexpenditure.asp">capital expenditures</a> (CAPEX) or other irregular items, she typically does not need to withdraw from her account more than a few times per month. Therefore, she is able to entertain banking options that offer slightly less liquidity than a typical bank account, in exchange for a moderately higher yield. </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 these reasons, and because of her conservative outlook, Emma opts for a MMAX account instead of alternatives such as a traditional savings account or corporate bonds. Through the MMAX account, she is able to obtain FDIC insurance on her deposits up to a maximum of $5 million. By contrast, a typical bank account would only permit FDIC insurance up to $250,000. Moreover, the MMAX account allows up to six withdrawals per month as well as some check-writing ability. In exchange for the lower liquidity, the accounts offer a slightly higher yield than that of a savings account—although it is lower than most corporate bonds. </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"> Money market accounts are a type of interest-bearing bank account. They are typically viewed as an intermediary option between more liquid and lower-yielding instruments, such as traditional checking or savings accounts, and less liquid but higher-yielding options, such as corporate bonds or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debenture.asp">debentures</a>. </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"> To achieve this, money market account providers invest the deposited funds into securities, such as certificates of deposit (CDs); government debt instruments, such as municipal, state, or federal bonds; and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialpaper.asp">commercial paper</a>, which offers higher yields than those paid on most bank accounts. </p></div>

## What Are Money Market Account Xtra (MMAX) Accounts? A Money Market Account Xtra (MMAX) account is a type of [money market bank account](https://www.investopedia.com/terms/m/moneymarket.asp). It is popular among parties wishing to make large deposits while also benefiting from the insurance coverage provided by the [Federal Deposit Insurance Corporation](https://www.investopedia.com/terms/f/fdic.asp) (FDIC). Whereas the FDIC typically only insures up to $250,000 per account, MMAX accounts can receive FDIC insurance for up to $5 million. ### Key Takeaways * A MMAX account is a type of bank account that allows depositors to enjoy FDIC insurance of up to $5 million. * These accounts are made possible by distributing the deposited funds across a network of participating banking institutions. * MMAX accounts typically pay interest that is in between that of a savings account and a corporate bond. ## Understanding MMAX Accounts MMAX accounts function by pooling together a network of participating financial institutions. Specifically, these accounts are administered by the Institutional Deposits Corporation (IDC), which oversees a network of participating banks.  Through this network, the IDC can offer MMAX accounts in which the deposited funds are effectively placed in multiple accounts held at the participating financial institutions. Because each account is eligible for up to $250,000 in FDIC insurance, the MMAX account can combine multiple accounts to obtain total insurance coverage of up to $5 million. Because MMAX accounts involve coordination among multiple participating institutions, MMAX account holders are restricted to no more than six withdrawals per month. In exchange, MMAX depositors benefit from the higher insurance limit while also enjoying interest income [higher than most checking or savings accounts](https://www.investopedia.com/articles/personal-finance/042716/money-market-account-vs-highinterest-checking-account-which-better.asp). MMAX accounts are popular among institutional banking customers who wish to obtain higher yields than traditional bank accounts. Although the MMAX accounts do entail lower liquidity than a traditional money market account, they are still quite liquid compared to alternative holdings, such as [corporate bonds](https://www.investopedia.com/terms/c/corporatebond.asp). ### MMAX accounts also offer limited check-writing abilities. ## Example of an MMAX Account Emma is the owner of a large corporation. As a conservatively-minded operator, she is careful to maintain a large amount of liquid assets to help her company respond to any short-term liquidity needs. To that end, she keeps cash balances ranging between $500,000 and $1 million at her bank, XYZ Financial. Although Emma may need to draw down the funds to deal with unanticipated [capital expenditures](https://www.investopedia.com/terms/c/capitalexpenditure.asp) (CAPEX) or other irregular items, she typically does not need to withdraw from her account more than a few times per month. Therefore, she is able to entertain banking options that offer slightly less liquidity than a typical bank account, in exchange for a moderately higher yield. For these reasons, and because of her conservative outlook, Emma opts for a MMAX account instead of alternatives such as a traditional savings account or corporate bonds. Through the MMAX account, she is able to obtain FDIC insurance on her deposits up to a maximum of $5 million. By contrast, a typical bank account would only permit FDIC insurance up to $250,000. Moreover, the MMAX account allows up to six withdrawals per month as well as some check-writing ability. In exchange for the lower liquidity, the accounts offer a slightly higher yield than that of a savings account—although it is lower than most corporate bonds. ## Special Considerations Money market accounts are a type of interest-bearing bank account. They are typically viewed as an intermediary option between more liquid and lower-yielding instruments, such as traditional checking or savings accounts, and less liquid but higher-yielding options, such as corporate bonds or [debentures](https://www.investopedia.com/terms/d/debenture.asp). To achieve this, money market account providers invest the deposited funds into securities, such as certificates of deposit (CDs); government debt instruments, such as municipal, state, or federal bonds; and [commercial paper](https://www.investopedia.com/terms/c/commercialpaper.asp), which offers higher yields than those paid on most bank accounts.

What Are Money Market Account Xtra (MMAX) Accounts? A Money Market Account Xtra (MMAX) account is a type of money market bank account. It is popular among parties wishing to make large deposits while also benefiting from the insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC). Whereas the FDIC typically only insures up to $250,000 per account, MMAX accounts can receive FDIC insurance for up to $5 million. Key Takeaways A MMAX account is a type of bank account that allows depositors to enjoy FDIC insurance of up to $5 million.These accounts are made possible by distributing the deposited funds across a network of participating banking institutions.MMAX accounts typically pay interest that is in between that of a savings account and a corporate bond. Understanding MMAX Accounts MMAX accounts function by pooling together a network of participating financial institutions. Specifically, these accounts are administered by the Institutional Deposits Corporation (IDC), which oversees a network of participating banks.  Through this network, the IDC can offer MMAX accounts in which the deposited funds are effectively placed in multiple accounts held at the participating financial institutions. Because each account is eligible for up to $250,000 in FDIC insurance, the MMAX account can combine multiple accounts to obtain total insurance coverage of up to $5 million. Because MMAX accounts involve coordination among multiple participating institutions, MMAX account holders are restricted to no more than six withdrawals per month. In exchange, MMAX depositors benefit from the higher insurance limit while also enjoying interest income higher than most checking or savings accounts. MMAX accounts are popular among institutional banking customers who wish to obtain higher yields than traditional bank accounts. Although the MMAX accounts do entail lower liquidity than a traditional money market account, they are still quite liquid compared to alternative holdings, such as corporate bonds. MMAX accounts also offer limited check-writing abilities. Example of an MMAX Account Emma is the owner of a large corporation. As a conservatively-minded operator, she is careful to maintain a large amount of liquid assets to help her company respond to any short-term liquidity needs. To that end, she keeps cash balances ranging between $500,000 and $1 million at her bank, XYZ Financial. Although Emma may need to draw down the funds to deal with unanticipated capital expenditures (CAPEX) or other irregular items, she typically does not need to withdraw from her account more than a few times per month. Therefore, she is able to entertain banking options that offer slightly less liquidity than a typical bank account, in exchange for a moderately higher yield. For these reasons, and because of her conservative outlook, Emma opts for a MMAX account instead of alternatives such as a traditional savings account or corporate bonds. Through the MMAX account, she is able to obtain FDIC insurance on her deposits up to a maximum of $5 million. By contrast, a typical bank account would only permit FDIC insurance up to $250,000. Moreover, the MMAX account allows up to six withdrawals per month as well as some check-writing ability. In exchange for the lower liquidity, the accounts offer a slightly higher yield than that of a savings account—although it is lower than most corporate bonds. Special Considerations Money market accounts are a type of interest-bearing bank account. They are typically viewed as an intermediary option between more liquid and lower-yielding instruments, such as traditional checking or savings accounts, and less liquid but higher-yielding options, such as corporate bonds or debentures. To achieve this, money market account providers invest the deposited funds into securities, such as certificates of deposit (CDs); government debt instruments, such as municipal, state, or federal bonds; and commercial paper, which offers higher yields than those paid on most bank accounts.

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

What Is Prepayment Risk? Definition, Consequences, 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-prepayment-risk"></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 Prepayment Risk? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepayment.asp">Prepayment</a> risk is the risk involved with the premature return of principal on 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>. When debtors return part of the principal early, they do not have to make interest payments on that part of the principal. That means investors in associated fixed-income securities will not receive interest paid on the principal. The prepayment risk is highest for fixed-income securities, such as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/callablebond.asp">callable bonds</a> and mortgage-backed securities (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">MBS</a>). Bonds with prepayment risk often have <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalties</a>. </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>Prepayment risk is the risk involved with the premature return of principal on a fixed-income security.</li><li>When prepayment occurs, investors must reinvest at current market interest rates, which are usually substantially lower.</li><li>Prepayment risk mostly affects corporate bonds and mortgage-backed securities (MBS).</li><li>Prepayment risk can stack the deck against investors by making interest rate risk one-sided.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-prepayment-risk"></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 Prepayment Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Prepayment risk exists in some callable fixed-income securities that may be paid off early by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/issuer.asp">issuer</a>, or in the case of a mortgage-backed security, the borrower. These features give the issuer the right, but not the obligation, to redeem the bond before its scheduled maturity. </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"> With a callable bond, the issuer has the ability to return the investor's principal early. After that, the investor receives no more interest payments. Issuers of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/noncallable.asp">noncallable</a> bonds lack this ability. Consequently, prepayment risk, which describes the chance of the issuer returning the principal early and the investor missing out on subsequent interest, is only associated with callable bonds. </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"> For mortgage-backed securities, mortgage holders may refinance or pay off their mortgages, which results in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wac.asp">security holder losing future interest</a>. Because the cash flows associated with such securities are uncertain, their yield-to-maturity cannot be known for certain at the time of purchase. If the bond was purchased <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-premium.asp">at a premium</a> (a price greater than 100), the bond's yield is then less than the one estimated at the time of purchase. </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-criticism-of-prepayment-risk"></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"> Criticism of Prepayment Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The core problem with prepayment risk is that it can stack the deck against investors. Callable bonds favor the issuer because they tend to make <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestraterisk.asp">interest rate risk</a> one-sided. When interest rates rise, issuers benefit from locking in low rates. On the other hand, bond buyers are stuck with a lower interest rate when higher rates are available. There is an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp">opportunity cost</a> when investors buy and hold bonds in a rising rate environment. From a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a> perspective, bondholders also suffer a capital loss when interest rates rise. </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"> When interest rates fall, investors only benefit if the bonds are not called. As market interest rates go down, the bondholders gain by continuing to receive the old interest rate, which was higher. Investors can also sell the bonds to obtain a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gain</a>. However, issuers will call their bonds and refinance if interest rates decline substantially, eliminating the possibility for bondholders to benefit from rate changes. Investors in callable bonds lose when interest rates rise, but they can't win when rates fall. </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 a practical matter, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatebond.asp">corporate bonds</a> often have call provisions, while <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/government-bond.asp">government bonds</a> rarely do. That is one reason why investing in government bonds is often a better bet in a falling interest rate environment. However, corporate bonds still have higher returns in the long run. </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-important" 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>Investors should consider prepayment risk, as well as default risk, before choosing corporate bonds over government bonds.</p></div></div></div> <span class="heading-toc" id="toc-requirements-for-prepayment-risk"></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"> Requirements for Prepayment Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Not all bonds have prepayment risk. If a bond cannot be called, then it does not have prepayment risk. A bond is a debt investment in which an entity borrows money from an investor. The entity makes regular interest payments to the investor throughout the bond's maturity period. At the end of the period, it returns the investor's principal. Bonds can either be callable or noncallable. </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-examples-of-prepayment-risk"></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"> Examples of Prepayment Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For a callable bond, the higher a bond's interest rate relative to current interest rates, the higher the prepayment risk. With mortgage-backed securities, the probability that the underlying mortgages will be refinanced increases as current market interest rates fall further below the old rates. </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"> For example, a homeowner who takes out a mortgage at 7% has a much stronger incentive to refinance after rates drop to 4% or 5%. When and if the homeowner refinances, those who invested in the original mortgage on the secondary market do not receive the full term of interest payments. If they wish to keep investing in the mortgage market, they will have to accept lower interest rates or higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defaultrisk.asp">default risk</a>. </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"> Investors who purchase a callable bond with a high interest rate take on prepayment risk. In addition to being highly correlated with falling interest rates, mortgage prepayments are highly correlated with rising home values. That's because rising home values provide an incentive for borrowers to trade up their homes or use cash-out <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinances</a>, both of which lead to mortgage prepayments. </p></div>

## What Is Prepayment Risk? [Prepayment](https://www.investopedia.com/terms/p/prepayment.asp) risk is the risk involved with the premature return of principal on a [fixed-income security](https://www.investopedia.com/terms/f/fixed-incomesecurity.asp). When debtors return part of the principal early, they do not have to make interest payments on that part of the principal. That means investors in associated fixed-income securities will not receive interest paid on the principal. The prepayment risk is highest for fixed-income securities, such as [callable bonds](https://www.investopedia.com/terms/c/callablebond.asp) and mortgage-backed securities ([MBS](https://www.investopedia.com/terms/m/mbs.asp)). Bonds with prepayment risk often have [prepayment penalties](https://www.investopedia.com/terms/p/prepaymentpenalty.asp). ### Key Takeaways * Prepayment risk is the risk involved with the premature return of principal on a fixed-income security. * When prepayment occurs, investors must reinvest at current market interest rates, which are usually substantially lower. * Prepayment risk mostly affects corporate bonds and mortgage-backed securities (MBS). * Prepayment risk can stack the deck against investors by making interest rate risk one-sided. ## Understanding Prepayment Risk Prepayment risk exists in some callable fixed-income securities that may be paid off early by the [issuer](https://www.investopedia.com/terms/i/issuer.asp), or in the case of a mortgage-backed security, the borrower. These features give the issuer the right, but not the obligation, to redeem the bond before its scheduled maturity. With a callable bond, the issuer has the ability to return the investor's principal early. After that, the investor receives no more interest payments. Issuers of [noncallable](https://www.investopedia.com/terms/n/noncallable.asp) bonds lack this ability. Consequently, prepayment risk, which describes the chance of the issuer returning the principal early and the investor missing out on subsequent interest, is only associated with callable bonds. For mortgage-backed securities, mortgage holders may refinance or pay off their mortgages, which results in the [security holder losing future interest](https://www.investopedia.com/terms/w/wac.asp). Because the cash flows associated with such securities are uncertain, their yield-to-maturity cannot be known for certain at the time of purchase. If the bond was purchased [at a premium](https://www.investopedia.com/terms/a/at-a-premium.asp) (a price greater than 100), the bond's yield is then less than the one estimated at the time of purchase. ## Criticism of Prepayment Risk The core problem with prepayment risk is that it can stack the deck against investors. Callable bonds favor the issuer because they tend to make [interest rate risk](https://www.investopedia.com/terms/i/interestraterisk.asp) one-sided. When interest rates rise, issuers benefit from locking in low rates. On the other hand, bond buyers are stuck with a lower interest rate when higher rates are available. There is an [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) when investors buy and hold bonds in a rising rate environment. From a [total return](https://www.investopedia.com/terms/t/totalreturn.asp) perspective, bondholders also suffer a capital loss when interest rates rise. When interest rates fall, investors only benefit if the bonds are not called. As market interest rates go down, the bondholders gain by continuing to receive the old interest rate, which was higher. Investors can also sell the bonds to obtain a [capital gain](https://www.investopedia.com/terms/c/capitalgain.asp). However, issuers will call their bonds and refinance if interest rates decline substantially, eliminating the possibility for bondholders to benefit from rate changes. Investors in callable bonds lose when interest rates rise, but they can't win when rates fall. As a practical matter, [corporate bonds](https://www.investopedia.com/terms/c/corporatebond.asp) often have call provisions, while [government bonds](https://www.investopedia.com/terms/g/government-bond.asp) rarely do. That is one reason why investing in government bonds is often a better bet in a falling interest rate environment. However, corporate bonds still have higher returns in the long run. ### Investors should consider prepayment risk, as well as default risk, before choosing corporate bonds over government bonds. ## Requirements for Prepayment Risk Not all bonds have prepayment risk. If a bond cannot be called, then it does not have prepayment risk. A bond is a debt investment in which an entity borrows money from an investor. The entity makes regular interest payments to the investor throughout the bond's maturity period. At the end of the period, it returns the investor's principal. Bonds can either be callable or noncallable. ## Examples of Prepayment Risk For a callable bond, the higher a bond's interest rate relative to current interest rates, the higher the prepayment risk. With mortgage-backed securities, the probability that the underlying mortgages will be refinanced increases as current market interest rates fall further below the old rates. For example, a homeowner who takes out a mortgage at 7% has a much stronger incentive to refinance after rates drop to 4% or 5%. When and if the homeowner refinances, those who invested in the original mortgage on the secondary market do not receive the full term of interest payments. If they wish to keep investing in the mortgage market, they will have to accept lower interest rates or higher [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp). Investors who purchase a callable bond with a high interest rate take on prepayment risk. In addition to being highly correlated with falling interest rates, mortgage prepayments are highly correlated with rising home values. That's because rising home values provide an incentive for borrowers to trade up their homes or use cash-out [refinances](https://www.investopedia.com/terms/r/refinance.asp), both of which lead to mortgage prepayments.

What Is Prepayment Risk? Prepayment risk is the risk involved with the premature return of principal on a fixed-income security. When debtors return part of the principal early, they do not have to make interest payments on that part of the principal. That means investors in associated fixed-income securities will not receive interest paid on the principal. The prepayment risk is highest for fixed-income securities, such as callable bonds and mortgage-backed securities (MBS). Bonds with prepayment risk often have prepayment penalties. Key Takeaways Prepayment risk is the risk involved with the premature return of principal on a fixed-income security.When prepayment occurs, investors must reinvest at current market interest rates, which are usually substantially lower.Prepayment risk mostly affects corporate bonds and mortgage-backed securities (MBS).Prepayment risk can stack the deck against investors by making interest rate risk one-sided. Understanding Prepayment Risk Prepayment risk exists in some callable fixed-income securities that may be paid off early by the issuer, or in the case of a mortgage-backed security, the borrower. These features give the issuer the right, but not the obligation, to redeem the bond before its scheduled maturity. With a callable bond, the issuer has the ability to return the investor's principal early. After that, the investor receives no more interest payments. Issuers of noncallable bonds lack this ability. Consequently, prepayment risk, which describes the chance of the issuer returning the principal early and the investor missing out on subsequent interest, is only associated with callable bonds. For mortgage-backed securities, mortgage holders may refinance or pay off their mortgages, which results in the security holder losing future interest. Because the cash flows associated with such securities are uncertain, their yield-to-maturity cannot be known for certain at the time of purchase. If the bond was purchased at a premium (a price greater than 100), the bond's yield is then less than the one estimated at the time of purchase. Criticism of Prepayment Risk The core problem with prepayment risk is that it can stack the deck against investors. Callable bonds favor the issuer because they tend to make interest rate risk one-sided. When interest rates rise, issuers benefit from locking in low rates. On the other hand, bond buyers are stuck with a lower interest rate when higher rates are available. There is an opportunity cost when investors buy and hold bonds in a rising rate environment. From a total return perspective, bondholders also suffer a capital loss when interest rates rise. When interest rates fall, investors only benefit if the bonds are not called. As market interest rates go down, the bondholders gain by continuing to receive the old interest rate, which was higher. Investors can also sell the bonds to obtain a capital gain. However, issuers will call their bonds and refinance if interest rates decline substantially, eliminating the possibility for bondholders to benefit from rate changes. Investors in callable bonds lose when interest rates rise, but they can't win when rates fall. As a practical matter, corporate bonds often have call provisions, while government bonds rarely do. That is one reason why investing in government bonds is often a better bet in a falling interest rate environment. However, corporate bonds still have higher returns in the long run. Investors should consider prepayment risk, as well as default risk, before choosing corporate bonds over government bonds. Requirements for Prepayment Risk Not all bonds have prepayment risk. If a bond cannot be called, then it does not have prepayment risk. A bond is a debt investment in which an entity borrows money from an investor. The entity makes regular interest payments to the investor throughout the bond's maturity period. At the end of the period, it returns the investor's principal. Bonds can either be callable or noncallable. Examples of Prepayment Risk For a callable bond, the higher a bond's interest rate relative to current interest rates, the higher the prepayment risk. With mortgage-backed securities, the probability that the underlying mortgages will be refinanced increases as current market interest rates fall further below the old rates. For example, a homeowner who takes out a mortgage at 7% has a much stronger incentive to refinance after rates drop to 4% or 5%. When and if the homeowner refinances, those who invested in the original mortgage on the secondary market do not receive the full term of interest payments. If they wish to keep investing in the mortgage market, they will have to accept lower interest rates or higher default risk. Investors who purchase a callable bond with a high interest rate take on prepayment risk. In addition to being highly correlated with falling interest rates, mortgage prepayments are highly correlated with rising home values. That's because rising home values provide an incentive for borrowers to trade up their homes or use cash-out refinances, both of which lead to mortgage prepayments.

https://www.investopedia.com/credit-card-users-paid-usd12-billion-in-late-fees-in-2020-5224048

Credit Card Issuers Charged $12 Billion in Late Fees in 2020, CFPB Report Finds

<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 new report from the Consumer Financial Protection Bureau (CFPB) highlights how much credit card issuers rely on late fees, which disproportionately impact subprime credit borrowers and private label card users, low-income individuals, and communities of color. </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"> The report focuses on the $12 billion that credit card companies charged customers in 2020 amid widespread economic uncertainty due to the coronavirus pandemic. </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>Credit card issuers charged $12 billion in late fees in 2020 while tens of millions of American workers were left unemployed or furloughed.</li><li>Consumers with subprime credit cards and private label store cards are particularly susceptible, especially in relation to their credit limits.</li><li>The report also highlights that consumers living in low-income and majority-Black communities are disproportionately impacted by credit card late fees.</li></ul></div></div></div> <span class="heading-toc" id="toc-cfpb-report-highlights-how-credit-card-issuers-rely-on-late-fees"></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"> CFPB Report Highlights How Credit Card Issuers Rely on Late Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The CFPB released a report this week on how credit card companies handled late payments in 2020 when the coronavirus pandemic and ensuing economic uncertainty dominated everyday life in the U.S. </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"> According to the federal agency's report, credit card companies raked in $12 billion in late fees that year. The report also found that late fee volume dropped shortly after consumers received their stimulus checks in 2020 and 2021, particularly for credit card users with low credit scores. The agency interprets the data to suggest that the fees are a penalty for low-income households rather than an incentive to pay on time. </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"> Other key findings of the report 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><strong>Most card issuers charge at or near the maximum amount allowed: </strong>18 of the top credit card issuers in the U.S. have set their late fees at or near the maximum amount allowable by the Credit CARD Act of 2009—that's $30 for the first late payment and $41 for subsequent late payments within six billing cycles.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Subprime and private label card users get hit particularly hard: </strong>On average, consumers with deep subprime credit card accounts pay $138 in late fees per year, accounting for 11% of their balances compared to 0.8% for super-prime accounts because of lower credit limits. Additionally, late fees make up a staggering 91% of all consumer fees charged by private label credit cards and 25% of total interest and fees. In comparison, late fees make up 45% of all consumer fees and 7% of total interest and fees on general-purpose credit cards.</li><li><strong>Disadvantaged and minority communities share more of the burden: </strong>The report found that card users in the country's poorest neighborhoods paid double the amount in late fees as card users in the richest neighborhoods in 2019. Additionally, card users in majority-Black neighborhoods paid more in late fees for each card they had compared to majority-white neighborhoods. Finally, those who live in areas with the lowest rates of economic mobility paid roughly $10 more in late fee charges for each account than people living in the communities with the highest economic mobility rates.<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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The CFPB expects credit card issuers to hike their late fees even further, citing an immunity provision in the CARD Act that adjusts the maximum fees annually based on inflation. The agency recommends visiting its website to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/about-us/blog/hidden-cost-junk-fees/">learn more about late payment fees and other "junk fees" and to share your experience</a>. </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>

A new report from the Consumer Financial Protection Bureau (CFPB) highlights how much credit card issuers rely on late fees, which disproportionately impact subprime credit borrowers and private label card users, low-income individuals, and communities of color. The report focuses on the $12 billion that credit card companies charged customers in 2020 amid widespread economic uncertainty due to the coronavirus pandemic. ### Key Takeaways * Credit card issuers charged $12 billion in late fees in 2020 while tens of millions of American workers were left unemployed or furloughed. * Consumers with subprime credit cards and private label store cards are particularly susceptible, especially in relation to their credit limits. * The report also highlights that consumers living in low-income and majority-Black communities are disproportionately impacted by credit card late fees. ## CFPB Report Highlights How Credit Card Issuers Rely on Late Fees The CFPB released a report this week on how credit card companies handled late payments in 2020 when the coronavirus pandemic and ensuing economic uncertainty dominated everyday life in the U.S. According to the federal agency's report, credit card companies raked in $12 billion in late fees that year. The report also found that late fee volume dropped shortly after consumers received their stimulus checks in 2020 and 2021, particularly for credit card users with low credit scores. The agency interprets the data to suggest that the fees are a penalty for low-income households rather than an incentive to pay on time. Other key findings of the report include: * **Most card issuers charge at or near the maximum amount allowed:** 18 of the top credit card issuers in the U.S. have set their late fees at or near the maximum amount allowable by the Credit CARD Act of 2009—that's $30 for the first late payment and $41 for subsequent late payments within six billing cycles. * **Subprime and private label card users get hit particularly hard:** On average, consumers with deep subprime credit card accounts pay $138 in late fees per year, accounting for 11% of their balances compared to 0.8% for super-prime accounts because of lower credit limits. Additionally, late fees make up a staggering 91% of all consumer fees charged by private label credit cards and 25% of total interest and fees. In comparison, late fees make up 45% of all consumer fees and 7% of total interest and fees on general-purpose credit cards. * **Disadvantaged and minority communities share more of the burden:** The report found that card users in the country's poorest neighborhoods paid double the amount in late fees as card users in the richest neighborhoods in 2019. Additionally, card users in majority-Black neighborhoods paid more in late fees for each card they had compared to majority-white neighborhoods. Finally, those who live in areas with the lowest rates of economic mobility paid roughly $10 more in late fee charges for each account than people living in the communities with the highest economic mobility rates. The CFPB expects credit card issuers to hike their late fees even further, citing an immunity provision in the CARD Act that adjusts the maximum fees annually based on inflation. The agency recommends visiting its website to [learn more about late payment fees and other "junk fees" and to share your experience](https://www.consumerfinance.gov/about-us/blog/hidden-cost-junk-fees/). Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

A new report from the Consumer Financial Protection Bureau (CFPB) highlights how much credit card issuers rely on late fees, which disproportionately impact subprime credit borrowers and private label card users, low-income individuals, and communities of color. The report focuses on the $12 billion that credit card companies charged customers in 2020 amid widespread economic uncertainty due to the coronavirus pandemic. Key Takeaways Credit card issuers charged $12 billion in late fees in 2020 while tens of millions of American workers were left unemployed or furloughed.Consumers with subprime credit cards and private label store cards are particularly susceptible, especially in relation to their credit limits.The report also highlights that consumers living in low-income and majority-Black communities are disproportionately impacted by credit card late fees. CFPB Report Highlights How Credit Card Issuers Rely on Late Fees The CFPB released a report this week on how credit card companies handled late payments in 2020 when the coronavirus pandemic and ensuing economic uncertainty dominated everyday life in the U.S. According to the federal agency's report, credit card companies raked in $12 billion in late fees that year. The report also found that late fee volume dropped shortly after consumers received their stimulus checks in 2020 and 2021, particularly for credit card users with low credit scores. The agency interprets the data to suggest that the fees are a penalty for low-income households rather than an incentive to pay on time. Other key findings of the report include: Most card issuers charge at or near the maximum amount allowed: 18 of the top credit card issuers in the U.S. have set their late fees at or near the maximum amount allowable by the Credit CARD Act of 2009—that's $30 for the first late payment and $41 for subsequent late payments within six billing cycles.Subprime and private label card users get hit particularly hard: On average, consumers with deep subprime credit card accounts pay $138 in late fees per year, accounting for 11% of their balances compared to 0.8% for super-prime accounts because of lower credit limits. Additionally, late fees make up a staggering 91% of all consumer fees charged by private label credit cards and 25% of total interest and fees. In comparison, late fees make up 45% of all consumer fees and 7% of total interest and fees on general-purpose credit cards.Disadvantaged and minority communities share more of the burden: The report found that card users in the country's poorest neighborhoods paid double the amount in late fees as card users in the richest neighborhoods in 2019. Additionally, card users in majority-Black neighborhoods paid more in late fees for each card they had compared to majority-white neighborhoods. Finally, those who live in areas with the lowest rates of economic mobility paid roughly $10 more in late fee charges for each account than people living in the communities with the highest economic mobility rates. The CFPB expects credit card issuers to hike their late fees even further, citing an immunity provision in the CARD Act that adjusts the maximum fees annually based on inflation. The agency recommends visiting its website to learn more about late payment fees and other "junk fees" and to share your experience. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/ask/answers/050615/what-difference-between-notional-value-and-market-value.asp

Notional Value vs. Market Value: 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-notional-value-vs-market-value-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"> Notional Value vs. Market Value: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The notional value and market value both describe the value of a security. Notional value speaks to how much total value a security theoretically controls—for instance through derivatives contracts or debt obligations. </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"> Market value, on the other hand, is the price of a security right now that can be bought or sold on an exchange or through a broker. Market value is also used to refer to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a> of a publicly traded company and is determined by multiplying the number of outstanding shares by the current share price. </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>Notional value is the total value controlled by a position or obligation; e.g. how much value is represented by a derivatives contract.</li><li>Market value is the price of a security set by buyers and sellers in the marketplace through supply and demand.</li><li>For example, a call option representing 100 shares of XYZ stock with a strike price of $40 may trade in the market for $1.20 per contract (100 x $1.20 = $120 market value) but represents a notional value of $4,000 (100 x $40).</li></ul></div></div></div> <span class="heading-toc" id="toc-notional-value"></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"> Notional Value </span> </h2> <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/terms/n/notionalvalue.asp">notional value</a> is the total amount of a security's underlying asset at its spot price. The notional value distinguishes between the amount of money invested and the amount of money associated with the whole transaction. The notional value is calculated by multiplying the units in one contract by the spot 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"> For example, assume an investor wants to buy one gold futures contract. The futures contract costs the buyer 100 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/troyounce.asp">troy ounces</a> of gold. If gold futures are trading at $1,300, then one gold futures contract has a notional value of $130,000. </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"> Notional value can be used in futures and stocks. However, it is more often seen and used in the following five ways: through interest rate swaps, total return swaps, equity options, foreign currency exchange and foreign currency derivatives, and exchange-traded funds (ETFs). </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"> With <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrateswap.asp">interest rate swaps</a>, the notional value is used to come up with the amount of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest-due.asp">interest due</a>. With total return swaps, the notional value is used as part of several calculations that determine the swap rates. With equity options, the notional value refers to the value that the option controls. With foreign currency exchange and foreign currency derivatives, notional value is used to value the currencies. </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>Notional value accounts for the total value of the position, while market value is the price at which the position can be bought or sold, as set by the market.</p></div></div></div> <span class="heading-toc" id="toc-market-value"></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"> Market Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Market value is very different from notional value. Market value is the price of a security that buyers and sellers agree on in the marketplace. The security's market value is calculated by determining the security's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp">supply and demand</a>. Unlike the notional value, which determines the total value of a security based on its contract specification, the market value is the price of one unit of the security. </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"> A company’s market value is a good indication of investors’ perceptions of its business prospects. The range of market values in the marketplace is enormous, ranging from less than $1 million for the smallest companies to trillons for the world’s biggest and most successful companies. </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"> Market value can fluctuate a great deal over periods of time and is substantially influenced by the business cycle. Market values may plunge during the bear markets that accompany recessions, and often rise during the bull markets that are a feature of economic expansion. </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-notional-value-vs-market-value-example"></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"> Notional Value vs. Market Value Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The market value of a security or financial contract is the amount you can buy it for in the marketplace. For example, assume that the S&amp;P 500 Index <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures</a> are trading at $2,700. The market value of one unit of the S&amp;P 500 Index is $2,700. </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"> Conversely, the notional value is the underlying value of that derivative contract in relation to its market value. Say that one futures contract of the S&amp;P consists of 250 units. Then, the notional value of one S&amp;P Index futures contract is $675,000 ($2,700*250) because one S&amp;P Index futures contract leverages 250 units of the index. </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-is-an-example-of-notional-value"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of Notional Value?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>For example, assume that a wheat futures contract was selling for $50. Each wheat futures contract consists of 5,000 bushels of wheat. The notional value would be $50 x 5,000 = $250,000</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-is-a-companys-market-value"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Company's Market Value?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A company's market value, also known as its market capitalization, is how much a company is worth financially. It is calculated by multiplying a company's current share price by its shares outstanding. For example, say Company ABC's share price was $10 and it had 20,000 shares outstanding, its market cap would be $200,000.</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-difference-between-book-value-and-market-value"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Book Value and Market Value?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Book value and market value are two ways of estimating the value of a company. Book value looks at a company's financial statements and values a company as its total assets minus intangible assets and liabilities. Market value, on the other hand, looks at a company's value based on its share price. It multiplies a company's share price by its total shares outstanding.</p></div> </div> <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-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Market value and notional value each represent different sums that are important for investors to understand. The notional value is how much value is represented by an obligation or contract—for instance, an options contract that controls 1,000 bushels of wheat or a corporate bond with a face value at maturity of $1,000. </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 market value of these obligations, however, will vary due to supply and demand and prevailing market conditions. For instance, if the options contract is very far out of the money, its market value may be close to zero, or if interest rates rise substantially, the market value of the bond will be less than $1,000. </p></div>

## Notional Value vs. Market Value: An Overview The notional value and market value both describe the value of a security. Notional value speaks to how much total value a security theoretically controls—for instance through derivatives contracts or debt obligations. Market value, on the other hand, is the price of a security right now that can be bought or sold on an exchange or through a broker. Market value is also used to refer to the [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) of a publicly traded company and is determined by multiplying the number of outstanding shares by the current share price. ### Key Takeaways * Notional value is the total value controlled by a position or obligation; e.g. how much value is represented by a derivatives contract. * Market value is the price of a security set by buyers and sellers in the marketplace through supply and demand. * For example, a call option representing 100 shares of XYZ stock with a strike price of $40 may trade in the market for $1.20 per contract (100 x $1.20 = $120 market value) but represents a notional value of $4,000 (100 x $40). ## Notional Value The [notional value](https://www.investopedia.com/terms/n/notionalvalue.asp) is the total amount of a security's underlying asset at its spot price. The notional value distinguishes between the amount of money invested and the amount of money associated with the whole transaction. The notional value is calculated by multiplying the units in one contract by the spot price. For example, assume an investor wants to buy one gold futures contract. The futures contract costs the buyer 100 [troy ounces](https://www.investopedia.com/terms/t/troyounce.asp) of gold. If gold futures are trading at $1,300, then one gold futures contract has a notional value of $130,000. Notional value can be used in futures and stocks. However, it is more often seen and used in the following five ways: through interest rate swaps, total return swaps, equity options, foreign currency exchange and foreign currency derivatives, and exchange-traded funds (ETFs). With [interest rate swaps](https://www.investopedia.com/terms/i/interestrateswap.asp), the notional value is used to come up with the amount of [interest due](https://www.investopedia.com/terms/i/interest-due.asp). With total return swaps, the notional value is used as part of several calculations that determine the swap rates. With equity options, the notional value refers to the value that the option controls. With foreign currency exchange and foreign currency derivatives, notional value is used to value the currencies. ### Notional value accounts for the total value of the position, while market value is the price at which the position can be bought or sold, as set by the market. ## Market Value Market value is very different from notional value. Market value is the price of a security that buyers and sellers agree on in the marketplace. The security's market value is calculated by determining the security's [supply and demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp). Unlike the notional value, which determines the total value of a security based on its contract specification, the market value is the price of one unit of the security. A company’s market value is a good indication of investors’ perceptions of its business prospects. The range of market values in the marketplace is enormous, ranging from less than $1 million for the smallest companies to trillons for the world’s biggest and most successful companies. Market value can fluctuate a great deal over periods of time and is substantially influenced by the business cycle. Market values may plunge during the bear markets that accompany recessions, and often rise during the bull markets that are a feature of economic expansion. ## Notional Value vs. Market Value Example The market value of a security or financial contract is the amount you can buy it for in the marketplace. For example, assume that the S&P 500 Index [futures](https://www.investopedia.com/terms/f/futurescontract.asp) are trading at $2,700. The market value of one unit of the S&P 500 Index is $2,700. Conversely, the notional value is the underlying value of that derivative contract in relation to its market value. Say that one futures contract of the S&P consists of 250 units. Then, the notional value of one S&P Index futures contract is $675,000 ($2,700\*250) because one S&P Index futures contract leverages 250 units of the index. ## What Is an Example of Notional Value? For example, assume that a wheat futures contract was selling for $50. Each wheat futures contract consists of 5,000 bushels of wheat. The notional value would be $50 x 5,000 = $250,000 ## What Is a Company's Market Value? A company's market value, also known as its market capitalization, is how much a company is worth financially. It is calculated by multiplying a company's current share price by its shares outstanding. For example, say Company ABC's share price was $10 and it had 20,000 shares outstanding, its market cap would be $200,000. ## What Is the Difference Between Book Value and Market Value? Book value and market value are two ways of estimating the value of a company. Book value looks at a company's financial statements and values a company as its total assets minus intangible assets and liabilities. Market value, on the other hand, looks at a company's value based on its share price. It multiplies a company's share price by its total shares outstanding. ## The Bottom Line Market value and notional value each represent different sums that are important for investors to understand. The notional value is how much value is represented by an obligation or contract—for instance, an options contract that controls 1,000 bushels of wheat or a corporate bond with a face value at maturity of $1,000. The market value of these obligations, however, will vary due to supply and demand and prevailing market conditions. For instance, if the options contract is very far out of the money, its market value may be close to zero, or if interest rates rise substantially, the market value of the bond will be less than $1,000.

Notional Value vs. Market Value: An Overview The notional value and market value both describe the value of a security. Notional value speaks to how much total value a security theoretically controls—for instance through derivatives contracts or debt obligations. Market value, on the other hand, is the price of a security right now that can be bought or sold on an exchange or through a broker. Market value is also used to refer to the market capitalization of a publicly traded company and is determined by multiplying the number of outstanding shares by the current share price. Key Takeaways Notional value is the total value controlled by a position or obligation; e.g. how much value is represented by a derivatives contract.Market value is the price of a security set by buyers and sellers in the marketplace through supply and demand.For example, a call option representing 100 shares of XYZ stock with a strike price of $40 may trade in the market for $1.20 per contract (100 x $1.20 = $120 market value) but represents a notional value of $4,000 (100 x $40). Notional Value The notional value is the total amount of a security's underlying asset at its spot price. The notional value distinguishes between the amount of money invested and the amount of money associated with the whole transaction. The notional value is calculated by multiplying the units in one contract by the spot price. For example, assume an investor wants to buy one gold futures contract. The futures contract costs the buyer 100 troy ounces of gold. If gold futures are trading at $1,300, then one gold futures contract has a notional value of $130,000. Notional value can be used in futures and stocks. However, it is more often seen and used in the following five ways: through interest rate swaps, total return swaps, equity options, foreign currency exchange and foreign currency derivatives, and exchange-traded funds (ETFs). With interest rate swaps, the notional value is used to come up with the amount of interest due. With total return swaps, the notional value is used as part of several calculations that determine the swap rates. With equity options, the notional value refers to the value that the option controls. With foreign currency exchange and foreign currency derivatives, notional value is used to value the currencies. Notional value accounts for the total value of the position, while market value is the price at which the position can be bought or sold, as set by the market. Market Value Market value is very different from notional value. Market value is the price of a security that buyers and sellers agree on in the marketplace. The security's market value is calculated by determining the security's supply and demand. Unlike the notional value, which determines the total value of a security based on its contract specification, the market value is the price of one unit of the security. A company’s market value is a good indication of investors’ perceptions of its business prospects. The range of market values in the marketplace is enormous, ranging from less than $1 million for the smallest companies to trillons for the world’s biggest and most successful companies. Market value can fluctuate a great deal over periods of time and is substantially influenced by the business cycle. Market values may plunge during the bear markets that accompany recessions, and often rise during the bull markets that are a feature of economic expansion. Notional Value vs. Market Value Example The market value of a security or financial contract is the amount you can buy it for in the marketplace. For example, assume that the S&P 500 Index futures are trading at $2,700. The market value of one unit of the S&P 500 Index is $2,700. Conversely, the notional value is the underlying value of that derivative contract in relation to its market value. Say that one futures contract of the S&P consists of 250 units. Then, the notional value of one S&P Index futures contract is $675,000 ($2,700*250) because one S&P Index futures contract leverages 250 units of the index. What Is an Example of Notional Value? For example, assume that a wheat futures contract was selling for $50. Each wheat futures contract consists of 5,000 bushels of wheat. The notional value would be $50 x 5,000 = $250,000 What Is a Company's Market Value? A company's market value, also known as its market capitalization, is how much a company is worth financially. It is calculated by multiplying a company's current share price by its shares outstanding. For example, say Company ABC's share price was $10 and it had 20,000 shares outstanding, its market cap would be $200,000. What Is the Difference Between Book Value and Market Value? Book value and market value are two ways of estimating the value of a company. Book value looks at a company's financial statements and values a company as its total assets minus intangible assets and liabilities. Market value, on the other hand, looks at a company's value based on its share price. It multiplies a company's share price by its total shares outstanding. The Bottom Line Market value and notional value each represent different sums that are important for investors to understand. The notional value is how much value is represented by an obligation or contract—for instance, an options contract that controls 1,000 bushels of wheat or a corporate bond with a face value at maturity of $1,000. The market value of these obligations, however, will vary due to supply and demand and prevailing market conditions. For instance, if the options contract is very far out of the money, its market value may be close to zero, or if interest rates rise substantially, the market value of the bond will be less than $1,000.

https://www.investopedia.com/what-is-wedding-insurance-and-is-it-worth-the-cost-5208047

Wedding Insurance: Meaning, Riders, Coverage

<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 the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-build-your-wedding-budget-5195776">average wedding budget</a> hovering around $20,000 these days, your ceremony and reception will likely be the most expensive event that you and your partner will ever plan.<span class="ql-inline-citation" data-cite="1"></span> Because so much money is on the line, buying wedding insurance could be a smart idea. But before you buy a policy, it’s important to know what it will and won’t cover.<br/> </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 wedding insurance policy can provide financial protection from unforeseen events on your big day. </li><li>Wedding liability insurance can cover injuries or accidents that occur during the ceremony or reception.</li><li>Wedding cancellation or postponement insurance can reimburse you for costs that you incur if you have to call off or postpone the ceremony due to extreme weather, injury, illness, or an issue with a vendor. </li><li>Wedding liability insurance starts at about $125, while wedding cancellation and postponement insurance starts at about $100.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-wedding-insurance"></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 Wedding Insurance?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Wedding insurance is a type of special event insurance that offers financial protection for issues related to your celebration. There are two main kinds:  </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>Wedding liability insurance. </strong>Liability insurance will help you pay for property damage or injuries that occur during your event. For example, if a wedding guest enjoys the open bar too much and damages the venue’s window, liability coverage could pay for its replacement or repair. </li><li><strong>Wedding cancellation or postponement. </strong>Wedding cancellation or postponement insurance will reimburse you if the ceremony or reception needs to be cancelled or postponed due to circumstances beyond your control. For example, your policy could cover you if the ceremony was canceled because of extreme weather (such as a hurricane or severe snowstorm), illness, injury, or because a vendor went out of business.<strong> </strong></li> </ul> <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-wedding-insurance-riders"></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"> Wedding Insurance Riders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Wedding insurance typically covers particular circumstances, but you can buy optional insurance riders to get additional coverage. Common riders that may be available include:  </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><strong>Military service. </strong>If you or your partner are in the military or active reserves and are called to duty, a military service rider would cover the costs of rescheduling your event. </li> <li><strong>Bridal gowns and tuxedos.</strong> If the store where you bought your wedding gown or tuxedo goes out of business—stranding you without your wedding clothes or deposit—this rider will help cover the cost of new clothes. </li> <li><strong>Honeymoon. </strong>If you have to cancel your honeymoon because of inclement weather or illness, a honeymoon rider could reimburse you for your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pros-and-cons-of-destination-weddings-5195764">travel fees</a>.</li> </ul> <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-what-doesnt-wedding-insurance-cover"></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"> What Doesn’t Wedding Insurance Cover?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Wedding insurance doesn’t cover everything that might go wrong. While policy terms can vary by insurer, the following exclusions usually apply:  </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><strong>Cost.</strong> In general, cancellations or postponements due to cost aren’t covered by wedding insurance. For instance, suppose you realize that the ceremony and reception have exceeded your budget, and you decide to scale back. In that case, your wedding insurance policy won’t reimburse you for lost deposits or other expenses. </li><li><strong>Change of heart. </strong>If you or your partner change your mind about getting married, your policy typically won’t cover the costs resulting from the wedding’s cancellation. </li><li><strong>Ordinary bad weather. </strong>Wedding insurance will only reimburse you for cancellations or postponements due to extreme weather conditions, meaning conditions so severe that you, your partner, or at least half of your guests can’t reach the wedding venue. For more common weather conditions—such as rain on the day of your beach wedding—the policy won’t reimburse you.<strong> </strong></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"> Before purchasing a policy, you’ll want read the terms and exclusions carefully so you understand what’s covered (and what’s not). </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-how-much-does-wedding-insurance-cost"></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 Much Does Wedding Insurance Cost?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The cost of wedding insurance depends on several factors:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>Your location</li><li>The issuing insurer</li><li>Coverage amounts</li><li>Size of wedding</li><li>Optional riders</li> </ul> <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 general, a basic cancellation and postponement policy will cost $100 to $500. A general liability policy that provides up to $1 million in coverage for accidents or injuries costs around $125.  </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"> It’s a good idea to shop around and compare policy quotes from multiple insurance companies. If you’re not sure where to start, check out our picks for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-wedding-insurance-4800442">best wedding insurance companies</a>.  </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-does-wedding-insurance-cover-gifts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does wedding insurance cover gifts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A basic wedding insurance policy doesn’t typically cover lost or stolen gifts unless you add a wedding gift rider to your insurance plan when you buy it.</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-does-wedding-insurance-cover-breakups"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does wedding insurance cover breakups?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unfortunately, wedding insurance typically doesn’t cover cancellations due to the couple splitting up. </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-where-can-i-buy-wedding-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where can I buy wedding insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Wedding insurance is sold by some major insurance companies, as well as by companies that specialize in this particular niche.</p></div> </div> <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-bottom-line"></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 Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> A wedding insurance policy can help cover your costs if things go wrong on your big day. Although a policy can run several hundred dollars for a typical ceremony, given the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/study-finds-loans-investments-fund-weddings-5207578">cost of the average wedding</a> today, it could be well worth the investment. </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"> It’s wise to start shopping for a wedding insurance policy as soon as you begin the planning process. Compare policies and rates from multiple companies, and be sure to read the exclusions and restrictions carefully, because policies vary in what they will and won’t cover. </p></div>

With the [average wedding budget](https://www.investopedia.com/how-to-build-your-wedding-budget-5195776) hovering around $20,000 these days, your ceremony and reception will likely be the most expensive event that you and your partner will ever plan. Because so much money is on the line, buying wedding insurance could be a smart idea. But before you buy a policy, it’s important to know what it will and won’t cover. ### Key Takeaways * A wedding insurance policy can provide financial protection from unforeseen events on your big day. * Wedding liability insurance can cover injuries or accidents that occur during the ceremony or reception. * Wedding cancellation or postponement insurance can reimburse you for costs that you incur if you have to call off or postpone the ceremony due to extreme weather, injury, illness, or an issue with a vendor. * Wedding liability insurance starts at about $125, while wedding cancellation and postponement insurance starts at about $100. ## What Is Wedding Insurance? Wedding insurance is a type of special event insurance that offers financial protection for issues related to your celebration. There are two main kinds:  * **Wedding liability insurance.** Liability insurance will help you pay for property damage or injuries that occur during your event. For example, if a wedding guest enjoys the open bar too much and damages the venue’s window, liability coverage could pay for its replacement or repair. * **Wedding cancellation or postponement.** Wedding cancellation or postponement insurance will reimburse you if the ceremony or reception needs to be cancelled or postponed due to circumstances beyond your control. For example, your policy could cover you if the ceremony was canceled because of extreme weather (such as a hurricane or severe snowstorm), illness, injury, or because a vendor went out of business. ## Wedding Insurance Riders Wedding insurance typically covers particular circumstances, but you can buy optional insurance riders to get additional coverage. Common riders that may be available include:  * **Military service.** If you or your partner are in the military or active reserves and are called to duty, a military service rider would cover the costs of rescheduling your event. * **Bridal gowns and tuxedos.** If the store where you bought your wedding gown or tuxedo goes out of business—stranding you without your wedding clothes or deposit—this rider will help cover the cost of new clothes. * **Honeymoon.** If you have to cancel your honeymoon because of inclement weather or illness, a honeymoon rider could reimburse you for your [travel fees](https://www.investopedia.com/pros-and-cons-of-destination-weddings-5195764). ## What Doesn’t Wedding Insurance Cover? Wedding insurance doesn’t cover everything that might go wrong. While policy terms can vary by insurer, the following exclusions usually apply:  * **Cost.** In general, cancellations or postponements due to cost aren’t covered by wedding insurance. For instance, suppose you realize that the ceremony and reception have exceeded your budget, and you decide to scale back. In that case, your wedding insurance policy won’t reimburse you for lost deposits or other expenses. * **Change of heart.** If you or your partner change your mind about getting married, your policy typically won’t cover the costs resulting from the wedding’s cancellation. * **Ordinary bad weather.** Wedding insurance will only reimburse you for cancellations or postponements due to extreme weather conditions, meaning conditions so severe that you, your partner, or at least half of your guests can’t reach the wedding venue. For more common weather conditions—such as rain on the day of your beach wedding—the policy won’t reimburse you. Before purchasing a policy, you’ll want read the terms and exclusions carefully so you understand what’s covered (and what’s not). ## How Much Does Wedding Insurance Cost? The cost of wedding insurance depends on several factors:  * Your location * The issuing insurer * Coverage amounts * Size of wedding * Optional riders In general, a basic cancellation and postponement policy will cost $100 to $500. A general liability policy that provides up to $1 million in coverage for accidents or injuries costs around $125.  It’s a good idea to shop around and compare policy quotes from multiple insurance companies. If you’re not sure where to start, check out our picks for the [best wedding insurance companies](https://www.investopedia.com/best-wedding-insurance-4800442).  ## Does wedding insurance cover gifts? A basic wedding insurance policy doesn’t typically cover lost or stolen gifts unless you add a wedding gift rider to your insurance plan when you buy it. ## Does wedding insurance cover breakups? Unfortunately, wedding insurance typically doesn’t cover cancellations due to the couple splitting up.  ## Where can I buy wedding insurance? Wedding insurance is sold by some major insurance companies, as well as by companies that specialize in this particular niche. ## The Bottom Line A wedding insurance policy can help cover your costs if things go wrong on your big day. Although a policy can run several hundred dollars for a typical ceremony, given the [cost of the average wedding](https://www.investopedia.com/study-finds-loans-investments-fund-weddings-5207578) today, it could be well worth the investment. It’s wise to start shopping for a wedding insurance policy as soon as you begin the planning process. Compare policies and rates from multiple companies, and be sure to read the exclusions and restrictions carefully, because policies vary in what they will and won’t cover.

With the average wedding budget hovering around $20,000 these days, your ceremony and reception will likely be the most expensive event that you and your partner will ever plan. Because so much money is on the line, buying wedding insurance could be a smart idea. But before you buy a policy, it’s important to know what it will and won’t cover. Key Takeaways A wedding insurance policy can provide financial protection from unforeseen events on your big day. Wedding liability insurance can cover injuries or accidents that occur during the ceremony or reception.Wedding cancellation or postponement insurance can reimburse you for costs that you incur if you have to call off or postpone the ceremony due to extreme weather, injury, illness, or an issue with a vendor. Wedding liability insurance starts at about $125, while wedding cancellation and postponement insurance starts at about $100. What Is Wedding Insurance?  Wedding insurance is a type of special event insurance that offers financial protection for issues related to your celebration. There are two main kinds:  Wedding liability insurance. Liability insurance will help you pay for property damage or injuries that occur during your event. For example, if a wedding guest enjoys the open bar too much and damages the venue’s window, liability coverage could pay for its replacement or repair. Wedding cancellation or postponement. Wedding cancellation or postponement insurance will reimburse you if the ceremony or reception needs to be cancelled or postponed due to circumstances beyond your control. For example, your policy could cover you if the ceremony was canceled because of extreme weather (such as a hurricane or severe snowstorm), illness, injury, or because a vendor went out of business.  Wedding Insurance Riders Wedding insurance typically covers particular circumstances, but you can buy optional insurance riders to get additional coverage. Common riders that may be available include:  Military service. If you or your partner are in the military or active reserves and are called to duty, a military service rider would cover the costs of rescheduling your event.  Bridal gowns and tuxedos. If the store where you bought your wedding gown or tuxedo goes out of business—stranding you without your wedding clothes or deposit—this rider will help cover the cost of new clothes.  Honeymoon. If you have to cancel your honeymoon because of inclement weather or illness, a honeymoon rider could reimburse you for your travel fees. What Doesn’t Wedding Insurance Cover?  Wedding insurance doesn’t cover everything that might go wrong. While policy terms can vary by insurer, the following exclusions usually apply:  Cost. In general, cancellations or postponements due to cost aren’t covered by wedding insurance. For instance, suppose you realize that the ceremony and reception have exceeded your budget, and you decide to scale back. In that case, your wedding insurance policy won’t reimburse you for lost deposits or other expenses. Change of heart. If you or your partner change your mind about getting married, your policy typically won’t cover the costs resulting from the wedding’s cancellation. Ordinary bad weather. Wedding insurance will only reimburse you for cancellations or postponements due to extreme weather conditions, meaning conditions so severe that you, your partner, or at least half of your guests can’t reach the wedding venue. For more common weather conditions—such as rain on the day of your beach wedding—the policy won’t reimburse you.  Before purchasing a policy, you’ll want read the terms and exclusions carefully so you understand what’s covered (and what’s not). How Much Does Wedding Insurance Cost?  The cost of wedding insurance depends on several factors:  Your locationThe issuing insurerCoverage amountsSize of weddingOptional riders In general, a basic cancellation and postponement policy will cost $100 to $500. A general liability policy that provides up to $1 million in coverage for accidents or injuries costs around $125.  It’s a good idea to shop around and compare policy quotes from multiple insurance companies. If you’re not sure where to start, check out our picks for the best wedding insurance companies.  Does wedding insurance cover gifts? A basic wedding insurance policy doesn’t typically cover lost or stolen gifts unless you add a wedding gift rider to your insurance plan when you buy it. Does wedding insurance cover breakups? Unfortunately, wedding insurance typically doesn’t cover cancellations due to the couple splitting up.  Where can I buy wedding insurance? Wedding insurance is sold by some major insurance companies, as well as by companies that specialize in this particular niche. The Bottom Line A wedding insurance policy can help cover your costs if things go wrong on your big day. Although a policy can run several hundred dollars for a typical ceremony, given the cost of the average wedding today, it could be well worth the investment. It’s wise to start shopping for a wedding insurance policy as soon as you begin the planning process. Compare policies and rates from multiple companies, and be sure to read the exclusions and restrictions carefully, because policies vary in what they will and won’t cover.

https://www.investopedia.com/tesla-raises-prices-7483549

Tesla Raises Prices After Margin Concern Hammers 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Tesla Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>) raised U.S. prices for its Model S and Model X cars, a reversal that followed six rounds of cuts, as lower prices and higher commodity costs dented first quarter margins and worried investors. </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>Tesla raises the price of its premium Model S and X by up to 3%.</li><li>The company moved to shore up a 38% sales slump for the models in Q1.</li><li>Investors dumped the stock on Wednesday after disappointing earnings.</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"> Model S and Model X premium vehicles will now cost $2,500 more, although they're still as much as 23% cheaper than at the start of the year. </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"> Tesla has been slashing prices globally to drive sales with a focus on Model Y and Model 3. The automaker premiums after sales slumped 36% in the first quarter. The decline came even after <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tesla-smashes-delivery-record-in-the-first-quarter-7374829">record deliveries</a> in the same period.<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"> Tesla shares fell about 10% on Thursday after the company said in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tesla-margins-disappoint-7482828">first-quarter earnings</a> report that its gross margins fell to 19.3%, a two-year low that missed analysts' expectations. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_11-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/jZ2w5/4/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Tesla's Gross Profit Margin Dropped"></iframe></div> <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"> Musk told analysts on an earnings call this week that the company is happy to sacrifice margins for sales.<span class="ql-inline-citation" data-cite="4"></span> Even though the price of key battery components such as Cobalt and Lithium have fallen by about half this year, Tesla isn't likely to find margin relief anytime as predetermined contracts ensure a lag.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> CFO Zachary Kinghorn said that the materials price slump will help only in the second half of the year. Tesla was "still kind of at the maximum of pain for commodities in our cost structure," Kinghorn said.<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Truist analyst William Stein cut his recommendation on Tesla shares to hold from buy, noting Musk's "brazen willingness" to accept lower margins in pursuit of autonomous driving.<span class="ql-inline-citation" data-cite="3"></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>

Tesla Inc. ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)) raised U.S. prices for its Model S and Model X cars, a reversal that followed six rounds of cuts, as lower prices and higher commodity costs dented first quarter margins and worried investors. ### Key Takeaways * Tesla raises the price of its premium Model S and X by up to 3%. * The company moved to shore up a 38% sales slump for the models in Q1. * Investors dumped the stock on Wednesday after disappointing earnings. Model S and Model X premium vehicles will now cost $2,500 more, although they're still as much as 23% cheaper than at the start of the year. Tesla has been slashing prices globally to drive sales with a focus on Model Y and Model 3. The automaker premiums after sales slumped 36% in the first quarter. The decline came even after [record deliveries](https://www.investopedia.com/tesla-smashes-delivery-record-in-the-first-quarter-7374829) in the same period. Tesla shares fell about 10% on Thursday after the company said in its [first-quarter earnings](https://www.investopedia.com/tesla-margins-disappoint-7482828) report that its gross margins fell to 19.3%, a two-year low that missed analysts' expectations. Musk told analysts on an earnings call this week that the company is happy to sacrifice margins for sales. Even though the price of key battery components such as Cobalt and Lithium have fallen by about half this year, Tesla isn't likely to find margin relief anytime as predetermined contracts ensure a lag. CFO Zachary Kinghorn said that the materials price slump will help only in the second half of the year. Tesla was "still kind of at the maximum of pain for commodities in our cost structure," Kinghorn said. Truist analyst William Stein cut his recommendation on Tesla shares to hold from buy, noting Musk's "brazen willingness" to accept lower margins in pursuit of autonomous driving. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Tesla Inc. (TSLA) raised U.S. prices for its Model S and Model X cars, a reversal that followed six rounds of cuts, as lower prices and higher commodity costs dented first quarter margins and worried investors. Key Takeaways Tesla raises the price of its premium Model S and X by up to 3%.The company moved to shore up a 38% sales slump for the models in Q1.Investors dumped the stock on Wednesday after disappointing earnings. Model S and Model X premium vehicles will now cost $2,500 more, although they're still as much as 23% cheaper than at the start of the year. Tesla has been slashing prices globally to drive sales with a focus on Model Y and Model 3. The automaker premiums after sales slumped 36% in the first quarter. The decline came even after record deliveries in the same period. Tesla shares fell about 10% on Thursday after the company said in its first-quarter earnings report that its gross margins fell to 19.3%, a two-year low that missed analysts' expectations. Musk told analysts on an earnings call this week that the company is happy to sacrifice margins for sales. Even though the price of key battery components such as Cobalt and Lithium have fallen by about half this year, Tesla isn't likely to find margin relief anytime as predetermined contracts ensure a lag. CFO Zachary Kinghorn said that the materials price slump will help only in the second half of the year. Tesla was "still kind of at the maximum of pain for commodities in our cost structure," Kinghorn said. Truist analyst William Stein cut his recommendation on Tesla shares to hold from buy, noting Musk's "brazen willingness" to accept lower margins in pursuit of autonomous driving. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/citizens-bank-extends-400-dollar-checking-account-bonus-to-june-6-8636133

Citizens Bank Extends $400 Checking Account Bonus to June 6

<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>Citizens Bank has extended its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.citizensbank.com/promo/checking/special-offer-2024-b2.aspx" rel="sponsored nofollow">checking account bonus</a> to June 6, 2024. We reported on this offer when it was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/earn-up-to-400-with-one-of-these-five-citizens-bank-checking-accounts-by-april-11-8629090">originally set to expire on April 11</a>.</li> <li>The bonus amount and requirements have not changed.</li> <li>New checking account customers can earn up to $400 in bonus money by setting up direct deposit and meeting a threshold for debit card transactions.</li> <li>This bonus is available on five Citizens Bank checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking.<br/></li> </ul></div></div></div> <span class="heading-toc" id="toc-citizens-bank-checking-accounts-up-to-400-how-to-get-it"></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"> Citizens Bank Checking Accounts - Up to $400: How To Get It </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <li><strong>Open a new eligible personal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.citizensbank.com/promo/checking/special-offer-2024-b2.aspx" rel="sponsored nofollow">Citizens Bank checking account</a> by June 6, 2024:</strong> This offer is available on five checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking. These accounts have different fees and features, such as earning interest or access to financial advisors.</li> <li><strong>Receive at least one single direct deposit of $500 or more within the first 60 days to earn $300:</strong> Unlike most other bonuses, where the requirement involves the total amount of your deposits, Citizens Bank requires a single deposit of at least $500.</li> <li><strong>Earn $2 per debit card transaction, up to $100, within the first 60 days:</strong> Signature and PIN-based transactions (in-person, in-app, and online) are eligible and will count toward this bonus. Fund transfers through services like Zelle are not eligible.</li> <li><strong>Wait and receive the bonus:</strong> Citizens Bank may take up to five months after the date of account opening to pay out this bonus. That’s longer than most bank bonus offers (many others that we track pay out bonus money within four or less months), but the high payout may be worth the wait.<br/></li> </ul> <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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Learn more about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citizens-bank-bonuses-7112710">Citizens Bank bonuses</a>, account requirements, and fees.</p></div></div></div> <span class="heading-toc" id="toc-are-citizens-bank-bonuses-worth-it"></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"> Are Citizens Bank Bonuses Worth It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> If you live in an eligible state where <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citizens-bank-review-4801474">Citizens Bank</a> operates, it could be worthwhile to pursue a bonus for one of the checking accounts above, especially if you often make debit card purchases.  </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-note" 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 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>Citizens Bank operates in Connecticut, Delaware, Florida, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, D.C.<span class="ql-inline-citation" data-cite="1"></span> If you live outside of those states, you can’t bank with Citizens.</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 $300 deposit bonus is relatively easy to get. Many other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-bank-sign-up-bonus-7969724">bank bonuses</a> require thousands of dollars in deposits to earn that much or less, but Citizens only asks for $500. This 60% return is quite a bit better than most bonuses we track (the median ROI is about 15%), and the extra $100 you can get for debit card transactions makes it even better. </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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>We track bank bonuses daily. Through our research, we’ve found the average bank bonus to be around $300. We only write about bank bonuses that are at least as high as this average, and that are a 10% or better return on your deposit to ensure you are getting a good deal. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Another point in this offer’s favor: Citizens Bank offers the same bonus for a variety of account types, giving you some flexibility to get the checking account you need without sacrificing bonus value. With many other banks we track, premium accounts have higher bonuses and higher requirements, while simpler accounts (like student accounts) have lower bonuses and lower requirements.<br> </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-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_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Compare the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-rewards-credit-card-5071957">rewards you’d typically get for credit card purchases</a> before going after the transaction bonus—you’ll only get a $2 bonus for each transaction, no matter how large the transaction is.</p></div></div></div> <span class="heading-toc" id="toc-how-we-track-bank-account-bonuses"></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"> How We Track Bank Account Bonuses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Every business day, Investopedia tracks 23 banks and the current, new, extended, and expired account bonuses they offer customers. Banks are chosen based on consumer interest and we add banks to our list as needed to ensure we're always reporting on the best bank bonuses. We update our picks for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-account-bonuses-5104710">best bank account bonuses</a>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-checking-account-bonuses-7152530">best checking account bonuses</a>, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-account-bonuses-7152450">best savings account bonuses</a> as needed, chosen based on bonus amounts, bonus requirements, and account features. We aim to provide you with news about checking and savings account bonus offers so you can take advantage of them as soon as possible. </p></div>

### Key Takeaways * Citizens Bank has extended its [checking account bonus](https://www.citizensbank.com/promo/checking/special-offer-2024-b2.aspx) to June 6, 2024. We reported on this offer when it was [originally set to expire on April 11](https://www.investopedia.com/earn-up-to-400-with-one-of-these-five-citizens-bank-checking-accounts-by-april-11-8629090). * The bonus amount and requirements have not changed. * New checking account customers can earn up to $400 in bonus money by setting up direct deposit and meeting a threshold for debit card transactions. * This bonus is available on five Citizens Bank checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking. ## Citizens Bank Checking Accounts - Up to $400: How To Get It * **Open a new eligible personal [Citizens Bank checking account](https://www.citizensbank.com/promo/checking/special-offer-2024-b2.aspx) by June 6, 2024:** This offer is available on five checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking. These accounts have different fees and features, such as earning interest or access to financial advisors. * **Receive at least one single direct deposit of $500 or more within the first 60 days to earn $300:** Unlike most other bonuses, where the requirement involves the total amount of your deposits, Citizens Bank requires a single deposit of at least $500. * **Earn $2 per debit card transaction, up to $100, within the first 60 days:** Signature and PIN-based transactions (in-person, in-app, and online) are eligible and will count toward this bonus. Fund transfers through services like Zelle are not eligible. * **Wait and receive the bonus:** Citizens Bank may take up to five months after the date of account opening to pay out this bonus. That’s longer than most bank bonus offers (many others that we track pay out bonus money within four or less months), but the high payout may be worth the wait. ### Learn more about [Citizens Bank bonuses](https://www.investopedia.com/citizens-bank-bonuses-7112710), account requirements, and fees. ## Are Citizens Bank Bonuses Worth It? If you live in an eligible state where [Citizens Bank](https://www.investopedia.com/citizens-bank-review-4801474) operates, it could be worthwhile to pursue a bonus for one of the checking accounts above, especially if you often make debit card purchases.  ### Citizens Bank operates in Connecticut, Delaware, Florida, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, D.C. If you live outside of those states, you can’t bank with Citizens. The $300 deposit bonus is relatively easy to get. Many other [bank bonuses](https://www.investopedia.com/what-is-a-bank-sign-up-bonus-7969724) require thousands of dollars in deposits to earn that much or less, but Citizens only asks for $500. This 60% return is quite a bit better than most bonuses we track (the median ROI is about 15%), and the extra $100 you can get for debit card transactions makes it even better. ### We track bank bonuses daily. Through our research, we’ve found the average bank bonus to be around $300. We only write about bank bonuses that are at least as high as this average, and that are a 10% or better return on your deposit to ensure you are getting a good deal.  Another point in this offer’s favor: Citizens Bank offers the same bonus for a variety of account types, giving you some flexibility to get the checking account you need without sacrificing bonus value. With many other banks we track, premium accounts have higher bonuses and higher requirements, while simpler accounts (like student accounts) have lower bonuses and lower requirements. ### Compare the [rewards you’d typically get for credit card purchases](https://www.investopedia.com/what-is-a-rewards-credit-card-5071957) before going after the transaction bonus—you’ll only get a $2 bonus for each transaction, no matter how large the transaction is. ## How We Track Bank Account Bonuses Every business day, Investopedia tracks 23 banks and the current, new, extended, and expired account bonuses they offer customers. Banks are chosen based on consumer interest and we add banks to our list as needed to ensure we're always reporting on the best bank bonuses. We update our picks for the [best bank account bonuses](https://www.investopedia.com/best-bank-account-bonuses-5104710), the [best checking account bonuses](https://www.investopedia.com/best-checking-account-bonuses-7152530), and the [best savings account bonuses](https://www.investopedia.com/best-savings-account-bonuses-7152450) as needed, chosen based on bonus amounts, bonus requirements, and account features. We aim to provide you with news about checking and savings account bonus offers so you can take advantage of them as soon as possible.

Key Takeaways Citizens Bank has extended its checking account bonus to June 6, 2024. We reported on this offer when it was originally set to expire on April 11. The bonus amount and requirements have not changed. New checking account customers can earn up to $400 in bonus money by setting up direct deposit and meeting a threshold for debit card transactions. This bonus is available on five Citizens Bank checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking. Citizens Bank Checking Accounts - Up to $400: How To Get It Open a new eligible personal Citizens Bank checking account by June 6, 2024: This offer is available on five checking accounts: One Deposit Checking, Quest Checking, EverValue Checking, Student Checking, and Private Client Checking. These accounts have different fees and features, such as earning interest or access to financial advisors. Receive at least one single direct deposit of $500 or more within the first 60 days to earn $300: Unlike most other bonuses, where the requirement involves the total amount of your deposits, Citizens Bank requires a single deposit of at least $500. Earn $2 per debit card transaction, up to $100, within the first 60 days: Signature and PIN-based transactions (in-person, in-app, and online) are eligible and will count toward this bonus. Fund transfers through services like Zelle are not eligible. Wait and receive the bonus: Citizens Bank may take up to five months after the date of account opening to pay out this bonus. That’s longer than most bank bonus offers (many others that we track pay out bonus money within four or less months), but the high payout may be worth the wait. Learn more about Citizens Bank bonuses, account requirements, and fees. Are Citizens Bank Bonuses Worth It? If you live in an eligible state where Citizens Bank operates, it could be worthwhile to pursue a bonus for one of the checking accounts above, especially if you often make debit card purchases.  Citizens Bank operates in Connecticut, Delaware, Florida, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, D.C. If you live outside of those states, you can’t bank with Citizens. The $300 deposit bonus is relatively easy to get. Many other bank bonuses require thousands of dollars in deposits to earn that much or less, but Citizens only asks for $500. This 60% return is quite a bit better than most bonuses we track (the median ROI is about 15%), and the extra $100 you can get for debit card transactions makes it even better. We track bank bonuses daily. Through our research, we’ve found the average bank bonus to be around $300. We only write about bank bonuses that are at least as high as this average, and that are a 10% or better return on your deposit to ensure you are getting a good deal.  Another point in this offer’s favor: Citizens Bank offers the same bonus for a variety of account types, giving you some flexibility to get the checking account you need without sacrificing bonus value. With many other banks we track, premium accounts have higher bonuses and higher requirements, while simpler accounts (like student accounts) have lower bonuses and lower requirements. Compare the rewards you’d typically get for credit card purchases before going after the transaction bonus—you’ll only get a $2 bonus for each transaction, no matter how large the transaction is. How We Track Bank Account Bonuses Every business day, Investopedia tracks 23 banks and the current, new, extended, and expired account bonuses they offer customers. Banks are chosen based on consumer interest and we add banks to our list as needed to ensure we're always reporting on the best bank bonuses. We update our picks for the best bank account bonuses, the best checking account bonuses, and the best savings account bonuses as needed, chosen based on bonus amounts, bonus requirements, and account features. We aim to provide you with news about checking and savings account bonus offers so you can take advantage of them as soon as possible.

https://www.investopedia.com/terms/b/breaking-the-buck.asp

Breaking the Buck: When Money Market Shares Go Under $1

<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-breaking-the-buck"></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 Breaking the Buck? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Breaking the buck occurs when the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value (NAV)</a> of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money-marketfund.asp">money market fund</a> falls below $1. Breaking the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buck.asp">buck</a> may happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund uses leverage to create <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalrisk.asp">capital risk</a> in otherwise risk-free instruments. </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 breaking the buck occurs, it doesn't bode well for investors. Shares are valued at $1 but end up dipping below that price means investors may lose part of the principal value on their 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>Breaking the buck occurs when the net asset value of a money market fund falls below $1.</li><li>This may happen when the money market fund's investment income does not cover operating expenses or investment losses. </li><li>Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-breaking-the-buck"></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 Breaking the Buck </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The NAV of a money market fund normally stays constant at $1. This is facilitated by market regulations. Market regulations allow a fund to value its investments at amortized cost rather than market value. This gives the fund a constant $1 value and helps investors identify it as an alternative to checking and savings accounts. So if the fund has two million shares, their combined value would be $2 million. By using an amortized pricing structure, the fund can manage its own activities and provide for redemptions. </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 value of the fund goes below $1, however, it's said to break the buck. Even though this is a rare occurrence, it can happen. Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free. Investors often use money market funds in addition to checkable deposit accounts as additional sources of liquid savings. These funds are like open-end mutual funds that invest in short-term debt securities such as U.S. Treasury bills and commercial paper. They offer a higher rate of return than standard-interest checking and savings accounts. But they are not insured 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 Corporation (FDIC)</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"> Most money market funds have check-writing capabilities and also allow money to be easily transferred to a bank account. Money market funds pay regular interest that can be reinvested in the fund. </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>Breaking the buck normally occurs when interest rates drop to very low levels, or the fund uses leverage to create capital risk.</p></div></div></div> <span class="heading-toc" id="toc-money-market-fund-history"></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"> Money Market Fund History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Money market funds were first introduced in the 1970s. They are used to help to make investors more aware of the benefits of mutual funds, which helped significantly increase asset flows and increase demand for mutual funds. The first money market mutual fund was named the Reserve Fund and established the standard $1 NAV.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 96 cents because of large losses in derivatives.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In 2008, the Reserve Fund was affected by the bankruptcy of Lehman Brothers and the subsequent financial crisis. The Reserve Fund’s price fell below $1 due to assets held with Lehman Brothers. Investors fled the fund and caused panic for money market mutual funds in general.<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"> Following the 2008 financial crisis, the government responded with new Rule 2a-7 legislation supporting money market funds. Rule 2a-7 instituted numerous provisions, making money market funds much safer than before. Money market funds can no longer have an average dollar-weighted portfolio maturity exceeding 60 days. They also now have limitations on asset investments. Money market funds must restrict their holdings to investments that have more conservative maturities as well as credit ratings.<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> <span class="heading-toc" id="toc-money-market-fund-investing"></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"> Money Market Fund Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Vanguard is a leader in <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://investor.vanguard.com/mutual-funds/list?filterAllAssetClasses=false&amp;filterMoneyMarket=true&amp;filterFiftyThousandAndUp=true&amp;filterLowCostInvestor=true#/mutual-funds/asset-class/month-end-returns" rel="sponsored nofollow">money market fund products</a>. It offers two taxable money market funds and three municipal funds all priced at $1. Its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/042516/3-best-government-money-market-funds-cpfxx-spaxx.asp">best-performing money market fund</a> is the Vanguard Federal Money Market Fund (VMFXX).<span class="ql-inline-citation" data-cite="5"></span> It had a year-to-date return of 0.67% as of September 30, 2022. Investors have received a return of 3.88% from the fund since its inception in July 1981. </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"> The fund has roughly 139 holdings with an average maturity of 60 days or less.<span class="ql-inline-citation" data-cite="6"></span> Its net assets were $214 billion, with a management expense ratio of 0.11%. The Vanguard Federal Money Market Fund requires a minimum investment of $3,000. According to its fund profile, it's the most conservative of the Vanguard funds. </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-why-does-breaking-the-buck-happen"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Does Breaking the Buck Happen?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Typically, breaking the buck happens because the money market fund's investment income fails to cover its operating costs or investment losses. But it can also be a response to a broader economic issue, such as a unusually low interest rates amid an economic recession.</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-does-breaking-the-buck-happen-often"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Breaking the Buck Happen Often?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, breaking the buck is not a frequent occurrence, with money market funds generally seen as some of the safest, most reliable investments available.</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-are-vanguards-money-market-mutual-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Vanguard's Money Market Mutual Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are two taxable funds — the Federal Money Market Fund (VMFXX) and the Treasury Money Market Fund (VUSXX). There are also three municipal funds — California Municipal Money Market Fund (VCTXX), Municipal Money Market Fund (VMSXX), and New York Municipal Money Market Fund (VYFXX).</p></div> </div></div>

## What Is Breaking the Buck? Breaking the buck occurs when the [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp) of a [money market fund](https://www.investopedia.com/terms/m/money-marketfund.asp) falls below $1. Breaking the [buck](https://www.investopedia.com/terms/b/buck.asp) may happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund uses leverage to create [capital risk](https://www.investopedia.com/terms/c/capitalrisk.asp) in otherwise risk-free instruments. When breaking the buck occurs, it doesn't bode well for investors. Shares are valued at $1 but end up dipping below that price means investors may lose part of the principal value on their investments. ### Key Takeaways * Breaking the buck occurs when the net asset value of a money market fund falls below $1. * This may happen when the money market fund's investment income does not cover operating expenses or investment losses. * Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free. ## Understanding Breaking the Buck The NAV of a money market fund normally stays constant at $1. This is facilitated by market regulations. Market regulations allow a fund to value its investments at amortized cost rather than market value. This gives the fund a constant $1 value and helps investors identify it as an alternative to checking and savings accounts. So if the fund has two million shares, their combined value would be $2 million. By using an amortized pricing structure, the fund can manage its own activities and provide for redemptions. When the value of the fund goes below $1, however, it's said to break the buck. Even though this is a rare occurrence, it can happen. Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free. Investors often use money market funds in addition to checkable deposit accounts as additional sources of liquid savings. These funds are like open-end mutual funds that invest in short-term debt securities such as U.S. Treasury bills and commercial paper. They offer a higher rate of return than standard-interest checking and savings accounts. But they are not insured by the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp). Most money market funds have check-writing capabilities and also allow money to be easily transferred to a bank account. Money market funds pay regular interest that can be reinvested in the fund. ### Breaking the buck normally occurs when interest rates drop to very low levels, or the fund uses leverage to create capital risk. ## Money Market Fund History Money market funds were first introduced in the 1970s. They are used to help to make investors more aware of the benefits of mutual funds, which helped significantly increase asset flows and increase demand for mutual funds. The first money market mutual fund was named the Reserve Fund and established the standard $1 NAV. The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 96 cents because of large losses in derivatives. In 2008, the Reserve Fund was affected by the bankruptcy of Lehman Brothers and the subsequent financial crisis. The Reserve Fund’s price fell below $1 due to assets held with Lehman Brothers. Investors fled the fund and caused panic for money market mutual funds in general. Following the 2008 financial crisis, the government responded with new Rule 2a-7 legislation supporting money market funds. Rule 2a-7 instituted numerous provisions, making money market funds much safer than before. Money market funds can no longer have an average dollar-weighted portfolio maturity exceeding 60 days. They also now have limitations on asset investments. Money market funds must restrict their holdings to investments that have more conservative maturities as well as credit ratings. ## Money Market Fund Investing Vanguard is a leader in [money market fund products](https://investor.vanguard.com/mutual-funds/list?filterAllAssetClasses=false&filterMoneyMarket=true&filterFiftyThousandAndUp=true&filterLowCostInvestor=true#/mutual-funds/asset-class/month-end-returns). It offers two taxable money market funds and three municipal funds all priced at $1. Its [best-performing money market fund](https://www.investopedia.com/articles/investing/042516/3-best-government-money-market-funds-cpfxx-spaxx.asp) is the Vanguard Federal Money Market Fund (VMFXX). It had a year-to-date return of 0.67% as of September 30, 2022. Investors have received a return of 3.88% from the fund since its inception in July 1981. The fund has roughly 139 holdings with an average maturity of 60 days or less. Its net assets were $214 billion, with a management expense ratio of 0.11%. The Vanguard Federal Money Market Fund requires a minimum investment of $3,000. According to its fund profile, it's the most conservative of the Vanguard funds. ## Why Does Breaking the Buck Happen? Typically, breaking the buck happens because the money market fund's investment income fails to cover its operating costs or investment losses. But it can also be a response to a broader economic issue, such as a unusually low interest rates amid an economic recession. ## Does Breaking the Buck Happen Often? No, breaking the buck is not a frequent occurrence, with money market funds generally seen as some of the safest, most reliable investments available. ## What Are Vanguard's Money Market Mutual Funds? There are two taxable funds — the Federal Money Market Fund (VMFXX) and the Treasury Money Market Fund (VUSXX). There are also three municipal funds — California Municipal Money Market Fund (VCTXX), Municipal Money Market Fund (VMSXX), and New York Municipal Money Market Fund (VYFXX).

What Is Breaking the Buck? Breaking the buck occurs when the net asset value (NAV) of a money market fund falls below $1. Breaking the buck may happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund uses leverage to create capital risk in otherwise risk-free instruments. When breaking the buck occurs, it doesn't bode well for investors. Shares are valued at $1 but end up dipping below that price means investors may lose part of the principal value on their investments. Key Takeaways Breaking the buck occurs when the net asset value of a money market fund falls below $1.This may happen when the money market fund's investment income does not cover operating expenses or investment losses. Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free.  Understanding Breaking the Buck The NAV of a money market fund normally stays constant at $1. This is facilitated by market regulations. Market regulations allow a fund to value its investments at amortized cost rather than market value. This gives the fund a constant $1 value and helps investors identify it as an alternative to checking and savings accounts. So if the fund has two million shares, their combined value would be $2 million. By using an amortized pricing structure, the fund can manage its own activities and provide for redemptions. When the value of the fund goes below $1, however, it's said to break the buck. Even though this is a rare occurrence, it can happen. Breaking the buck generally signals economic distress because money market funds are considered to be nearly risk-free. Investors often use money market funds in addition to checkable deposit accounts as additional sources of liquid savings. These funds are like open-end mutual funds that invest in short-term debt securities such as U.S. Treasury bills and commercial paper. They offer a higher rate of return than standard-interest checking and savings accounts. But they are not insured by the Federal Deposit Insurance Corporation (FDIC). Most money market funds have check-writing capabilities and also allow money to be easily transferred to a bank account. Money market funds pay regular interest that can be reinvested in the fund. Breaking the buck normally occurs when interest rates drop to very low levels, or the fund uses leverage to create capital risk. Money Market Fund History Money market funds were first introduced in the 1970s. They are used to help to make investors more aware of the benefits of mutual funds, which helped significantly increase asset flows and increase demand for mutual funds. The first money market mutual fund was named the Reserve Fund and established the standard $1 NAV. The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 96 cents because of large losses in derivatives. In 2008, the Reserve Fund was affected by the bankruptcy of Lehman Brothers and the subsequent financial crisis. The Reserve Fund’s price fell below $1 due to assets held with Lehman Brothers. Investors fled the fund and caused panic for money market mutual funds in general. Following the 2008 financial crisis, the government responded with new Rule 2a-7 legislation supporting money market funds. Rule 2a-7 instituted numerous provisions, making money market funds much safer than before. Money market funds can no longer have an average dollar-weighted portfolio maturity exceeding 60 days. They also now have limitations on asset investments. Money market funds must restrict their holdings to investments that have more conservative maturities as well as credit ratings. Money Market Fund Investing Vanguard is a leader in money market fund products. It offers two taxable money market funds and three municipal funds all priced at $1. Its best-performing money market fund is the Vanguard Federal Money Market Fund (VMFXX). It had a year-to-date return of 0.67% as of September 30, 2022. Investors have received a return of 3.88% from the fund since its inception in July 1981. The fund has roughly 139 holdings with an average maturity of 60 days or less. Its net assets were $214 billion, with a management expense ratio of 0.11%. The Vanguard Federal Money Market Fund requires a minimum investment of $3,000. According to its fund profile, it's the most conservative of the Vanguard funds. Why Does Breaking the Buck Happen? Typically, breaking the buck happens because the money market fund's investment income fails to cover its operating costs or investment losses. But it can also be a response to a broader economic issue, such as a unusually low interest rates amid an economic recession. Does Breaking the Buck Happen Often? No, breaking the buck is not a frequent occurrence, with money market funds generally seen as some of the safest, most reliable investments available. What Are Vanguard's Money Market Mutual Funds? There are two taxable funds — the Federal Money Market Fund (VMFXX) and the Treasury Money Market Fund (VUSXX). There are also three municipal funds — California Municipal Money Market Fund (VCTXX), Municipal Money Market Fund (VMSXX), and New York Municipal Money Market Fund (VYFXX).

https://www.investopedia.com/walmart-q1-fy-2025-earnings-preview-8646573

What You Need To Know Ahead of Walmart's Earnings Report 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>Before the opening bell Thursday, retail giant Walmart reports results for its fiscal 2025 first quarter, a busy period that included a stock split and a number of significant announcements.</li><li>The retailer announced a new product line, bought TV maker Vizio for more than $2 billion, and initiated the closure of its Walmart Health clinics in the period.</li><li>Analysts expect revenue to increase slightly year-over-year, with profits forecast to take a substantial step forward.</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"> 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 morning reports results for its fiscal 2025 first quarter, a busy period that included a stock split, the launch of a product line, and the shuttering of the retail giant's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-abandons-health-clinics-foray-as-costs-mount-8640898">Walmart Health clinics</a>.<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"> Analysts expect Walmart's first-quarter revenue to increase 4.7% year-over-year to $159.51 billion from last year's $152.3 billion, according to estimates compiled by Visible Alpha. Profit is expected to be substantially larger, however, more than doubling to $4.05 billion, or 51 cents per share, from last year's $1.67 billion.<span class="ql-inline-citation" data-cite="2"></span> Walmart registered profit of 62 cents per share a year ago, before it underwent a 3-for-1 stock split this February. </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"> In its fiscal 2024 fourth quarter that also included the holiday season, Walmart reported $5.49 billion in profit on revenue of $173.39 billion.<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_8-0"></div> <span class="heading-toc" id="toc-key-metric-e-commerce-sales"></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"> Key Metric: E-Commerce Sales </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Like many retailers, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insights/060416/top-4-walmart-shareholders-wmt.asp">Walmart</a> has expanded its digital offerings in recent years, hoping to make a dent in Amazon's (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) e-commerce market share. </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's digital strategies and emphasis on growing its delivery and pickup services have paid off in recent quarters, with global e-commerce sales growing 23% year-over-year in the fourth quarter, surpassing $100 billion for the 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 retail and e-commerce subscription market also got more competitive in the first quarter, with 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>) announcing its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-target-s-new-paid-membership-plan-compares-to-amazon-prime-and-walmart-8605332">new Target Circle 360 membership</a> in March, looking to offer competitive same-day or next-day delivery and other services compared with what Amazon Prime and Walmart+ offer. </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-business-spotlight-positive-and-negative-q1-announcements"></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"> Business Spotlight: Positive and Negative Q1 Announcements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Walmart had a busy first quarter, from the 3-for-1 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksplit.asp">stock split</a> that it completed in February to its agreement that month to acquire TV maker <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/walmart-q4-fy2024-earnings-vizio-acquisition-8585055">Vizio</a> for $2.3 billion, giving it a new potential source of advertising revenue.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> “We believe VIZIO’s customer-centric operating system provides great viewing experiences at attractive price points," Walmart Chief Revenue Officer Seth Dallaire said at the time. "We also believe it enables a profitable advertising business that is rapidly scaling." </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"> Company leadership could also provide updates on another pair of announcements made on April 30, including the launch of a new "bettergoods" food product line, which Walmart said is its "largest private brand food launch in 20 years."<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The same day, Walmart announced its move to shut down its Walmart Health centers, which the company started in 2019 and had since expanded to 51 clinics across five states.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Executives said in the February earnings call that Walmart was looking to grow revenue and profits through new revenue streams rather than raising prices. The White House has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/grocery-sticker-shock-may-alter-consumer-habits-forcing-companies-to-cut-prices-brainard-8583131">blamed consumer goods companies</a> for taking advantage of inflation and pushing up prices to pad margins. </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"> Walmart shares were little changed as of 12:30 p.m. ET Wednesday but are up more than 13% so far this year. </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 * Before the opening bell Thursday, retail giant Walmart reports results for its fiscal 2025 first quarter, a busy period that included a stock split and a number of significant announcements. * The retailer announced a new product line, bought TV maker Vizio for more than $2 billion, and initiated the closure of its Walmart Health clinics in the period. * Analysts expect revenue to increase slightly year-over-year, with profits forecast to take a substantial step forward. Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) on Thursday morning reports results for its fiscal 2025 first quarter, a busy period that included a stock split, the launch of a product line, and the shuttering of the retail giant's [Walmart Health clinics](https://www.investopedia.com/walmart-abandons-health-clinics-foray-as-costs-mount-8640898). Analysts expect Walmart's first-quarter revenue to increase 4.7% year-over-year to $159.51 billion from last year's $152.3 billion, according to estimates compiled by Visible Alpha. Profit is expected to be substantially larger, however, more than doubling to $4.05 billion, or 51 cents per share, from last year's $1.67 billion. Walmart registered profit of 62 cents per share a year ago, before it underwent a 3-for-1 stock split this February. In its fiscal 2024 fourth quarter that also included the holiday season, Walmart reported $5.49 billion in profit on revenue of $173.39 billion. ## Key Metric: E-Commerce Sales Like many retailers, [Walmart](https://www.investopedia.com/articles/insights/060416/top-4-walmart-shareholders-wmt.asp) has expanded its digital offerings in recent years, hoping to make a dent in Amazon's ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) e-commerce market share. The company's digital strategies and emphasis on growing its delivery and pickup services have paid off in recent quarters, with global e-commerce sales growing 23% year-over-year in the fourth quarter, surpassing $100 billion for the year. The retail and e-commerce subscription market also got more competitive in the first quarter, with Target ([TGT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TGT)) announcing its [new Target Circle 360 membership](https://www.investopedia.com/how-target-s-new-paid-membership-plan-compares-to-amazon-prime-and-walmart-8605332) in March, looking to offer competitive same-day or next-day delivery and other services compared with what Amazon Prime and Walmart+ offer. ## Business Spotlight: Positive and Negative Q1 Announcements Walmart had a busy first quarter, from the 3-for-1 [stock split](https://www.investopedia.com/terms/s/stocksplit.asp) that it completed in February to its agreement that month to acquire TV maker [Vizio](https://www.investopedia.com/walmart-q4-fy2024-earnings-vizio-acquisition-8585055) for $2.3 billion, giving it a new potential source of advertising revenue. “We believe VIZIO’s customer-centric operating system provides great viewing experiences at attractive price points," Walmart Chief Revenue Officer Seth Dallaire said at the time. "We also believe it enables a profitable advertising business that is rapidly scaling." Company leadership could also provide updates on another pair of announcements made on April 30, including the launch of a new "bettergoods" food product line, which Walmart said is its "largest private brand food launch in 20 years." The same day, Walmart announced its move to shut down its Walmart Health centers, which the company started in 2019 and had since expanded to 51 clinics across five states. Executives said in the February earnings call that Walmart was looking to grow revenue and profits through new revenue streams rather than raising prices. The White House has [blamed consumer goods companies](https://www.investopedia.com/grocery-sticker-shock-may-alter-consumer-habits-forcing-companies-to-cut-prices-brainard-8583131) for taking advantage of inflation and pushing up prices to pad margins. Walmart shares were little changed as of 12:30 p.m. ET Wednesday but are up more than 13% so far this year. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Before the opening bell Thursday, retail giant Walmart reports results for its fiscal 2025 first quarter, a busy period that included a stock split and a number of significant announcements.The retailer announced a new product line, bought TV maker Vizio for more than $2 billion, and initiated the closure of its Walmart Health clinics in the period.Analysts expect revenue to increase slightly year-over-year, with profits forecast to take a substantial step forward. Walmart (WMT) on Thursday morning reports results for its fiscal 2025 first quarter, a busy period that included a stock split, the launch of a product line, and the shuttering of the retail giant's Walmart Health clinics. Analysts expect Walmart's first-quarter revenue to increase 4.7% year-over-year to $159.51 billion from last year's $152.3 billion, according to estimates compiled by Visible Alpha. Profit is expected to be substantially larger, however, more than doubling to $4.05 billion, or 51 cents per share, from last year's $1.67 billion. Walmart registered profit of 62 cents per share a year ago, before it underwent a 3-for-1 stock split this February. In its fiscal 2024 fourth quarter that also included the holiday season, Walmart reported $5.49 billion in profit on revenue of $173.39 billion. Key Metric: E-Commerce Sales Like many retailers, Walmart has expanded its digital offerings in recent years, hoping to make a dent in Amazon's (AMZN) e-commerce market share. The company's digital strategies and emphasis on growing its delivery and pickup services have paid off in recent quarters, with global e-commerce sales growing 23% year-over-year in the fourth quarter, surpassing $100 billion for the year. The retail and e-commerce subscription market also got more competitive in the first quarter, with Target (TGT) announcing its new Target Circle 360 membership in March, looking to offer competitive same-day or next-day delivery and other services compared with what Amazon Prime and Walmart+ offer. Business Spotlight: Positive and Negative Q1 Announcements Walmart had a busy first quarter, from the 3-for-1 stock split that it completed in February to its agreement that month to acquire TV maker Vizio for $2.3 billion, giving it a new potential source of advertising revenue. “We believe VIZIO’s customer-centric operating system provides great viewing experiences at attractive price points," Walmart Chief Revenue Officer Seth Dallaire said at the time. "We also believe it enables a profitable advertising business that is rapidly scaling." Company leadership could also provide updates on another pair of announcements made on April 30, including the launch of a new "bettergoods" food product line, which Walmart said is its "largest private brand food launch in 20 years." The same day, Walmart announced its move to shut down its Walmart Health centers, which the company started in 2019 and had since expanded to 51 clinics across five states. Executives said in the February earnings call that Walmart was looking to grow revenue and profits through new revenue streams rather than raising prices. The White House has blamed consumer goods companies for taking advantage of inflation and pushing up prices to pad margins. Walmart shares were little changed as of 12:30 p.m. ET Wednesday but are up more than 13% so far this year. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/ask/answers/041015/what-does-market-segmentation-theory-assume-about-interest-rates.asp

What Does Market Segmentation Theory Assume About Interest Rates?

<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/m/market-segmentation-theory.asp">Market segmentation theory</a> (MST) states there is no relationship between the markets for bonds with different maturity lengths and that interest rates affect the supply and demand of bonds. MST holds that investors and borrowers have preferences for certain yields when they invest in fixed-income securities. These preferences lead to individual smaller markets subject to supply and demand forces unique to each market. MST seeks to explain the shape of 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> for fixed income securities of equal credit value and states bonds with different maturities are not interchangeable with each other. The yield curve is therefore shaped by the factors of supply and demand at each maturity length. </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-bond-yield-curve"></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"> Bond Yield Curve </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The yield curve is the relationship of the maturity to the bond yield mapped across different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> lengths. The bond market pays close attention to the shape of the yield curve. There are three main shapes of the yield curve: normal, inverted, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/humped-yield-curve.asp">humped</a>. A normal yield slopes upward slightly, with short-term rates lower than higher-term rates. A normal yield curve shows investors expect the economy to keep growing. An inverted yield curve occurs when short-term interest rates are higher than long-term rates, and shows investors expect the economy to slow down as central banks tighten the monetary supply. A humped yield curve shows mixed expectations about the future and may be a shift from the normal to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/06/invertedyieldcurve.asp">inverted yield curve</a>.<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_5-0"></div> <span class="heading-toc" id="toc-bond-market-segmentation"></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"> Bond Market Segmentation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> According to MST, the demand and supply for bonds at each maturity level are based on the current <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> and the future expectations for interest rates. The bond market is commonly divided into three main segments based on maturity lengths: short term, medium term, and long term.<span class="ql-inline-citation" data-cite="2"></span> The segmentation of the bond market is due to investors and borrowers <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/hedging-beginners-guide/">hedging</a> the maturities of their assets and liabilities with bonds of similar time frames. </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"> For example, the supply and demand for short-term government and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatebond.asp">corporate bonds</a> depend on the business demand for short-term assets such as accounts receivable and inventories. The supply and demand for medium- and long-term maturity bonds depends on corporations financing larger capital improvements. Investors and borrowers seek to hedge their exposures at each maturity length, so the bond market segments operate independently of each other. </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-preferred-habitat-theory"></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"> Preferred Habitat Theory </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/preferred-habitat-theory.asp">preferred habitat theory</a> is a related theory seeking to explain the shape of the yield curve. This theory states that bond investors have preferred maturity lengths. Investors will only look outside their preferred market if there is sufficient yield to compensate for the perceived additional risk or inconvenience of purchasing bonds with different maturity lengths. If the expected returns on longer-term bonds exceed the expectations for shorter-term bonds, investors who normally buy only short-term bonds will shift to longer maturities to realize increased returns. </p></div>

[Market segmentation theory](https://www.investopedia.com/terms/m/market-segmentation-theory.asp) (MST) states there is no relationship between the markets for bonds with different maturity lengths and that interest rates affect the supply and demand of bonds. MST holds that investors and borrowers have preferences for certain yields when they invest in fixed-income securities. These preferences lead to individual smaller markets subject to supply and demand forces unique to each market. MST seeks to explain the shape of the [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp) for fixed income securities of equal credit value and states bonds with different maturities are not interchangeable with each other. The yield curve is therefore shaped by the factors of supply and demand at each maturity length. ## Bond Yield Curve The yield curve is the relationship of the maturity to the bond yield mapped across different [maturity](https://www.investopedia.com/terms/m/maturity.asp) lengths. The bond market pays close attention to the shape of the yield curve. There are three main shapes of the yield curve: normal, inverted, and [humped](https://www.investopedia.com/terms/h/humped-yield-curve.asp). A normal yield slopes upward slightly, with short-term rates lower than higher-term rates. A normal yield curve shows investors expect the economy to keep growing. An inverted yield curve occurs when short-term interest rates are higher than long-term rates, and shows investors expect the economy to slow down as central banks tighten the monetary supply. A humped yield curve shows mixed expectations about the future and may be a shift from the normal to [inverted yield curve](https://www.investopedia.com/articles/basics/06/invertedyieldcurve.asp). ## Bond Market Segmentation According to MST, the demand and supply for bonds at each maturity level are based on the current [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) and the future expectations for interest rates. The bond market is commonly divided into three main segments based on maturity lengths: short term, medium term, and long term. The segmentation of the bond market is due to investors and borrowers [hedging](https://www.investopedia.com/trading/hedging-beginners-guide/) the maturities of their assets and liabilities with bonds of similar time frames. For example, the supply and demand for short-term government and [corporate bonds](https://www.investopedia.com/terms/c/corporatebond.asp) depend on the business demand for short-term assets such as accounts receivable and inventories. The supply and demand for medium- and long-term maturity bonds depends on corporations financing larger capital improvements. Investors and borrowers seek to hedge their exposures at each maturity length, so the bond market segments operate independently of each other. ## Preferred Habitat Theory The [preferred habitat theory](https://www.investopedia.com/terms/p/preferred-habitat-theory.asp) is a related theory seeking to explain the shape of the yield curve. This theory states that bond investors have preferred maturity lengths. Investors will only look outside their preferred market if there is sufficient yield to compensate for the perceived additional risk or inconvenience of purchasing bonds with different maturity lengths. If the expected returns on longer-term bonds exceed the expectations for shorter-term bonds, investors who normally buy only short-term bonds will shift to longer maturities to realize increased returns.

Market segmentation theory (MST) states there is no relationship between the markets for bonds with different maturity lengths and that interest rates affect the supply and demand of bonds. MST holds that investors and borrowers have preferences for certain yields when they invest in fixed-income securities. These preferences lead to individual smaller markets subject to supply and demand forces unique to each market. MST seeks to explain the shape of the yield curve for fixed income securities of equal credit value and states bonds with different maturities are not interchangeable with each other. The yield curve is therefore shaped by the factors of supply and demand at each maturity length. Bond Yield Curve The yield curve is the relationship of the maturity to the bond yield mapped across different maturity lengths. The bond market pays close attention to the shape of the yield curve. There are three main shapes of the yield curve: normal, inverted, and humped. A normal yield slopes upward slightly, with short-term rates lower than higher-term rates. A normal yield curve shows investors expect the economy to keep growing. An inverted yield curve occurs when short-term interest rates are higher than long-term rates, and shows investors expect the economy to slow down as central banks tighten the monetary supply. A humped yield curve shows mixed expectations about the future and may be a shift from the normal to inverted yield curve. Bond Market Segmentation According to MST, the demand and supply for bonds at each maturity level are based on the current interest rate and the future expectations for interest rates. The bond market is commonly divided into three main segments based on maturity lengths: short term, medium term, and long term. The segmentation of the bond market is due to investors and borrowers hedging the maturities of their assets and liabilities with bonds of similar time frames. For example, the supply and demand for short-term government and corporate bonds depend on the business demand for short-term assets such as accounts receivable and inventories. The supply and demand for medium- and long-term maturity bonds depends on corporations financing larger capital improvements. Investors and borrowers seek to hedge their exposures at each maturity length, so the bond market segments operate independently of each other. Preferred Habitat Theory The preferred habitat theory is a related theory seeking to explain the shape of the yield curve. This theory states that bond investors have preferred maturity lengths. Investors will only look outside their preferred market if there is sufficient yield to compensate for the perceived additional risk or inconvenience of purchasing bonds with different maturity lengths. If the expected returns on longer-term bonds exceed the expectations for shorter-term bonds, investors who normally buy only short-term bonds will shift to longer maturities to realize increased returns.

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

CBOE Options 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"><span class="heading-toc" id="toc-what-is-the-cboe-options-exchange"></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 CBOE Options Exchange? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Founded in 1973, the CBOE Options Exchange is the world's largest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a> <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchange</a> with contracts focusing on individual equities, indexes, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Originally known as the Chicago Board Options Exchange (CBOE), the exchange changed its name in 2017 as part of a rebranding effort by its holding company, CBOE Global Markets. Traders refer to the exchange as the CBOE ("see-bo"). CBOE is also the originator of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vix.asp">CBOE Volatility Index (VIX)</a>, the most widely used and recognized proxy for market volatility.<span class="ql-inline-citation" data-cite="2"></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_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 CBOE is an important options exchange based in Chicago, founded in 1973.<span class="ql-inline-citation" data-cite="2"></span></li><li>The CBOE Options Exchange was previously the Chicago Board Options Exchange (CBOE).</li><li>In 2010 the exchange incorporated as a holding company with the exchange as its main asset.<span class="ql-inline-citation" data-cite="2"></span></li><li>In 2017 the holding company and exchange rebranded as CBOE Global Markets Inc. and the CBOE Options Exchange, respectively.<span class="ql-inline-citation" data-cite="6"></span></li><li>CBOE is home to the VIX volatility index and many other volatility instruments.<span class="ql-inline-citation" data-cite="2"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-cboe-options-exchange"></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 the CBOE Options Exchange </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> CBOE offers trading across multiple asset classes and geographies, including options, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a>, U.S. and European equities, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange-traded-products-etp.asp">exchange-traded products (ETPs)</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">global foreign exchange(FX)</a>, and multi-asset volatility products. It is the largest options exchange in the U.S. and the largest stock exchange in Europe, by value traded. It is the second-largest stock exchange operator in the U.S. and a top global market for ETP trading.<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The exchange has a rich history, including the creation of the CBOE Clearing Corp., which later became the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/occ.asp">Options Clearing Corporation (OCC)</a>, the industry <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearinghouse.asp">clearinghouse</a> for all U.S. options trades. </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 business of the CBOE goes beyond simple trade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/execution.asp">executions</a>, and in 1985 it formed The Options Institute, its educational arm, developed to educate investors around the world about options. In addition, the company offers seminars, webinars, and online courses, including learning for professionals.<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-cboe-products"></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"> CBOE Products </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The exchange offers access to many diverse products, starting with, of course, put and call options on thousands of publicly traded stocks, as well as on <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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etn.asp">exchange traded notes (ETNs)</a>. Investors typically use these products for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedging</a> and income production through the selling of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coveredcall.asp">covered calls</a> or cash-secured puts.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are options available on stock and sector indexes, including the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">Standard &amp; Poor's 500</a>, S&amp;P 100, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a>, Russell indexes, selected <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftse.asp">FTSE</a> indexes, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> Indexes, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/msci.asp">MSCI</a> Indexes, and sector indexes including the 10 sectors contained within the S&amp;P 500.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The exchange offers social media indexes and specialty indexes covering several options strategies, such as "put write," <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/butterflyspread.asp">butterfly</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collar.asp">collar</a>.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Finally, the VIX index is the premier barometer of equity market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>. This Index is based on real-time prices of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/near-the-money.asp">near-the-money</a> options on the S&amp;P 500 Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. Traders call the VIX Index the "fear gauge" because it tends to spike to very high levels when investors believe the market is very bearish or unstable.<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"> The VIX Index is also the flagship index of the CBOE Global Markets' volatility franchise. This includes volatility indexes on broad-based stock indexes, ETFs, individual stocks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, and other specialty indexes.<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_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><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_27-0"><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 CBOE created the VIX Index in 1993. It has since become the de facto barometer of U.S. equity market volatility.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></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-how-many-options-contracts-trade-on-the-cboe"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Options Contracts Trade on the CBOE?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In Q1 2022, total volume across CBOE's options exchanges reached 830.3 million options contracts, a record amount. Quarterly average daily volume (ADV) also reached a new all-time high of 13.4 million contracts traded per day.<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_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-when-were-put-options-first-listed-on-the-cboe"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Were Put Options First Listed on the CBOE?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When the CBOE launched in 1973, it only listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/calloption.asp">call options</a>. It was not until 1977 that the exchange added <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> as well.<span class="ql-inline-citation" data-cite="2"></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_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-when-were-leap-options-first-listed-on-the-cboe"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Were LEAP Options First Listed on the CBOE?</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/terms/l/leaps.asp">LEAPs (Long-Term AnticiPation Securities)</a> are long-dated options listed on exchanges, with expirations longer than one year and up to three or more years. The CBOE first introduced listed LEAP trading in 1990.<span class="ql-inline-citation" data-cite="2"></span><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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <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><br> </br></p></div>

## What Is the CBOE Options Exchange? Founded in 1973, the CBOE Options Exchange is the world's largest [options](https://www.investopedia.com/terms/o/option.asp) [exchange](https://www.investopedia.com/terms/e/exchange.asp) with contracts focusing on individual equities, indexes, and [interest rates](https://www.investopedia.com/terms/i/interestrate.asp). Originally known as the Chicago Board Options Exchange (CBOE), the exchange changed its name in 2017 as part of a rebranding effort by its holding company, CBOE Global Markets. Traders refer to the exchange as the CBOE ("see-bo"). CBOE is also the originator of the [CBOE Volatility Index (VIX)](https://www.investopedia.com/terms/v/vix.asp), the most widely used and recognized proxy for market volatility. ### Key Takeaways * The CBOE is an important options exchange based in Chicago, founded in 1973. * The CBOE Options Exchange was previously the Chicago Board Options Exchange (CBOE). * In 2010 the exchange incorporated as a holding company with the exchange as its main asset. * In 2017 the holding company and exchange rebranded as CBOE Global Markets Inc. and the CBOE Options Exchange, respectively. * CBOE is home to the VIX volatility index and many other volatility instruments. ## Understanding the CBOE Options Exchange CBOE offers trading across multiple asset classes and geographies, including options, [futures](https://www.investopedia.com/terms/f/futures.asp), U.S. and European equities, [exchange-traded products (ETPs)](https://www.investopedia.com/terms/e/exchange-traded-products-etp.asp), [global foreign exchange(FX)](https://www.investopedia.com/terms/f/forex.asp), and multi-asset volatility products. It is the largest options exchange in the U.S. and the largest stock exchange in Europe, by value traded. It is the second-largest stock exchange operator in the U.S. and a top global market for ETP trading. The exchange has a rich history, including the creation of the CBOE Clearing Corp., which later became the [Options Clearing Corporation (OCC)](https://www.investopedia.com/terms/o/occ.asp), the industry [clearinghouse](https://www.investopedia.com/terms/c/clearinghouse.asp) for all U.S. options trades. The business of the CBOE goes beyond simple trade [executions](https://www.investopedia.com/terms/e/execution.asp), and in 1985 it formed The Options Institute, its educational arm, developed to educate investors around the world about options. In addition, the company offers seminars, webinars, and online courses, including learning for professionals. ## CBOE Products The exchange offers access to many diverse products, starting with, of course, put and call options on thousands of publicly traded stocks, as well as on [exchange traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) and [exchange traded notes (ETNs)](https://www.investopedia.com/terms/e/etn.asp). Investors typically use these products for [hedging](https://www.investopedia.com/terms/h/hedge.asp) and income production through the selling of [covered calls](https://www.investopedia.com/terms/c/coveredcall.asp) or cash-secured puts. There are options available on stock and sector indexes, including the [Standard & Poor's 500](https://www.investopedia.com/terms/s/sp500.asp), S&P 100, [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp), Russell indexes, selected [FTSE](https://www.investopedia.com/terms/f/ftse.asp) indexes, [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) Indexes, [MSCI](https://www.investopedia.com/terms/m/msci.asp) Indexes, and sector indexes including the 10 sectors contained within the S&P 500. The exchange offers social media indexes and specialty indexes covering several options strategies, such as "put write," [butterfly](https://www.investopedia.com/terms/b/butterflyspread.asp), and [collar](https://www.investopedia.com/terms/c/collar.asp). Finally, the VIX index is the premier barometer of equity market [volatility](https://www.investopedia.com/terms/v/volatility.asp). This Index is based on real-time prices of [near-the-money](https://www.investopedia.com/terms/n/near-the-money.asp) options on the S&P 500 Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. Traders call the VIX Index the "fear gauge" because it tends to spike to very high levels when investors believe the market is very bearish or unstable. The VIX Index is also the flagship index of the CBOE Global Markets' volatility franchise. This includes volatility indexes on broad-based stock indexes, ETFs, individual stocks, [commodities](https://www.investopedia.com/terms/c/commodity.asp), and other specialty indexes. ### The CBOE created the VIX Index in 1993. It has since become the de facto barometer of U.S. equity market volatility. ## How Many Options Contracts Trade on the CBOE? In Q1 2022, total volume across CBOE's options exchanges reached 830.3 million options contracts, a record amount. Quarterly average daily volume (ADV) also reached a new all-time high of 13.4 million contracts traded per day. ## When Were Put Options First Listed on the CBOE? When the CBOE launched in 1973, it only listed [call options](https://www.investopedia.com/terms/c/calloption.asp). It was not until 1977 that the exchange added [put options](https://www.investopedia.com/terms/p/putoption.asp) as well. ## When Were LEAP Options First Listed on the CBOE? [LEAPs (Long-Term AnticiPation Securities)](https://www.investopedia.com/terms/l/leaps.asp) are long-dated options listed on exchanges, with expirations longer than one year and up to three or more years. The CBOE first introduced listed LEAP trading in 1990. *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 the CBOE Options Exchange? Founded in 1973, the CBOE Options Exchange is the world's largest options exchange with contracts focusing on individual equities, indexes, and interest rates. Originally known as the Chicago Board Options Exchange (CBOE), the exchange changed its name in 2017 as part of a rebranding effort by its holding company, CBOE Global Markets. Traders refer to the exchange as the CBOE ("see-bo"). CBOE is also the originator of the CBOE Volatility Index (VIX), the most widely used and recognized proxy for market volatility. Key Takeaways The CBOE is an important options exchange based in Chicago, founded in 1973.The CBOE Options Exchange was previously the Chicago Board Options Exchange (CBOE).In 2010 the exchange incorporated as a holding company with the exchange as its main asset.In 2017 the holding company and exchange rebranded as CBOE Global Markets Inc. and the CBOE Options Exchange, respectively.CBOE is home to the VIX volatility index and many other volatility instruments. Understanding the CBOE Options Exchange CBOE offers trading across multiple asset classes and geographies, including options, futures, U.S. and European equities, exchange-traded products (ETPs), global foreign exchange(FX), and multi-asset volatility products. It is the largest options exchange in the U.S. and the largest stock exchange in Europe, by value traded. It is the second-largest stock exchange operator in the U.S. and a top global market for ETP trading. The exchange has a rich history, including the creation of the CBOE Clearing Corp., which later became the Options Clearing Corporation (OCC), the industry clearinghouse for all U.S. options trades. The business of the CBOE goes beyond simple trade executions, and in 1985 it formed The Options Institute, its educational arm, developed to educate investors around the world about options. In addition, the company offers seminars, webinars, and online courses, including learning for professionals. CBOE Products The exchange offers access to many diverse products, starting with, of course, put and call options on thousands of publicly traded stocks, as well as on exchange traded funds (ETFs) and exchange traded notes (ETNs). Investors typically use these products for hedging and income production through the selling of covered calls or cash-secured puts. There are options available on stock and sector indexes, including the Standard & Poor's 500, S&P 100, Dow Jones Industrial Average, Russell indexes, selected FTSE indexes, Nasdaq Indexes, MSCI Indexes, and sector indexes including the 10 sectors contained within the S&P 500. The exchange offers social media indexes and specialty indexes covering several options strategies, such as "put write," butterfly, and collar. Finally, the VIX index is the premier barometer of equity market volatility. This Index is based on real-time prices of near-the-money options on the S&P 500 Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. Traders call the VIX Index the "fear gauge" because it tends to spike to very high levels when investors believe the market is very bearish or unstable. The VIX Index is also the flagship index of the CBOE Global Markets' volatility franchise. This includes volatility indexes on broad-based stock indexes, ETFs, individual stocks, commodities, and other specialty indexes. The CBOE created the VIX Index in 1993. It has since become the de facto barometer of U.S. equity market volatility. How Many Options Contracts Trade on the CBOE? In Q1 2022, total volume across CBOE's options exchanges reached 830.3 million options contracts, a record amount. Quarterly average daily volume (ADV) also reached a new all-time high of 13.4 million contracts traded per day. When Were Put Options First Listed on the CBOE? When the CBOE launched in 1973, it only listed call options. It was not until 1977 that the exchange added put options as well. When Were LEAP Options First Listed on the CBOE? LEAPs (Long-Term AnticiPation Securities) are long-dated options listed on exchanges, with expirations longer than one year and up to three or more years. The CBOE first introduced listed LEAP trading in 1990. 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/ask/answers/040715/what-are-pros-and-cons-online-checking-accounts.asp

What Are the Pros and Cons of Online Checking Accounts?

<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"> Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it. In addition, many online banks contract with ATM companies so that customers can use their machines to make cash deposits.<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_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>While online checking offers advantages over traditional physical banks, consumers should be aware of certain disadvantages.</li><li>Online checking permits you to open an account, check activity, pay bills and transfer money without visiting a branch.</li><li>Customers may miss interacting with a teller face-to-face. Online banking also means being vigilant about protecting your login credentials.</li></ul></div></div></div> <span class="heading-toc" id="toc-online-checking-accounts-offer-higher-yields-and-lower-fees"></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"> Online Checking Accounts Offer Higher Yields and Lower Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/bank_fees.asp">lower fees</a>. As of May 2023, the U.S. average annual percentage yield (APY) for checking accounts is 0.07%, according to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a>.<span class="ql-inline-citation" data-cite="1"></span> However, online banks can be found offering checking accounts with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-banks-5190371">APYs of 3% and higher</a>. Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals. </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-attractive-high-tech-features-of-online-checking-accounts"></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"> Attractive High-Tech Features of Online Checking Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Many enable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous. </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-drawbacks-of-online-checking-accounts"></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"> Drawbacks of Online Checking Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp">online banks</a> offer 24-hour customer service by phone, while others limit their customer service to normal business hours. </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"> Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp">security</a>, cybercriminals have used malware to infect online banking customers’ browsers and steal login and password information.<span class="ql-inline-citation" data-cite="6"></span> Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_16-0"><span class="heading-toc" id="toc-are-online-banks-covered-by-fdic-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are online banks covered by FDIC insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yep. In their words: "The FDIC provides insurance for the funds that you deposit in FDIC-insured banks. This means that, if your FDIC-insured bank fails, the FDIC will protect you against the loss of your insured deposits whether the bank is brick and mortar or online-only."<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_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_18-0"><span class="heading-toc" id="toc-do-online-or-traditional-physical-banks-offer-better-interest-rates-on-checking"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do online or traditional physical banks offer better interest rates on checking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Since online banks pay less overhead than brick-and-mortar rivals, most pass those savings to their clients in the form of higher yields and lower fees. While most banks offer around 0.07% in interest, online banks can be found offering checking accounts with APYs of 3% and higher, as of May 2023.<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_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_20-0"><span class="heading-toc" id="toc-what-are-online-checking-accounts-disadvantages"></span> <h2 class="mntl-sc-block-questionandanswer__question">What are online checking accounts' disadvantages?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Customers may miss interacting with a teller or bank manager face-to-face. Online banking also means being vigilant about protecting your login credentials and not falling victim to online scams.<br/></p></div> </div> <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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Trading your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you. </p></div>

Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it. In addition, many online banks contract with ATM companies so that customers can use their machines to make cash deposits. ### Key Takeaways * While online checking offers advantages over traditional physical banks, consumers should be aware of certain disadvantages. * Online checking permits you to open an account, check activity, pay bills and transfer money without visiting a branch. * Customers may miss interacting with a teller face-to-face. Online banking also means being vigilant about protecting your login credentials. ## Online Checking Accounts Offer Higher Yields and Lower Fees Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and [lower fees](https://www.investopedia.com/articles/pf/07/bank_fees.asp). As of May 2023, the U.S. average annual percentage yield (APY) for checking accounts is 0.07%, according to the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp). However, online banks can be found offering checking accounts with [APYs of 3% and higher](https://www.investopedia.com/best-online-banks-5190371). Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals. ## Attractive High-Tech Features of Online Checking Accounts High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Many enable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous. ## Drawbacks of Online Checking Accounts Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some [online banks](https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp) offer 24-hour customer service by phone, while others limit their customer service to normal business hours. Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site [security](https://www.investopedia.com/terms/b/banking-and-securities-industry-committee-basic.asp), cybercriminals have used malware to infect online banking customers’ browsers and steal login and password information. Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online. ## Are online banks covered by FDIC insurance? Yep. In their words: "The FDIC provides insurance for the funds that you deposit in FDIC-insured banks. This means that, if your FDIC-insured bank fails, the FDIC will protect you against the loss of your insured deposits whether the bank is brick and mortar or online-only." ## Do online or traditional physical banks offer better interest rates on checking? Since online banks pay less overhead than brick-and-mortar rivals, most pass those savings to their clients in the form of higher yields and lower fees. While most banks offer around 0.07% in interest, online banks can be found offering checking accounts with APYs of 3% and higher, as of May 2023. ## What are online checking accounts' disadvantages? Customers may miss interacting with a teller or bank manager face-to-face. Online banking also means being vigilant about protecting your login credentials and not falling victim to online scams. ## The Bottom Line Trading your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you.

Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it. In addition, many online banks contract with ATM companies so that customers can use their machines to make cash deposits. Key Takeaways While online checking offers advantages over traditional physical banks, consumers should be aware of certain disadvantages.Online checking permits you to open an account, check activity, pay bills and transfer money without visiting a branch.Customers may miss interacting with a teller face-to-face. Online banking also means being vigilant about protecting your login credentials. Online Checking Accounts Offer Higher Yields and Lower Fees Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and lower fees. As of May 2023, the U.S. average annual percentage yield (APY) for checking accounts is 0.07%, according to the Federal Deposit Insurance Corporation (FDIC). However, online banks can be found offering checking accounts with APYs of 3% and higher. Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals. Attractive High-Tech Features of Online Checking Accounts High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Many enable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous. Drawbacks of Online Checking Accounts Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some online banks offer 24-hour customer service by phone, while others limit their customer service to normal business hours. Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site security, cybercriminals have used malware to infect online banking customers’ browsers and steal login and password information. Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online. Are online banks covered by FDIC insurance? Yep. In their words: "The FDIC provides insurance for the funds that you deposit in FDIC-insured banks. This means that, if your FDIC-insured bank fails, the FDIC will protect you against the loss of your insured deposits whether the bank is brick and mortar or online-only." Do online or traditional physical banks offer better interest rates on checking? Since online banks pay less overhead than brick-and-mortar rivals, most pass those savings to their clients in the form of higher yields and lower fees. While most banks offer around 0.07% in interest, online banks can be found offering checking accounts with APYs of 3% and higher, as of May 2023. What are online checking accounts' disadvantages? Customers may miss interacting with a teller or bank manager face-to-face. Online banking also means being vigilant about protecting your login credentials and not falling victim to online scams. The Bottom Line Trading your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you.

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

What Is Ethereum 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-ethereum"></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 Ethereum? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Ethereum is a decentralized global software platform powered by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain technology</a>. It is most commonly known by investors for its native cryptocurrency, ether (ETH), and by developers for its use in blockchain and decentralized finance application development. </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"> Anyone can use Ethereum—it's designed to be scalable, programmable, secure, and decentralized—to create any secured digital technology. Its token is designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted. </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>Ethereum is a blockchain-based development platform known for its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a>, ether (ETH).</li> <li>The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained.</li> <li>Bitcoin and Ethereum have many similarities but different long-term visions and limitations.</li> <li>Ethereum uses a proof-of-stake transaction validation mechanism.<span class="ql-inline-citation" data-cite="42"></span></li> <li>Ethereum is the foundation for many emerging technological advances based on blockchain.</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="Ethereum" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/fynTVUAxLgQbBcE7uouqyK6NYpM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/fynTVUAxLgQbBcE7uouqyK6NYpM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.jpg" data-srcset="https://www.investopedia.com/thmb/LLGnINdSZq_Pw8CC4jJ6iUWdz6M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Ethereum" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/fynTVUAxLgQbBcE7uouqyK6NYpM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.jpg" srcset="https://www.investopedia.com/thmb/LLGnINdSZq_Pw8CC4jJ6iUWdz6M=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.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 / Michela Buttignol</p></span> </figcaption></figure> <span class="heading-toc" id="toc-history-of-ethereum"></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 Ethereum </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Vitalik Buterin, credited with conceiving Ethereum, published a white paper introducing it in 2014.<span class="ql-inline-citation" data-cite="26"></span> The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys.<span class="ql-inline-citation" data-cite="46"></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 founders of Ethereum were among the first to consider the full potential of blockchain technology beyond just enabling a secure virtual payment method. </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"> Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin.<span class="ql-inline-citation" data-cite="50"></span> </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"> A Historic Split </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> One notable event in Ethereum's history is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-fork.asp">hard fork</a>, or split, of Ethereum and Ethereum Classic. In 2016, a group of network participants gained control of the smart contracts used by a project called The DAO to steal more than $50 million worth of ether.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The raid's success was attributed to the involvement of a third-party developer for the new project. Most of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history. </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, a fraction of the community chose to maintain the original version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum-classic.asp">Ethereum Classic</a> (ETC).<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> <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"> Proof-of-Stake Transistion </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Initially, Ethereum used a competitive proof-of-work validation process similar to that of Bitcoin. After several years of development, Ethereum finally switched to proof-of-stake in 2022, which uses much less processing power and energy. </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"> Dencun Upgrade </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The Dencun hard fork was activated on March 13, 2024.<span class="ql-inline-citation" data-cite="61"></span> This hard fork introduced proto-danksharding (named in honor of the proposers, Protolambda and Dankrad Feist) to the Ethereum mainchain. Proto-danksharding is a stepping stone for future upgrades to the Ethereum blockchain.<br/> </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-how-does-ethereum-work"></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"> How Does Ethereum Work? </span> </h2> <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"> Blockchain Technology </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Ethereum uses a blockchain, which is a distributed ledger (like a database). Information is stored in blocks, each containing encoded data from the block before it and the new information. This creates an encoded chain of information that cannot be changed. Throughout the blockchain network, an identical copy of the blockchain is distributed. </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"> Each cell, or block, is created with new ether tokens awarded to the validator for the work required to validate the information in one block and propose a new one. The ether is assigned to the validator's address. </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"> Once a new block is proposed, it is validated by a network of automated programs that reach a consensus on the validity of transaction information. On the Ethereum blockchain, consensus is reached after the data and hash are passed between the consensus layer and the execution layer. Enough validators must demonstrate that they all had the same comparative results, and the block becomes finalized. </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"> Proof-of-Stake Validation Process </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Proof-of-stake differs from proof-of-work in that it doesn't require the energy-intensive computing referred to as mining to validate blocks. It uses a finalization protocol called Casper-FFG and the algorithm LMD Ghost, combined into a consensus mechanism called Gasper. Gasper monitors consensus and defines how validators receive rewards for work or are punished for dishonesty or lack of activity.<span class="ql-inline-citation" data-cite="57"></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"> Solo validators must stake 32 ETH to activate their validation ability. Individuals can stake smaller amounts of ETH, but they are required to join a validation pool and share any rewards. A validator creates a new block and attests that the information is valid in a process called attestation. The block is broadcast to other validators called a committee, which verifies it and votes for its validity. </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"> Validators who act dishonestly are punished under proof-of-stake. Those who attempt to attack the network are identified by Gasper, which flags the blocks to accept and reject based on the validators' votes.<span class="ql-inline-citation" data-cite="57"></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"> Dishonest validators are punished by having their staked ETH burned and removed from the network. "Burning" is the term for sending crypto to a wallet without private keys, effectively taking it out of circulation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-subheading__text"> Wallets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Ethereum owners use wallets to store their ether. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-crypto-software-wallets-5220762">wallet </a>is a digital interface that lets you access your cryptocurrency. Your wallet has an address, which can be thought of as an email address in that it is where users send ether, much like they would an email.<span class="ql-inline-citation" data-cite="53"></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"> Ether is not stored in your wallet. Your wallet holds <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/private-key.asp">private keys</a> you use as you would a password when you initiate a transaction. You receive a private key for each ether you own. This key is essential for accessing your ether—you can't use it without it. That's why you hear so much about securing keys using different <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030515/what-cold-storage-bitcoin.asp">storage methods</a>. </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-note" 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 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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wei.asp">smallest unit or denomination</a> of ether is a wei. There are seven total denominations: Wei, Kwei, Mwei, Gwei, micro-ether (Twei), milli-ether (Pwei), ether.</p></div></div></div> <span class="heading-toc" id="toc-ethereum-vs-bitcoin"></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"> Ethereum vs. Bitcoin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, there are some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/031416/bitcoin-vs-ethereum-driven-different-purposes.asp">important distinctions</a>. </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"> Ethereum is described by founders and developers as “the world’s programmable blockchain,” positioning itself as a distributed virtual computer on which applications can be developed.<span class="ql-inline-citation" data-cite="43"></span> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin blockchain</a>, by contrast, was created only to support the bitcoin cryptocurrency as a payment method.<br/> </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"> The maximum number of bitcoins that can enter circulation is 21 million.<span class="ql-inline-citation" data-cite="30"></span> The amount of ETH that can be created is unlimited, although the time it takes to process a block of ETH limits how much can be minted each year.<span class="ql-inline-citation" data-cite="31"></span> The number of Ethereum coins in circulation as of April 2024 is just over 120 million.<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_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Another significant difference between Ethereum and Bitcoin is how the respective networks treat transaction processing fees. These fees, known as gas on the Ethereum network, are paid by the participants in Ethereum transactions and burned by the network. The fees associated with Bitcoin transactions are paid to Bitcoin miners. </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"> Ethereum, as of April 2024, uses a proof-of-stake consensus mechanism. Bitcoin uses the energy-intensive proof-of-work consensus, which requires miners to compete for rewards. </p> <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-future-of-ethereum"></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 Future of Ethereum </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Ethereum’s transition to the proof-of-stake protocol, which enabled users to validate transactions and mint new ETH based on their ether holdings, was part of a significant upgrade to the Ethereum platform. However, Ethereum now has two layers. The first layer is the execution layer, where transactions and validations occur. The second layer is the consensus layer, where attestations and the consensus chain are maintained.<span class="ql-inline-citation" data-cite="56"></span> </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"> The upgrade added capacity to the Ethereum network to support its growth, which will eventually help to address chronic network congestion problems that have driven up gas fees.<span class="ql-inline-citation" data-cite="42"></span><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_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"> Scalability Solutions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> To address scalability, Ethereum is continuing to develop a scalability solution called "danksharding." Sharding was a planned concept that would allow portions (shards) of the blockchain to be stored on nodes rather than the entire blockchain. However, sharding was replaced with plans for danksharding, where transactions are processed off-chain, rolled up (summarized using data availability sampling), and posted to the main chain via a BLOB (Binary Large Object). </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"> Danksharding, using BLOBs, rollups, and data availability sampling, is expected to greatly reduce costs and increase transaction processing speeds when eventually combined in a future update.<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_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"> Development Roadmap </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Lastly, Ethereum publishes a roadmap for future plans. As of April 2024, four primary categories were listed for future work. Those changes will push for: </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>Cheaper transactions</strong>: Ethereum notes that rollups are too expensive and force users to place too much trust in their operators.</li><li><strong>Extra security</strong>: Ethereum notes it wants to be prepared for future types of attacks.</li><li><strong>Better user experiences</strong>:<strong> </strong>Ethereum wants better support for smart contracts and lightweight nodes.</li><li><strong>Future-proofing</strong>:<strong> </strong>Ethereum notes wanting to proactively solve problems that have yet to present themselves.<span class="ql-inline-citation" data-cite="60"></span></li> </ul> <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-callout mntl-block" id="mntl-sc-block_79-0"><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_80-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">Web3</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Web3 is still a concept, but it is generally theorized that it will be powered by Ethereum because many of the applications being developed for the "future of the internet" use it.<span class="ql-inline-citation" data-cite="37"></span></p></div></div></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"> Use in Gaming </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Ethereum is also being implemented into gaming and virtual reality. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-decentraland-6827259">Decentraland</a> is a virtual world that uses the Ethereum blockchain to secure items contained within it. Virtual land, avatars, wearables, buildings, and environments are all tokenized through the blockchain to create ownership.<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_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Axie Infinity is another game that uses blockchain technology and has its own cryptocurrency called Smooth Love Potion (SLP). SLP is used for rewards and transactions within the game.<span class="ql-inline-citation" data-cite="54"></span><span class="ql-inline-citation" data-cite="38"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <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"> Non-Fungible Tokens </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> <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</a> (NFTs) gained popularity in 2021. NFTs are tokenized digital items created using Ethereum.<span class="ql-inline-citation" data-cite="55"></span> Generally speaking, tokenization gives one digital asset an identifying token with a private key. The key gives only the owner access to the token. </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"> The NFT can be traded or sold and is a transaction on the blockchain. The network verifies the transaction, and ownership is transferred. </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"> NFTs are being developed for all sorts of assets. For example, sports fans can buy a sports token—also called fan tokens—of their favorite athletes, which can be treated like trading cards. Some of these NFTs are pictures that resemble a trading card, and some of them are videos of a memorable or historic moment in the athlete's career. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_93-0"><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_94-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" 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>The applications you may use in the metaverse, such as your wallet, a dApp, or the virtual world and buildings you visit, are likely to have been built on Ethereum.</p></div></div></div> <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"> The Development of DAOs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-dao/">Decentralized Autonomous Organizations</a> (DAOs) are a collaborative method for making decisions across a distributed network.<span class="ql-inline-citation" data-cite="41"></span> They have been created for many uses, from Web 3 development to gaming and venture capital. </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"> Here's how DAOs are generally designed: Imagine that you created a venture capital fund and raised money through fundraising, but you want decision-making to be decentralized and distributions to be automatic and transparent. </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"> A DAO could use smart contracts and applications to gather the votes from the fund members, buy into ventures based on the majority of the group's votes, and automatically distribute any returns. The transactions could be viewed by all parties, and there would be no third-party involvement in handling any funds. </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-what-will-ethereum-be-worth-in-2030"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Will Ethereum Be Worth in 2030?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are many predictions about ether's price, but they are speculation at best. There are too many factors at work in cryptocurrency valuation to accurately predict prices in one week, let alone several years.</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-why-did-ethereum-drop"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Did Ethereum Drop?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ether's price rises and falls for many reasons throughout a trading day and week. Market sentiments, regulatory developments, news, hype, and more all influence its price.</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-is-one-ethereum-coin-worth"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Is One Ethereum Coin Worth?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ether's price changes quickly, but on April 21, 2024, it was about $3,156.<span class="ql-inline-citation" data-cite="62"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></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_108-0"> <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_109-0"> Ethereum is a decentralized blockchain and development platform. It allows developers to build and deploy applications and smart contracts. Ethereum utilizes its native cryptocurrency, ether (ETH), for transactions and incentivizes network participants through proof-of-stake (PoS) validation. </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 role that cryptocurrency will play in the future is still vague. However, Ethereum appears to have a significant, upcoming role in personal and corporate finance and many aspects of modern life.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_113-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. 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.<br/></em> </p></div>

## What Is Ethereum? Ethereum is a decentralized global software platform powered by [blockchain technology](https://www.investopedia.com/terms/b/blockchain.asp). It is most commonly known by investors for its native cryptocurrency, ether (ETH), and by developers for its use in blockchain and decentralized finance application development. Anyone can use Ethereum—it's designed to be scalable, programmable, secure, and decentralized—to create any secured digital technology. Its token is designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted. ### Key Takeaways * Ethereum is a blockchain-based development platform known for its [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp), ether (ETH). * The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained. * Bitcoin and Ethereum have many similarities but different long-term visions and limitations. * Ethereum uses a proof-of-stake transaction validation mechanism. * Ethereum is the foundation for many emerging technological advances based on blockchain. ![Ethereum]() :max_bytes(150000):strip_icc()/Ethereum-4712a8521e4f47ba9625e4ebcd5a25ae.jpg) Investopedia / Michela Buttignol ## History of Ethereum Vitalik Buterin, credited with conceiving Ethereum, published a white paper introducing it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys. The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond just enabling a secure virtual payment method. Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin. ### A Historic Split One notable event in Ethereum's history is the [hard fork](https://www.investopedia.com/terms/h/hard-fork.asp), or split, of Ethereum and Ethereum Classic. In 2016, a group of network participants gained control of the smart contracts used by a project called The DAO to steal more than $50 million worth of ether. The raid's success was attributed to the involvement of a third-party developer for the new project. Most of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history. However, a fraction of the community chose to maintain the original version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become [Ethereum Classic](https://www.investopedia.com/terms/e/ethereum-classic.asp) (ETC). ### Proof-of-Stake Transistion Initially, Ethereum used a competitive proof-of-work validation process similar to that of Bitcoin. After several years of development, Ethereum finally switched to proof-of-stake in 2022, which uses much less processing power and energy. ### Dencun Upgrade The Dencun hard fork was activated on March 13, 2024. This hard fork introduced proto-danksharding (named in honor of the proposers, Protolambda and Dankrad Feist) to the Ethereum mainchain. Proto-danksharding is a stepping stone for future upgrades to the Ethereum blockchain. ## How Does Ethereum Work? ### Blockchain Technology Ethereum uses a blockchain, which is a distributed ledger (like a database). Information is stored in blocks, each containing encoded data from the block before it and the new information. This creates an encoded chain of information that cannot be changed. Throughout the blockchain network, an identical copy of the blockchain is distributed. Each cell, or block, is created with new ether tokens awarded to the validator for the work required to validate the information in one block and propose a new one. The ether is assigned to the validator's address. Once a new block is proposed, it is validated by a network of automated programs that reach a consensus on the validity of transaction information. On the Ethereum blockchain, consensus is reached after the data and hash are passed between the consensus layer and the execution layer. Enough validators must demonstrate that they all had the same comparative results, and the block becomes finalized. ### Proof-of-Stake Validation Process Proof-of-stake differs from proof-of-work in that it doesn't require the energy-intensive computing referred to as mining to validate blocks. It uses a finalization protocol called Casper-FFG and the algorithm LMD Ghost, combined into a consensus mechanism called Gasper. Gasper monitors consensus and defines how validators receive rewards for work or are punished for dishonesty or lack of activity. Solo validators must stake 32 ETH to activate their validation ability. Individuals can stake smaller amounts of ETH, but they are required to join a validation pool and share any rewards. A validator creates a new block and attests that the information is valid in a process called attestation. The block is broadcast to other validators called a committee, which verifies it and votes for its validity. Validators who act dishonestly are punished under proof-of-stake. Those who attempt to attack the network are identified by Gasper, which flags the blocks to accept and reject based on the validators' votes. Dishonest validators are punished by having their staked ETH burned and removed from the network. "Burning" is the term for sending crypto to a wallet without private keys, effectively taking it out of circulation. ### Wallets Ethereum owners use wallets to store their ether. A [wallet](https://www.investopedia.com/best-crypto-software-wallets-5220762) is a digital interface that lets you access your cryptocurrency. Your wallet has an address, which can be thought of as an email address in that it is where users send ether, much like they would an email. Ether is not stored in your wallet. Your wallet holds [private keys](https://www.investopedia.com/terms/p/private-key.asp) you use as you would a password when you initiate a transaction. You receive a private key for each ether you own. This key is essential for accessing your ether—you can't use it without it. That's why you hear so much about securing keys using different [storage methods](https://www.investopedia.com/articles/investing/030515/what-cold-storage-bitcoin.asp). ### The [smallest unit or denomination](https://www.investopedia.com/terms/w/wei.asp) of ether is a wei. There are seven total denominations: Wei, Kwei, Mwei, Gwei, micro-ether (Twei), milli-ether (Pwei), ether. ## Ethereum vs. Bitcoin Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, there are some [important distinctions](https://www.investopedia.com/articles/investing/031416/bitcoin-vs-ethereum-driven-different-purposes.asp). Ethereum is described by founders and developers as “the world’s programmable blockchain,” positioning itself as a distributed virtual computer on which applications can be developed. The [Bitcoin blockchain](https://www.investopedia.com/terms/b/bitcoin.asp), by contrast, was created only to support the bitcoin cryptocurrency as a payment method. The maximum number of bitcoins that can enter circulation is 21 million. The amount of ETH that can be created is unlimited, although the time it takes to process a block of ETH limits how much can be minted each year. The number of Ethereum coins in circulation as of April 2024 is just over 120 million. Another significant difference between Ethereum and Bitcoin is how the respective networks treat transaction processing fees. These fees, known as gas on the Ethereum network, are paid by the participants in Ethereum transactions and burned by the network. The fees associated with Bitcoin transactions are paid to Bitcoin miners. Ethereum, as of April 2024, uses a proof-of-stake consensus mechanism. Bitcoin uses the energy-intensive proof-of-work consensus, which requires miners to compete for rewards. ## The Future of Ethereum Ethereum’s transition to the proof-of-stake protocol, which enabled users to validate transactions and mint new ETH based on their ether holdings, was part of a significant upgrade to the Ethereum platform. However, Ethereum now has two layers. The first layer is the execution layer, where transactions and validations occur. The second layer is the consensus layer, where attestations and the consensus chain are maintained. The upgrade added capacity to the Ethereum network to support its growth, which will eventually help to address chronic network congestion problems that have driven up gas fees. ### Scalability Solutions To address scalability, Ethereum is continuing to develop a scalability solution called "danksharding." Sharding was a planned concept that would allow portions (shards) of the blockchain to be stored on nodes rather than the entire blockchain. However, sharding was replaced with plans for danksharding, where transactions are processed off-chain, rolled up (summarized using data availability sampling), and posted to the main chain via a BLOB (Binary Large Object). Danksharding, using BLOBs, rollups, and data availability sampling, is expected to greatly reduce costs and increase transaction processing speeds when eventually combined in a future update. ### Development Roadmap Lastly, Ethereum publishes a roadmap for future plans. As of April 2024, four primary categories were listed for future work. Those changes will push for: * **Cheaper transactions**: Ethereum notes that rollups are too expensive and force users to place too much trust in their operators. * **Extra security**: Ethereum notes it wants to be prepared for future types of attacks. * **Better user experiences**:Ethereum wants better support for smart contracts and lightweight nodes. * **Future-proofing**:Ethereum notes wanting to proactively solve problems that have yet to present themselves. ### Web3 Web3 is still a concept, but it is generally theorized that it will be powered by Ethereum because many of the applications being developed for the "future of the internet" use it. ### Use in Gaming Ethereum is also being implemented into gaming and virtual reality. [Decentraland](https://www.investopedia.com/what-is-decentraland-6827259) is a virtual world that uses the Ethereum blockchain to secure items contained within it. Virtual land, avatars, wearables, buildings, and environments are all tokenized through the blockchain to create ownership. Axie Infinity is another game that uses blockchain technology and has its own cryptocurrency called Smooth Love Potion (SLP). SLP is used for rewards and transactions within the game. ### Non-Fungible Tokens [Non-fungible tokens](https://www.investopedia.com/non-fungible-tokens-nft-5115211) (NFTs) gained popularity in 2021. NFTs are tokenized digital items created using Ethereum. Generally speaking, tokenization gives one digital asset an identifying token with a private key. The key gives only the owner access to the token. The NFT can be traded or sold and is a transaction on the blockchain. The network verifies the transaction, and ownership is transferred. NFTs are being developed for all sorts of assets. For example, sports fans can buy a sports token—also called fan tokens—of their favorite athletes, which can be treated like trading cards. Some of these NFTs are pictures that resemble a trading card, and some of them are videos of a memorable or historic moment in the athlete's career. ### The applications you may use in the metaverse, such as your wallet, a dApp, or the virtual world and buildings you visit, are likely to have been built on Ethereum. ### The Development of DAOs [Decentralized Autonomous Organizations](https://www.investopedia.com/tech/what-dao/) (DAOs) are a collaborative method for making decisions across a distributed network. They have been created for many uses, from Web 3 development to gaming and venture capital. Here's how DAOs are generally designed: Imagine that you created a venture capital fund and raised money through fundraising, but you want decision-making to be decentralized and distributions to be automatic and transparent. A DAO could use smart contracts and applications to gather the votes from the fund members, buy into ventures based on the majority of the group's votes, and automatically distribute any returns. The transactions could be viewed by all parties, and there would be no third-party involvement in handling any funds. ## What Will Ethereum Be Worth in 2030? There are many predictions about ether's price, but they are speculation at best. There are too many factors at work in cryptocurrency valuation to accurately predict prices in one week, let alone several years. ## Why Did Ethereum Drop? Ether's price rises and falls for many reasons throughout a trading day and week. Market sentiments, regulatory developments, news, hype, and more all influence its price. ## How Much Is One Ethereum Coin Worth? Ether's price changes quickly, but on April 21, 2024, it was about $3,156. ## The Bottom Line Ethereum is a decentralized blockchain and development platform. It allows developers to build and deploy applications and smart contracts. Ethereum utilizes its native cryptocurrency, ether (ETH), for transactions and incentivizes network participants through proof-of-stake (PoS) validation. The role that cryptocurrency will play in the future is still vague. However, Ethereum appears to have a significant, upcoming role in personal and corporate finance and many aspects of modern life. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.*

What Is Ethereum? Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known by investors for its native cryptocurrency, ether (ETH), and by developers for its use in blockchain and decentralized finance application development. Anyone can use Ethereum—it's designed to be scalable, programmable, secure, and decentralized—to create any secured digital technology. Its token is designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted. Key Takeaways Ethereum is a blockchain-based development platform known for its cryptocurrency, ether (ETH). The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained. Bitcoin and Ethereum have many similarities but different long-term visions and limitations. Ethereum uses a proof-of-stake transaction validation mechanism. Ethereum is the foundation for many emerging technological advances based on blockchain. Investopedia / Michela Buttignol History of Ethereum Vitalik Buterin, credited with conceiving Ethereum, published a white paper introducing it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys. The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond just enabling a secure virtual payment method. Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin. A Historic Split One notable event in Ethereum's history is the hard fork, or split, of Ethereum and Ethereum Classic. In 2016, a group of network participants gained control of the smart contracts used by a project called The DAO to steal more than $50 million worth of ether. The raid's success was attributed to the involvement of a third-party developer for the new project. Most of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history. However, a fraction of the community chose to maintain the original version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become Ethereum Classic (ETC). Proof-of-Stake Transistion Initially, Ethereum used a competitive proof-of-work validation process similar to that of Bitcoin. After several years of development, Ethereum finally switched to proof-of-stake in 2022, which uses much less processing power and energy. Dencun Upgrade The Dencun hard fork was activated on March 13, 2024. This hard fork introduced proto-danksharding (named in honor of the proposers, Protolambda and Dankrad Feist) to the Ethereum mainchain. Proto-danksharding is a stepping stone for future upgrades to the Ethereum blockchain. How Does Ethereum Work? Blockchain Technology Ethereum uses a blockchain, which is a distributed ledger (like a database). Information is stored in blocks, each containing encoded data from the block before it and the new information. This creates an encoded chain of information that cannot be changed. Throughout the blockchain network, an identical copy of the blockchain is distributed. Each cell, or block, is created with new ether tokens awarded to the validator for the work required to validate the information in one block and propose a new one. The ether is assigned to the validator's address. Once a new block is proposed, it is validated by a network of automated programs that reach a consensus on the validity of transaction information. On the Ethereum blockchain, consensus is reached after the data and hash are passed between the consensus layer and the execution layer. Enough validators must demonstrate that they all had the same comparative results, and the block becomes finalized. Proof-of-Stake Validation Process Proof-of-stake differs from proof-of-work in that it doesn't require the energy-intensive computing referred to as mining to validate blocks. It uses a finalization protocol called Casper-FFG and the algorithm LMD Ghost, combined into a consensus mechanism called Gasper. Gasper monitors consensus and defines how validators receive rewards for work or are punished for dishonesty or lack of activity. Solo validators must stake 32 ETH to activate their validation ability. Individuals can stake smaller amounts of ETH, but they are required to join a validation pool and share any rewards. A validator creates a new block and attests that the information is valid in a process called attestation. The block is broadcast to other validators called a committee, which verifies it and votes for its validity. Validators who act dishonestly are punished under proof-of-stake. Those who attempt to attack the network are identified by Gasper, which flags the blocks to accept and reject based on the validators' votes. Dishonest validators are punished by having their staked ETH burned and removed from the network. "Burning" is the term for sending crypto to a wallet without private keys, effectively taking it out of circulation. Wallets Ethereum owners use wallets to store their ether. A wallet is a digital interface that lets you access your cryptocurrency. Your wallet has an address, which can be thought of as an email address in that it is where users send ether, much like they would an email. Ether is not stored in your wallet. Your wallet holds private keys you use as you would a password when you initiate a transaction. You receive a private key for each ether you own. This key is essential for accessing your ether—you can't use it without it. That's why you hear so much about securing keys using different storage methods. The smallest unit or denomination of ether is a wei. There are seven total denominations: Wei, Kwei, Mwei, Gwei, micro-ether (Twei), milli-ether (Pwei), ether. Ethereum vs. Bitcoin Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, there are some important distinctions. Ethereum is described by founders and developers as “the world’s programmable blockchain,” positioning itself as a distributed virtual computer on which applications can be developed. The Bitcoin blockchain, by contrast, was created only to support the bitcoin cryptocurrency as a payment method. The maximum number of bitcoins that can enter circulation is 21 million. The amount of ETH that can be created is unlimited, although the time it takes to process a block of ETH limits how much can be minted each year. The number of Ethereum coins in circulation as of April 2024 is just over 120 million. Another significant difference between Ethereum and Bitcoin is how the respective networks treat transaction processing fees. These fees, known as gas on the Ethereum network, are paid by the participants in Ethereum transactions and burned by the network. The fees associated with Bitcoin transactions are paid to Bitcoin miners. Ethereum, as of April 2024, uses a proof-of-stake consensus mechanism. Bitcoin uses the energy-intensive proof-of-work consensus, which requires miners to compete for rewards. The Future of Ethereum Ethereum’s transition to the proof-of-stake protocol, which enabled users to validate transactions and mint new ETH based on their ether holdings, was part of a significant upgrade to the Ethereum platform. However, Ethereum now has two layers. The first layer is the execution layer, where transactions and validations occur. The second layer is the consensus layer, where attestations and the consensus chain are maintained. The upgrade added capacity to the Ethereum network to support its growth, which will eventually help to address chronic network congestion problems that have driven up gas fees. Scalability Solutions To address scalability, Ethereum is continuing to develop a scalability solution called "danksharding." Sharding was a planned concept that would allow portions (shards) of the blockchain to be stored on nodes rather than the entire blockchain. However, sharding was replaced with plans for danksharding, where transactions are processed off-chain, rolled up (summarized using data availability sampling), and posted to the main chain via a BLOB (Binary Large Object). Danksharding, using BLOBs, rollups, and data availability sampling, is expected to greatly reduce costs and increase transaction processing speeds when eventually combined in a future update. Development Roadmap Lastly, Ethereum publishes a roadmap for future plans. As of April 2024, four primary categories were listed for future work. Those changes will push for: Cheaper transactions: Ethereum notes that rollups are too expensive and force users to place too much trust in their operators.Extra security: Ethereum notes it wants to be prepared for future types of attacks.Better user experiences: Ethereum wants better support for smart contracts and lightweight nodes.Future-proofing: Ethereum notes wanting to proactively solve problems that have yet to present themselves. Web3 Web3 is still a concept, but it is generally theorized that it will be powered by Ethereum because many of the applications being developed for the "future of the internet" use it. Use in Gaming Ethereum is also being implemented into gaming and virtual reality. Decentraland is a virtual world that uses the Ethereum blockchain to secure items contained within it. Virtual land, avatars, wearables, buildings, and environments are all tokenized through the blockchain to create ownership. Axie Infinity is another game that uses blockchain technology and has its own cryptocurrency called Smooth Love Potion (SLP). SLP is used for rewards and transactions within the game. Non-Fungible Tokens Non-fungible tokens (NFTs) gained popularity in 2021. NFTs are tokenized digital items created using Ethereum. Generally speaking, tokenization gives one digital asset an identifying token with a private key. The key gives only the owner access to the token. The NFT can be traded or sold and is a transaction on the blockchain. The network verifies the transaction, and ownership is transferred. NFTs are being developed for all sorts of assets. For example, sports fans can buy a sports token—also called fan tokens—of their favorite athletes, which can be treated like trading cards. Some of these NFTs are pictures that resemble a trading card, and some of them are videos of a memorable or historic moment in the athlete's career. The applications you may use in the metaverse, such as your wallet, a dApp, or the virtual world and buildings you visit, are likely to have been built on Ethereum. The Development of DAOs Decentralized Autonomous Organizations (DAOs) are a collaborative method for making decisions across a distributed network. They have been created for many uses, from Web 3 development to gaming and venture capital. Here's how DAOs are generally designed: Imagine that you created a venture capital fund and raised money through fundraising, but you want decision-making to be decentralized and distributions to be automatic and transparent. A DAO could use smart contracts and applications to gather the votes from the fund members, buy into ventures based on the majority of the group's votes, and automatically distribute any returns. The transactions could be viewed by all parties, and there would be no third-party involvement in handling any funds. What Will Ethereum Be Worth in 2030? There are many predictions about ether's price, but they are speculation at best. There are too many factors at work in cryptocurrency valuation to accurately predict prices in one week, let alone several years. Why Did Ethereum Drop? Ether's price rises and falls for many reasons throughout a trading day and week. Market sentiments, regulatory developments, news, hype, and more all influence its price. How Much Is One Ethereum Coin Worth? Ether's price changes quickly, but on April 21, 2024, it was about $3,156. The Bottom Line Ethereum is a decentralized blockchain and development platform. It allows developers to build and deploy applications and smart contracts. Ethereum utilizes its native cryptocurrency, ether (ETH), for transactions and incentivizes network participants through proof-of-stake (PoS) validation. The role that cryptocurrency will play in the future is still vague. However, Ethereum appears to have a significant, upcoming role in personal and corporate finance and many aspects of modern life. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.

https://www.investopedia.com/ach-vs-wire-transfer-5208168

ACH Transfers vs. Wire Transfers: 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-ach-transfers-vs-wire-transfers-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"> ACH Transfers vs. Wire Transfers: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Sending money from your bank account electronically is increasingly convenient, easy, and cheap. Two ways to do so are <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 (ACH)</a> transfers and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wiretransfer.asp">wire transfers</a>. ACH is widely used in many ways, and often low-cost or free. Wire transfers can be faster (but cost more) than ACH, and can be used for domestic and international money transfers. </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>Automated clearing house (ACH) and wire transfers are both types of electronic fund transfers when sending money or paying bills electronically.</li><li>In terms of speed, wire transfers usually process quicker than ACH transfers and may be used for international transfers, but you may be charged a fee to send or receive money.</li><li>ACH payments are typically free and becoming faster.</li><li>Determining when to use ACH or a wire transfer can depend on the reason for sending or receiving money and the urgency to complete the transaction.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_6-0"> <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>ACH</b></td> <td><b>Wire</b></td> </tr> <tr> <td><b>Transaction Type</b></td> <td>Bill pay, P2P, receiving paychecks</td> <td>House closing, car purchases, sending money to friend and family overseas</td> </tr> <tr> <td><b>Destination</b></td> <td>Domestic</td> <td>Domestic and international</td> </tr> <tr> <td><b>Speed and Timing</b></td> <td>Lower amounts, flexible deadlines</td> <td>Larger amounts, tight deadlines</td> </tr> <tr> <td><b>Cost and Fees</b></td> <td>Free to low cost to send; few fees</td> <td>Fees to send range between $25-$50</td> </tr> <tr> <td><b>Limits</b></td> <td>Vary, but may be lower</td> <td>High limits</td> </tr> <tr> <td><b>Fraud</b></td> <td>Less common fraud target</td> <td>Common fraud target</td> </tr> <tr> <td><b>Reversal</b></td> <td>Possible</td> <td>Very difficult to impossible</td> </tr> </tbody> </table> </div></figure> <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-ach-transfers"></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"> ACH Transfers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> An ACH transaction involves the transfer of funds between banks, credit unions, or other financial institutions through an electronic network. This type of transfer is used for many purposes, including processing: </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>Paycheck <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a></li> <li>Direct deposit of government benefits or tax refunds</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/automatic-transfer-service.asp">Recurring debits</a> (such as automatic bill payments)</li> <li>One-time bill payments</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankgirotransfer.asp">International payments</a></li> <li>Buy now, pay later (BNPL) payments</li> <li>Healthcare claim payments</li> <li>Person-to-person (P2P) payments such as PayPal, Venmo, and Zelle</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/btob.asp">Business-to-business (B2B)</a> payments</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"> Most consumers use ACH to pay bills and send money person-to-person payments because it is free for the standard transfer for a duration of 1 to 3 days in the US.<span class="ql-inline-citation" data-cite="17"></span> Banks and third-party apps such as Venmo, PayPal, and Zelle rely on ACH to move money between friends and family or, in some cases, pay bills. ACH has also been embedded in many high-profile fintech payment apps, such as Stripe for consumer to merchant pay and for business to business payments.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In total, approximately 7.7 billion same-day ACH payments totaling $19.7 trillion were processed in the second quarter of 2022.<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_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"> How ACH Transfers Work </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> An ACH transaction has several moving parts. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120">How ACH transfers work</a> can depend on whether the transaction involves a direct payment or a debit.<br/> </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 simple terms, the originator or first bank initiates an ACH transfer, which is grouped with other ACH transfers. Those transactions are processed through the clearing house. Once transfers are processed for the day, they’re sent in batches to the receiving bank. The receiving bank then credits or debits the appropriate accounts accordingly.<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_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>ACH may also be known as or referred to as direct deposit, direct debit, check, EFT, and electronic bank transfer.<span class="ql-inline-citation" data-cite="18"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> ACH Transfer Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Your credit card bill needs to be paid every month, so you schedule a recurring card payment through your bank. </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 log in to your online bank account or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mobile-banking.asp">mobile banking</a> app and authorize the payment to your credit card company. The credit card company becomes the transaction's originator.<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"> The credit card company sends a file with the upcoming payment details to its bank. The payment is processed through the ACH operator. The ACH operator sends a file with the payment request information back to your bank, which is the receiving depository financial institution.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Your bank sends the payment to the credit card company as scheduled. In this transaction, you are on the receiving end of a payment request.<span class="ql-inline-citation" data-cite="4"></span><br> </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-warning" 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>For an ACH transaction to be processed, there must be sufficient funds in the account. Otherwise, the payment or transfer will be returned, which could trigger a fee. In addition, ACH transfers can take longer to complete due to anti-fraud protections.<span class="ql-inline-citation" data-cite="20"></span></p></div></div></div> <span class="heading-toc" id="toc-wire-transfers"></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"> Wire Transfers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A wire transfer is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-wire-money-5088001">transaction initiated through a bank</a> moving funds from one account to another at an external bank. When both banks are in the U.S., this is called a domestic wire transfer. When one bank is outside the U.S., this is referred to as an international wire transfer or a remittance transfer.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Wire transfers are typically used to send large amounts of money quickly. For example, you may be asked to send your down payment funds via wire transfer if you're buying a home. You can send a wire transfer through your bank, credit union, or a business like Western Union or MoneyGram. </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-callout mntl-block" id="mntl-sc-block_40-0"><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_41-0"><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>If you're wiring $15 or more to a foreign account from the U.S., this is known as a remittance transfer. Remittance transfers or international wires sent through a remittance transfer provider have special consumer protections, including the right to cancel within 30 minutes and the right to resolve mistakes.<span class="ql-inline-citation" data-cite="21"></span></p></div></div></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"> How Wire Transfers Work </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> With wire transfers, banks communicate directly to move funds between accounts. The person sending a payment provides the bank with specific details, including:<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_44-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>The transfer amount and account number you're transferring from</li> <li>The recipient's name, address, and phone number</li> <li>The recipient's account number and financial institution's wire transfer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/routing_transit_number.asp">routing number</a> (which may be different than the typical routing number) or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swift.asp">SWIFT code</a> for international wire transfers</li> <li>The recipient bank's physical address</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"> Once the bank has this information, it can process the wire transfer to deduct the requested amount from the sender’s account. This amount is then credited to the recipient’s account. </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"> The person sending a wire transfer pays a fee, and federal law doesn't limit the bank fees charged for wires.<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_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-warning" 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_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Once a wire transfer payment is sent and accepted, the transaction cannot be reversed.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-subheading__text"> Wire Transfer Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Say you’re buying a home, and the amount due at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closing.asp">closing</a> is $42,000. Lenders often request that borrowers wire their funds for the closing costs.<span class="ql-inline-citation" data-cite="27"></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"> You call your bank to ensure you bring what's requested. You're instructed you must make the wire request in person by 3 p.m., and bring proof of your identity. You go to your bank and provide the recipient’s name, bank, account information, and any other information your bank requests. </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"> The bank deducts $42,000 from your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">money market savings account</a> and wires it to the recipient’s bank. The bank charges you a $35 fee for the transfer. Meanwhile, the money is credited to the recipient’s account within a couple of hours.<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-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:67.5%;"> <img alt="ACH Transfers vs. Wire Transfers" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/8LDSGSPBx6PrPx4DQM7MsDi-zdw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/8LDSGSPBx6PrPx4DQM7MsDi-zdw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.png" data-srcset="https://www.investopedia.com/thmb/AYnaLUs-chR0MV6HVyzb4HJqgW8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="ACH Transfers vs. Wire Transfers" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/8LDSGSPBx6PrPx4DQM7MsDi-zdw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.png" srcset="https://www.investopedia.com/thmb/AYnaLUs-chR0MV6HVyzb4HJqgW8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.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-key-differences-between-ach-and-wire-transfers"></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"> Key Differences Between ACH and Wire Transfers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Here are general key differences between ACH and wire transfers. However, specifics can vary greatly by account type and financial institution. Banks and credit unions may have different offerings or methods for transferring cash, particularly internationally.<br> </br></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"> Transaction Type </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> The ACH network is most commonly used for bill payments, sending money to friends, transferring money between your accounts, receiving direct deposits for your paycheck, government benefits, or tax refund. </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 the other hand, wires are often used when working with tight deadlines or large amounts, such as with real estate transactions, car purchases, or federal tax payments. They're also used for international cash transfers. </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"> Destination </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> ACH is most commonly used for domestic cash transfers within the U.S., in or on a U.S. military base, U.S. embassy, and U.S. territories (Virgin Islands or American Samoa). Some international ACH transactions (IATs) may be possible depending on your bank or destination, but they're not yet widespread.<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_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Wires can be sent anywhere in the U.S. or overseas except to countries subject to U.S. sanctions, including Cuba, Iran, and North Korea.<span class="ql-inline-citation" data-cite="25"></span> However, some online banks do not offer the option to send money by wire internationally, only domestically. </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"> Speed and Timing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> A domestic wire transfer can be processed with money arriving the same day, sometimes in a few hours. However, you must meet deadlines to benefit from same-day processing, typically no later than 3 p.m. Eastern Time. International wires sometimes can take longer to deliver—up to 7 to 10 days. </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"> ACH transfers are typically scheduled between the following day or up to three days later. But same-day or almost immediate is also possible in some situations. Deadlines for sending money tend to be later in the day and evening.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></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"> Cost and Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Your bank will not typically charge you for sending or receiving ACH transfers. Even if fees are charged, they tend to be lower than wire transfers. </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"> However, that doesn't mean you won't ever pay fees. Standard fees include a $30-$35 NSF fee for insufficient funds, charged each attempt. You may also be charged a small fee, such as $5 if you get help placing the ACH over the phone versus online. </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"> In comparison, sending a wire transfer tends to come with high fees: </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>External domestic wire transfers:</strong> Between $25 and $30</li><li><strong>External international wire transfers:</strong> Between $35 and $50</li><li><strong>Internal wire transfers (money coming to you)</strong>: Free to $15</li> </ul> <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"> You may pay lower wire fees with credit unions and online banks, and some prestige bank accounts waive costs associated with wires. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_90-0"> <span class="mntl-sc-block-subheading__text"> Limits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> The amount of money you send by ACH or wire may be limited by day, month, account, or method of transfer. </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"> In general, wires have higher transfer limits, but you may need to call on the phone or visit a branch in person to make a transfer. For example, you might only be able to send up to $500,000 to a title company for a home purchase online, but there's no limit if you visit a branch or call in.<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_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> ACH transfers tend to have lower limits, but much depends on whether you're paying a bill, sending money to another person, or sending money to an externally linked bank account. You'll likely have higher limits if sending money to a linked account.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_97-0"> <span class="mntl-sc-block-subheading__text"> Fraud </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Both ACH and wire transfers are secure but vulnerable to scams. More scammers are using ACH fraud to divert direct deposits from government entities.<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_99-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> But historically, scammers used <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wirefraud.asp">wire fraud</a> to target unsuspecting victims. For example, you may receive an email telling you that you’ve won a contest, but to claim the money, you must first pay a processing fee using a wire transfer. You wire the money, only to receive nothing in return because the contest never existed.<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_101-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_102-0"> <span class="mntl-sc-block-subheading__text"> Reversals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> In most cases, wires cannot be reversed or stopped, and you cannot retrieve funds sent by wire after approval. So you may face enhanced security methods, such as requiring proof of your identity and request.<span class="ql-inline-citation" data-cite="29"></span> </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"> However, there are numerous ways an ACH can be stopped, reversed, or canceled, in certain circumstances, such as duplicate payments or an incorrect payment amount.<span class="ql-inline-citation" data-cite="28"></span><br/> </p> <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-the-difference-between-ach-and-wire-transfers"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between ACH and Wire Transfers?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An ACH transfer is completed through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearinghouse.asp">clearing house</a> and can be used to process direct payments or direct deposits. Wire transfers allow for the direct movement of money from one bank account to another, typically for a fee.</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-how-safe-are-ach-transfers"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Safe Are ACH Transfers?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>ACH transfers are regulated and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/chipsuid.asp">designed to prevent fraudulent transactions</a>. They can also be safer than certified checks, cashier’s checks, or personal checks. It’s important, however, to initiate ACH transfers or receive them only from trusted entities.</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-are-there-fees-for-ach-and-wire-transfers"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Fees for ACH and Wire Transfers?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In most cases, ACH transfers—including online bill payments and direct deposit of paychecks—are free, while banks generally charge fees for domestic and international wire transfers.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></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_113-0"> <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_114-0"> Both the ACH and wire transfer methods have merits. Determining which is best depends on your particular needs, the type of payment you’re making, and any requirements you must meet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> Two primary differences are speed and cost. Wire transfers are sent individually and quicker than ACH transfers, which are handled in batches. Lenders may require you to wire your down payment or closing costs. </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"> However, this extra speed comes at a cost. ACH transfers are generally free or low-cost, while wire transfers can cost anywhere from $25 to $50. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> In other words, a wire transfer is your best option f you need to make an urgent payment or transfer money overseas, Conversely, for domestic payments that can wait a few days, ACH transfers usually make more sense. However, you can ask your bank if international ACH is available for the country you're sending to. </p></div>

## ACH Transfers vs. Wire Transfers: An Overview Sending money from your bank account electronically is increasingly convenient, easy, and cheap. Two ways to do so are [automated clearing house (ACH)](https://www.investopedia.com/terms/a/ach.asp) transfers and [wire transfers](https://www.investopedia.com/terms/w/wiretransfer.asp). ACH is widely used in many ways, and often low-cost or free. Wire transfers can be faster (but cost more) than ACH, and can be used for domestic and international money transfers. ### Key Takeaways * Automated clearing house (ACH) and wire transfers are both types of electronic fund transfers when sending money or paying bills electronically. * In terms of speed, wire transfers usually process quicker than ACH transfers and may be used for international transfers, but you may be charged a fee to send or receive money. * ACH payments are typically free and becoming faster. * Determining when to use ACH or a wire transfer can depend on the reason for sending or receiving money and the urgency to complete the transaction. | | **ACH** | **Wire** | | --- | --- | --- | | **Transaction Type** | Bill pay, P2P, receiving paychecks | House closing, car purchases, sending money to friend and family overseas | | **Destination** | Domestic | Domestic and international | | **Speed and Timing** | Lower amounts, flexible deadlines | Larger amounts, tight deadlines | | **Cost and Fees** | Free to low cost to send; few fees | Fees to send range between $25-$50 | | **Limits** | Vary, but may be lower | High limits | | **Fraud** | Less common fraud target | Common fraud target | | **Reversal** | Possible | Very difficult to impossible | ## ACH Transfers An ACH transaction involves the transfer of funds between banks, credit unions, or other financial institutions through an electronic network. This type of transfer is used for many purposes, including processing: * Paycheck [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp) * Direct deposit of government benefits or tax refunds * [Recurring debits](https://www.investopedia.com/terms/a/automatic-transfer-service.asp) (such as automatic bill payments) * One-time bill payments * [International payments](https://www.investopedia.com/terms/b/bankgirotransfer.asp) * Buy now, pay later (BNPL) payments * Healthcare claim payments * Person-to-person (P2P) payments such as PayPal, Venmo, and Zelle * [Business-to-business (B2B)](https://www.investopedia.com/terms/b/btob.asp) payments Most consumers use ACH to pay bills and send money person-to-person payments because it is free for the standard transfer for a duration of 1 to 3 days in the US. Banks and third-party apps such as Venmo, PayPal, and Zelle rely on ACH to move money between friends and family or, in some cases, pay bills. ACH has also been embedded in many high-profile fintech payment apps, such as Stripe for consumer to merchant pay and for business to business payments. In total, approximately 7.7 billion same-day ACH payments totaling $19.7 trillion were processed in the second quarter of 2022. ### How ACH Transfers Work An ACH transaction has several moving parts. [How ACH transfers work](https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120) can depend on whether the transaction involves a direct payment or a debit. In simple terms, the originator or first bank initiates an ACH transfer, which is grouped with other ACH transfers. Those transactions are processed through the clearing house. Once transfers are processed for the day, they’re sent in batches to the receiving bank. The receiving bank then credits or debits the appropriate accounts accordingly. ### ACH may also be known as or referred to as direct deposit, direct debit, check, EFT, and electronic bank transfer. ### ACH Transfer Example Your credit card bill needs to be paid every month, so you schedule a recurring card payment through your bank. You log in to your online bank account or [mobile banking](https://www.investopedia.com/terms/m/mobile-banking.asp) app and authorize the payment to your credit card company. The credit card company becomes the transaction's originator. The credit card company sends a file with the upcoming payment details to its bank. The payment is processed through the ACH operator. The ACH operator sends a file with the payment request information back to your bank, which is the receiving depository financial institution. Your bank sends the payment to the credit card company as scheduled. In this transaction, you are on the receiving end of a payment request. ### For an ACH transaction to be processed, there must be sufficient funds in the account. Otherwise, the payment or transfer will be returned, which could trigger a fee. In addition, ACH transfers can take longer to complete due to anti-fraud protections. ## Wire Transfers A wire transfer is a [transaction initiated through a bank](https://www.investopedia.com/how-to-wire-money-5088001) moving funds from one account to another at an external bank. When both banks are in the U.S., this is called a domestic wire transfer. When one bank is outside the U.S., this is referred to as an international wire transfer or a remittance transfer. Wire transfers are typically used to send large amounts of money quickly. For example, you may be asked to send your down payment funds via wire transfer if you're buying a home. You can send a wire transfer through your bank, credit union, or a business like Western Union or MoneyGram. ### If you're wiring $15 or more to a foreign account from the U.S., this is known as a remittance transfer. Remittance transfers or international wires sent through a remittance transfer provider have special consumer protections, including the right to cancel within 30 minutes and the right to resolve mistakes. ### How Wire Transfers Work With wire transfers, banks communicate directly to move funds between accounts. The person sending a payment provides the bank with specific details, including: * The transfer amount and account number you're transferring from * The recipient's name, address, and phone number * The recipient's account number and financial institution's wire transfer [routing number](https://www.investopedia.com/terms/r/routing_transit_number.asp) (which may be different than the typical routing number) or [SWIFT code](https://www.investopedia.com/terms/s/swift.asp) for international wire transfers * The recipient bank's physical address Once the bank has this information, it can process the wire transfer to deduct the requested amount from the sender’s account. This amount is then credited to the recipient’s account. The person sending a wire transfer pays a fee, and federal law doesn't limit the bank fees charged for wires. ### Once a wire transfer payment is sent and accepted, the transaction cannot be reversed. ### Wire Transfer Example Say you’re buying a home, and the amount due at [closing](https://www.investopedia.com/terms/c/closing.asp) is $42,000. Lenders often request that borrowers wire their funds for the closing costs. You call your bank to ensure you bring what's requested. You're instructed you must make the wire request in person by 3 p.m., and bring proof of your identity. You go to your bank and provide the recipient’s name, bank, account information, and any other information your bank requests. The bank deducts $42,000 from your [money market savings account](https://www.investopedia.com/terms/m/moneymarketaccount.asp) and wires it to the recipient’s bank. The bank charges you a $35 fee for the transfer. Meanwhile, the money is credited to the recipient’s account within a couple of hours. ![ACH Transfers vs. Wire Transfers]() :max_bytes(150000):strip_icc()/ach-vs-wire-transfer-5208168_final-6803fde548d34872958bf66f403801b2.png) Investopedia / Ellen Lindner ## Key Differences Between ACH and Wire Transfers Here are general key differences between ACH and wire transfers. However, specifics can vary greatly by account type and financial institution. Banks and credit unions may have different offerings or methods for transferring cash, particularly internationally. ### Transaction Type The ACH network is most commonly used for bill payments, sending money to friends, transferring money between your accounts, receiving direct deposits for your paycheck, government benefits, or tax refund. On the other hand, wires are often used when working with tight deadlines or large amounts, such as with real estate transactions, car purchases, or federal tax payments. They're also used for international cash transfers. ### Destination ACH is most commonly used for domestic cash transfers within the U.S., in or on a U.S. military base, U.S. embassy, and U.S. territories (Virgin Islands or American Samoa). Some international ACH transactions (IATs) may be possible depending on your bank or destination, but they're not yet widespread. Wires can be sent anywhere in the U.S. or overseas except to countries subject to U.S. sanctions, including Cuba, Iran, and North Korea. However, some online banks do not offer the option to send money by wire internationally, only domestically. ### Speed and Timing A domestic wire transfer can be processed with money arriving the same day, sometimes in a few hours. However, you must meet deadlines to benefit from same-day processing, typically no later than 3 p.m. Eastern Time. International wires sometimes can take longer to deliver—up to 7 to 10 days. ACH transfers are typically scheduled between the following day or up to three days later. But same-day or almost immediate is also possible in some situations. Deadlines for sending money tend to be later in the day and evening. ### Cost and Fees Your bank will not typically charge you for sending or receiving ACH transfers. Even if fees are charged, they tend to be lower than wire transfers. However, that doesn't mean you won't ever pay fees. Standard fees include a $30-$35 NSF fee for insufficient funds, charged each attempt. You may also be charged a small fee, such as $5 if you get help placing the ACH over the phone versus online. In comparison, sending a wire transfer tends to come with high fees: * **External domestic wire transfers:** Between $25 and $30 * **External international wire transfers:** Between $35 and $50 * **Internal wire transfers (money coming to you)**: Free to $15 You may pay lower wire fees with credit unions and online banks, and some prestige bank accounts waive costs associated with wires. ### Limits The amount of money you send by ACH or wire may be limited by day, month, account, or method of transfer. In general, wires have higher transfer limits, but you may need to call on the phone or visit a branch in person to make a transfer. For example, you might only be able to send up to $500,000 to a title company for a home purchase online, but there's no limit if you visit a branch or call in. ACH transfers tend to have lower limits, but much depends on whether you're paying a bill, sending money to another person, or sending money to an externally linked bank account. You'll likely have higher limits if sending money to a linked account. ### Fraud Both ACH and wire transfers are secure but vulnerable to scams. More scammers are using ACH fraud to divert direct deposits from government entities. But historically, scammers used [wire fraud](https://www.investopedia.com/terms/w/wirefraud.asp) to target unsuspecting victims. For example, you may receive an email telling you that you’ve won a contest, but to claim the money, you must first pay a processing fee using a wire transfer. You wire the money, only to receive nothing in return because the contest never existed. ### Reversals In most cases, wires cannot be reversed or stopped, and you cannot retrieve funds sent by wire after approval. So you may face enhanced security methods, such as requiring proof of your identity and request. However, there are numerous ways an ACH can be stopped, reversed, or canceled, in certain circumstances, such as duplicate payments or an incorrect payment amount. ## What Is the Difference Between ACH and Wire Transfers? An ACH transfer is completed through a [clearing house](https://www.investopedia.com/terms/c/clearinghouse.asp) and can be used to process direct payments or direct deposits. Wire transfers allow for the direct movement of money from one bank account to another, typically for a fee. ## How Safe Are ACH Transfers? ACH transfers are regulated and [designed to prevent fraudulent transactions](https://www.investopedia.com/ask/answers/06/chipsuid.asp). They can also be safer than certified checks, cashier’s checks, or personal checks. It’s important, however, to initiate ACH transfers or receive them only from trusted entities. ## Are There Fees for ACH and Wire Transfers? In most cases, ACH transfers—including online bill payments and direct deposit of paychecks—are free, while banks generally charge fees for domestic and international wire transfers. ## The Bottom Line Both the ACH and wire transfer methods have merits. Determining which is best depends on your particular needs, the type of payment you’re making, and any requirements you must meet. Two primary differences are speed and cost. Wire transfers are sent individually and quicker than ACH transfers, which are handled in batches. Lenders may require you to wire your down payment or closing costs. However, this extra speed comes at a cost. ACH transfers are generally free or low-cost, while wire transfers can cost anywhere from $25 to $50. In other words, a wire transfer is your best option f you need to make an urgent payment or transfer money overseas, Conversely, for domestic payments that can wait a few days, ACH transfers usually make more sense. However, you can ask your bank if international ACH is available for the country you're sending to.

ACH Transfers vs. Wire Transfers: An Overview Sending money from your bank account electronically is increasingly convenient, easy, and cheap. Two ways to do so are automated clearing house (ACH) transfers and wire transfers. ACH is widely used in many ways, and often low-cost or free. Wire transfers can be faster (but cost more) than ACH, and can be used for domestic and international money transfers. Key Takeaways Automated clearing house (ACH) and wire transfers are both types of electronic fund transfers when sending money or paying bills electronically.In terms of speed, wire transfers usually process quicker than ACH transfers and may be used for international transfers, but you may be charged a fee to send or receive money.ACH payments are typically free and becoming faster.Determining when to use ACH or a wire transfer can depend on the reason for sending or receiving money and the urgency to complete the transaction. ACH Wire Transaction Type Bill pay, P2P, receiving paychecks House closing, car purchases, sending money to friend and family overseas Destination Domestic Domestic and international Speed and Timing Lower amounts, flexible deadlines Larger amounts, tight deadlines Cost and Fees Free to low cost to send; few fees Fees to send range between $25-$50 Limits Vary, but may be lower High limits Fraud Less common fraud target Common fraud target Reversal Possible Very difficult to impossible ACH Transfers An ACH transaction involves the transfer of funds between banks, credit unions, or other financial institutions through an electronic network. This type of transfer is used for many purposes, including processing: Paycheck direct deposit Direct deposit of government benefits or tax refunds Recurring debits (such as automatic bill payments) One-time bill payments International payments Buy now, pay later (BNPL) payments Healthcare claim payments Person-to-person (P2P) payments such as PayPal, Venmo, and Zelle Business-to-business (B2B) payments Most consumers use ACH to pay bills and send money person-to-person payments because it is free for the standard transfer for a duration of 1 to 3 days in the US. Banks and third-party apps such as Venmo, PayPal, and Zelle rely on ACH to move money between friends and family or, in some cases, pay bills. ACH has also been embedded in many high-profile fintech payment apps, such as Stripe for consumer to merchant pay and for business to business payments. In total, approximately 7.7 billion same-day ACH payments totaling $19.7 trillion were processed in the second quarter of 2022. How ACH Transfers Work An ACH transaction has several moving parts. How ACH transfers work can depend on whether the transaction involves a direct payment or a debit. In simple terms, the originator or first bank initiates an ACH transfer, which is grouped with other ACH transfers. Those transactions are processed through the clearing house. Once transfers are processed for the day, they’re sent in batches to the receiving bank. The receiving bank then credits or debits the appropriate accounts accordingly. ACH may also be known as or referred to as direct deposit, direct debit, check, EFT, and electronic bank transfer. ACH Transfer Example Your credit card bill needs to be paid every month, so you schedule a recurring card payment through your bank. You log in to your online bank account or mobile banking app and authorize the payment to your credit card company. The credit card company becomes the transaction's originator. The credit card company sends a file with the upcoming payment details to its bank. The payment is processed through the ACH operator. The ACH operator sends a file with the payment request information back to your bank, which is the receiving depository financial institution. Your bank sends the payment to the credit card company as scheduled. In this transaction, you are on the receiving end of a payment request. For an ACH transaction to be processed, there must be sufficient funds in the account. Otherwise, the payment or transfer will be returned, which could trigger a fee. In addition, ACH transfers can take longer to complete due to anti-fraud protections. Wire Transfers A wire transfer is a transaction initiated through a bank moving funds from one account to another at an external bank. When both banks are in the U.S., this is called a domestic wire transfer. When one bank is outside the U.S., this is referred to as an international wire transfer or a remittance transfer. Wire transfers are typically used to send large amounts of money quickly. For example, you may be asked to send your down payment funds via wire transfer if you're buying a home. You can send a wire transfer through your bank, credit union, or a business like Western Union or MoneyGram. If you're wiring $15 or more to a foreign account from the U.S., this is known as a remittance transfer. Remittance transfers or international wires sent through a remittance transfer provider have special consumer protections, including the right to cancel within 30 minutes and the right to resolve mistakes. How Wire Transfers Work With wire transfers, banks communicate directly to move funds between accounts. The person sending a payment provides the bank with specific details, including: The transfer amount and account number you're transferring from The recipient's name, address, and phone number The recipient's account number and financial institution's wire transfer routing number (which may be different than the typical routing number) or SWIFT code for international wire transfers The recipient bank's physical address Once the bank has this information, it can process the wire transfer to deduct the requested amount from the sender’s account. This amount is then credited to the recipient’s account. The person sending a wire transfer pays a fee, and federal law doesn't limit the bank fees charged for wires. Once a wire transfer payment is sent and accepted, the transaction cannot be reversed. Wire Transfer Example Say you’re buying a home, and the amount due at closing is $42,000. Lenders often request that borrowers wire their funds for the closing costs. You call your bank to ensure you bring what's requested. You're instructed you must make the wire request in person by 3 p.m., and bring proof of your identity. You go to your bank and provide the recipient’s name, bank, account information, and any other information your bank requests. The bank deducts $42,000 from your money market savings account and wires it to the recipient’s bank. The bank charges you a $35 fee for the transfer. Meanwhile, the money is credited to the recipient’s account within a couple of hours. Investopedia / Ellen Lindner Key Differences Between ACH and Wire Transfers Here are general key differences between ACH and wire transfers. However, specifics can vary greatly by account type and financial institution. Banks and credit unions may have different offerings or methods for transferring cash, particularly internationally. Transaction Type The ACH network is most commonly used for bill payments, sending money to friends, transferring money between your accounts, receiving direct deposits for your paycheck, government benefits, or tax refund. On the other hand, wires are often used when working with tight deadlines or large amounts, such as with real estate transactions, car purchases, or federal tax payments. They're also used for international cash transfers. Destination ACH is most commonly used for domestic cash transfers within the U.S., in or on a U.S. military base, U.S. embassy, and U.S. territories (Virgin Islands or American Samoa). Some international ACH transactions (IATs) may be possible depending on your bank or destination, but they're not yet widespread. Wires can be sent anywhere in the U.S. or overseas except to countries subject to U.S. sanctions, including Cuba, Iran, and North Korea. However, some online banks do not offer the option to send money by wire internationally, only domestically. Speed and Timing A domestic wire transfer can be processed with money arriving the same day, sometimes in a few hours. However, you must meet deadlines to benefit from same-day processing, typically no later than 3 p.m. Eastern Time. International wires sometimes can take longer to deliver—up to 7 to 10 days. ACH transfers are typically scheduled between the following day or up to three days later. But same-day or almost immediate is also possible in some situations. Deadlines for sending money tend to be later in the day and evening. Cost and Fees Your bank will not typically charge you for sending or receiving ACH transfers. Even if fees are charged, they tend to be lower than wire transfers. However, that doesn't mean you won't ever pay fees. Standard fees include a $30-$35 NSF fee for insufficient funds, charged each attempt. You may also be charged a small fee, such as $5 if you get help placing the ACH over the phone versus online. In comparison, sending a wire transfer tends to come with high fees: External domestic wire transfers: Between $25 and $30External international wire transfers: Between $35 and $50Internal wire transfers (money coming to you): Free to $15 You may pay lower wire fees with credit unions and online banks, and some prestige bank accounts waive costs associated with wires. Limits The amount of money you send by ACH or wire may be limited by day, month, account, or method of transfer. In general, wires have higher transfer limits, but you may need to call on the phone or visit a branch in person to make a transfer. For example, you might only be able to send up to $500,000 to a title company for a home purchase online, but there's no limit if you visit a branch or call in. ACH transfers tend to have lower limits, but much depends on whether you're paying a bill, sending money to another person, or sending money to an externally linked bank account. You'll likely have higher limits if sending money to a linked account. Fraud Both ACH and wire transfers are secure but vulnerable to scams. More scammers are using ACH fraud to divert direct deposits from government entities. But historically, scammers used wire fraud to target unsuspecting victims. For example, you may receive an email telling you that you’ve won a contest, but to claim the money, you must first pay a processing fee using a wire transfer. You wire the money, only to receive nothing in return because the contest never existed. Reversals In most cases, wires cannot be reversed or stopped, and you cannot retrieve funds sent by wire after approval. So you may face enhanced security methods, such as requiring proof of your identity and request. However, there are numerous ways an ACH can be stopped, reversed, or canceled, in certain circumstances, such as duplicate payments or an incorrect payment amount. What Is the Difference Between ACH and Wire Transfers? An ACH transfer is completed through a clearing house and can be used to process direct payments or direct deposits. Wire transfers allow for the direct movement of money from one bank account to another, typically for a fee. How Safe Are ACH Transfers? ACH transfers are regulated and designed to prevent fraudulent transactions. They can also be safer than certified checks, cashier’s checks, or personal checks. It’s important, however, to initiate ACH transfers or receive them only from trusted entities. Are There Fees for ACH and Wire Transfers? In most cases, ACH transfers—including online bill payments and direct deposit of paychecks—are free, while banks generally charge fees for domestic and international wire transfers. The Bottom Line Both the ACH and wire transfer methods have merits. Determining which is best depends on your particular needs, the type of payment you’re making, and any requirements you must meet. Two primary differences are speed and cost. Wire transfers are sent individually and quicker than ACH transfers, which are handled in batches. Lenders may require you to wire your down payment or closing costs. However, this extra speed comes at a cost. ACH transfers are generally free or low-cost, while wire transfers can cost anywhere from $25 to $50. In other words, a wire transfer is your best option f you need to make an urgent payment or transfer money overseas, Conversely, for domestic payments that can wait a few days, ACH transfers usually make more sense. However, you can ask your bank if international ACH is available for the country you're sending to.

https://www.investopedia.com/ask/answers/042315/what-impact-does-disposable-income-have-stock-market.asp

The Impact of Disposable Income on the Stock Market

<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 theory, a widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market. Disposable income is defined as the total amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/household_income.asp">household income</a> that's available for spending and saving after paying income taxes.<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_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 widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market.<span class="ql-inline-citation" data-cite="2"></span></li><li>When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption.</li><li>Consumer spending is one of the most important determinants of demand; it makes up about 70% of the total United States gross domestic product (GDP).<span class="ql-inline-citation" data-cite="1"></span></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"> When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-spending.asp">Consumer spending</a> is one of the most important determinants of demand; it creates the demand that keeps companies profitable and hiring new workers. Consumer spending makes up about 70% of the total United States <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product (GDP)</a>. In the first quarter of 2022, that was $13.88 trillion.<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"> If manufacturers ramp up their production to meet demand, they create more jobs. When workers' wages rise, this also creates more spending. An increase in consumption can increase corporate sales and corporate earnings, thus increasing the value of individual stocks. This increase in individual share price valuations could then lead to a market-wide increase in value. This has the potential to create an economic boom. </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 opposite also holds true. If disposable income decreases, households have less money to spend and save, which then forces consumers to consume less and become more frugal. This decrease in consumption could then decrease corporate sales and corporate earnings, decreasing the value of individual stocks. This decrease in individual share price valuations could then lead to a market-wide decrease in value. This potentially leads to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depression.asp">depression</a> or recession. </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"> Increases in disposable income don't always result in an increase in the value of the stock market, and vice versa. Sometimes, especially in the wake of a recession and during a recovery period, although disposable income increases, many consumers remain frugal and do not use their increase in disposable income to increase consumption. When this occurs, even an increase in disposable income can lead to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a>. So, an increase in disposable income doesn't necessarily lead to economic expansion or growth in the stock market. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental/103002.asp">Consumer confidence</a> is a statistical measure of consumers' feelings about current and future economic conditions. When consumer confidence is low, people tend to save their money, rather than spend it, and this can actually constrain economic growth. </p></div>

In theory, a widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market. Disposable income is defined as the total amount of [household income](https://www.investopedia.com/terms/h/household_income.asp) that's available for spending and saving after paying income taxes. ### Key Takeaways * A widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market. * When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. * Consumer spending is one of the most important determinants of demand; it makes up about 70% of the total United States gross domestic product (GDP). When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. [Consumer spending](https://www.investopedia.com/terms/c/consumer-spending.asp) is one of the most important determinants of demand; it creates the demand that keeps companies profitable and hiring new workers. Consumer spending makes up about 70% of the total United States [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp). In the first quarter of 2022, that was $13.88 trillion. If manufacturers ramp up their production to meet demand, they create more jobs. When workers' wages rise, this also creates more spending. An increase in consumption can increase corporate sales and corporate earnings, thus increasing the value of individual stocks. This increase in individual share price valuations could then lead to a market-wide increase in value. This has the potential to create an economic boom. The opposite also holds true. If disposable income decreases, households have less money to spend and save, which then forces consumers to consume less and become more frugal. This decrease in consumption could then decrease corporate sales and corporate earnings, decreasing the value of individual stocks. This decrease in individual share price valuations could then lead to a market-wide decrease in value. This potentially leads to [depression](https://www.investopedia.com/terms/d/depression.asp) or recession. Increases in disposable income don't always result in an increase in the value of the stock market, and vice versa. Sometimes, especially in the wake of a recession and during a recovery period, although disposable income increases, many consumers remain frugal and do not use their increase in disposable income to increase consumption. When this occurs, even an increase in disposable income can lead to a [recession](https://www.investopedia.com/terms/r/recession.asp). So, an increase in disposable income doesn't necessarily lead to economic expansion or growth in the stock market. [Consumer confidence](https://www.investopedia.com/articles/fundamental/103002.asp) is a statistical measure of consumers' feelings about current and future economic conditions. When consumer confidence is low, people tend to save their money, rather than spend it, and this can actually constrain economic growth.

In theory, a widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market. Disposable income is defined as the total amount of household income that's available for spending and saving after paying income taxes. Key Takeaways A widespread increase in disposable income leads to increases in stock valuations and, therefore, increases the overall value of the stock market.When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption.Consumer spending is one of the most important determinants of demand; it makes up about 70% of the total United States gross domestic product (GDP). When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. Consumer spending is one of the most important determinants of demand; it creates the demand that keeps companies profitable and hiring new workers. Consumer spending makes up about 70% of the total United States gross domestic product (GDP). In the first quarter of 2022, that was $13.88 trillion. If manufacturers ramp up their production to meet demand, they create more jobs. When workers' wages rise, this also creates more spending. An increase in consumption can increase corporate sales and corporate earnings, thus increasing the value of individual stocks. This increase in individual share price valuations could then lead to a market-wide increase in value. This has the potential to create an economic boom. The opposite also holds true. If disposable income decreases, households have less money to spend and save, which then forces consumers to consume less and become more frugal. This decrease in consumption could then decrease corporate sales and corporate earnings, decreasing the value of individual stocks. This decrease in individual share price valuations could then lead to a market-wide decrease in value. This potentially leads to depression or recession. Increases in disposable income don't always result in an increase in the value of the stock market, and vice versa. Sometimes, especially in the wake of a recession and during a recovery period, although disposable income increases, many consumers remain frugal and do not use their increase in disposable income to increase consumption. When this occurs, even an increase in disposable income can lead to a recession. So, an increase in disposable income doesn't necessarily lead to economic expansion or growth in the stock market. Consumer confidence is a statistical measure of consumers' feelings about current and future economic conditions. When consumer confidence is low, people tend to save their money, rather than spend it, and this can actually constrain economic growth.

https://www.investopedia.com/ask/answers/112814/how-long-does-it-take-broker-confirm-trade-after-it-placed.asp

How Long Does it Take for Brokers to Confirm a Trade?

<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 making a trade, the time it takes to receive a confirmation after an order has been placed varies depending on the type of order, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> of the market being traded, and whether a market is open for regular trading or not. Getting your order executed is called a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fill.asp">fill</a>, and several considerations go into how quickly you'll get your fills back from your broker. </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 fill is when you receive back the prices and amounts of the trades you've entered with your broker, the timing of which will be impacted by order type and market conditions.</li><li>Market orders provide for fairly immediate fills, but you cannot control the prices you'll receive on your orders.</li><li>Limit orders guarantee a price, but may not get filled until the stock price reaches your limit.</li><li>Once orders are filled, they can take an additional couple of days to go through the clearing and settlement process, although you'll see them in your account pretty much right away. </li></ul></div></div></div> <span class="heading-toc" id="toc-market-orders-immediate-fills"></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 Orders: Immediate Fills </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Orders placed between 9:30 a.m. and 4:00 p.m. Eastern Standard Time Monday to Friday on the New York Stock Exchange or Nasdaq are sent to the market right away.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span> Unless specifying that an order is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/extended_trading.asp">extended market order</a>, orders to buy and sell stock placed outside these times sit until the market reopens. </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 market order in a liquid stock such as Apple or Meta, formerly Facebook, is almost always filled and confirmed immediately. However, an order for a smaller, less-liquid stock may take longer to fill and receive confirmation from a broker. It's impossible to tell exactly how long; it all depends on if there's an "ask" on the other side of the "bid" (or vice versa) that can fill the trade. </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 the trade is a limit order, the trade could take significantly longer to fill—if it's filled at all.<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> <span class="heading-toc" id="toc-stock-orders-that-may-take-longer-to-fill"></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"> Stock Orders That May Take Longer to Fill </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Orders with conditions such as limits, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">stop-losses</a>, stop-buys and all-or-nothing may sit for an indeterminable amount of time before being filled, or they may never be filled at all. Market orders for large amounts of stock in thinly traded markets may receive several partial fills over a period of time, which varies depending on the amount of stock available. </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"> It is almost always advisable to buy or sell using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitorder.asp">limit orders</a>, even if the limit is 20 or 30 cents above the market price (for a buy order) to ensure the receipt of a fair fill. There are instances when liquidity may disappear (even in shares such as Apple of Meta) for a short time period, causing investors to get filled with market orders at a much higher or lower price than expected. Orders for large amounts of stock should either be broken up or made using limit orders. </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-how-to-know-when-a-trade-placed-with-a-broker-is-confirmed"></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"> How to Know When a Trade Placed With a Broker Is Confirmed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> When placing a trade with a broker online or over the telephone, ensure the trade has been executed and confirmed.  </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/broker-awards-4587871">Online brokers</a> have different trading platforms. Most have an order entry screen and a screen for orders of different statuses: open, filled, partially filled, and canceled. After entering an order, view these screens to ensure the intended action is taken. If you want to cancel an order, check the screen for canceled orders and open orders to ensure that the original order was actually canceled. Make sure it is reflected in the canceled order screen 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"> When investing over the telephone, get verbal confirmation from the broker on the quantity filled and the price. With these details, you can be confident that your broker has carried out your wishes. A few days after you have made the trade over the phone, you should receive confirmation in the mail (or online) from your broker. Ensure that the details of this confirmation match your trading intentions. Usually, trades made by phone are visible on the company's website or trading platform as well, so you can confirm them immediately. </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-trade-settlement-and-clearing"></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"> Trade Settlement and Clearing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> After a trade is executed, the transaction enters what is known as the settlement period. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementdate.asp">During settlement</a>, the buyer must make payment for the securities they purchased while the seller must deliver the security that was acquired. Depending on the type of security, settlement dates will vary. For now, most orders in the U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/">settle T+2</a>, meaning they are cleared in your account 100% by the second business day after the trade.<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> <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-important" 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>In February 2023, the SEC voted to reduce the settlement cycle to T+1. That means beginning May 28, 2024, most trades should settle the following business day.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> As an example of how settlement dates work, let's say that an investor buys shares of Amazon on Monday, Jan. 28, 2019. The broker will debit the investor's account for the total cost of the order immediately after it's filled, but the investor's status as a shareholder of Amazon will not be settled in the company's record books until Wednesday, Jan. 30. At that time, the investor would become a shareholder of record. </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"> Once the trade has settled, and the funds in any sale of stock or another type of security have been credited to your account, the investor may choose to withdraw the funds, reinvest in a new security or hold the amount in cash within the account. For those looking to cash out some of the profits (or what's left from a loss), check to see if your broker offers transfers to your bank account 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) or by using a wire transfer. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-why-does-it-take-2-days-to-settle-a-trade"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Does it Take 2 Days to Settle a Trade?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some time is required to ensure the trade gets processed correctly. The buyer’s funds need to clear, paperwork needs to be filled out, ownership needs to be transferred, and so forth. Fortunately, technology has greatly sped up this process and, from 2024, this should all soon be doable in one day.<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_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-do-all-trades-take-2-days-to-settle"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do All Trades Take 2 Days to Settle?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most trades take two days to settle, although there are some exceptions. For example, government securities and stock options are settled the following business day.<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_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-what-happens-after-trade-confirmation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens After Trade Confirmation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Once your trade has gone through, your broker will issue a document reporting the details of the trade. This document, called a brokerage trade confirmation, confirms the order you placed has been completed. If you sold securities or bought them, this should now be visible in your account.</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"> The time it takes for ownership to transfer hands in a trade can vary. Usually, you’ll get immediate feedback from your broker that your request has been actioned. Getting confirmation, however, that it has gone through will take longer and depends on various factors, such as the type of order, the liquidity of the market being traded, and whether the market is open or not. </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"> The standard settlement cycle for most securities is two business days, meaning if you place an order on Monday it should settle on Wednesday. However, there are exceptions. Government securities and stock options are settled the following business day, whereas orders with conditions such as limits, stop-losses, or stop-buys could take longer to fill or might never get filled at all. </p></div>

When making a trade, the time it takes to receive a confirmation after an order has been placed varies depending on the type of order, the [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) of the market being traded, and whether a market is open for regular trading or not. Getting your order executed is called a [fill](https://www.investopedia.com/terms/f/fill.asp), and several considerations go into how quickly you'll get your fills back from your broker. ### Key Takeaways * A fill is when you receive back the prices and amounts of the trades you've entered with your broker, the timing of which will be impacted by order type and market conditions. * Market orders provide for fairly immediate fills, but you cannot control the prices you'll receive on your orders. * Limit orders guarantee a price, but may not get filled until the stock price reaches your limit. * Once orders are filled, they can take an additional couple of days to go through the clearing and settlement process, although you'll see them in your account pretty much right away. ## Market Orders: Immediate Fills Orders placed between 9:30 a.m. and 4:00 p.m. Eastern Standard Time Monday to Friday on the New York Stock Exchange or Nasdaq are sent to the market right away. Unless specifying that an order is an [extended market order](https://www.investopedia.com/terms/e/extended_trading.asp), orders to buy and sell stock placed outside these times sit until the market reopens. A market order in a liquid stock such as Apple or Meta, formerly Facebook, is almost always filled and confirmed immediately. However, an order for a smaller, less-liquid stock may take longer to fill and receive confirmation from a broker. It's impossible to tell exactly how long; it all depends on if there's an "ask" on the other side of the "bid" (or vice versa) that can fill the trade. If the trade is a limit order, the trade could take significantly longer to fill—if it's filled at all. ## Stock Orders That May Take Longer to Fill Orders with conditions such as limits, [stop-losses](https://www.investopedia.com/terms/s/stop-lossorder.asp), stop-buys and all-or-nothing may sit for an indeterminable amount of time before being filled, or they may never be filled at all. Market orders for large amounts of stock in thinly traded markets may receive several partial fills over a period of time, which varies depending on the amount of stock available. It is almost always advisable to buy or sell using [limit orders](https://www.investopedia.com/terms/l/limitorder.asp), even if the limit is 20 or 30 cents above the market price (for a buy order) to ensure the receipt of a fair fill. There are instances when liquidity may disappear (even in shares such as Apple of Meta) for a short time period, causing investors to get filled with market orders at a much higher or lower price than expected. Orders for large amounts of stock should either be broken up or made using limit orders. ## How to Know When a Trade Placed With a Broker Is Confirmed When placing a trade with a broker online or over the telephone, ensure the trade has been executed and confirmed.  [Online brokers](https://www.investopedia.com/broker-awards-4587871) have different trading platforms. Most have an order entry screen and a screen for orders of different statuses: open, filled, partially filled, and canceled. After entering an order, view these screens to ensure the intended action is taken. If you want to cancel an order, check the screen for canceled orders and open orders to ensure that the original order was actually canceled. Make sure it is reflected in the canceled order screen as well. When investing over the telephone, get verbal confirmation from the broker on the quantity filled and the price. With these details, you can be confident that your broker has carried out your wishes. A few days after you have made the trade over the phone, you should receive confirmation in the mail (or online) from your broker. Ensure that the details of this confirmation match your trading intentions. Usually, trades made by phone are visible on the company's website or trading platform as well, so you can confirm them immediately. ## Trade Settlement and Clearing After a trade is executed, the transaction enters what is known as the settlement period. [During settlement](https://www.investopedia.com/terms/s/settlementdate.asp), the buyer must make payment for the securities they purchased while the seller must deliver the security that was acquired. Depending on the type of security, settlement dates will vary. For now, most orders in the U.S. [settle T+2](https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/), meaning they are cleared in your account 100% by the second business day after the trade. ### In February 2023, the SEC voted to reduce the settlement cycle to T+1. That means beginning May 28, 2024, most trades should settle the following business day. As an example of how settlement dates work, let's say that an investor buys shares of Amazon on Monday, Jan. 28, 2019. The broker will debit the investor's account for the total cost of the order immediately after it's filled, but the investor's status as a shareholder of Amazon will not be settled in the company's record books until Wednesday, Jan. 30. At that time, the investor would become a shareholder of record. Once the trade has settled, and the funds in any sale of stock or another type of security have been credited to your account, the investor may choose to withdraw the funds, reinvest in a new security or hold the amount in cash within the account. For those looking to cash out some of the profits (or what's left from a loss), check to see if your broker offers transfers to your bank account using the [Automated Clearing House](https://www.investopedia.com/terms/a/ach.asp) (ACH) or by using a wire transfer. ## Why Does it Take 2 Days to Settle a Trade? Some time is required to ensure the trade gets processed correctly. The buyer’s funds need to clear, paperwork needs to be filled out, ownership needs to be transferred, and so forth. Fortunately, technology has greatly sped up this process and, from 2024, this should all soon be doable in one day. ## Do All Trades Take 2 Days to Settle? Most trades take two days to settle, although there are some exceptions. For example, government securities and stock options are settled the following business day. ## What Happens After Trade Confirmation? Once your trade has gone through, your broker will issue a document reporting the details of the trade. This document, called a brokerage trade confirmation, confirms the order you placed has been completed. If you sold securities or bought them, this should now be visible in your account. ## The Bottom Line The time it takes for ownership to transfer hands in a trade can vary. Usually, you’ll get immediate feedback from your broker that your request has been actioned. Getting confirmation, however, that it has gone through will take longer and depends on various factors, such as the type of order, the liquidity of the market being traded, and whether the market is open or not. The standard settlement cycle for most securities is two business days, meaning if you place an order on Monday it should settle on Wednesday. However, there are exceptions. Government securities and stock options are settled the following business day, whereas orders with conditions such as limits, stop-losses, or stop-buys could take longer to fill or might never get filled at all.

When making a trade, the time it takes to receive a confirmation after an order has been placed varies depending on the type of order, the liquidity of the market being traded, and whether a market is open for regular trading or not. Getting your order executed is called a fill, and several considerations go into how quickly you'll get your fills back from your broker. Key Takeaways A fill is when you receive back the prices and amounts of the trades you've entered with your broker, the timing of which will be impacted by order type and market conditions.Market orders provide for fairly immediate fills, but you cannot control the prices you'll receive on your orders.Limit orders guarantee a price, but may not get filled until the stock price reaches your limit.Once orders are filled, they can take an additional couple of days to go through the clearing and settlement process, although you'll see them in your account pretty much right away.  Market Orders: Immediate Fills Orders placed between 9:30 a.m. and 4:00 p.m. Eastern Standard Time Monday to Friday on the New York Stock Exchange or Nasdaq are sent to the market right away. Unless specifying that an order is an extended market order, orders to buy and sell stock placed outside these times sit until the market reopens. A market order in a liquid stock such as Apple or Meta, formerly Facebook, is almost always filled and confirmed immediately. However, an order for a smaller, less-liquid stock may take longer to fill and receive confirmation from a broker. It's impossible to tell exactly how long; it all depends on if there's an "ask" on the other side of the "bid" (or vice versa) that can fill the trade. If the trade is a limit order, the trade could take significantly longer to fill—if it's filled at all. Stock Orders That May Take Longer to Fill Orders with conditions such as limits, stop-losses, stop-buys and all-or-nothing may sit for an indeterminable amount of time before being filled, or they may never be filled at all. Market orders for large amounts of stock in thinly traded markets may receive several partial fills over a period of time, which varies depending on the amount of stock available. It is almost always advisable to buy or sell using limit orders, even if the limit is 20 or 30 cents above the market price (for a buy order) to ensure the receipt of a fair fill. There are instances when liquidity may disappear (even in shares such as Apple of Meta) for a short time period, causing investors to get filled with market orders at a much higher or lower price than expected. Orders for large amounts of stock should either be broken up or made using limit orders. How to Know When a Trade Placed With a Broker Is Confirmed When placing a trade with a broker online or over the telephone, ensure the trade has been executed and confirmed.  Online brokers have different trading platforms. Most have an order entry screen and a screen for orders of different statuses: open, filled, partially filled, and canceled. After entering an order, view these screens to ensure the intended action is taken. If you want to cancel an order, check the screen for canceled orders and open orders to ensure that the original order was actually canceled. Make sure it is reflected in the canceled order screen as well. When investing over the telephone, get verbal confirmation from the broker on the quantity filled and the price. With these details, you can be confident that your broker has carried out your wishes. A few days after you have made the trade over the phone, you should receive confirmation in the mail (or online) from your broker. Ensure that the details of this confirmation match your trading intentions. Usually, trades made by phone are visible on the company's website or trading platform as well, so you can confirm them immediately. Trade Settlement and Clearing After a trade is executed, the transaction enters what is known as the settlement period. During settlement, the buyer must make payment for the securities they purchased while the seller must deliver the security that was acquired. Depending on the type of security, settlement dates will vary. For now, most orders in the U.S. settle T+2, meaning they are cleared in your account 100% by the second business day after the trade. In February 2023, the SEC voted to reduce the settlement cycle to T+1. That means beginning May 28, 2024, most trades should settle the following business day. As an example of how settlement dates work, let's say that an investor buys shares of Amazon on Monday, Jan. 28, 2019. The broker will debit the investor's account for the total cost of the order immediately after it's filled, but the investor's status as a shareholder of Amazon will not be settled in the company's record books until Wednesday, Jan. 30. At that time, the investor would become a shareholder of record. Once the trade has settled, and the funds in any sale of stock or another type of security have been credited to your account, the investor may choose to withdraw the funds, reinvest in a new security or hold the amount in cash within the account. For those looking to cash out some of the profits (or what's left from a loss), check to see if your broker offers transfers to your bank account using the Automated Clearing House (ACH) or by using a wire transfer. Why Does it Take 2 Days to Settle a Trade? Some time is required to ensure the trade gets processed correctly. The buyer’s funds need to clear, paperwork needs to be filled out, ownership needs to be transferred, and so forth. Fortunately, technology has greatly sped up this process and, from 2024, this should all soon be doable in one day. Do All Trades Take 2 Days to Settle? Most trades take two days to settle, although there are some exceptions. For example, government securities and stock options are settled the following business day. What Happens After Trade Confirmation? Once your trade has gone through, your broker will issue a document reporting the details of the trade. This document, called a brokerage trade confirmation, confirms the order you placed has been completed. If you sold securities or bought them, this should now be visible in your account. The Bottom Line The time it takes for ownership to transfer hands in a trade can vary. Usually, you’ll get immediate feedback from your broker that your request has been actioned. Getting confirmation, however, that it has gone through will take longer and depends on various factors, such as the type of order, the liquidity of the market being traded, and whether the market is open or not. The standard settlement cycle for most securities is two business days, meaning if you place an order on Monday it should settle on Wednesday. However, there are exceptions. Government securities and stock options are settled the following business day, whereas orders with conditions such as limits, stop-losses, or stop-buys could take longer to fill or might never get filled at all.

https://www.investopedia.com/articles/retirement/120516/social-security-fraud-what-it-costing-taxpayers.asp

Social Security Fraud: What Is It Costing Taxpayers?

<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"> Social Security <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fraud.asp">fraud</a> statistics can be difficult to pin down. Some are grouped inside a larger category that the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssa.asp">Social Security Administration (SSA)</a> calls “improper payments,” which includes everything from innocent mistakes to willful fraud. The SSA estimates that it made about $8.3 billion worth of improper payments during the 2020 fiscal year.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Social Security-related fraud can also take other forms, such as identity theft using stolen Social Security numbers and scams involving bogus phone calls and emails purporting to be from the SSA. Collectively, these frauds cost the U.S. government and individual taxpayers millions, if not billions, of dollars every year. </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>Social Security fraud costs Americans millions, and possibly billions, of dollars each year.</li><li>Fraudulent activities include collecting retirement or disability benefits that the person is not entitled to.</li><li>Stolen Social Security numbers are used in numerous frauds involving identity theft, including the filing of false income tax returns to collect fraudulent refunds.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-social-security-fraud"></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 Social Security Fraud? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Though best known for its monthly payments to retirees, the SSA is also responsible for a number of other programs, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/social-security-survivor-benefits-work/">survivor benefits</a> for widows, widowers, and dependents of eligible workers; <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/082015/what-are-maximum-social-security-disability-benefits.asp">Social Security Disability Insurance (SSDI)</a> for people with disabilities; and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income (SSI)</a> for people with limited income and financial resources.<span class="ql-inline-citation" data-cite="14"></span> Any of these programs can be subject to numerous types of fraud. </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"> According to the SSA, the list of potential frauds includes: </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><strong>Making false statements on a claim. </strong>One example: when a person applies for Social Security benefits and provides information that they know to be untrue.</li><li><strong>Concealing facts or events. </strong>Failure to reveal information that could affect the person’s eligibility is also fraud.</li><li><strong>Misuse of benefits by a representative payee. </strong>If a relative or friend mishandles benefits for someone who is incapacitated, that is considered fraud.</li><li><strong>Buying or selling real or fake Social Security cards or numbers. </strong>People who steal Social Security numbers and use them to obtain benefits illegally are committing fraud.</li><li><strong>Criminal behavior by SSA employees. </strong>This could involve using insider access to obtain illegal benefits or to help another person obtain illegal benefits.</li><li><strong>Impersonation of an SSA employee. </strong>Older people, in particular, are often exploited by criminals who claim to be SSA representatives and ask for money or personal information, including Social Security numbers.</li><li><strong>Bribery of an SSA employee. </strong>SSA employees are not allowed to accept gifts or money in exchange for services. If they do, then they have committed fraud.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Violating standards of conduct. </strong>All SSA employees are bound by standards of conduct.</li><li><strong>Workers’ compensation misrepresentation. </strong>When someone receiving SSA benefits becomes entitled to workers’ compensation, it must be reported to the SSA. Failure to disclose that is considered fraud.</li><li><strong>Misuse of grant or contract funds. </strong>Waste or mismanagement in the processing of SSA contracts and grants.</li><li><strong>Misuse of Social Security numbers for the purpose of committing terrorist acts. </strong>If anyone with links to terrorist groups or organizations facilitates this, then it is fraud.<span class="ql-inline-citation" data-cite="12"></span></li> </ul> <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-what-is-the-cost-of-social-security-fraud-to-us-taxpayers"></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"> What Is the Cost of Social Security Fraud to U.S. Taxpayers? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Because people are often asked for their Social Security numbers to identify themselves in financial transactions, the numbers are a favorite target of identity thieves. Social Security numbers that have been obtained through theft or trickery can be used to obtain credit cards or other loans, open bank accounts, and even to apply for a job. </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"> Criminals also use illegally obtained Social Security numbers to file false income tax returns and collect fraudulent refunds. The Internal Revenue Service (IRS) uncovered $10 billion in tax fraud schemes in 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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The perpetrators of these frauds aren’t just small-time crooks but often “large criminal enterprises with individuals at all stages of the scheme: those who steal the Social Security Numbers (SSN) and other personal identifying information, those who file false returns with the Internal Revenue Service (IRS), those who facilitate obtaining the refunds, and the masterminds who promote the schemes,” the U.S. Department of Justice says.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Individual taxpayers often discover that their Social Security number has been stolen only when they file their own tax returns for the year and receive a notice from the IRS that there appears to be a problem. If they are due a legitimate refund, then they can still receive it, but only after completing the necessary steps outlined by the IRS.<span class="ql-inline-citation" data-cite="15"></span> Ultimately, U.S. taxpayers as a group are stuck with the bill for fraudulent refunds. </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>Scam artists not only impersonate Social Security employees but also can “spoof” your Caller ID so it appears that the call is coming from a legitimate Social Security phone number.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <span class="heading-toc" id="toc-social-security-scams-against-consumers"></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"> Social Security Scams Against Consumers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Individual consumers can also be the victims of Social Security-related frauds. Particularly common are imposter scams, where a caller (either a real person or a robotic voice) will claim to be from the SSA. The goal often is to obtain the victim’s Social Security number and other personal information for identity theft purposes, or even to resell them as "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/get-personal-loan-cpn-8410224">credit privacy numbers (CPNs)</a>." But in other cases, the caller will demand money from the victim—for example, threatening to cut off their Social Security benefits if they don’t comply.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Similar imposter scams are carried out through email, text message, or regular mail. Through the second quarter of 2022, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">Federal Trade Commission (FTC)</a> collected 17,995 reports of imposter scams involving Social Security, with total losses of about $46 million.<span class="ql-inline-citation" data-cite="8"></span> And, of course, untold numbers of scam victims never file reports, often out of embarrassment. </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-report-social-security-fraud"></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 Report Social Security Fraud </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If you’re a victim of Social Security fraud, or if you believe you have witnessed it, then you can contact the fraud hotline of the SSA Office of the Inspector General (OIG) at 1-800-269-0271 or file a report online at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://oig.ssa.gov/scam-awareness/report-the-scam/">OIG website</a>. </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 also file an identity theft report at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.identitytheft.gov/">IdentityTheft.gov</a>, an FTC website that helps consumers report ID theft and set up a recovery plan. </p></div>

Social Security [fraud](https://www.investopedia.com/terms/f/fraud.asp) statistics can be difficult to pin down. Some are grouped inside a larger category that the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp) calls “improper payments,” which includes everything from innocent mistakes to willful fraud. The SSA estimates that it made about $8.3 billion worth of improper payments during the 2020 fiscal year. Social Security-related fraud can also take other forms, such as identity theft using stolen Social Security numbers and scams involving bogus phone calls and emails purporting to be from the SSA. Collectively, these frauds cost the U.S. government and individual taxpayers millions, if not billions, of dollars every year. ### Key Takeaways * Social Security fraud costs Americans millions, and possibly billions, of dollars each year. * Fraudulent activities include collecting retirement or disability benefits that the person is not entitled to. * Stolen Social Security numbers are used in numerous frauds involving identity theft, including the filing of false income tax returns to collect fraudulent refunds. ## What Is Social Security Fraud? Though best known for its monthly payments to retirees, the SSA is also responsible for a number of other programs, including [survivor benefits](https://www.investopedia.com/personal-finance/social-security-survivor-benefits-work/) for widows, widowers, and dependents of eligible workers; [Social Security Disability Insurance (SSDI)](https://www.investopedia.com/ask/answers/082015/what-are-maximum-social-security-disability-benefits.asp) for people with disabilities; and [Supplemental Security Income (SSI)](https://www.investopedia.com/terms/s/ssi.asp) for people with limited income and financial resources. Any of these programs can be subject to numerous types of fraud. According to the SSA, the list of potential frauds includes: * **Making false statements on a claim.** One example: when a person applies for Social Security benefits and provides information that they know to be untrue. * **Concealing facts or events.** Failure to reveal information that could affect the person’s eligibility is also fraud. * **Misuse of benefits by a representative payee.** If a relative or friend mishandles benefits for someone who is incapacitated, that is considered fraud. * **Buying or selling real or fake Social Security cards or numbers.** People who steal Social Security numbers and use them to obtain benefits illegally are committing fraud. * **Criminal behavior by SSA employees.** This could involve using insider access to obtain illegal benefits or to help another person obtain illegal benefits. * **Impersonation of an SSA employee.** Older people, in particular, are often exploited by criminals who claim to be SSA representatives and ask for money or personal information, including Social Security numbers. * **Bribery of an SSA employee.** SSA employees are not allowed to accept gifts or money in exchange for services. If they do, then they have committed fraud. * **Violating standards of conduct.** All SSA employees are bound by standards of conduct. * **Workers’ compensation misrepresentation.** When someone receiving SSA benefits becomes entitled to workers’ compensation, it must be reported to the SSA. Failure to disclose that is considered fraud. * **Misuse of grant or contract funds.** Waste or mismanagement in the processing of SSA contracts and grants. * **Misuse of Social Security numbers for the purpose of committing terrorist acts.** If anyone with links to terrorist groups or organizations facilitates this, then it is fraud. ## What Is the Cost of Social Security Fraud to U.S. Taxpayers? Because people are often asked for their Social Security numbers to identify themselves in financial transactions, the numbers are a favorite target of identity thieves. Social Security numbers that have been obtained through theft or trickery can be used to obtain credit cards or other loans, open bank accounts, and even to apply for a job. Criminals also use illegally obtained Social Security numbers to file false income tax returns and collect fraudulent refunds. The Internal Revenue Service (IRS) uncovered $10 billion in tax fraud schemes in 2021. The perpetrators of these frauds aren’t just small-time crooks but often “large criminal enterprises with individuals at all stages of the scheme: those who steal the Social Security Numbers (SSN) and other personal identifying information, those who file false returns with the Internal Revenue Service (IRS), those who facilitate obtaining the refunds, and the masterminds who promote the schemes,” the U.S. Department of Justice says. Individual taxpayers often discover that their Social Security number has been stolen only when they file their own tax returns for the year and receive a notice from the IRS that there appears to be a problem. If they are due a legitimate refund, then they can still receive it, but only after completing the necessary steps outlined by the IRS. Ultimately, U.S. taxpayers as a group are stuck with the bill for fraudulent refunds. ### Scam artists not only impersonate Social Security employees but also can “spoof” your Caller ID so it appears that the call is coming from a legitimate Social Security phone number. ## Social Security Scams Against Consumers Individual consumers can also be the victims of Social Security-related frauds. Particularly common are imposter scams, where a caller (either a real person or a robotic voice) will claim to be from the SSA. The goal often is to obtain the victim’s Social Security number and other personal information for identity theft purposes, or even to resell them as "[credit privacy numbers (CPNs)](https://www.investopedia.com/get-personal-loan-cpn-8410224)." But in other cases, the caller will demand money from the victim—for example, threatening to cut off their Social Security benefits if they don’t comply. Similar imposter scams are carried out through email, text message, or regular mail. Through the second quarter of 2022, the [Federal Trade Commission (FTC)](https://www.investopedia.com/terms/f/ftc.asp) collected 17,995 reports of imposter scams involving Social Security, with total losses of about $46 million. And, of course, untold numbers of scam victims never file reports, often out of embarrassment. ## How to Report Social Security Fraud If you’re a victim of Social Security fraud, or if you believe you have witnessed it, then you can contact the fraud hotline of the SSA Office of the Inspector General (OIG) at 1-800-269-0271 or file a report online at the [OIG website](https://oig.ssa.gov/scam-awareness/report-the-scam/). You can also file an identity theft report at [IdentityTheft.gov](https://www.identitytheft.gov/), an FTC website that helps consumers report ID theft and set up a recovery plan.

Social Security fraud statistics can be difficult to pin down. Some are grouped inside a larger category that the Social Security Administration (SSA) calls “improper payments,” which includes everything from innocent mistakes to willful fraud. The SSA estimates that it made about $8.3 billion worth of improper payments during the 2020 fiscal year. Social Security-related fraud can also take other forms, such as identity theft using stolen Social Security numbers and scams involving bogus phone calls and emails purporting to be from the SSA. Collectively, these frauds cost the U.S. government and individual taxpayers millions, if not billions, of dollars every year. Key Takeaways Social Security fraud costs Americans millions, and possibly billions, of dollars each year.Fraudulent activities include collecting retirement or disability benefits that the person is not entitled to.Stolen Social Security numbers are used in numerous frauds involving identity theft, including the filing of false income tax returns to collect fraudulent refunds. What Is Social Security Fraud? Though best known for its monthly payments to retirees, the SSA is also responsible for a number of other programs, including survivor benefits for widows, widowers, and dependents of eligible workers; Social Security Disability Insurance (SSDI) for people with disabilities; and Supplemental Security Income (SSI) for people with limited income and financial resources. Any of these programs can be subject to numerous types of fraud. According to the SSA, the list of potential frauds includes: Making false statements on a claim. One example: when a person applies for Social Security benefits and provides information that they know to be untrue.Concealing facts or events. Failure to reveal information that could affect the person’s eligibility is also fraud.Misuse of benefits by a representative payee. If a relative or friend mishandles benefits for someone who is incapacitated, that is considered fraud.Buying or selling real or fake Social Security cards or numbers. People who steal Social Security numbers and use them to obtain benefits illegally are committing fraud.Criminal behavior by SSA employees. This could involve using insider access to obtain illegal benefits or to help another person obtain illegal benefits.Impersonation of an SSA employee. Older people, in particular, are often exploited by criminals who claim to be SSA representatives and ask for money or personal information, including Social Security numbers.Bribery of an SSA employee. SSA employees are not allowed to accept gifts or money in exchange for services. If they do, then they have committed fraud.Violating standards of conduct. All SSA employees are bound by standards of conduct.Workers’ compensation misrepresentation. When someone receiving SSA benefits becomes entitled to workers’ compensation, it must be reported to the SSA. Failure to disclose that is considered fraud.Misuse of grant or contract funds. Waste or mismanagement in the processing of SSA contracts and grants.Misuse of Social Security numbers for the purpose of committing terrorist acts. If anyone with links to terrorist groups or organizations facilitates this, then it is fraud. What Is the Cost of Social Security Fraud to U.S. Taxpayers? Because people are often asked for their Social Security numbers to identify themselves in financial transactions, the numbers are a favorite target of identity thieves. Social Security numbers that have been obtained through theft or trickery can be used to obtain credit cards or other loans, open bank accounts, and even to apply for a job. Criminals also use illegally obtained Social Security numbers to file false income tax returns and collect fraudulent refunds. The Internal Revenue Service (IRS) uncovered $10 billion in tax fraud schemes in 2021. The perpetrators of these frauds aren’t just small-time crooks but often “large criminal enterprises with individuals at all stages of the scheme: those who steal the Social Security Numbers (SSN) and other personal identifying information, those who file false returns with the Internal Revenue Service (IRS), those who facilitate obtaining the refunds, and the masterminds who promote the schemes,” the U.S. Department of Justice says. Individual taxpayers often discover that their Social Security number has been stolen only when they file their own tax returns for the year and receive a notice from the IRS that there appears to be a problem. If they are due a legitimate refund, then they can still receive it, but only after completing the necessary steps outlined by the IRS. Ultimately, U.S. taxpayers as a group are stuck with the bill for fraudulent refunds. Scam artists not only impersonate Social Security employees but also can “spoof” your Caller ID so it appears that the call is coming from a legitimate Social Security phone number. Social Security Scams Against Consumers Individual consumers can also be the victims of Social Security-related frauds. Particularly common are imposter scams, where a caller (either a real person or a robotic voice) will claim to be from the SSA. The goal often is to obtain the victim’s Social Security number and other personal information for identity theft purposes, or even to resell them as "credit privacy numbers (CPNs)." But in other cases, the caller will demand money from the victim—for example, threatening to cut off their Social Security benefits if they don’t comply. Similar imposter scams are carried out through email, text message, or regular mail. Through the second quarter of 2022, the Federal Trade Commission (FTC) collected 17,995 reports of imposter scams involving Social Security, with total losses of about $46 million. And, of course, untold numbers of scam victims never file reports, often out of embarrassment. How to Report Social Security Fraud If you’re a victim of Social Security fraud, or if you believe you have witnessed it, then you can contact the fraud hotline of the SSA Office of the Inspector General (OIG) at 1-800-269-0271 or file a report online at the OIG website. You can also file an identity theft report at IdentityTheft.gov, an FTC website that helps consumers report ID theft and set up a recovery plan.

https://www.investopedia.com/articles/markets/010515/use-fibonacci-point-out-profitable-trades.asp

Fibonacci Techniques for Profitable Trading

<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"> Fibonacci analysis can supercharge your market performance, but you'll need to master a few tricks of the trade to gain maximum benefit from this mathematical sequence that was uncovered in the Western world more than 800 years ago. Let's tackle the subject with a quick <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonaccilines.asp" rel="noopener noreferrer">Fibonacci primer</a> and then get down to business with two original strategies that tap directly into its hidden power. </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>Fibonacci analysis uses the work of twelfth-century Italian mathematician Leonardo de Pisa (also called Fibonacci) to use a logical sequence of numbers to predict stock trends and price action.</li><li>The Fibonacci Flush strategy identifies hidden support and resistance levels that an investor can use for entry, exit, and stop placement.</li><li>The Parabola Pop strategy tracks breakouts above and below retracement levels to provide early entry points for major breakouts and breakdowns.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-fibonacci-analysis"></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 Fibonacci Analysis? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Twelfth-century monk and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/06/fibonacci.asp">mathematician Leonardo de Pisa</a> (later branded as Fibonacci) uncovered a logical sequence of numbers that appears throughout nature and in great works of art. Unknown to the great monk, these Fibonacci numbers fit perfectly into our modern financial markets because they describe—with great accuracy—complex relationships between individual waves within trends, as well as how far markets will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pullback.asp">pull back</a> when they return to levels previously traded. </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"> Fibonacci Numbers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Starting with 1+1, the Fibonacci sequence, of which the first number is 1, consists of numbers that are the sum of themselves and the number that precedes them. As a result, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, and 21+34=55, which indicates that 1, 2, 3, 5, 8, 13, 21, 34, and 55 are all Fibonacci numbers. Subdividing these numerical strings uncovers repeating ratios that have become the basis for Fibonacci grid analysis in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swingtrading.asp">swing trading</a> and other market disciplines.<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"> The .386, .50, and .618 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciretracement.asp">retracement levels</a> form the basic structure of Fibonacci grids found in popular market software packages, with .214 and .786 levels coming into play during periods of higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>. The initial analysis technique is simple enough for market players at all levels to understand and master. Just place the grid over the ending points of a major high and low in an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uptrend.asp">uptrend</a> or <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downtrend.asp">downtrend</a> and look for close alignment with key price turns.<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> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-subheading__text"> Uptrends and Downtrends </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Deeper market analysis requires greater effort because trends are harmonic phenomena, meaning they can subdivide into smaller and larger waves that show independent price direction. For example, a series of relative uptrends and downtrends will embed themselves within a one- or two-year uptrend in 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</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp" rel="noopener noreferrer">Dow Jones Industrials</a>. We see this complexity most clearly when shifting higher, from daily to weekly charts, or lower, from daily to 60-minute or 15-minute charts. </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-the-fibonacci-flush-strategy"></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"> The Fibonacci Flush Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A single Fibonacci grid on a daily chart will improve results, but ratios come into sharper focus when examining two or more time frames. Swing traders taking the next step will find great value in daily and 60-minute charts, while <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/markettiming.asp">market timers</a> will benefit when they step back and combine daily and weekly charts. In both cases, alignment between key Fib levels in different time frames identifies hidden <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/support.asp">support</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/resistance.asp">resistance</a> that can be utilized for entry, exit, and stop placement.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></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_19-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.4%;"> <img alt="Fibonacci Flush Strategy" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/heLEE84jlILveo0ANeUysogZd3Y=/1320x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/6gz52tQnN2gcKa3X7cr7fQ469L0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg" data-srcset="https://www.investopedia.com/thmb/UPn_KYRckU8Bvtenu9Pz7aThXa4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg 750w" data-tracking-container="true" height="890" id="mntl-sc-block-image_1-0" width="1320"/> <noscript> <img alt="Fibonacci Flush Strategy" class="img--noscript universal-image__image" height="890" sizes="750px" src="https://www.investopedia.com/thmb/6gz52tQnN2gcKa3X7cr7fQ469L0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg" srcset="https://www.investopedia.com/thmb/UPn_KYRckU8Bvtenu9Pz7aThXa4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg 750w" width="1320"/> </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 / Sabrina Jiang</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For example, in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">chart above</a>, Microsoft Corporation (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>) shares pounded out a deep low at $42.10 in Oct. 2014 and rallied in a vertical wave that ended at $50.05 a few weeks later. The subsequent pullback settled on the 38.2% retracement (.382) for four sessions and broke down into a mid-December <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gap.asp">gap</a> that landed the price <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/091615/how-set-fibonacci-retracement-levels.asp">on the 61.8% (.618) Fibonacci retracement</a>. That level marks a tradable low ahead of a sharp recovery that stalls at the 78.6% (.786) retracement. </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"> Notice how other charting features interact with key Fibonacci levels. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sell-off.asp">sell-off</a> into the 62% level also fills the October gap (red circle), while the subsequent bounce stalls near three November <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swinghigh.asp">swing highs</a> (blue line) aligned with the 78.6% retracement. This tells us that Fibonacci analysis works most effectively when combined with other technical forces in play, such as gaps, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp">moving averages</a>, and easily observed highs and lows.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></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_24-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:77.9%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/aFroKnPpD7w-o4oavgo7V7pnFJE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/aFroKnPpD7w-o4oavgo7V7pnFJE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg" data-srcset="https://www.investopedia.com/thmb/KKl6ecq32HmicCa7CSWotE2yS6I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg 750w" data-tracking-container="true" height="1856" id="mntl-sc-block-image_2-0" width="2382"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1856" sizes="750px" src="https://www.investopedia.com/thmb/aFroKnPpD7w-o4oavgo7V7pnFJE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg" srcset="https://www.investopedia.com/thmb/KKl6ecq32HmicCa7CSWotE2yS6I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg 750w" width="2382"/> </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>Image by Sabrina Jiang © Investopedia 2021</p></span> </figcaption></figure> <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"> Support and Resistance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Now let's zoom in and identify a Fibonacci technique you can use to find low-risk entries missed by less observant market players. The falling price sits on the 38% retracement for four sessions, sucking in a supply of capital looking for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a>. The downward gap traps this crowd, which is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shakeout.asp">shaken out</a> while the stock posts a volatile low at the 62% level. While buying at that support level makes sense, it's a risky strategy because the gap could easily kill the upside and force another breakdown. </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"> Next comes the critical part. The surge back above the 38% retracement reinstates support, triggering a Fibonacci Flush<em> </em>buy signal, predicting that positions taken near $47 will produce a reliable profit. At the same time, shaken-out shareholders are reluctant to buy back at this price because, as the expression goes, "once bitten, twice shy." This lowers interest in the trade while allowing new money to carry risk in a lower-volatility trade and relying on a long observed tendency for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/support-and-resistance-basics/">support to hold</a> after it is tested, broken, and then remounted. </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-the-parabola-pop-strategy"></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 Parabola Pop Strategy </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_31-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:77.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/SUYxjL4pMXtiV8GLewhkt4qh6F4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/SUYxjL4pMXtiV8GLewhkt4qh6F4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg" data-srcset="https://www.investopedia.com/thmb/S3MLbl-RV48eLhwA5vadqIup0ao=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg 750w" data-tracking-container="true" height="1855" id="mntl-sc-block-image_3-0" width="2382"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1855" sizes="750px" src="https://www.investopedia.com/thmb/SUYxjL4pMXtiV8GLewhkt4qh6F4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg" srcset="https://www.investopedia.com/thmb/S3MLbl-RV48eLhwA5vadqIup0ao=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg 750w" width="2382"/> </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"><p>Image by Sabrina Jiang © Investopedia 2021</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Referring to the chart above as an example, the 78.6% retracement level stands guard as the final harmonic barrier before an instrument completes a 100% price swing (higher or lower). This is valuable information because it tells us that a <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 this level in an uptrend, or a breakdown in a downtrend, will extend all the way to the last swing high or low as a minimum target. Doing the math suggests a free ride for the last 21.6% of the rally or sell-off wave. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parabolicindicator.asp">Parabola</a> Pop strategy works very well on longer time frames and can even provide early entry to major breakouts and breakdowns on widely held issues. As an example, look at Meta (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>), formerly Facebook, after it peaked at $72.59 in March 2014 and entered a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correction.asp">correction</a> that found support in the mid-$50s. The subsequent bounce reached the 78.6% retracement at $68.75 two months later and stalled out, yielding nearly three weeks of sideways action. </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"> The stock rallied above harmonic resistance on July 21 (red line) and took off, completing the last 21.4% of the 100% price swing in just four sessions. In addition, the fourth day yielded a breakout above the March high, setting off a fresh set of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-signal.asp">buy signals</a> that gave <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/04/033104.asp">Fibonacci-focused shareholders</a> many profitable options, including letting it ride, taking partial profits, or risking the balance on the new uptrend. </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 Meta breakout highlights a second advantage of the Parabola Pop strategy. Markets tend to go vertical into these 100% levels as if a magnet is pulling on price action. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/introduction-to-parabolic-sar/">parabolic tendency</a> can produce outstanding results over very short time periods. Of course, it isn't a given because anything can happen at any time in our modern markets, but even a slight tilt toward the vertical marks a definable edge over the competition.  </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"> Final Notes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The thrust from 78.6% into 100% marks a fractal tendency that appears in all time frames, from 15-minute through monthly charts, and can be traded effectively whether you're a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scalpers.asp" rel="noopener noreferrer">scalper</a> or market timer. However, intraday holding periods are more likely to face trade-killing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/whipsaw.asp" rel="noopener noreferrer">whipsaws</a> and shakeouts, while the size of the expected rally or sell-off is often too small to book a reliable profit, especially after the negative impact of transaction costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></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_43-0"> <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_44-0"> Viewing the trends of the market through the lenses of a Fibonacci grid enables investors to see larger patterns beyond immediate upturns and downturns and to pinpoint prospects for profits that may be just beyond the view of investors who are spooked out by a short-term view of the trends. </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"> If used well, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/091114/strategies-trading-fibonacci-retracements.asp">tools of Fibonacci analysis</a> equip an investor with the confidence and insights needed to withstand shakeouts prompted by drastic downturns and to take advantage of opportunities to profit from approaching vertical shifts. However, doing so requires a willingness to withstand the unnerving volatility that exists within compressed periods of time to see the market movements that a Fibonacci believer anticipates based on math formulas that have stood the test of time. </p></div>

Fibonacci analysis can supercharge your market performance, but you'll need to master a few tricks of the trade to gain maximum benefit from this mathematical sequence that was uncovered in the Western world more than 800 years ago. Let's tackle the subject with a quick [Fibonacci primer](https://www.investopedia.com/terms/f/fibonaccilines.asp) and then get down to business with two original strategies that tap directly into its hidden power. ### Key Takeaways * Fibonacci analysis uses the work of twelfth-century Italian mathematician Leonardo de Pisa (also called Fibonacci) to use a logical sequence of numbers to predict stock trends and price action. * The Fibonacci Flush strategy identifies hidden support and resistance levels that an investor can use for entry, exit, and stop placement. * The Parabola Pop strategy tracks breakouts above and below retracement levels to provide early entry points for major breakouts and breakdowns. ## What Is a Fibonacci Analysis? Twelfth-century monk and [mathematician Leonardo de Pisa](https://www.investopedia.com/articles/trading/06/fibonacci.asp) (later branded as Fibonacci) uncovered a logical sequence of numbers that appears throughout nature and in great works of art. Unknown to the great monk, these Fibonacci numbers fit perfectly into our modern financial markets because they describe—with great accuracy—complex relationships between individual waves within trends, as well as how far markets will [pull back](https://www.investopedia.com/terms/p/pullback.asp) when they return to levels previously traded. ### Fibonacci Numbers Starting with 1+1, the Fibonacci sequence, of which the first number is 1, consists of numbers that are the sum of themselves and the number that precedes them. As a result, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, and 21+34=55, which indicates that 1, 2, 3, 5, 8, 13, 21, 34, and 55 are all Fibonacci numbers. Subdividing these numerical strings uncovers repeating ratios that have become the basis for Fibonacci grid analysis in [swing trading](https://www.investopedia.com/terms/s/swingtrading.asp) and other market disciplines. The .386, .50, and .618 [retracement levels](https://www.investopedia.com/terms/f/fibonacciretracement.asp) form the basic structure of Fibonacci grids found in popular market software packages, with .214 and .786 levels coming into play during periods of higher [volatility](https://www.investopedia.com/terms/v/volatility.asp). The initial analysis technique is simple enough for market players at all levels to understand and master. Just place the grid over the ending points of a major high and low in an [uptrend](https://www.investopedia.com/terms/u/uptrend.asp) or [downtrend](https://www.investopedia.com/terms/d/downtrend.asp) and look for close alignment with key price turns. ### Uptrends and Downtrends Deeper market analysis requires greater effort because trends are harmonic phenomena, meaning they can subdivide into smaller and larger waves that show independent price direction. For example, a series of relative uptrends and downtrends will embed themselves within a one- or two-year uptrend in the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) or [Dow Jones Industrials](https://www.investopedia.com/terms/d/djia.asp). We see this complexity most clearly when shifting higher, from daily to weekly charts, or lower, from daily to 60-minute or 15-minute charts. ## The Fibonacci Flush Strategy A single Fibonacci grid on a daily chart will improve results, but ratios come into sharper focus when examining two or more time frames. Swing traders taking the next step will find great value in daily and 60-minute charts, while [market timers](https://www.investopedia.com/terms/m/markettiming.asp) will benefit when they step back and combine daily and weekly charts. In both cases, alignment between key Fib levels in different time frames identifies hidden [support](https://www.investopedia.com/terms/s/support.asp) and [resistance](https://www.investopedia.com/terms/r/resistance.asp) that can be utilized for entry, exit, and stop placement.  ![Fibonacci Flush Strategy]() :max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-6f6f0bd229174666adadeae9b9c4d2db.jpg) Investopedia / Sabrina Jiang For example, in the [chart above](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft), Microsoft Corporation ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)) shares pounded out a deep low at $42.10 in Oct. 2014 and rallied in a vertical wave that ended at $50.05 a few weeks later. The subsequent pullback settled on the 38.2% retracement (.382) for four sessions and broke down into a mid-December [gap](https://www.investopedia.com/terms/g/gap.asp) that landed the price [on the 61.8% (.618) Fibonacci retracement](https://www.investopedia.com/articles/active-trading/091615/how-set-fibonacci-retracement-levels.asp). That level marks a tradable low ahead of a sharp recovery that stalls at the 78.6% (.786) retracement. Notice how other charting features interact with key Fibonacci levels. The [sell-off](https://www.investopedia.com/terms/s/sell-off.asp) into the 62% level also fills the October gap (red circle), while the subsequent bounce stalls near three November [swing highs](https://www.investopedia.com/terms/s/swinghigh.asp) (blue line) aligned with the 78.6% retracement. This tells us that Fibonacci analysis works most effectively when combined with other technical forces in play, such as gaps, [moving averages](https://www.investopedia.com/terms/m/movingaverage.asp), and easily observed highs and lows.  ![Image]() :max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-02-60589185023f436787c07c56e3d5c109.jpg) Image by Sabrina Jiang © Investopedia 2021 ### Support and Resistance Now let's zoom in and identify a Fibonacci technique you can use to find low-risk entries missed by less observant market players. The falling price sits on the 38% retracement for four sessions, sucking in a supply of capital looking for a [reversal](https://www.investopedia.com/terms/r/reversal.asp). The downward gap traps this crowd, which is [shaken out](https://www.investopedia.com/terms/s/shakeout.asp) while the stock posts a volatile low at the 62% level. While buying at that support level makes sense, it's a risky strategy because the gap could easily kill the upside and force another breakdown. Next comes the critical part. The surge back above the 38% retracement reinstates support, triggering a Fibonacci Flushbuy signal, predicting that positions taken near $47 will produce a reliable profit. At the same time, shaken-out shareholders are reluctant to buy back at this price because, as the expression goes, "once bitten, twice shy." This lowers interest in the trade while allowing new money to carry risk in a lower-volatility trade and relying on a long observed tendency for [support to hold](https://www.investopedia.com/trading/support-and-resistance-basics/) after it is tested, broken, and then remounted. ## The Parabola Pop Strategy ![Image]() :max_bytes(150000):strip_icc()/dotdash_INV-final-Fibonacci-Techniques-for-Profitable-Trading_Feb_2021-03-bd7cddb447e24cf6b89e8a1c6b8aea0a.jpg) Image by Sabrina Jiang © Investopedia 2021 Referring to the chart above as an example, the 78.6% retracement level stands guard as the final harmonic barrier before an instrument completes a 100% price swing (higher or lower). This is valuable information because it tells us that a [breakout](https://www.investopedia.com/terms/b/breakout.asp) above this level in an uptrend, or a breakdown in a downtrend, will extend all the way to the last swing high or low as a minimum target. Doing the math suggests a free ride for the last 21.6% of the rally or sell-off wave. This [Parabola](https://www.investopedia.com/terms/p/parabolicindicator.asp) Pop strategy works very well on longer time frames and can even provide early entry to major breakouts and breakdowns on widely held issues. As an example, look at Meta ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), formerly Facebook, after it peaked at $72.59 in March 2014 and entered a [correction](https://www.investopedia.com/terms/c/correction.asp) that found support in the mid-$50s. The subsequent bounce reached the 78.6% retracement at $68.75 two months later and stalled out, yielding nearly three weeks of sideways action. The stock rallied above harmonic resistance on July 21 (red line) and took off, completing the last 21.4% of the 100% price swing in just four sessions. In addition, the fourth day yielded a breakout above the March high, setting off a fresh set of [buy signals](https://www.investopedia.com/terms/b/buy-signal.asp) that gave [Fibonacci-focused shareholders](https://www.investopedia.com/articles/technical/04/033104.asp) many profitable options, including letting it ride, taking partial profits, or risking the balance on the new uptrend. The Meta breakout highlights a second advantage of the Parabola Pop strategy. Markets tend to go vertical into these 100% levels as if a magnet is pulling on price action. This [parabolic tendency](https://www.investopedia.com/trading/introduction-to-parabolic-sar/) can produce outstanding results over very short time periods. Of course, it isn't a given because anything can happen at any time in our modern markets, but even a slight tilt toward the vertical marks a definable edge over the competition.  ### Final Notes The thrust from 78.6% into 100% marks a fractal tendency that appears in all time frames, from 15-minute through monthly charts, and can be traded effectively whether you're a [scalper](https://www.investopedia.com/terms/s/scalpers.asp) or market timer. However, intraday holding periods are more likely to face trade-killing [whipsaws](https://www.investopedia.com/terms/w/whipsaw.asp) and shakeouts, while the size of the expected rally or sell-off is often too small to book a reliable profit, especially after the negative impact of transaction costs. ## The Bottom Line Viewing the trends of the market through the lenses of a Fibonacci grid enables investors to see larger patterns beyond immediate upturns and downturns and to pinpoint prospects for profits that may be just beyond the view of investors who are spooked out by a short-term view of the trends. If used well, the [tools of Fibonacci analysis](https://www.investopedia.com/articles/active-trading/091114/strategies-trading-fibonacci-retracements.asp) equip an investor with the confidence and insights needed to withstand shakeouts prompted by drastic downturns and to take advantage of opportunities to profit from approaching vertical shifts. However, doing so requires a willingness to withstand the unnerving volatility that exists within compressed periods of time to see the market movements that a Fibonacci believer anticipates based on math formulas that have stood the test of time.

Fibonacci analysis can supercharge your market performance, but you'll need to master a few tricks of the trade to gain maximum benefit from this mathematical sequence that was uncovered in the Western world more than 800 years ago. Let's tackle the subject with a quick Fibonacci primer and then get down to business with two original strategies that tap directly into its hidden power. Key Takeaways Fibonacci analysis uses the work of twelfth-century Italian mathematician Leonardo de Pisa (also called Fibonacci) to use a logical sequence of numbers to predict stock trends and price action.The Fibonacci Flush strategy identifies hidden support and resistance levels that an investor can use for entry, exit, and stop placement.The Parabola Pop strategy tracks breakouts above and below retracement levels to provide early entry points for major breakouts and breakdowns. What Is a Fibonacci Analysis? Twelfth-century monk and mathematician Leonardo de Pisa (later branded as Fibonacci) uncovered a logical sequence of numbers that appears throughout nature and in great works of art. Unknown to the great monk, these Fibonacci numbers fit perfectly into our modern financial markets because they describe—with great accuracy—complex relationships between individual waves within trends, as well as how far markets will pull back when they return to levels previously traded. Fibonacci Numbers Starting with 1+1, the Fibonacci sequence, of which the first number is 1, consists of numbers that are the sum of themselves and the number that precedes them. As a result, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, and 21+34=55, which indicates that 1, 2, 3, 5, 8, 13, 21, 34, and 55 are all Fibonacci numbers. Subdividing these numerical strings uncovers repeating ratios that have become the basis for Fibonacci grid analysis in swing trading and other market disciplines. The .386, .50, and .618 retracement levels form the basic structure of Fibonacci grids found in popular market software packages, with .214 and .786 levels coming into play during periods of higher volatility. The initial analysis technique is simple enough for market players at all levels to understand and master. Just place the grid over the ending points of a major high and low in an uptrend or downtrend and look for close alignment with key price turns. Uptrends and Downtrends Deeper market analysis requires greater effort because trends are harmonic phenomena, meaning they can subdivide into smaller and larger waves that show independent price direction. For example, a series of relative uptrends and downtrends will embed themselves within a one- or two-year uptrend in the S&P 500 or Dow Jones Industrials. We see this complexity most clearly when shifting higher, from daily to weekly charts, or lower, from daily to 60-minute or 15-minute charts. The Fibonacci Flush Strategy A single Fibonacci grid on a daily chart will improve results, but ratios come into sharper focus when examining two or more time frames. Swing traders taking the next step will find great value in daily and 60-minute charts, while market timers will benefit when they step back and combine daily and weekly charts. In both cases, alignment between key Fib levels in different time frames identifies hidden support and resistance that can be utilized for entry, exit, and stop placement.  Investopedia / Sabrina Jiang For example, in the chart above, Microsoft Corporation (MSFT) shares pounded out a deep low at $42.10 in Oct. 2014 and rallied in a vertical wave that ended at $50.05 a few weeks later. The subsequent pullback settled on the 38.2% retracement (.382) for four sessions and broke down into a mid-December gap that landed the price on the 61.8% (.618) Fibonacci retracement. That level marks a tradable low ahead of a sharp recovery that stalls at the 78.6% (.786) retracement. Notice how other charting features interact with key Fibonacci levels. The sell-off into the 62% level also fills the October gap (red circle), while the subsequent bounce stalls near three November swing highs (blue line) aligned with the 78.6% retracement. This tells us that Fibonacci analysis works most effectively when combined with other technical forces in play, such as gaps, moving averages, and easily observed highs and lows.  Image by Sabrina Jiang © Investopedia 2021 Support and Resistance Now let's zoom in and identify a Fibonacci technique you can use to find low-risk entries missed by less observant market players. The falling price sits on the 38% retracement for four sessions, sucking in a supply of capital looking for a reversal. The downward gap traps this crowd, which is shaken out while the stock posts a volatile low at the 62% level. While buying at that support level makes sense, it's a risky strategy because the gap could easily kill the upside and force another breakdown. Next comes the critical part. The surge back above the 38% retracement reinstates support, triggering a Fibonacci Flush buy signal, predicting that positions taken near $47 will produce a reliable profit. At the same time, shaken-out shareholders are reluctant to buy back at this price because, as the expression goes, "once bitten, twice shy." This lowers interest in the trade while allowing new money to carry risk in a lower-volatility trade and relying on a long observed tendency for support to hold after it is tested, broken, and then remounted. The Parabola Pop Strategy Image by Sabrina Jiang © Investopedia 2021 Referring to the chart above as an example, the 78.6% retracement level stands guard as the final harmonic barrier before an instrument completes a 100% price swing (higher or lower). This is valuable information because it tells us that a breakout above this level in an uptrend, or a breakdown in a downtrend, will extend all the way to the last swing high or low as a minimum target. Doing the math suggests a free ride for the last 21.6% of the rally or sell-off wave. This Parabola Pop strategy works very well on longer time frames and can even provide early entry to major breakouts and breakdowns on widely held issues. As an example, look at Meta (META), formerly Facebook, after it peaked at $72.59 in March 2014 and entered a correction that found support in the mid-$50s. The subsequent bounce reached the 78.6% retracement at $68.75 two months later and stalled out, yielding nearly three weeks of sideways action. The stock rallied above harmonic resistance on July 21 (red line) and took off, completing the last 21.4% of the 100% price swing in just four sessions. In addition, the fourth day yielded a breakout above the March high, setting off a fresh set of buy signals that gave Fibonacci-focused shareholders many profitable options, including letting it ride, taking partial profits, or risking the balance on the new uptrend. The Meta breakout highlights a second advantage of the Parabola Pop strategy. Markets tend to go vertical into these 100% levels as if a magnet is pulling on price action. This parabolic tendency can produce outstanding results over very short time periods. Of course, it isn't a given because anything can happen at any time in our modern markets, but even a slight tilt toward the vertical marks a definable edge over the competition.  Final Notes The thrust from 78.6% into 100% marks a fractal tendency that appears in all time frames, from 15-minute through monthly charts, and can be traded effectively whether you're a scalper or market timer. However, intraday holding periods are more likely to face trade-killing whipsaws and shakeouts, while the size of the expected rally or sell-off is often too small to book a reliable profit, especially after the negative impact of transaction costs. The Bottom Line Viewing the trends of the market through the lenses of a Fibonacci grid enables investors to see larger patterns beyond immediate upturns and downturns and to pinpoint prospects for profits that may be just beyond the view of investors who are spooked out by a short-term view of the trends. If used well, the tools of Fibonacci analysis equip an investor with the confidence and insights needed to withstand shakeouts prompted by drastic downturns and to take advantage of opportunities to profit from approaching vertical shifts. However, doing so requires a willingness to withstand the unnerving volatility that exists within compressed periods of time to see the market movements that a Fibonacci believer anticipates based on math formulas that have stood the test of time.

https://www.investopedia.com/articles/investing/013016/are-morningstars-best-mutual-funds-really-best-morn.asp

Is Morningstar’s Rating System an Accurate Ranking Tool?

<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"> While Morningstar, Inc. (NASDAQ: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=morn">MORN</a>), the mutual fund and exchange-traded fund (ETF) rating agency, is highly regarded for its investment research, that doesn't necessarily mean its ratings are always the most accurate. Most investors are not experts, so they rely on third-party ratings to compare and contrast possible investments for their retirement portfolios, none more so than Morningstar. </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 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> (FINRA) mutual fund analyzer relies on Morningstar. But the system is not infallible, and investors can get carried away by the simple, intuitive five-star Morningstar rating system. </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 rating company is a veritable kingmaker among funds. Research from Strategic Insight indicates funds highly rated by Morningstar, at four-star and five-star, showed net positive investment flow every year between 1998 and 2010. Conversely, funds rated average or poor, at between one and three stars, by Morningstar showed net negative investment flow every year over the same period. This is clear evidence that funds lose money unless Morningstar likes them. </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"> However, there is a big difference between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fund-flow.asp">net mutual fund flows</a> and fund performance. It is very possible, even commonplace, for a fund to perform well for a few years, receive a large inflow of investor dollars, and then fail to live up to expectations. Even Morningstar warns investors not to rely too heavily on the firm's star ratings, which are based on past performances relative to similar funds. </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"> These warnings are well heeded. It turns out a majority of highly rated funds in 2004 did not score so highly in 2014. Many mutual fund investors have horizons well beyond 10 years, so staying power matters. Even more intriguing, the lowest-rated funds may produce the greatest excess returns when compared to their style <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmarks</a>. </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-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>Morningstar is a highly regarded mutual fund and exchange-traded fund (ETF) rating agency.</li><li>The agency's research is used by many big names in the financial sector, including the Financial Industry Regulatory Authority.</li><li>A study performed by Vanguard found that Morningstar's ratings were not a good method to predict performance when measured against a benchmark.</li><li>Morningstar itself acknowledges its rating system as a quantitative measure of a fund's past performance that is not intended to accurately predict future performance.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-system-works"></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 the System Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Conceptually, there are plenty of holes in the Morningstar method. If you boil it all down, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102115/how-morningstar-rates-and-ranks-mutual-funds.asp">Morningstar star system</a> is entirely dependent on average past returns. This means the system cannot account for outliers, such as when fund managers have one abnormally good or bad year to fudge their trailing average performances. Even worse, the star system cannot tell you if the fund had consistent leadership or if new managers arrived every two years. </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"> Morningstar assigns a one- to five-star ranking to each mutual fund or ETF on a peer-adjusted basis. Every single metric is relative and risk-adjusted. Peer adjustment is achieved by grouping funds with similar assets together and comparing their performances. By "risk-adjusted," this means all performances are measured against the level of risk a manager assumed to generate fund returns. </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 top 10% of funds in a certain category are awarded five stars. The next 22.5% receive four stars, the middle 35% get three stars, the next 22.5% get two stars, and the final 10% get one star. Every mutual fund wants to receive and boast about a higher rating, and Morningstar often charges a fee for the right to advertise its scores.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Naturally, investors prefer to have their money in five-star funds and not in one- or two-star funds. It is for this reason that many rely heavily on Morningstar's evaluations when making investment decisions. There is a glaring flaw with this approach; by the time the fund receives a five-star rating for past performances, it might be too late to participate. In effect, Morningstar, and its dedicated followers, often show up late to the party. </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-what-does-the-data-say"></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"> What Does the Data Say? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In 2014, <em>The Wall Street Journal</em> requested that Morningstar produce a comprehensive list of five-star funds over 10 years starting in 2004. The publication discovered that 37% of funds lost one star, 31% lost two stars, 14% lost three stars, and 3% dropped down to one star. Only 14%, or 58 out of 403, retained their premium ratings.<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"> To express it a different way, investors invest money in a five-star mutual fund in the hopes of achieving five-star results moving forward, yet only 14% of such funds proved worthy of those hopes. If an investor was willing to accept a four- or five-star performance, the results were more palatable, since 51% of Morningstar's five-star funds in 2004 received a four-star or above rating in 2014.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Given the turmoil of 2007-2009, there may be some recession-created distortions in <em>The</em> <em>Wall Street Journal's </em>decade-long performance report. However, recessions tend to occur more than once every 10 years (1.6 per decade since the 1960s), so it is rare for a decade without a downturn interrupting mutual fund performances. </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"> Low-cost fund provider Vanguard ran an analysis in 2013 to see how Morningstar-rated funds performed relative to a style benchmark over three-year periods. The goal was to identify <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/excessreturn.asp">excess returns</a> compared to the benchmark, and group those returns by star rating. </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 Vanguard study produced two critical findings, the first being "an investor had a less than a 50-50 shot of picking a fund that would outperform regardless of its rating at the time of selection."<span class="ql-inline-citation" data-cite="4"></span> This is different than saying five-star funds tend to outperform one-star funds in each category, which is generally true. What it means is that star rating is not a good method to predict performance when measured against a benchmark. </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 more surprising finding was that one-star funds had the greatest excess returns. Vanguard found that funds in the five-, four-, three-, and two-star rating groups outperformed their benchmarks by 37% to 39%, but one-star funds produced excess returns of 46%.<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_34-0"></div> <span class="heading-toc" id="toc-expense-ratios-have-better-track-records"></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"> Expense Ratios Have Better Track Records </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Russel Kinnel, director of manager research at Morningstar, published a study in 2010 comparing the predictive accuracy of star ratings against simple <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 ratios</a> for each fund. He set up three possible measures of performance, which he deemed success ratio, total returns, and subsequent star ratings. The results spoke for themselves. </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"> As Kinnel pointed out, "in every asset class over every time period, the cheapest quintile produced higher Total Returns than the most expensive quintile." He added that for every "data point tested, low-cost funds beat high-cost funds." The trend was unchanged for success ratio and subsequent star ratings. </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"> Star ratings did not perform as well as expense ratios. Kinnel noted, "5-star mutual funds beat 1-star funds on our three measures, although there were exceptions." His data suggests a higher-star fund beats a lower-star fund approximately 84% of the time.<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_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"> Morningstar acknowledges its rating system is a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. Instead, the company recommends investors use the rating system to evaluate a fund's track record compared to its peers. It can be the first step in a multi-step process investors can employ to analyze funds before making a purchase. </p></div>

While Morningstar, Inc. (NASDAQ: [MORN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=morn)), the mutual fund and exchange-traded fund (ETF) rating agency, is highly regarded for its investment research, that doesn't necessarily mean its ratings are always the most accurate. Most investors are not experts, so they rely on third-party ratings to compare and contrast possible investments for their retirement portfolios, none more so than Morningstar. Even the [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp) (FINRA) mutual fund analyzer relies on Morningstar. But the system is not infallible, and investors can get carried away by the simple, intuitive five-star Morningstar rating system. The rating company is a veritable kingmaker among funds. Research from Strategic Insight indicates funds highly rated by Morningstar, at four-star and five-star, showed net positive investment flow every year between 1998 and 2010. Conversely, funds rated average or poor, at between one and three stars, by Morningstar showed net negative investment flow every year over the same period. This is clear evidence that funds lose money unless Morningstar likes them. However, there is a big difference between [net mutual fund flows](https://www.investopedia.com/terms/f/fund-flow.asp) and fund performance. It is very possible, even commonplace, for a fund to perform well for a few years, receive a large inflow of investor dollars, and then fail to live up to expectations. Even Morningstar warns investors not to rely too heavily on the firm's star ratings, which are based on past performances relative to similar funds. These warnings are well heeded. It turns out a majority of highly rated funds in 2004 did not score so highly in 2014. Many mutual fund investors have horizons well beyond 10 years, so staying power matters. Even more intriguing, the lowest-rated funds may produce the greatest excess returns when compared to their style [benchmarks](https://www.investopedia.com/terms/b/benchmark.asp). ### Key Takeaways * Morningstar is a highly regarded mutual fund and exchange-traded fund (ETF) rating agency. * The agency's research is used by many big names in the financial sector, including the Financial Industry Regulatory Authority. * A study performed by Vanguard found that Morningstar's ratings were not a good method to predict performance when measured against a benchmark. * Morningstar itself acknowledges its rating system as a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. ## How the System Works Conceptually, there are plenty of holes in the Morningstar method. If you boil it all down, the [Morningstar star system](https://www.investopedia.com/articles/investing/102115/how-morningstar-rates-and-ranks-mutual-funds.asp) is entirely dependent on average past returns. This means the system cannot account for outliers, such as when fund managers have one abnormally good or bad year to fudge their trailing average performances. Even worse, the star system cannot tell you if the fund had consistent leadership or if new managers arrived every two years. Morningstar assigns a one- to five-star ranking to each mutual fund or ETF on a peer-adjusted basis. Every single metric is relative and risk-adjusted. Peer adjustment is achieved by grouping funds with similar assets together and comparing their performances. By "risk-adjusted," this means all performances are measured against the level of risk a manager assumed to generate fund returns. The top 10% of funds in a certain category are awarded five stars. The next 22.5% receive four stars, the middle 35% get three stars, the next 22.5% get two stars, and the final 10% get one star. Every mutual fund wants to receive and boast about a higher rating, and Morningstar often charges a fee for the right to advertise its scores. Naturally, investors prefer to have their money in five-star funds and not in one- or two-star funds. It is for this reason that many rely heavily on Morningstar's evaluations when making investment decisions. There is a glaring flaw with this approach; by the time the fund receives a five-star rating for past performances, it might be too late to participate. In effect, Morningstar, and its dedicated followers, often show up late to the party. ## What Does the Data Say? In 2014, *The Wall Street Journal* requested that Morningstar produce a comprehensive list of five-star funds over 10 years starting in 2004. The publication discovered that 37% of funds lost one star, 31% lost two stars, 14% lost three stars, and 3% dropped down to one star. Only 14%, or 58 out of 403, retained their premium ratings. To express it a different way, investors invest money in a five-star mutual fund in the hopes of achieving five-star results moving forward, yet only 14% of such funds proved worthy of those hopes. If an investor was willing to accept a four- or five-star performance, the results were more palatable, since 51% of Morningstar's five-star funds in 2004 received a four-star or above rating in 2014. Given the turmoil of 2007-2009, there may be some recession-created distortions in *The* *Wall Street Journal's* decade-long performance report. However, recessions tend to occur more than once every 10 years (1.6 per decade since the 1960s), so it is rare for a decade without a downturn interrupting mutual fund performances. Low-cost fund provider Vanguard ran an analysis in 2013 to see how Morningstar-rated funds performed relative to a style benchmark over three-year periods. The goal was to identify [excess returns](https://www.investopedia.com/terms/e/excessreturn.asp) compared to the benchmark, and group those returns by star rating. The Vanguard study produced two critical findings, the first being "an investor had a less than a 50-50 shot of picking a fund that would outperform regardless of its rating at the time of selection." This is different than saying five-star funds tend to outperform one-star funds in each category, which is generally true. What it means is that star rating is not a good method to predict performance when measured against a benchmark. The more surprising finding was that one-star funds had the greatest excess returns. Vanguard found that funds in the five-, four-, three-, and two-star rating groups outperformed their benchmarks by 37% to 39%, but one-star funds produced excess returns of 46%. ## Expense Ratios Have Better Track Records Russel Kinnel, director of manager research at Morningstar, published a study in 2010 comparing the predictive accuracy of star ratings against simple [expense ratios](https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp) for each fund. He set up three possible measures of performance, which he deemed success ratio, total returns, and subsequent star ratings. The results spoke for themselves. As Kinnel pointed out, "in every asset class over every time period, the cheapest quintile produced higher Total Returns than the most expensive quintile." He added that for every "data point tested, low-cost funds beat high-cost funds." The trend was unchanged for success ratio and subsequent star ratings. Star ratings did not perform as well as expense ratios. Kinnel noted, "5-star mutual funds beat 1-star funds on our three measures, although there were exceptions." His data suggests a higher-star fund beats a lower-star fund approximately 84% of the time. ## The Bottom Line Morningstar acknowledges its rating system is a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. Instead, the company recommends investors use the rating system to evaluate a fund's track record compared to its peers. It can be the first step in a multi-step process investors can employ to analyze funds before making a purchase.

While Morningstar, Inc. (NASDAQ: MORN), the mutual fund and exchange-traded fund (ETF) rating agency, is highly regarded for its investment research, that doesn't necessarily mean its ratings are always the most accurate. Most investors are not experts, so they rely on third-party ratings to compare and contrast possible investments for their retirement portfolios, none more so than Morningstar. Even the Financial Industry Regulatory Authority (FINRA) mutual fund analyzer relies on Morningstar. But the system is not infallible, and investors can get carried away by the simple, intuitive five-star Morningstar rating system. The rating company is a veritable kingmaker among funds. Research from Strategic Insight indicates funds highly rated by Morningstar, at four-star and five-star, showed net positive investment flow every year between 1998 and 2010. Conversely, funds rated average or poor, at between one and three stars, by Morningstar showed net negative investment flow every year over the same period. This is clear evidence that funds lose money unless Morningstar likes them. However, there is a big difference between net mutual fund flows and fund performance. It is very possible, even commonplace, for a fund to perform well for a few years, receive a large inflow of investor dollars, and then fail to live up to expectations. Even Morningstar warns investors not to rely too heavily on the firm's star ratings, which are based on past performances relative to similar funds. These warnings are well heeded. It turns out a majority of highly rated funds in 2004 did not score so highly in 2014. Many mutual fund investors have horizons well beyond 10 years, so staying power matters. Even more intriguing, the lowest-rated funds may produce the greatest excess returns when compared to their style benchmarks. Key Takeaways Morningstar is a highly regarded mutual fund and exchange-traded fund (ETF) rating agency.The agency's research is used by many big names in the financial sector, including the Financial Industry Regulatory Authority.A study performed by Vanguard found that Morningstar's ratings were not a good method to predict performance when measured against a benchmark.Morningstar itself acknowledges its rating system as a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. How the System Works Conceptually, there are plenty of holes in the Morningstar method. If you boil it all down, the Morningstar star system is entirely dependent on average past returns. This means the system cannot account for outliers, such as when fund managers have one abnormally good or bad year to fudge their trailing average performances. Even worse, the star system cannot tell you if the fund had consistent leadership or if new managers arrived every two years. Morningstar assigns a one- to five-star ranking to each mutual fund or ETF on a peer-adjusted basis. Every single metric is relative and risk-adjusted. Peer adjustment is achieved by grouping funds with similar assets together and comparing their performances. By "risk-adjusted," this means all performances are measured against the level of risk a manager assumed to generate fund returns. The top 10% of funds in a certain category are awarded five stars. The next 22.5% receive four stars, the middle 35% get three stars, the next 22.5% get two stars, and the final 10% get one star. Every mutual fund wants to receive and boast about a higher rating, and Morningstar often charges a fee for the right to advertise its scores. Naturally, investors prefer to have their money in five-star funds and not in one- or two-star funds. It is for this reason that many rely heavily on Morningstar's evaluations when making investment decisions. There is a glaring flaw with this approach; by the time the fund receives a five-star rating for past performances, it might be too late to participate. In effect, Morningstar, and its dedicated followers, often show up late to the party. What Does the Data Say? In 2014, The Wall Street Journal requested that Morningstar produce a comprehensive list of five-star funds over 10 years starting in 2004. The publication discovered that 37% of funds lost one star, 31% lost two stars, 14% lost three stars, and 3% dropped down to one star. Only 14%, or 58 out of 403, retained their premium ratings. To express it a different way, investors invest money in a five-star mutual fund in the hopes of achieving five-star results moving forward, yet only 14% of such funds proved worthy of those hopes. If an investor was willing to accept a four- or five-star performance, the results were more palatable, since 51% of Morningstar's five-star funds in 2004 received a four-star or above rating in 2014. Given the turmoil of 2007-2009, there may be some recession-created distortions in The Wall Street Journal's decade-long performance report. However, recessions tend to occur more than once every 10 years (1.6 per decade since the 1960s), so it is rare for a decade without a downturn interrupting mutual fund performances. Low-cost fund provider Vanguard ran an analysis in 2013 to see how Morningstar-rated funds performed relative to a style benchmark over three-year periods. The goal was to identify excess returns compared to the benchmark, and group those returns by star rating. The Vanguard study produced two critical findings, the first being "an investor had a less than a 50-50 shot of picking a fund that would outperform regardless of its rating at the time of selection." This is different than saying five-star funds tend to outperform one-star funds in each category, which is generally true. What it means is that star rating is not a good method to predict performance when measured against a benchmark. The more surprising finding was that one-star funds had the greatest excess returns. Vanguard found that funds in the five-, four-, three-, and two-star rating groups outperformed their benchmarks by 37% to 39%, but one-star funds produced excess returns of 46%. Expense Ratios Have Better Track Records Russel Kinnel, director of manager research at Morningstar, published a study in 2010 comparing the predictive accuracy of star ratings against simple expense ratios for each fund. He set up three possible measures of performance, which he deemed success ratio, total returns, and subsequent star ratings. The results spoke for themselves. As Kinnel pointed out, "in every asset class over every time period, the cheapest quintile produced higher Total Returns than the most expensive quintile." He added that for every "data point tested, low-cost funds beat high-cost funds." The trend was unchanged for success ratio and subsequent star ratings. Star ratings did not perform as well as expense ratios. Kinnel noted, "5-star mutual funds beat 1-star funds on our three measures, although there were exceptions." His data suggests a higher-star fund beats a lower-star fund approximately 84% of the time. The Bottom Line Morningstar acknowledges its rating system is a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. Instead, the company recommends investors use the rating system to evaluate a fund's track record compared to its peers. It can be the first step in a multi-step process investors can employ to analyze funds before making a purchase.

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

Purchase And Sale Statement (P&S): 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-a-purchase-and-sale-statement"></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 And Sale Statement? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A purchase and sales (P&amp;S) statement details the sale and offsetting of a futures or options position. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fcm.asp">futures commission merchant (FCM)</a> sends the statement to the customer after the position is offset (closed). It includes the number of contracts bought or sold and the prices that were received, the gross profit or loss, commission charges, and the net profit or loss on the transaction. A confirmation statement may accompany it, as well. </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 P&amp;S statement details the prices and effects of transaction in a futures account.</li><li>It lists the number of contracts of futures or options in the closing trades, as well as changes to balances.</li><li>This statement is in contrast to a confirmation statement which details the opening of positions.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-purchase-and-sale-statement-ps"></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 Purchase And Sale Statement (P&amp;S) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The P&amp;S statement serves as a summary of the most recent offsetting transaction activity that closes any open positions. It delivers details of the transaction and any changes in margin. It is similar to a receipt for futures transactions. It also reports the new balance of an account, whether through gains or losses on the position, and also when a customer adds or withdraws funds. </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 contrast, a confirmation statement, also sent by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fcm.asp">futures commission merchant (FCM)</a>, details the opening or initiation of a futures or options position. This statement details the number of contracts bought or sold and the prices at which the contracts were bought or sold, as well. </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"> Futures commissions merchants also send P&amp;S statements after other events that alter the account balance. This includes customer deposits, the withdrawal of margin and when the FCM itself puts excess margin in an interest-bearing instrument to maximize the customer's 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"> A futures commission merchant plays an essential role in enabling customers to participate in the futures markets. An FCM is an individual or organization, registered with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nfa.asp">National Futures Association</a> (NFA), involved in the solicitation or acceptance of buy or sell orders for futures or options on futures in exchange for payment of money (commission) or other assets from customers. An FCM also has the responsibility of collecting <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margin</a> from customers. </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-offsetting-positions"></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"> Offsetting Positions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Although not its only function, the purchase and sales statement lets the customer know when an existing position, either long or short, is closed, called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offset.asp">offsetting the position</a>. Specifically, an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offsetting-transaction.asp">offsetting transaction</a> is an activity that exactly cancels the risks and benefits of another instrument in a portfolio. The trader uses it when it is not possible to close or end the original transaction, as desired. Being unable to close a position frequently happens with options and other more complex financial trading instruments. </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"> For example, if the customer purchased one futures contract, the later sale of that contract is detailed in the P&amp;S. However, if the customer held a short position, the purchase of an equivalent futures contract would offset that short, effectively removing the customer's exposure to that market. </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"> Partial sales and offsets also appear in P&amp;S statements. </p></div>

## What Is a Purchase And Sale Statement? A purchase and sales (P&S) statement details the sale and offsetting of a futures or options position. The [futures commission merchant (FCM)](https://www.investopedia.com/terms/f/fcm.asp) sends the statement to the customer after the position is offset (closed). It includes the number of contracts bought or sold and the prices that were received, the gross profit or loss, commission charges, and the net profit or loss on the transaction. A confirmation statement may accompany it, as well. ### Key Takeaways * The P&S statement details the prices and effects of transaction in a futures account. * It lists the number of contracts of futures or options in the closing trades, as well as changes to balances. * This statement is in contrast to a confirmation statement which details the opening of positions. ## Understanding Purchase And Sale Statement (P&S) The P&S statement serves as a summary of the most recent offsetting transaction activity that closes any open positions. It delivers details of the transaction and any changes in margin. It is similar to a receipt for futures transactions. It also reports the new balance of an account, whether through gains or losses on the position, and also when a customer adds or withdraws funds. In contrast, a confirmation statement, also sent by the [futures commission merchant (FCM)](https://www.investopedia.com/terms/f/fcm.asp), details the opening or initiation of a futures or options position. This statement details the number of contracts bought or sold and the prices at which the contracts were bought or sold, as well. Futures commissions merchants also send P&S statements after other events that alter the account balance. This includes customer deposits, the withdrawal of margin and when the FCM itself puts excess margin in an interest-bearing instrument to maximize the customer's return. A futures commission merchant plays an essential role in enabling customers to participate in the futures markets. An FCM is an individual or organization, registered with the [National Futures Association](https://www.investopedia.com/terms/n/nfa.asp) (NFA), involved in the solicitation or acceptance of buy or sell orders for futures or options on futures in exchange for payment of money (commission) or other assets from customers. An FCM also has the responsibility of collecting [margin](https://www.investopedia.com/terms/m/margin.asp) from customers. ## Offsetting Positions Although not its only function, the purchase and sales statement lets the customer know when an existing position, either long or short, is closed, called [offsetting the position](https://www.investopedia.com/terms/o/offset.asp). Specifically, an [offsetting transaction](https://www.investopedia.com/terms/o/offsetting-transaction.asp) is an activity that exactly cancels the risks and benefits of another instrument in a portfolio. The trader uses it when it is not possible to close or end the original transaction, as desired. Being unable to close a position frequently happens with options and other more complex financial trading instruments. For example, if the customer purchased one futures contract, the later sale of that contract is detailed in the P&S. However, if the customer held a short position, the purchase of an equivalent futures contract would offset that short, effectively removing the customer's exposure to that market. Partial sales and offsets also appear in P&S statements.

What Is a Purchase And Sale Statement? A purchase and sales (P&S) statement details the sale and offsetting of a futures or options position. The futures commission merchant (FCM) sends the statement to the customer after the position is offset (closed). It includes the number of contracts bought or sold and the prices that were received, the gross profit or loss, commission charges, and the net profit or loss on the transaction. A confirmation statement may accompany it, as well. Key Takeaways The P&S statement details the prices and effects of transaction in a futures account.It lists the number of contracts of futures or options in the closing trades, as well as changes to balances.This statement is in contrast to a confirmation statement which details the opening of positions. Understanding Purchase And Sale Statement (P&S) The P&S statement serves as a summary of the most recent offsetting transaction activity that closes any open positions. It delivers details of the transaction and any changes in margin. It is similar to a receipt for futures transactions. It also reports the new balance of an account, whether through gains or losses on the position, and also when a customer adds or withdraws funds. In contrast, a confirmation statement, also sent by the futures commission merchant (FCM), details the opening or initiation of a futures or options position. This statement details the number of contracts bought or sold and the prices at which the contracts were bought or sold, as well. Futures commissions merchants also send P&S statements after other events that alter the account balance. This includes customer deposits, the withdrawal of margin and when the FCM itself puts excess margin in an interest-bearing instrument to maximize the customer's return. A futures commission merchant plays an essential role in enabling customers to participate in the futures markets. An FCM is an individual or organization, registered with the National Futures Association (NFA), involved in the solicitation or acceptance of buy or sell orders for futures or options on futures in exchange for payment of money (commission) or other assets from customers. An FCM also has the responsibility of collecting margin from customers. Offsetting Positions Although not its only function, the purchase and sales statement lets the customer know when an existing position, either long or short, is closed, called offsetting the position. Specifically, an offsetting transaction is an activity that exactly cancels the risks and benefits of another instrument in a portfolio. The trader uses it when it is not possible to close or end the original transaction, as desired. Being unable to close a position frequently happens with options and other more complex financial trading instruments. For example, if the customer purchased one futures contract, the later sale of that contract is detailed in the P&S. However, if the customer held a short position, the purchase of an equivalent futures contract would offset that short, effectively removing the customer's exposure to that market. Partial sales and offsets also appear in P&S statements.

https://www.investopedia.com/articles/mutualfund/05/shareclass.asp

The ABCs of Mutual Fund Share Classes

<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 mutual fund investing, the old adage that high costs indicate quality couldn't be further from the truth. There is no proof that paying a higher fee results in higher returns. If anything, the <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> manager of a high-cost fund might take more risks in an attempt to produce a higher return. If the manager's risky moves don't pan out, you've forked over more money in costs and taken capital losses. </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"> To avoid such a scenario, you should consider which class of mutual fund shares is suitable for you. The class of shares helps to determine what kind of fees you will be paying when you invest in a mutual fund. </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>Class A shares charge upfront fees and have lower expense ratios, so they are better for long-term investors.</li><li>Class A shares also reduce upfront fees for larger investments, so they are a better choice for wealthy investors.</li><li>Class B shares charge high exit fees and have higher expense ratios but convert to A-shares if held for several years.</li><li>Class C shares have higher expense ratios than A-shares and a small exit fee, which is usually waived after one year.</li><li>Class C shares are popular with retail investors, and they are best for short-term investors.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-mutual-fund-classes"></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 Are Mutual Fund Classes? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> While stock classes indicate the number of voting rights per share, mutual fund classes indicate the type and number of fees charged for the shares in a fund. </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"> Mutual fund companies can have seven or more classes of shares for a particular fund; however, there are three main types of mutual fund classes: A, B, and C. They are also known as A-shares, B-shares, and C-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"> Each of these classes has various benefits and drawbacks. </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-class-a-shares"></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"> Class A Shares </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/classashares.asp">A-shares</a> charge an upfront sales fee, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-endload.asp">front-end load</a>, that is deducted from your initial investment. </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"> Pros </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li><strong>Lower 12b-1 Fees:</strong> Class A shares tend to have lower 12b-1 fees, which are marketing and distribution fees included in the fund's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a>. If you plan on holding these shares for several years, then a front-end load might be beneficial in the long run.</li> <li><strong>Breakpoints:</strong> These provide a discount off regular front-end load rates each time your investment reaches a certain amount in a series. If the first breakpoint is $25,000, you could invest that amount initially to receive the first discount. Breakpoints clearly favor those with more money to invest.</li> <li><strong>Rights of Accumulation:</strong> You get a discount on the front-end load if you reach the first breakpoint with subsequent installments. Suppose that the first breakpoint is $25,000, but your initial investment was $10,000. If you invest another $15,000 to reach the breakpoint, you will receive a discounted front-load fee. This is helpful when saving for retirement because working-age adults generally are able to invest more year by year.</li> <li><strong>Letter of Intent:</strong> Some companies offer front-end load discounts to individuals who initially express the intent to invest more. They must indicate the intention to invest an amount over a specific breakpoint by a particular time.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Cons </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li><strong>A High Initial Investment:</strong> Investors who do not have a high enough balance to reach a breakpoint before the deadline indicated by a letter of intent have to pay regular front-end fees.</li><li><strong>A Long Time Horizon:</strong> These funds are not optimal for investors hoping to cash in soon. Suppose that your initial investment is $4,750 after $250 in front-load fees, and your investment increases by 3% during the course of a year. If you sell at the end of the year, you would have actually lost money: ($4,750 x 1.03) - $5000 = - $107.50, or a loss of 2.15%.</li> </ul> <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-class-b-shares"></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"> Class B Shares </span> </h2> <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/c/classbshares.asp">B-shares</a> have a back-end or contingent deferred sales charge. This fee is paid when you sell shares a specified period of years after the original purchase. These shares are typically good for investors with limited cash to invest and a long investment horizon. </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"> Pros </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li><strong>No Front-End Fees:</strong> Your entire initial investment contribution benefits from capital gains and interest income. That is a substantial benefit for new investors saving for retirement because of the power of compound returns. Consider a stock fund that earns 10% per year over 30 years. The initial investment will be worth over 17 times as much in the end. A few hundred dollars saved in front-end fees means a few thousand dollars at retirement time.</li><li><strong>Deferred Sales Charges:</strong> The longer you hold the shares, the lower your deferred sales charge. That is another benefit for investors with long time horizons.</li><li><strong>Conversion to Class A:</strong> Class B shares automatically convert to Class A shares after a specific holding period. This conversion is beneficial because Class A shares have a lower yearly expense ratio than Class B shares.</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"> Cons </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li><strong>Long Time Horizon Required:</strong> If you withdraw funds within a certain period of time, you will be charged a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs-mutual-funds/050316/selling-mutual-funds-what-happens-when-you-liquidate.asp">back-end or deferred sales charge</a>. One must typically remain in the fund for five to eight years to avoid the exit fee.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>No Breakpoints:</strong> Class B shares do not provide breakpoints on the deferred <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/salescharge.asp">sales charge</a>. Regardless of how much you invest, there is no discount on these charges. That can be a significant drawback for wealthy investors.</li> <li><strong>Higher Expense Ratios:</strong> Class B shares charge higher expense ratios than both Class A and Class C shares until shares are eligible to be converted to Class A.</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-class-c-shares"></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"> Class C Shares </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cshare.asp">Class C shares</a> are a type of level-load fund, which charges an annual fee. This class works well for individuals who could be redeeming their shares in the short term. </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"> Pros </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li><strong>No Front-End Fees:</strong> Your entire initial investment contribution earns interest income.</li><li><strong>Small Back-End Load:</strong> The back-end load is typically a modest 1%.</li><li><strong>Opportunity to Avoid Back-End Load:</strong> The back-end load is usually removed after the shares have been held for one year.</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 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li><strong>Back-End Load:</strong> A back-end load—although small—is typically charged if funds are withdrawn within the first year.</li><li><strong>Higher Expense Ratios:</strong> Even though the expense ratios of Class C shares are lower than those of Class B shares, they are still higher than those of Class A shares.</li><li><strong>Conversion:</strong> Many Class C shares cannot be converted into Class A shares.<span class="ql-inline-citation" data-cite="10"></span> That removes the opportunity for lower expense ratios. If you have a long time horizon, Class C shares are not for you as the higher management fees continue indefinitely. In fact, your investment returns will be reduced the longer you stay invested because the fees will add up over time.</li><li><strong>No Discounts:</strong> Class C shares do not offer discounts on expenses when the account reaches certain levels.</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-the-disappearing-middle-class"></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"> The Disappearing Middle Class </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Although we've looked at all three classes, the middle class of mutual funds—the B-shares—have been disappearing from the mutual fund industry. </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"> There are several reasons for this, but chief among them was more regulatory focus on fees. 12b-1 fees have been a source of shareholder lawsuits against fund companies for alleged misuse.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> As a result, many fund companies are dropping these fees and shrinking the class offerings to compete with <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</a> (ETFs).<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"> ETFs themselves put pressure on Class B shares by providing a low-fee alternative for investors with limited investment capital. In short, Class B shares still exist, but they are a dying breed. </p> <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-applying-the-pros-and-cons"></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"> Applying the Pros and Cons </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Let's look at how the characteristics and pros and cons described above work in the following share classes of the hypothetical ABC Company Bond Fund. </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"> <strong>ABC Company Bond Fund, A Versus C Comparison</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_55-0"> <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> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Class</b></td> <td><b>Symbol</b></td> <td><b>Front End</b></td> <td><b>Back End</b></td> <td><b>12b-1 Fees</b></td> <td><b>Details</b></td> </tr> <tr> <td>A</td> <td>PAEMX</td> <td>3.75%</td> <td>1%</td> <td>0.25%</td> <td>- 2022 total yearly return = 8.86% - expense ratio = 1.2% - $1,000 min investment</td> </tr> <tr> <td>C</td> <td>PEBCX</td> <td>n/a</td> <td>1%</td> <td>1.00%</td> <td>- 2022 total yearly return = 9.35% - expense ratio = 1.95% - $2,500 min investment</td> </tr> </tbody> </table> </div></figure> <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"> <em>Source: Hypothetical bond fund, based on a model from PIMCO</em> </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"> In this example, you can see how these two share classes are better for different types of investors and situations. </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"> Suppose that you plan on investing in this fund for retirement and your retirement is 20 years away. Class A shares would work best because they offer costs that decline over time. If you plan to invest just one lump-sum amount and it is enough to qualify for a breakpoint discount, Class A would also be the best over time. With a large initial investment, you would get a discount on the load. Your yearly expense ratio and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/12b-1fees.asp">12b-1 fees</a> would also be very low, allowing your investment to grow. </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"> Class C shares would work best if you are planning to invest for a limited period of more than one year but less than three. This way, you avoid both front-end and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/back-end-load.asp">back-end loads</a>. Although your expense ratio will typically be higher than Class A shares, your full investment will gain interest while it is invested. Since you are only in the fund for a few years, the yearly fees do not have a chance to pile up. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-should-you-buy-class-a-shares-or-class-c-shares"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should You Buy Class A Shares or Class C Shares?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors with a shorter time horizon, such as one to three years should consider Class C shares whereas investors with a longer time horizon should consider Class A shares. The main reason is that Class C shares have no front-end load and typically no back-end load, meaning you primarily pay for the shares and not commissions or other fees. The cost-benefit is better for a shorter time horizon.</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-find-your-mutual-fund-share-class"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Find Your Mutual Fund Share Class?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You will need to look at the fund's prospectus to determine what the share classes are and the legality around them. Each class has different fees and expenses. When choosing to invest in a fund you can choose the right class for you based on the description in the prospectus. When you have invested in the fund and later need to find out information on your share class, you can always ask the fund for information.</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-what-is-the-difference-between-a-mutual-fund-and-an-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Mutual Fund and an ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are quite a few differences between a mutual fund and an exchange-traded fund (ETF). Mutual funds are bought and sold based on dollars whereas ETFs are bought and sold based on market price. ETFs come with lower investment minimums when compared to mutual funds and they can be bought and sold like stocks through a broker.</p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> When deciding which class of mutual fund shares to choose, remember to read the prospectus. In addition, you must take into account your investment horizon and the amount you have available to invest. The frequency of your investments and the probability that you will need to withdraw funds early are also essential considerations. </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"> <em><strong>Correction—Jan. 19, 2024</strong>: </em>This article has been corrected to state that many Class C shares cannot be converted into Class A shares. </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"> <em><br/></em> </p></div>

In mutual fund investing, the old adage that high costs indicate quality couldn't be further from the truth. There is no proof that paying a higher fee results in higher returns. If anything, the [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) manager of a high-cost fund might take more risks in an attempt to produce a higher return. If the manager's risky moves don't pan out, you've forked over more money in costs and taken capital losses. To avoid such a scenario, you should consider which class of mutual fund shares is suitable for you. The class of shares helps to determine what kind of fees you will be paying when you invest in a mutual fund. ### Key Takeaways * Class A shares charge upfront fees and have lower expense ratios, so they are better for long-term investors. * Class A shares also reduce upfront fees for larger investments, so they are a better choice for wealthy investors. * Class B shares charge high exit fees and have higher expense ratios but convert to A-shares if held for several years. * Class C shares have higher expense ratios than A-shares and a small exit fee, which is usually waived after one year. * Class C shares are popular with retail investors, and they are best for short-term investors. ## What Are Mutual Fund Classes? While stock classes indicate the number of voting rights per share, mutual fund classes indicate the type and number of fees charged for the shares in a fund. Mutual fund companies can have seven or more classes of shares for a particular fund; however, there are three main types of mutual fund classes: A, B, and C. They are also known as A-shares, B-shares, and C-shares. Each of these classes has various benefits and drawbacks. ## Class A Shares [A-shares](https://www.investopedia.com/terms/c/classashares.asp) charge an upfront sales fee, or [front-end load](https://www.investopedia.com/terms/f/front-endload.asp), that is deducted from your initial investment. ### Pros * **Lower 12b-1 Fees:** Class A shares tend to have lower 12b-1 fees, which are marketing and distribution fees included in the fund's [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp). If you plan on holding these shares for several years, then a front-end load might be beneficial in the long run. * **Breakpoints:** These provide a discount off regular front-end load rates each time your investment reaches a certain amount in a series. If the first breakpoint is $25,000, you could invest that amount initially to receive the first discount. Breakpoints clearly favor those with more money to invest. * **Rights of Accumulation:** You get a discount on the front-end load if you reach the first breakpoint with subsequent installments. Suppose that the first breakpoint is $25,000, but your initial investment was $10,000. If you invest another $15,000 to reach the breakpoint, you will receive a discounted front-load fee. This is helpful when saving for retirement because working-age adults generally are able to invest more year by year. * **Letter of Intent:** Some companies offer front-end load discounts to individuals who initially express the intent to invest more. They must indicate the intention to invest an amount over a specific breakpoint by a particular time. ### Cons * **A High Initial Investment:** Investors who do not have a high enough balance to reach a breakpoint before the deadline indicated by a letter of intent have to pay regular front-end fees. * **A Long Time Horizon:** These funds are not optimal for investors hoping to cash in soon. Suppose that your initial investment is $4,750 after $250 in front-load fees, and your investment increases by 3% during the course of a year. If you sell at the end of the year, you would have actually lost money: ($4,750 x 1.03) - $5000 = - $107.50, or a loss of 2.15%. ## Class B Shares [B-shares](https://www.investopedia.com/terms/c/classbshares.asp) have a back-end or contingent deferred sales charge. This fee is paid when you sell shares a specified period of years after the original purchase. These shares are typically good for investors with limited cash to invest and a long investment horizon. ### Pros * **No Front-End Fees:** Your entire initial investment contribution benefits from capital gains and interest income. That is a substantial benefit for new investors saving for retirement because of the power of compound returns. Consider a stock fund that earns 10% per year over 30 years. The initial investment will be worth over 17 times as much in the end. A few hundred dollars saved in front-end fees means a few thousand dollars at retirement time. * **Deferred Sales Charges:** The longer you hold the shares, the lower your deferred sales charge. That is another benefit for investors with long time horizons. * **Conversion to Class A:** Class B shares automatically convert to Class A shares after a specific holding period. This conversion is beneficial because Class A shares have a lower yearly expense ratio than Class B shares. ### Cons * **Long Time Horizon Required:** If you withdraw funds within a certain period of time, you will be charged a [back-end or deferred sales charge](https://www.investopedia.com/articles/etfs-mutual-funds/050316/selling-mutual-funds-what-happens-when-you-liquidate.asp). One must typically remain in the fund for five to eight years to avoid the exit fee. * **No Breakpoints:** Class B shares do not provide breakpoints on the deferred [sales charge](https://www.investopedia.com/terms/s/salescharge.asp). Regardless of how much you invest, there is no discount on these charges. That can be a significant drawback for wealthy investors. * **Higher Expense Ratios:** Class B shares charge higher expense ratios than both Class A and Class C shares until shares are eligible to be converted to Class A. ## Class C Shares [Class C shares](https://www.investopedia.com/terms/c/cshare.asp) are a type of level-load fund, which charges an annual fee. This class works well for individuals who could be redeeming their shares in the short term. ### Pros * **No Front-End Fees:** Your entire initial investment contribution earns interest income. * **Small Back-End Load:** The back-end load is typically a modest 1%. * **Opportunity to Avoid Back-End Load:** The back-end load is usually removed after the shares have been held for one year. ### Cons * **Back-End Load:** A back-end load—although small—is typically charged if funds are withdrawn within the first year. * **Higher Expense Ratios:** Even though the expense ratios of Class C shares are lower than those of Class B shares, they are still higher than those of Class A shares. * **Conversion:** Many Class C shares cannot be converted into Class A shares. That removes the opportunity for lower expense ratios. If you have a long time horizon, Class C shares are not for you as the higher management fees continue indefinitely. In fact, your investment returns will be reduced the longer you stay invested because the fees will add up over time. * **No Discounts:** Class C shares do not offer discounts on expenses when the account reaches certain levels. ## The Disappearing Middle Class Although we've looked at all three classes, the middle class of mutual funds—the B-shares—have been disappearing from the mutual fund industry. There are several reasons for this, but chief among them was more regulatory focus on fees. 12b-1 fees have been a source of shareholder lawsuits against fund companies for alleged misuse. As a result, many fund companies are dropping these fees and shrinking the class offerings to compete with [exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs). ETFs themselves put pressure on Class B shares by providing a low-fee alternative for investors with limited investment capital. In short, Class B shares still exist, but they are a dying breed. ## Applying the Pros and Cons Let's look at how the characteristics and pros and cons described above work in the following share classes of the hypothetical ABC Company Bond Fund. **ABC Company Bond Fund, A Versus C Comparison** | **Class** | **Symbol** | **Front End** | **Back End** | **12b-1 Fees** | **Details** | | --- | --- | --- | --- | --- | --- | | A | PAEMX | 3.75% | 1% | 0.25% | - 2022 total yearly return = 8.86% - expense ratio = 1.2% - $1,000 min investment | | C | PEBCX | n/a | 1% | 1.00% | - 2022 total yearly return = 9.35% - expense ratio = 1.95% - $2,500 min investment | *Source: Hypothetical bond fund, based on a model from PIMCO* In this example, you can see how these two share classes are better for different types of investors and situations. Suppose that you plan on investing in this fund for retirement and your retirement is 20 years away. Class A shares would work best because they offer costs that decline over time. If you plan to invest just one lump-sum amount and it is enough to qualify for a breakpoint discount, Class A would also be the best over time. With a large initial investment, you would get a discount on the load. Your yearly expense ratio and [12b-1 fees](https://www.investopedia.com/terms/1/12b-1fees.asp) would also be very low, allowing your investment to grow. Class C shares would work best if you are planning to invest for a limited period of more than one year but less than three. This way, you avoid both front-end and [back-end loads](https://www.investopedia.com/terms/b/back-end-load.asp). Although your expense ratio will typically be higher than Class A shares, your full investment will gain interest while it is invested. Since you are only in the fund for a few years, the yearly fees do not have a chance to pile up. ## Should You Buy Class A Shares or Class C Shares? Investors with a shorter time horizon, such as one to three years should consider Class C shares whereas investors with a longer time horizon should consider Class A shares. The main reason is that Class C shares have no front-end load and typically no back-end load, meaning you primarily pay for the shares and not commissions or other fees. The cost-benefit is better for a shorter time horizon. ## How Do You Find Your Mutual Fund Share Class? You will need to look at the fund's prospectus to determine what the share classes are and the legality around them. Each class has different fees and expenses. When choosing to invest in a fund you can choose the right class for you based on the description in the prospectus. When you have invested in the fund and later need to find out information on your share class, you can always ask the fund for information. ## What Is the Difference Between a Mutual Fund and an ETF? There are quite a few differences between a mutual fund and an exchange-traded fund (ETF). Mutual funds are bought and sold based on dollars whereas ETFs are bought and sold based on market price. ETFs come with lower investment minimums when compared to mutual funds and they can be bought and sold like stocks through a broker. ## The Bottom Line When deciding which class of mutual fund shares to choose, remember to read the prospectus. In addition, you must take into account your investment horizon and the amount you have available to invest. The frequency of your investments and the probability that you will need to withdraw funds early are also essential considerations. ***Correction—Jan. 19, 2024**:* This article has been corrected to state that many Class C shares cannot be converted into Class A shares.

In mutual fund investing, the old adage that high costs indicate quality couldn't be further from the truth. There is no proof that paying a higher fee results in higher returns. If anything, the mutual fund manager of a high-cost fund might take more risks in an attempt to produce a higher return. If the manager's risky moves don't pan out, you've forked over more money in costs and taken capital losses. To avoid such a scenario, you should consider which class of mutual fund shares is suitable for you. The class of shares helps to determine what kind of fees you will be paying when you invest in a mutual fund. Key Takeaways Class A shares charge upfront fees and have lower expense ratios, so they are better for long-term investors.Class A shares also reduce upfront fees for larger investments, so they are a better choice for wealthy investors.Class B shares charge high exit fees and have higher expense ratios but convert to A-shares if held for several years.Class C shares have higher expense ratios than A-shares and a small exit fee, which is usually waived after one year.Class C shares are popular with retail investors, and they are best for short-term investors. What Are Mutual Fund Classes? While stock classes indicate the number of voting rights per share, mutual fund classes indicate the type and number of fees charged for the shares in a fund. Mutual fund companies can have seven or more classes of shares for a particular fund; however, there are three main types of mutual fund classes: A, B, and C. They are also known as A-shares, B-shares, and C-shares. Each of these classes has various benefits and drawbacks. Class A Shares A-shares charge an upfront sales fee, or front-end load, that is deducted from your initial investment. Pros Lower 12b-1 Fees: Class A shares tend to have lower 12b-1 fees, which are marketing and distribution fees included in the fund's expense ratio. If you plan on holding these shares for several years, then a front-end load might be beneficial in the long run. Breakpoints: These provide a discount off regular front-end load rates each time your investment reaches a certain amount in a series. If the first breakpoint is $25,000, you could invest that amount initially to receive the first discount. Breakpoints clearly favor those with more money to invest. Rights of Accumulation: You get a discount on the front-end load if you reach the first breakpoint with subsequent installments. Suppose that the first breakpoint is $25,000, but your initial investment was $10,000. If you invest another $15,000 to reach the breakpoint, you will receive a discounted front-load fee. This is helpful when saving for retirement because working-age adults generally are able to invest more year by year. Letter of Intent: Some companies offer front-end load discounts to individuals who initially express the intent to invest more. They must indicate the intention to invest an amount over a specific breakpoint by a particular time. Cons A High Initial Investment: Investors who do not have a high enough balance to reach a breakpoint before the deadline indicated by a letter of intent have to pay regular front-end fees.A Long Time Horizon: These funds are not optimal for investors hoping to cash in soon. Suppose that your initial investment is $4,750 after $250 in front-load fees, and your investment increases by 3% during the course of a year. If you sell at the end of the year, you would have actually lost money: ($4,750 x 1.03) - $5000 = - $107.50, or a loss of 2.15%. Class B Shares B-shares have a back-end or contingent deferred sales charge. This fee is paid when you sell shares a specified period of years after the original purchase. These shares are typically good for investors with limited cash to invest and a long investment horizon. Pros No Front-End Fees: Your entire initial investment contribution benefits from capital gains and interest income. That is a substantial benefit for new investors saving for retirement because of the power of compound returns. Consider a stock fund that earns 10% per year over 30 years. The initial investment will be worth over 17 times as much in the end. A few hundred dollars saved in front-end fees means a few thousand dollars at retirement time.Deferred Sales Charges: The longer you hold the shares, the lower your deferred sales charge. That is another benefit for investors with long time horizons.Conversion to Class A: Class B shares automatically convert to Class A shares after a specific holding period. This conversion is beneficial because Class A shares have a lower yearly expense ratio than Class B shares. Cons Long Time Horizon Required: If you withdraw funds within a certain period of time, you will be charged a back-end or deferred sales charge. One must typically remain in the fund for five to eight years to avoid the exit fee. No Breakpoints: Class B shares do not provide breakpoints on the deferred sales charge. Regardless of how much you invest, there is no discount on these charges. That can be a significant drawback for wealthy investors. Higher Expense Ratios: Class B shares charge higher expense ratios than both Class A and Class C shares until shares are eligible to be converted to Class A. Class C Shares Class C shares are a type of level-load fund, which charges an annual fee. This class works well for individuals who could be redeeming their shares in the short term. Pros No Front-End Fees: Your entire initial investment contribution earns interest income.Small Back-End Load: The back-end load is typically a modest 1%.Opportunity to Avoid Back-End Load: The back-end load is usually removed after the shares have been held for one year. Cons Back-End Load: A back-end load—although small—is typically charged if funds are withdrawn within the first year.Higher Expense Ratios: Even though the expense ratios of Class C shares are lower than those of Class B shares, they are still higher than those of Class A shares.Conversion: Many Class C shares cannot be converted into Class A shares. That removes the opportunity for lower expense ratios. If you have a long time horizon, Class C shares are not for you as the higher management fees continue indefinitely. In fact, your investment returns will be reduced the longer you stay invested because the fees will add up over time.No Discounts: Class C shares do not offer discounts on expenses when the account reaches certain levels. The Disappearing Middle Class Although we've looked at all three classes, the middle class of mutual funds—the B-shares—have been disappearing from the mutual fund industry. There are several reasons for this, but chief among them was more regulatory focus on fees. 12b-1 fees have been a source of shareholder lawsuits against fund companies for alleged misuse. As a result, many fund companies are dropping these fees and shrinking the class offerings to compete with exchange-traded funds (ETFs). ETFs themselves put pressure on Class B shares by providing a low-fee alternative for investors with limited investment capital. In short, Class B shares still exist, but they are a dying breed. Applying the Pros and Cons Let's look at how the characteristics and pros and cons described above work in the following share classes of the hypothetical ABC Company Bond Fund. ABC Company Bond Fund, A Versus C Comparison Class Symbol Front End Back End 12b-1 Fees Details A PAEMX 3.75% 1% 0.25% - 2022 total yearly return = 8.86% - expense ratio = 1.2% - $1,000 min investment C PEBCX n/a 1% 1.00% - 2022 total yearly return = 9.35% - expense ratio = 1.95% - $2,500 min investment Source: Hypothetical bond fund, based on a model from PIMCO In this example, you can see how these two share classes are better for different types of investors and situations. Suppose that you plan on investing in this fund for retirement and your retirement is 20 years away. Class A shares would work best because they offer costs that decline over time. If you plan to invest just one lump-sum amount and it is enough to qualify for a breakpoint discount, Class A would also be the best over time. With a large initial investment, you would get a discount on the load. Your yearly expense ratio and 12b-1 fees would also be very low, allowing your investment to grow. Class C shares would work best if you are planning to invest for a limited period of more than one year but less than three. This way, you avoid both front-end and back-end loads. Although your expense ratio will typically be higher than Class A shares, your full investment will gain interest while it is invested. Since you are only in the fund for a few years, the yearly fees do not have a chance to pile up. Should You Buy Class A Shares or Class C Shares? Investors with a shorter time horizon, such as one to three years should consider Class C shares whereas investors with a longer time horizon should consider Class A shares. The main reason is that Class C shares have no front-end load and typically no back-end load, meaning you primarily pay for the shares and not commissions or other fees. The cost-benefit is better for a shorter time horizon. How Do You Find Your Mutual Fund Share Class? You will need to look at the fund's prospectus to determine what the share classes are and the legality around them. Each class has different fees and expenses. When choosing to invest in a fund you can choose the right class for you based on the description in the prospectus. When you have invested in the fund and later need to find out information on your share class, you can always ask the fund for information. What Is the Difference Between a Mutual Fund and an ETF? There are quite a few differences between a mutual fund and an exchange-traded fund (ETF). Mutual funds are bought and sold based on dollars whereas ETFs are bought and sold based on market price. ETFs come with lower investment minimums when compared to mutual funds and they can be bought and sold like stocks through a broker. The Bottom Line When deciding which class of mutual fund shares to choose, remember to read the prospectus. In addition, you must take into account your investment horizon and the amount you have available to invest. The frequency of your investments and the probability that you will need to withdraw funds early are also essential considerations. Correction—Jan. 19, 2024: This article has been corrected to state that many Class C shares cannot be converted into Class A shares.

https://www.investopedia.com/best-day-trading-courses-5176199

Best Day 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> </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"> With a high-caliber day trading course, you benefit from learning directly from the pros as they expose you to profitable trading strategies and techniques for managing risk in your stock portfolio. Also, having access to mentors and a community of like-minded people provides the additional insight and support beginning traders need to keep moving forward. </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"> However, not all courses are created equal. They can vary widely in terms of the instructors' experience and track record, the course structure, the quality and quantity of learning tools and resources, and the value you receive for your time and money. Some are outright scams. </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"> In this roundup, we increase the chances you'll find a high-quality course that can set you on the path to success. We've reviewed over two dozen of the best day trading courses to help you get started, based on all of the important factors mentioned above. </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"> Best Day Trading Courses </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-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://bearbulltraders.com/ref/dotdash" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Bear Bull Traders</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 Comprehensive Offering:</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.warriortrading.com/" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Warrior 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 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://bullishbears.com/referral.html?p=DotdashPM&amp;w=bostc" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Bullish Bears</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 Day Trading Forex:</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.asiaforexmentor.com/afm-proprietary-one-core-program-141319/" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Asia Forex Mentor—One Core Program</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 Day Trading Penny Stocks:</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.timothysykes.com/" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Timothy Sykes Trading Program</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 Educational Content:</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%2Ftopic%2Fday-trading%2F" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Udemy</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>Investopedia offers its own day trading class as part of the Investopedia Academy, but to maintain objectivity, we opted to exclude it from this roundup. If you are interested in this course, please visit the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://academy.investopedia.com/collections/trading-courses-collection">Investopedia Academy</a>.</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"> 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href="#toc-compare-the-best-day-trading-courses" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">Compare Courses</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_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQs" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faqs-f2f4cbd0-7d06-43a6-95dd-cf2bc008fc8f" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">FAQs</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-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-3" 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-bear-bull-traders"></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"> Bear Bull Traders</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="Bear Bull Traders" 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/CZDQycFgA3aG4tDYhmZRFuOmYt4=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Bear_bull_traders-46462f6ca6a04bcbb85cad56cfbff8fa.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Bear Bull Traders" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/CZDQycFgA3aG4tDYhmZRFuOmYt4=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Bear_bull_traders-46462f6ca6a04bcbb85cad56cfbff8fa.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> Bear Bull Traders</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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-1"> <li><strong>Pricing:</strong> Starts at $99/month</li><li><strong>Chat room:</strong> Yes</li><li><strong>Simulator:</strong> Yes</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-2"> <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-click-action="OffPageClick - External" data-retailer-caption="at Bear Bull Traders" data-retailer-type="other" data-tracking-container="true" href="https://bearbulltraders.com/ref/dotdash" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Bear Bull Traders offers the right combination of a comprehensive course offering, access to trading tools, and a trading community, with mentoring by a top trading guru—all at a reasonable price, making it our choice as the best overall trading course. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-6"> <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>Extensive library of videos and high-level trading tutorials</p></li> <li><p>Access to real-time paper trading simulator</p></li> <li><p>Helpful trader community with support from chat room monitors</p></li> <li><p>Affordable pricing with two different plans plus a seven-day, paid trial</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>Webinars are only available to elite subscribers</p></li> <li><p>No free trial membership available</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> The Bear Bull Traders educational program offers an in-depth learning track for traders at every experience level. Couple its expert instruction with an interactive trading community, extensive learning resources, and close support—all at a reasonable price—and you have the best overall trading 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_3-0-9"> World-class trader Andrew Aziz created Bear Bull Traders in 2016 to allow traders at all levels to learn from experts in a community environment. The trading courses are based on the strategies discussed in Andrew's best-selling books. The program guides members through every step of the trading process and strategy development. It is the only course we found with a psychology team that includes clinical psychologists. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> In addition to its vast video library, the program provides access to weekly webinars, downloadable resources, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/day-trading/how-practice-day-trading/">real-time trading simulator</a>, and a popular online community of active day traders. Traders can connect and learn in two different chatrooms too. Members also have access to experienced mentors, including Andrew Aziz. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-11"> You can take the Bear Bull Traders for a test drive with a seven-day paid trial that costs $39. However, it is not a full trial and only includes chat rooms and a getting-started training. There are two membership options. One costs $99 monthly and offers access to chat rooms and the essentials course. The other option is the Elite package which is $199 monthly or $1,199 annually. With this membership, you also get the advanced course, psychology team access, webinars, and mentorship. Purchasing the annual membership also includes 1:1 psychology coaching. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-comprehensive-offering-warrior-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_1-0-1"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Comprehensive Offering</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Warrior 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_1-0-1"/><!-- 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 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_3-0-12" style="--imgWidth: 352px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Warrior Trading" 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/DxErb7r-xCTSBHGGXSFSOIWIoy8=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Warrior_Trading-31414ae6c38c43f2a41644874e6516fb.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="Warrior Trading" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/DxErb7r-xCTSBHGGXSFSOIWIoy8=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Warrior_Trading-31414ae6c38c43f2a41644874e6516fb.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> Warrior Trading</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-13"> <li><strong>Pricing:</strong> $3,997 (occasional discounts)</li><li><strong>Chat room:</strong> Yes</li><li><strong>Simulator:</strong> As an add-on</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-14"> <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-click-action="OffPageClick - External" data-retailer-caption="at Warrior Trading" data-retailer-type="other" data-tracking-container="true" href="https://www.warriortrading.com/" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-16"> Regardless of where you are on the experience spectrum, Warrior Trading offers a training path to help you get to the next level, making it our top pick as the best comprehensive offering in day trading courses. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-18"> <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>High-caliber learning for both beginners and advanced traders</p></li> <li><p>Option to add real-time paper trading simulator</p></li> <li><p>Extensive resource library</p></li> <li><p>Large and active chat room</p></li> <li><p>Free three-lesson course for beginners</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>On the expensive end of the price spectrum</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> In addition to a suite of trading courses for traders of all experience levels, Warrior Trading students have access to a wildly popular chat room, live trading demonstrations, group mentoring, and an extensive resource library. That's why we chose Warrior Trading as the best day trading course for a comprehensive offering.  </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"> Warrior Trading is the brainchild of top trading guru Ross Cameron. Its Warrior Pro course is extremely comprehensive and includes everything from a starter course to advanced material. It also offers a free course to get started on learning the fundamentals before committing to its paid courses. </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"> The Warrior Pro program begins with starter material before working its way up to advanced courses such as small and large cap day trading, swing &amp; options trading, active investing, and day trading in IRAs. Students also get live group mentoring, live trading chat rooms, recorded materials, live trading archives, and stock screeners. A simulator for practice can be purchased as an add-on. Access for 90 days to Warrior Pro costs $4,297, after which members pay $197 monthly for continued access. Additionally, there is a yearly option for $5,997. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-value-bullish-bears"></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 Value</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Bullish Bears</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 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_3-0-23" style="--imgWidth: 309px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Bullish Bears" 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/FG_pPtgV_5z59YgIQZlrBOAwAYY=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Bullish_bears-f4ca6307cf8a4a0b920765b18df080b5.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="Bullish Bears" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/FG_pPtgV_5z59YgIQZlrBOAwAYY=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Bullish_bears-f4ca6307cf8a4a0b920765b18df080b5.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> Bullish Bears</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-24"> <li><strong>Pricing:</strong> $47/month or $497/year</li><li><strong>Chat room:</strong> Yes</li><li><strong>Simulator:</strong> No</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-25"> <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-click-action="OffPageClick - External" data-retailer-caption="at Bullish Bears" data-retailer-type="other" data-tracking-container="true" href="https://bullishbears.com/referral.html?p=DotdashPM&amp;w=bostc" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> You would be hard-pressed to find a trading course with a more comprehensive offering for just $47 per month or $997 for lifetime access with a sale price of just $497 which is why we chose Bullish Bears as the best value in a day trading course. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-29"> <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>7-day free trial</p></li> <li><p>Low-cost access to comprehensive training resources</p></li> <li><p>Chat rooms and community</p></li> <li><p>Live-stream screen share mentoring</p></li> <li><p>Resources for all skill levels</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>No simulator offered</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-31"> The Bullish Bears' mission is to make successful day traders out of anyone who wants to learn. For $47 monthly or $497 annually, it gives you access to a wide range of learning resources and tools, including a top-tier course, an interactive chat room, live-streaming trading rooms, and other valuable trading tools. For all that, Bullish Bears makes our list as the best value in a day trading 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_3-0-32"> Bullish Bears has managed to attract a significant following, as evidenced by its more than 90,000 subscribers to its YouTube channel. People might come for the low membership price, but they stay for the energetic and highly supportive community found in its chat rooms. With live streaming of trades planned and executed by a team of professional traders, the trade rooms are a learning experience on their own. The company doesn't offer a simulator, but you could seek a third-party one to practice. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-33"> The Bullish Bears encourages everyone to start with its seven-day free trial, which provides access to almost everything offered through the $47 monthly membership, including all courses, daily watch lists, chat room, live-streaming trading room, trade alerts, and other trading tools. Bullish Bears sometimes offers discounts on its annual memberships, which can save members money if they wish to retain access for an extended period of time. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-day-trading-forex-asia-forex-mentorone-core-program"></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 Day Trading Forex</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Asia Forex Mentor—One Core Program</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-2x1 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_3-0-34" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Asia Forex Mentor" 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/R44_1QHG22ZyZbD-uD6gBiRKZZY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Asia_Forex_Mentor-59a25e81b1664281a55444ef615e8243.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="Asia Forex Mentor" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/R44_1QHG22ZyZbD-uD6gBiRKZZY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Asia_Forex_Mentor-59a25e81b1664281a55444ef615e8243.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> Asia Forex Mentor</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-35"> <li><strong>Pricing:</strong> $997 or $940 without trial</li><li><strong>Chat room:</strong> No</li><li><strong>Simulator:</strong> No</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-36"> <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-click-action="OffPageClick - External" data-retailer-caption="at Asia Forex Mentor" data-retailer-type="other" data-tracking-container="true" href="https://www.asiaforexmentor.com/afm-proprietary-one-core-program-141319/" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> You can learn how to day trade in any market with the comprehensive One Core Program, but its main wheelhouse is forex, making it our choice as the best day trading course for trading forex. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-40"> <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>Extensive course content</p></li> <li><p>Studio-quality video course</p></li> <li><p>Free, seven-day trial</p></li> <li><p>World renown trader as a mentor</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>No monthly payment plan for educational course</p></li> <li><p>Busy website, difficult to navigate</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-42"> As the trainer of traders who work in banks, asset management firms, and top trading firms worldwide, Ezekiel Chew is no ordinary trading instructor. Considered one of the leading experts in the finance industry and one of the top forex traders globally, he created the One Core Program as a way to give back to the trading community. The program is designed to teach anyone how to trade in any market but, because forex is Ezekiel's forte, we picked his One Core Program as the best day trading course for learning forex trading.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-43"> Chew founded Asia Forex Mentor in 2008 and has nearly 20 years of trading experience that the program draws on. The $997 ($940 if you skip the trial) program is stacked full of educational content with 26 full-scale lessons spread out over 60 sub-topics students can view through studio-quality online videos. In each lesson, Ezekiel lays out his high-win-rate strategies using hand-picked examples with explanations and interpretations. Before spending $997, students can try out the One Core Program with a free, seven-day trial before being charged. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-44"> Real learning begins when students join the Golden Eye Group. For $118 per month ($1,200 annually), members get access to Ezekiel's brain as he live-streams his weekly market analysis and provides insight into reading charts and setting up trades. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-for-day-trading-penny-stocks-timothy-sykes-trading-program"></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 for Day Trading Penny Stocks</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Timothy Sykes Trading Program</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-2x1 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_3-0-45" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Tim Sykes Trading Program" 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/W0Sen6vlpB-MCyod81KAh1sT6pc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Timothy_Sykes-4e6f6f2a9b724160aad4e021c03bb508.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-4" width="1500"/> <noscript> <img alt="Tim Sykes Trading Program" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/W0Sen6vlpB-MCyod81KAh1sT6pc=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Timothy_Sykes-4e6f6f2a9b724160aad4e021c03bb508.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>  Tim Sykes Trading Program</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-46"> <li><strong>Pricing:</strong> Not listed online</li><li><strong>Chat room:</strong> No</li><li><strong>Simulator:</strong> No</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-47"> <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-click-action="OffPageClick - External" data-retailer-caption="at Timothy Sykes" data-retailer-type="other" data-tracking-container="true" href="https://www.timothysykes.com/" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-49"> Day trading penny stocks is considered a particular niche in the trading arena, and there's no better penny stocks day trader or instructor than Timothy Sykes, making his course the best for learning how to day trade penny stocks. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-51"> <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>Led by top penny stock trader</p></li> <li><p>Offers a chatroom</p></li> <li><p>Stock watchlists</p></li> <li><p>A wide variety of educational materials</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>Tim Sykes's flashy style may be a turn-off</p></li> <li><p>Not transparent about pricing</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-53"> For those who want to learn how to day trade penny stocks, you can't do better than Timothy Sykes's content. Sykes is one of the premier penny stock traders and mentor to several of the most successful penny stock traders, making his material our top pick as the best option to learn how to day trade penny stocks. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-54"> If you can get past Tim's somewhat brash and flamboyant approach to marketing, which has the look and feel of a "get rich quick" scheme, you'll find quality learning 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_3-0-55"> Tim's website has a lot of free educational material. However, to get info on his paid learning program you have to "apply" by giving your email address. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-for-educational-content-udemy"></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 for Educational Content</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Udemy</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-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_3-0-56" 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/2dtju2mRGwkKrKIhBhX-3hsm_Tk=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-43defec43c4b4453b4a39c8ae6d574ba.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-5" width="1500"/> <noscript> <img alt="Udemy" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/2dtju2mRGwkKrKIhBhX-3hsm_Tk=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-43defec43c4b4453b4a39c8ae6d574ba.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>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"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-57"> <li><strong>Pricing:</strong> Varies</li><li><strong>Chat room:</strong> No</li><li><strong>Simulator:</strong> No</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-58"> <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-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%2Ftopic%2Fday-trading%2F" id="button_1-0-5" 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> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-60"> If you're brand new to day trading and you want to learn before committing to a trading program, you can't do better than Udemy's lineup of day trading courses, which is why we chose it as the best day trading course for educational content. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-62"> <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>Low prices</p></li> <li><p>Expert Instruction</p></li> <li><p>Comprehensive courses</p></li> <li><p>Extensive course selection</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>No opportunity for practical application</p></li> <li><p>No chat rooms</p></li> <li><p>No coaching</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="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-64"> Udemy is a global leader in online educational content with an extensive selection of trading courses. For those who just want to dip their toe in the day trading waters, Udemy's Day Trading 101 provides a clear view into the fundamentals. The course costs $99.99 and Udemy often discounts their courses. So you don't have to risk much if day trading isn't for you. That's why we chose Udemy as the best day trading course for educational content.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-65"> As with all Udemy investing courses, Day Trading 101 is taught by an expert instructor. Luca Moschini is the founder of SharperTrades, LCC, an online trading education site. Luca has taught over 145,000 students and has earned a 4.6 instructor rating from over 8,500 Udemy reviews.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-66"> Luca teaches this course of four hours of on-demand video. The course leans heavily into technical analysis, which is a critical component of day trading. However, it does cover the day trading gamut from reading technical charts to finding stocks to trade. Students receive online support and access to video tutorials with trading demonstrations. Udemy backs the quality of its courses with a 30-day money-back guarantee, and, as with all Udemy's courses, you have lifetime access to the course materials.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-67"> The great thing about Udemy is, if you want to continue your day trading education, it has an extensive selection of courses—some more advanced and some that focus on different day trading markets such as futures, forex, options, and stocks. Most of its trading courses are affordable and frequently discounted. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </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-final-verdict"></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"> Final Verdict </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"> Choosing the right day trading course can be challenging. For this roundup, we focused on key factors like user-friendly format, expert instruction, resources, mentor or coaching support, and cost. Bear Bull Traders is our top pick overall because it checks all of these boxes, with an extensive library of resources, community support, and affordable pricing. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-compare-the-best-day-trading-courses"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-2"> <span class="mntl-sc-block-heading__text"> Compare the Best Day Trading Courses </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_4-0-3"> <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><b>Day Trading Course</b></th> <th><b>Pricing</b></th> <th>Chat Room</th> <th>Simulator</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="https://bearbulltraders.com/ref/dotdash" rel="sponsored nofollow">Bear Bull Traders</a> <br/><b>Best Overall</b></td> <td>Starts at $99/month</td> <td>Yes</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.warriortrading.com/" rel="sponsored nofollow">Warrior Trading</a> <br/><b>Best Comprehensive Offering</b></td> <td>$3,997 (occasional discounts)</td> <td>Yes</td> <td>As an add-on</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://bullishbears.com/referral.html?p=DotdashPM&amp;w=bostc" rel="sponsored nofollow">Bullish Bears</a> <br/><b>Best Value</b></td> <td>$47/month or $497/year</td> <td>Yes</td> <td>No</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.asiaforexmentor.com/afm-proprietary-one-core-program-141319/" rel="sponsored nofollow">Asia Forex Mentor—One Core Program</a> <br/><b>Best for Day Trading Forex</b></td> <td>$997 or $940 without trial</td> <td>No</td> <td>No</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.timothysykes.com/" rel="sponsored nofollow">Tim Sykes Trading Program</a> <br/><b>Best for Day Trading Penny Stocks</b></td> <td>Not listed online</td> <td>No</td> <td>No</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&amp;mid=39197&amp;murl=https%3A%2F%2Fwww.udemy.com%2Ftopic%2Fday-trading%2F" rel="sponsored nofollow">Udemy</a> <br/><b>Best for Educational Content</b></td> <td>Varies</td> <td>No</td> <td>No</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-4"> <span class="heading-toc" id="toc-faqs-f2f4cbd0-7d06-43a6-95dd-cf2bc008fc8f"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">How Does Day Trading Work?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-0"> <div class="faq-accordion__item-answer"> <p>When you day trade, you buy and sell stocks, forex, futures, or options with the expectation of holding your position for less than a day. A typical holding period for a day trading is just a few minutes or until the price has reached its objective, which might just be one or two ticks of price movement. Traders rely on charting to analyze price movements and trading patterns to identify indicators and trends that reveal a potentially profitable trade. Traders also incorporate the psychology of the market and how investors are impacting price changes. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Who Are Day Trading Courses Best For?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Regardless of your knowledge or experience level, a good day trading course can be invaluable for getting you to the next level, whether that is to start day trading or sharpen your skills for more profitable trading. If you're just starting out, you may want to enroll in a free or low-cost course to learn the basics of day trading and then look for a paid course to leverage your knowledge so you can get more out of it.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">Are Day Trading Courses Worth It?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>The right day trading course can be beneficial to investors of all experience levels, so you have to find one that best fits your needs. Experience is vital to making money as a day trader, so courses that offer access to mentoring and a trading community can help anyone. There, successes and failures can be shared helping all involved to improve their strategies.<br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">How Can I Teach Myself Day Trading?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>Successful day trading requires experience, knowledge of the market, and a minimum of $25,000 in a trading account to withstand losses.<span class="ql-inline-citation" data-cite="1"></span> It's a good idea to gain experience as an investor in general before trying to make a living as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/011705.asp">day trader</a>. Our choice as best for educational content, Udemy, can help those new to day trading start building that foundation of knowledge.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">How Much Can You Make Per Day With Day Trading?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>Capital, risk management, trading strategies, and more all impact how much you can earn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/053115/average-rate-return-day-traders.asp">day trading</a>. A typical day trader in 2022 could expect to earn somewhere in the range of $75,000 annually.<span class="ql-inline-citation" data-cite="2"></span> However, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">market volatility</a> makes the risk of losing money real, so it's important to develop a sound strategy and a disciplined approach.</p><p><br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-methodology"></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"> Methodology </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_4-0-6"> We reviewed two dozen day trading courses to identify 15 that met our initial criteria, including instructors' trading experience, quality of course offerings, learning format, access to resources and mentoring, community support, and any value-add features. In comparing those courses, we narrowed the list down to the best day trading courses in six distinct categories. </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> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Best Day Trading Courses" class="primary-image__image mntl-primary-image--blurry" height="1000" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/DcwsCEMiIrxO6jaD9ZkD4uZDno4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg" srcset="https://www.investopedia.com/thmb/QNngW3yrPyofd1tjOxGurNwmGMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhCgAHAPUAAAAAAgcCBQcHBwUEDA4GDg8HDw0OCAwMDAsKEAwNEA4QFhMKDxYOExsOHCwZLjgoIzgkODo/Rz1LVUYsHFk/OlhGRk1Wc3x7d1t4m0xppHibuWyVzolWQbyJdcGfZc2SeKiyuIaayYOn2J+u6qTC4LHV6bzV4bDS9cvIucvLv+nCsurXucLG2tHSzdje593t/+vn1+nk2PPt2ezu5e7v6e/v7/zy4vPz8/T09Pf39/j4+Pn5+fv7+/z8/P39/f7+/iwAAAAACgAHAEUIUQBd3Mixg0cLBAJQpFDAIkOFHwMgAGBwQUePDRpMjKCwwoaHEidCWDgQAcSEAAZw7BDhw0eHBzJiwNghwQcGEg4aLJhBo4aOFzxUfOBAoECCgAA7')" width="1500"/> <noscript> <img alt="Best Day Trading Courses" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/DcwsCEMiIrxO6jaD9ZkD4uZDno4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg" srcset="https://www.investopedia.com/thmb/QNngW3yrPyofd1tjOxGurNwmGMk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>MoMo Productions / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </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. 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>FINRA. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.finra.org/investors/learn-to-invest/advanced-investing/day-trading-margin-requirements-know-rules">Day-Trading Margin Requirements: Know the Rules</a>."</p></li> <li class="mntl-sources__source" id="citation-2"><p>Glassdoor. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.glassdoor.com/Salaries/day-trader-salary-SRCH_KO0,10.htm" rel="nofollow sponsored">How Much Does a Day Trader Make?</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="5089249" data-ordinal="1" data-tax-levels="" 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With a high-caliber day trading course, you benefit from learning directly from the pros as they expose you to profitable trading strategies and techniques for managing risk in your stock portfolio. Also, having access to mentors and a community of like-minded people provides the additional insight and support beginning traders need to keep moving forward. However, not all courses are created equal. They can vary widely in terms of the instructors' experience and track record, the course structure, the quality and quantity of learning tools and resources, and the value you receive for your time and money. Some are outright scams. In this roundup, we increase the chances you'll find a high-quality course that can set you on the path to success. We've reviewed over two dozen of the best day trading courses to help you get started, based on all of the important factors mentioned above. ## Best Day Trading Courses * **Best Overall:** [Bear Bull Traders](https://bearbulltraders.com/ref/dotdash) * **Best Comprehensive Offering:** [Warrior Trading](https://www.warriortrading.com/) * **Best Value:** [Bullish Bears](https://bullishbears.com/referral.html?p=DotdashPM&w=bostc) * **Best for Day Trading Forex:** [Asia Forex Mentor—One Core Program](https://www.asiaforexmentor.com/afm-proprietary-one-core-program-141319/) * **Best for Day Trading Penny Stocks:** [Timothy Sykes Trading Program](https://www.timothysykes.com/) * **Best for Educational Content:** [Udemy](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Ftopic%2Fday-trading%2F) Investopedia offers its own day trading class as part of the Investopedia Academy, but to maintain objectivity, we opted to exclude it from this roundup. If you are interested in this course, please visit the [Investopedia Academy](https://academy.investopedia.com/collections/trading-courses-collection). Best Day Trading Courses Expand Best Day Trading Courses * [Our Top Picks](#summary-list) * [Bear Bull Traders](#toc-best-overall-bear-bull-traders) * [Warrior Trading](#toc-best-comprehensive-offering-warrior-trading) * [Bullish Bears](#toc-best-value-bullish-bears) * [Asia Forex Mentor—One Core Program](#toc-best-for-day-trading-forex-asia-forex-mentorone-core-program) * [Timothy Sykes Trading Program](#toc-best-for-day-trading-penny-stocks-timothy-sykes-trading-program) * [Udemy](#toc-best-for-educational-content-udemy) * See More (3) * [Final Verdict](#toc-final-verdict) * [Compare Courses](#toc-compare-the-best-day-trading-courses) * [FAQs](#toc-faqs-f2f4cbd0-7d06-43a6-95dd-cf2bc008fc8f) * [Methodology](#toc-methodology) ### Best Overall : Bear Bull Traders --- ![Bear Bull Traders]() :fill(white):max_bytes(150000):strip_icc()/Bear_bull_traders-46462f6ca6a04bcbb85cad56cfbff8fa.jpg)  Bear Bull Traders * **Pricing:** Starts at $99/month * **Chat room:** Yes * **Simulator:** Yes [Sign Up Now](https://bearbulltraders.com/ref/dotdash) Why We Chose It Bear Bull Traders offers the right combination of a comprehensive course offering, access to trading tools, and a trading community, with mentoring by a top trading guru—all at a reasonable price, making it our choice as the best overall trading course. Pros & Cons Pros * Extensive library of videos and high-level trading tutorials * Access to real-time paper trading simulator * Helpful trader community with support from chat room monitors * Affordable pricing with two different plans plus a seven-day, paid trial Cons * Webinars are only available to elite subscribers * No free trial membership available Overview The Bear Bull Traders educational program offers an in-depth learning track for traders at every experience level. Couple its expert instruction with an interactive trading community, extensive learning resources, and close support—all at a reasonable price—and you have the best overall trading course. World-class trader Andrew Aziz created Bear Bull Traders in 2016 to allow traders at all levels to learn from experts in a community environment. The trading courses are based on the strategies discussed in Andrew's best-selling books. The program guides members through every step of the trading process and strategy development. It is the only course we found with a psychology team that includes clinical psychologists. In addition to its vast video library, the program provides access to weekly webinars, downloadable resources, a [real-time trading simulator](https://www.investopedia.com/day-trading/how-practice-day-trading/), and a popular online community of active day traders. Traders can connect and learn in two different chatrooms too. Members also have access to experienced mentors, including Andrew Aziz. You can take the Bear Bull Traders for a test drive with a seven-day paid trial that costs $39. However, it is not a full trial and only includes chat rooms and a getting-started training. There are two membership options. One costs $99 monthly and offers access to chat rooms and the essentials course. The other option is the Elite package which is $199 monthly or $1,199 annually. With this membership, you also get the advanced course, psychology team access, webinars, and mentorship. Purchasing the annual membership also includes 1:1 psychology coaching. ### Best Comprehensive Offering : Warrior Trading --- ![Warrior Trading]() :fill(white):max_bytes(150000):strip_icc()/Warrior_Trading-31414ae6c38c43f2a41644874e6516fb.jpg)  Warrior Trading * **Pricing:** $3,997 (occasional discounts) * **Chat room:** Yes * **Simulator:** As an add-on [Sign Up Now](https://www.warriortrading.com/) Why We Chose It Regardless of where you are on the experience spectrum, Warrior Trading offers a training path to help you get to the next level, making it our top pick as the best comprehensive offering in day trading courses. Pros & Cons Pros * High-caliber learning for both beginners and advanced traders * Option to add real-time paper trading simulator * Extensive resource library * Large and active chat room * Free three-lesson course for beginners Cons * On the expensive end of the price spectrum Overview In addition to a suite of trading courses for traders of all experience levels, Warrior Trading students have access to a wildly popular chat room, live trading demonstrations, group mentoring, and an extensive resource library. That's why we chose Warrior Trading as the best day trading course for a comprehensive offering.  Warrior Trading is the brainchild of top trading guru Ross Cameron. Its Warrior Pro course is extremely comprehensive and includes everything from a starter course to advanced material. It also offers a free course to get started on learning the fundamentals before committing to its paid courses. The Warrior Pro program begins with starter material before working its way up to advanced courses such as small and large cap day trading, swing & options trading, active investing, and day trading in IRAs. Students also get live group mentoring, live trading chat rooms, recorded materials, live trading archives, and stock screeners. A simulator for practice can be purchased as an add-on. Access for 90 days to Warrior Pro costs $4,297, after which members pay $197 monthly for continued access. Additionally, there is a yearly option for $5,997. ### Best Value : Bullish Bears --- ![Bullish Bears]() :fill(white):max_bytes(150000):strip_icc()/Bullish_bears-f4ca6307cf8a4a0b920765b18df080b5.jpg)  Bullish Bears * **Pricing:** $47/month or $497/year * **Chat room:** Yes * **Simulator:** No [Sign Up Now](https://bullishbears.com/referral.html?p=DotdashPM&w=bostc) Why We Chose It You would be hard-pressed to find a trading course with a more comprehensive offering for just $47 per month or $997 for lifetime access with a sale price of just $497 which is why we chose Bullish Bears as the best value in a day trading course. Pros & Cons Pros * 7-day free trial * Low-cost access to comprehensive training resources * Chat rooms and community * Live-stream screen share mentoring * Resources for all skill levels Cons * No simulator offered Overview The Bullish Bears' mission is to make successful day traders out of anyone who wants to learn. For $47 monthly or $497 annually, it gives you access to a wide range of learning resources and tools, including a top-tier course, an interactive chat room, live-streaming trading rooms, and other valuable trading tools. For all that, Bullish Bears makes our list as the best value in a day trading course.  Bullish Bears has managed to attract a significant following, as evidenced by its more than 90,000 subscribers to its YouTube channel. People might come for the low membership price, but they stay for the energetic and highly supportive community found in its chat rooms. With live streaming of trades planned and executed by a team of professional traders, the trade rooms are a learning experience on their own. The company doesn't offer a simulator, but you could seek a third-party one to practice. The Bullish Bears encourages everyone to start with its seven-day free trial, which provides access to almost everything offered through the $47 monthly membership, including all courses, daily watch lists, chat room, live-streaming trading room, trade alerts, and other trading tools. Bullish Bears sometimes offers discounts on its annual memberships, which can save members money if they wish to retain access for an extended period of time. ### Best for Day Trading Forex : Asia Forex Mentor—One Core Program --- ![Asia Forex Mentor]() :fill(white):max_bytes(150000):strip_icc()/Asia_Forex_Mentor-59a25e81b1664281a55444ef615e8243.jpg)  Asia Forex Mentor * **Pricing:** $997 or $940 without trial * **Chat room:** No * **Simulator:** No [Sign Up Now](https://www.asiaforexmentor.com/afm-proprietary-one-core-program-141319/) Why We Chose It You can learn how to day trade in any market with the comprehensive One Core Program, but its main wheelhouse is forex, making it our choice as the best day trading course for trading forex. Pros & Cons Pros * Extensive course content * Studio-quality video course * Free, seven-day trial * World renown trader as a mentor Cons * No monthly payment plan for educational course * Busy website, difficult to navigate Overview As the trainer of traders who work in banks, asset management firms, and top trading firms worldwide, Ezekiel Chew is no ordinary trading instructor. Considered one of the leading experts in the finance industry and one of the top forex traders globally, he created the One Core Program as a way to give back to the trading community. The program is designed to teach anyone how to trade in any market but, because forex is Ezekiel's forte, we picked his One Core Program as the best day trading course for learning forex trading.  Chew founded Asia Forex Mentor in 2008 and has nearly 20 years of trading experience that the program draws on. The $997 ($940 if you skip the trial) program is stacked full of educational content with 26 full-scale lessons spread out over 60 sub-topics students can view through studio-quality online videos. In each lesson, Ezekiel lays out his high-win-rate strategies using hand-picked examples with explanations and interpretations. Before spending $997, students can try out the One Core Program with a free, seven-day trial before being charged. Real learning begins when students join the Golden Eye Group. For $118 per month ($1,200 annually), members get access to Ezekiel's brain as he live-streams his weekly market analysis and provides insight into reading charts and setting up trades. ### Best for Day Trading Penny Stocks : Timothy Sykes Trading Program --- ![Tim Sykes Trading Program]() :fill(white):max_bytes(150000):strip_icc()/Timothy_Sykes-4e6f6f2a9b724160aad4e021c03bb508.jpg)   Tim Sykes Trading Program * **Pricing:** Not listed online * **Chat room:** No * **Simulator:** No [Sign Up Now](https://www.timothysykes.com/) Why We Chose It Day trading penny stocks is considered a particular niche in the trading arena, and there's no better penny stocks day trader or instructor than Timothy Sykes, making his course the best for learning how to day trade penny stocks. Pros & Cons Pros * Led by top penny stock trader * Offers a chatroom * Stock watchlists * A wide variety of educational materials Cons * Tim Sykes's flashy style may be a turn-off * Not transparent about pricing Overview For those who want to learn how to day trade penny stocks, you can't do better than Timothy Sykes's content. Sykes is one of the premier penny stock traders and mentor to several of the most successful penny stock traders, making his material our top pick as the best option to learn how to day trade penny stocks. If you can get past Tim's somewhat brash and flamboyant approach to marketing, which has the look and feel of a "get rich quick" scheme, you'll find quality learning resources.  Tim's website has a lot of free educational material. However, to get info on his paid learning program you have to "apply" by giving your email address. ### Best for Educational Content : Udemy --- ![Udemy]() :fill(white):max_bytes(150000):strip_icc()/Udemy_Logo_TM_Pos_RGB_Lcopy-43defec43c4b4453b4a39c8ae6d574ba.jpg) Udemy * **Pricing:** Varies * **Chat room:** No * **Simulator:** No [Sign Up Now](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Ftopic%2Fday-trading%2F) Why We Chose It If you're brand new to day trading and you want to learn before committing to a trading program, you can't do better than Udemy's lineup of day trading courses, which is why we chose it as the best day trading course for educational content. Pros & Cons Pros * Low prices * Expert Instruction * Comprehensive courses * Extensive course selection Cons * No opportunity for practical application * No chat rooms * No coaching Overview Udemy is a global leader in online educational content with an extensive selection of trading courses. For those who just want to dip their toe in the day trading waters, Udemy's Day Trading 101 provides a clear view into the fundamentals. The course costs $99.99 and Udemy often discounts their courses. So you don't have to risk much if day trading isn't for you. That's why we chose Udemy as the best day trading course for educational content.  As with all Udemy investing courses, Day Trading 101 is taught by an expert instructor. Luca Moschini is the founder of SharperTrades, LCC, an online trading education site. Luca has taught over 145,000 students and has earned a 4.6 instructor rating from over 8,500 Udemy reviews.  Luca teaches this course of four hours of on-demand video. The course leans heavily into technical analysis, which is a critical component of day trading. However, it does cover the day trading gamut from reading technical charts to finding stocks to trade. Students receive online support and access to video tutorials with trading demonstrations. Udemy backs the quality of its courses with a 30-day money-back guarantee, and, as with all Udemy's courses, you have lifetime access to the course materials.  The great thing about Udemy is, if you want to continue your day trading education, it has an extensive selection of courses—some more advanced and some that focus on different day trading markets such as futures, forex, options, and stocks. Most of its trading courses are affordable and frequently discounted. ## Final Verdict Choosing the right day trading course can be challenging. For this roundup, we focused on key factors like user-friendly format, expert instruction, resources, mentor or coaching support, and cost. Bear Bull Traders is our top pick overall because it checks all of these boxes, with an extensive library of resources, community support, and affordable pricing. ## Compare the Best Day Trading Courses | **Day Trading Course** | **Pricing** | Chat Room | Simulator | | --- | --- | --- | --- | | [Bear Bull Traders](https://bearbulltraders.com/ref/dotdash) **Best Overall** | Starts at $99/month | Yes | Yes | | [Warrior Trading](https://www.warriortrading.com/) **Best Comprehensive Offering** | $3,997 (occasional discounts) | Yes | As an add-on | | [Bullish Bears](https://bullishbears.com/referral.html?p=DotdashPM&w=bostc) **Best Value** | $47/month or $497/year | Yes | No | | [Asia Forex Mentor—One Core Program](https://www.asiaforexmentor.com/afm-proprietary-one-core-program-141319/) **Best for Day Trading Forex** | $997 or $940 without trial | No | No | | [Tim Sykes Trading Program](https://www.timothysykes.com/) **Best for Day Trading Penny Stocks** | Not listed online | No | No | | [Udemy](https://click.linksynergy.com/deeplink?id=Q*Sg3glZ/fs&mid=39197&murl=https%3A%2F%2Fwww.udemy.com%2Ftopic%2Fday-trading%2F) **Best for Educational Content** | Varies | No | No | ## Frequently Asked Questions * ### How Does Day Trading Work? When you day trade, you buy and sell stocks, forex, futures, or options with the expectation of holding your position for less than a day. A typical holding period for a day trading is just a few minutes or until the price has reached its objective, which might just be one or two ticks of price movement. Traders rely on charting to analyze price movements and trading patterns to identify indicators and trends that reveal a potentially profitable trade. Traders also incorporate the psychology of the market and how investors are impacting price changes. * ### Who Are Day Trading Courses Best For? Regardless of your knowledge or experience level, a good day trading course can be invaluable for getting you to the next level, whether that is to start day trading or sharpen your skills for more profitable trading. If you're just starting out, you may want to enroll in a free or low-cost course to learn the basics of day trading and then look for a paid course to leverage your knowledge so you can get more out of it. * ### Are Day Trading Courses Worth It? The right day trading course can be beneficial to investors of all experience levels, so you have to find one that best fits your needs. Experience is vital to making money as a day trader, so courses that offer access to mentoring and a trading community can help anyone. There, successes and failures can be shared helping all involved to improve their strategies. * ### How Can I Teach Myself Day Trading? Successful day trading requires experience, knowledge of the market, and a minimum of $25,000 in a trading account to withstand losses. It's a good idea to gain experience as an investor in general before trying to make a living as a [day trader](https://www.investopedia.com/articles/trading/05/011705.asp). Our choice as best for educational content, Udemy, can help those new to day trading start building that foundation of knowledge. * ### How Much Can You Make Per Day With Day Trading? Capital, risk management, trading strategies, and more all impact how much you can earn [day trading](https://www.investopedia.com/articles/active-trading/053115/average-rate-return-day-traders.asp). A typical day trader in 2022 could expect to earn somewhere in the range of $75,000 annually. However, [market volatility](https://www.investopedia.com/terms/v/volatility.asp) makes the risk of losing money real, so it's important to develop a sound strategy and a disciplined approach. ## Methodology We reviewed two dozen day trading courses to identify 15 that met our initial criteria, including instructors' trading experience, quality of course offerings, learning format, access to resources and mentoring, community support, and any value-add features. In comparing those courses, we narrowed the list down to the best day trading courses in six distinct categories. :max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg) :max_bytes(150000):strip_icc()/GettyImages-1300319507-1360c0adac604e6f952763ff41c1ce26.jpg) MoMo Productions / Getty Images 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. FINRA. "[Day-Trading Margin Requirements: Know the Rules](https://www.finra.org/investors/learn-to-invest/advanced-investing/day-trading-margin-requirements-know-rules)." 2. Glassdoor. "[How Much Does a Day Trader Make?](https://www.glassdoor.com/Salaries/day-trader-salary-SRCH_KO0,10.htm)" Related Articles [![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 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) [![Options Trading Courses]() :max_bytes(150000):strip_icc()/GettyImages-1221478578-147a847f0c3e4e339627e514d9c29a87.jpg) Best Options Trading Courses](https://www.investopedia.com/best-options-trading-courses-5120500) [![Best Technical Analysis Course]() :max_bytes(150000):strip_icc()/GettyImages-1300072590-bf0b5892da5e44d2ac62410ba68ad8f1.jpg) Best Technical Analysis Courses](https://www.investopedia.com/best-technical-analysis-courses-5118327) [![checking Forex Trading market data in Class]() :max_bytes(150000):strip_icc()/Primary-Image-best-online-forex-trading-classes-5094837-fb9606c6f9c2445292d9b80c0f1f6c57.jpg) Best Online Forex Trading Classes](https://www.investopedia.com/best-online-forex-trading-classes-5094837) [![Best Stock Screeners of April 2024]() :max_bytes(150000):strip_icc()/best-stock-screeners-5120586-final-3c09c36da0804ebb8ccd4c18c49c66cd.png) Best Stock Screeners for May 2024](https://www.investopedia.com/best-stock-screeners-5120586) Related Terms [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) [Entrepreneur: What It Means to Be One and How to Get Started](https://www.investopedia.com/terms/e/entrepreneur.asp) Entrepreneurs create new businesses, taking on all the risks and rewards of their company. Learn about entrepreneurship and the challenges facing entrepreneurs. [more](https://www.investopedia.com/terms/e/entrepreneur.asp) [Trading Demo Account: What it is, How it Works, FAQ](https://www.investopedia.com/terms/d/demo-account.asp) A trading demo account is a tool that allows an investor to test a trading platform before funding the account or placing trades. [more](https://www.investopedia.com/terms/d/demo-account.asp) [What Is Personal Finance, and Why Is It Important?](https://www.investopedia.com/terms/p/personalfinance.asp) Personal finance is about managing your budget and how best to put your money to work to realize your financial independence and goals. [more](https://www.investopedia.com/terms/p/personalfinance.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) [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)

With a high-caliber day trading course, you benefit from learning directly from the pros as they expose you to profitable trading strategies and techniques for managing risk in your stock portfolio. Also, having access to mentors and a community of like-minded people provides the additional insight and support beginning traders need to keep moving forward. However, not all courses are created equal. They can vary widely in terms of the instructors' experience and track record, the course structure, the quality and quantity of learning tools and resources, and the value you receive for your time and money. Some are outright scams. In this roundup, we increase the chances you'll find a high-quality course that can set you on the path to success. We've reviewed over two dozen of the best day trading courses to help you get started, based on all of the important factors mentioned above. Best Day Trading Courses Best Overall: Bear Bull Traders Best Comprehensive Offering: Warrior Trading Best Value: Bullish Bears Best for Day Trading Forex: Asia Forex Mentor—One Core Program Best for Day Trading Penny Stocks: Timothy Sykes Trading Program Best for Educational Content: Udemy Investopedia offers its own day trading class as part of the Investopedia Academy, but to maintain objectivity, we opted to exclude it from this roundup. If you are interested in this course, please visit the Investopedia Academy. Best Day Trading Courses Expand Best Day Trading Courses Our Top Picks Bear Bull Traders Warrior Trading Bullish Bears Asia Forex Mentor—One Core Program Timothy Sykes Trading Program Udemy See More (3) Final Verdict Compare Courses FAQs Methodology Best Overall : Bear Bull Traders  Bear Bull Traders Pricing: Starts at $99/monthChat room: YesSimulator: Yes Sign Up Now Why We Chose It Bear Bull Traders offers the right combination of a comprehensive course offering, access to trading tools, and a trading community, with mentoring by a top trading guru—all at a reasonable price, making it our choice as the best overall trading course. Pros & Cons Pros Extensive library of videos and high-level trading tutorials Access to real-time paper trading simulator Helpful trader community with support from chat room monitors Affordable pricing with two different plans plus a seven-day, paid trial Cons Webinars are only available to elite subscribers No free trial membership available Overview The Bear Bull Traders educational program offers an in-depth learning track for traders at every experience level. Couple its expert instruction with an interactive trading community, extensive learning resources, and close support—all at a reasonable price—and you have the best overall trading course. World-class trader Andrew Aziz created Bear Bull Traders in 2016 to allow traders at all levels to learn from experts in a community environment. The trading courses are based on the strategies discussed in Andrew's best-selling books. The program guides members through every step of the trading process and strategy development. It is the only course we found with a psychology team that includes clinical psychologists. In addition to its vast video library, the program provides access to weekly webinars, downloadable resources, a real-time trading simulator, and a popular online community of active day traders. Traders can connect and learn in two different chatrooms too. Members also have access to experienced mentors, including Andrew Aziz. You can take the Bear Bull Traders for a test drive with a seven-day paid trial that costs $39. However, it is not a full trial and only includes chat rooms and a getting-started training. There are two membership options. One costs $99 monthly and offers access to chat rooms and the essentials course. The other option is the Elite package which is $199 monthly or $1,199 annually. With this membership, you also get the advanced course, psychology team access, webinars, and mentorship. Purchasing the annual membership also includes 1:1 psychology coaching. Best Comprehensive Offering : Warrior Trading  Warrior Trading Pricing: $3,997 (occasional discounts)Chat room: YesSimulator: As an add-on Sign Up Now Why We Chose It Regardless of where you are on the experience spectrum, Warrior Trading offers a training path to help you get to the next level, making it our top pick as the best comprehensive offering in day trading courses. Pros & Cons Pros High-caliber learning for both beginners and advanced traders Option to add real-time paper trading simulator Extensive resource library Large and active chat room Free three-lesson course for beginners Cons On the expensive end of the price spectrum Overview In addition to a suite of trading courses for traders of all experience levels, Warrior Trading students have access to a wildly popular chat room, live trading demonstrations, group mentoring, and an extensive resource library. That's why we chose Warrior Trading as the best day trading course for a comprehensive offering.  Warrior Trading is the brainchild of top trading guru Ross Cameron. Its Warrior Pro course is extremely comprehensive and includes everything from a starter course to advanced material. It also offers a free course to get started on learning the fundamentals before committing to its paid courses. The Warrior Pro program begins with starter material before working its way up to advanced courses such as small and large cap day trading, swing & options trading, active investing, and day trading in IRAs. Students also get live group mentoring, live trading chat rooms, recorded materials, live trading archives, and stock screeners. A simulator for practice can be purchased as an add-on. Access for 90 days to Warrior Pro costs $4,297, after which members pay $197 monthly for continued access. Additionally, there is a yearly option for $5,997. Best Value : Bullish Bears  Bullish Bears Pricing: $47/month or $497/yearChat room: YesSimulator: No Sign Up Now Why We Chose It You would be hard-pressed to find a trading course with a more comprehensive offering for just $47 per month or $997 for lifetime access with a sale price of just $497 which is why we chose Bullish Bears as the best value in a day trading course. Pros & Cons Pros 7-day free trial Low-cost access to comprehensive training resources Chat rooms and community Live-stream screen share mentoring Resources for all skill levels Cons No simulator offered Overview The Bullish Bears' mission is to make successful day traders out of anyone who wants to learn. For $47 monthly or $497 annually, it gives you access to a wide range of learning resources and tools, including a top-tier course, an interactive chat room, live-streaming trading rooms, and other valuable trading tools. For all that, Bullish Bears makes our list as the best value in a day trading course.  Bullish Bears has managed to attract a significant following, as evidenced by its more than 90,000 subscribers to its YouTube channel. People might come for the low membership price, but they stay for the energetic and highly supportive community found in its chat rooms. With live streaming of trades planned and executed by a team of professional traders, the trade rooms are a learning experience on their own. The company doesn't offer a simulator, but you could seek a third-party one to practice. The Bullish Bears encourages everyone to start with its seven-day free trial, which provides access to almost everything offered through the $47 monthly membership, including all courses, daily watch lists, chat room, live-streaming trading room, trade alerts, and other trading tools. Bullish Bears sometimes offers discounts on its annual memberships, which can save members money if they wish to retain access for an extended period of time. Best for Day Trading Forex : Asia Forex Mentor—One Core Program  Asia Forex Mentor Pricing: $997 or $940 without trialChat room: NoSimulator: No Sign Up Now Why We Chose It You can learn how to day trade in any market with the comprehensive One Core Program, but its main wheelhouse is forex, making it our choice as the best day trading course for trading forex. Pros & Cons Pros Extensive course content Studio-quality video course Free, seven-day trial World renown trader as a mentor Cons No monthly payment plan for educational course Busy website, difficult to navigate Overview As the trainer of traders who work in banks, asset management firms, and top trading firms worldwide, Ezekiel Chew is no ordinary trading instructor. Considered one of the leading experts in the finance industry and one of the top forex traders globally, he created the One Core Program as a way to give back to the trading community. The program is designed to teach anyone how to trade in any market but, because forex is Ezekiel's forte, we picked his One Core Program as the best day trading course for learning forex trading.  Chew founded Asia Forex Mentor in 2008 and has nearly 20 years of trading experience that the program draws on. The $997 ($940 if you skip the trial) program is stacked full of educational content with 26 full-scale lessons spread out over 60 sub-topics students can view through studio-quality online videos. In each lesson, Ezekiel lays out his high-win-rate strategies using hand-picked examples with explanations and interpretations. Before spending $997, students can try out the One Core Program with a free, seven-day trial before being charged. Real learning begins when students join the Golden Eye Group. For $118 per month ($1,200 annually), members get access to Ezekiel's brain as he live-streams his weekly market analysis and provides insight into reading charts and setting up trades. Best for Day Trading Penny Stocks : Timothy Sykes Trading Program   Tim Sykes Trading Program Pricing: Not listed onlineChat room: NoSimulator: No Sign Up Now Why We Chose It Day trading penny stocks is considered a particular niche in the trading arena, and there's no better penny stocks day trader or instructor than Timothy Sykes, making his course the best for learning how to day trade penny stocks. Pros & Cons Pros Led by top penny stock trader Offers a chatroom Stock watchlists A wide variety of educational materials Cons Tim Sykes's flashy style may be a turn-off Not transparent about pricing Overview For those who want to learn how to day trade penny stocks, you can't do better than Timothy Sykes's content. Sykes is one of the premier penny stock traders and mentor to several of the most successful penny stock traders, making his material our top pick as the best option to learn how to day trade penny stocks. If you can get past Tim's somewhat brash and flamboyant approach to marketing, which has the look and feel of a "get rich quick" scheme, you'll find quality learning resources.  Tim's website has a lot of free educational material. However, to get info on his paid learning program you have to "apply" by giving your email address. Best for Educational Content : Udemy Udemy Pricing: VariesChat room: NoSimulator: No Sign Up Now Why We Chose It If you're brand new to day trading and you want to learn before committing to a trading program, you can't do better than Udemy's lineup of day trading courses, which is why we chose it as the best day trading course for educational content. Pros & Cons Pros Low prices Expert Instruction Comprehensive courses Extensive course selection Cons No opportunity for practical application No chat rooms No coaching Overview Udemy is a global leader in online educational content with an extensive selection of trading courses. For those who just want to dip their toe in the day trading waters, Udemy's Day Trading 101 provides a clear view into the fundamentals. The course costs $99.99 and Udemy often discounts their courses. So you don't have to risk much if day trading isn't for you. That's why we chose Udemy as the best day trading course for educational content.  As with all Udemy investing courses, Day Trading 101 is taught by an expert instructor. Luca Moschini is the founder of SharperTrades, LCC, an online trading education site. Luca has taught over 145,000 students and has earned a 4.6 instructor rating from over 8,500 Udemy reviews.  Luca teaches this course of four hours of on-demand video. The course leans heavily into technical analysis, which is a critical component of day trading. However, it does cover the day trading gamut from reading technical charts to finding stocks to trade. Students receive online support and access to video tutorials with trading demonstrations. Udemy backs the quality of its courses with a 30-day money-back guarantee, and, as with all Udemy's courses, you have lifetime access to the course materials.  The great thing about Udemy is, if you want to continue your day trading education, it has an extensive selection of courses—some more advanced and some that focus on different day trading markets such as futures, forex, options, and stocks. Most of its trading courses are affordable and frequently discounted. Final Verdict Choosing the right day trading course can be challenging. For this roundup, we focused on key factors like user-friendly format, expert instruction, resources, mentor or coaching support, and cost. Bear Bull Traders is our top pick overall because it checks all of these boxes, with an extensive library of resources, community support, and affordable pricing. Compare the Best Day Trading Courses Day Trading Course Pricing Chat Room Simulator Bear Bull Traders Best Overall Starts at $99/month Yes Yes Warrior Trading Best Comprehensive Offering $3,997 (occasional discounts) Yes As an add-on Bullish Bears Best Value $47/month or $497/year Yes No Asia Forex Mentor—One Core Program Best for Day Trading Forex $997 or $940 without trial No No Tim Sykes Trading Program Best for Day Trading Penny Stocks Not listed online No No Udemy Best for Educational Content Varies No No Frequently Asked Questions How Does Day Trading Work? When you day trade, you buy and sell stocks, forex, futures, or options with the expectation of holding your position for less than a day. A typical holding period for a day trading is just a few minutes or until the price has reached its objective, which might just be one or two ticks of price movement. Traders rely on charting to analyze price movements and trading patterns to identify indicators and trends that reveal a potentially profitable trade. Traders also incorporate the psychology of the market and how investors are impacting price changes.  Who Are Day Trading Courses Best For? Regardless of your knowledge or experience level, a good day trading course can be invaluable for getting you to the next level, whether that is to start day trading or sharpen your skills for more profitable trading. If you're just starting out, you may want to enroll in a free or low-cost course to learn the basics of day trading and then look for a paid course to leverage your knowledge so you can get more out of it. Are Day Trading Courses Worth It? The right day trading course can be beneficial to investors of all experience levels, so you have to find one that best fits your needs. Experience is vital to making money as a day trader, so courses that offer access to mentoring and a trading community can help anyone. There, successes and failures can be shared helping all involved to improve their strategies. How Can I Teach Myself Day Trading? Successful day trading requires experience, knowledge of the market, and a minimum of $25,000 in a trading account to withstand losses. It's a good idea to gain experience as an investor in general before trying to make a living as a day trader. Our choice as best for educational content, Udemy, can help those new to day trading start building that foundation of knowledge. How Much Can You Make Per Day With Day Trading? Capital, risk management, trading strategies, and more all impact how much you can earn day trading. A typical day trader in 2022 could expect to earn somewhere in the range of $75,000 annually. However, market volatility makes the risk of losing money real, so it's important to develop a sound strategy and a disciplined approach. Methodology We reviewed two dozen day trading courses to identify 15 that met our initial criteria, including instructors' trading experience, quality of course offerings, learning format, access to resources and mentoring, community support, and any value-add features. In comparing those courses, we narrowed the list down to the best day trading courses in six distinct categories. MoMo Productions / Getty Images 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. FINRA. "Day-Trading Margin Requirements: Know the Rules." Glassdoor. "How Much Does a Day Trader Make?" Related Articles Best Online Stock Trading Classes Best Investing Courses Best Options Trading Courses Best Technical Analysis Courses Best Online Forex Trading Classes Best Stock Screeners for May 2024 Related Terms 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 Entrepreneur: What It Means to Be One and How to Get Started Entrepreneurs create new businesses, taking on all the risks and rewards of their company. Learn about entrepreneurship and the challenges facing entrepreneurs. more Trading Demo Account: What it is, How it Works, FAQ A trading demo account is a tool that allows an investor to test a trading platform before funding the account or placing trades. more What Is Personal Finance, and Why Is It Important? Personal finance is about managing your budget and how best to put your money to work to realize your financial independence and goals. 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 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

https://www.investopedia.com/terms/t/transfer-risk.asp

Transfer Risk: 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-transfer-risk"></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 Transfer Risk? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Transfer risk is defined as the threat that a local currency can't be converted into another nation's currency due to changes in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nominalvalue.asp" rel="noopener noreferrer">nominal value</a> or because of specific regulatory or exchange restrictions. </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"> Transfer risk, also known as conversion risk, may arise when a currency is not widely traded and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_conrol.asp" rel="noopener noreferrer">capital controls</a> prevent an investor or business from freely moving currency in or out of a country. </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>Companies may face hurdles when conducting business with companies overseas.</li><li>Transfer risk is one issue to be aware of and involves the threat of the inability to convert local currency into the currency of another nation. </li><li>Timing issues associated with getting funds from a sale may prevent the currency from being converted into the proper amount. </li><li>Some companies maintain an allocated transfer risk reserve to combat transfer risks. </li><li>Companies that frequently do business with overseas companies are often better prepared to handle transfer risks. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-transfer-risk-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 Transfer Risk Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The transfer risk concept became a prominent issue in recent decades when businesses started to make international trade a large part of their normal operations. The benefits associated with international trade include increasing the flow of goods and services across the various borders and helping to keep prices low for a variety of goods. However, there are quite a few risks involved with buying goods from a company on the other side of the globe. </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"> For example, when a U.S. company buys goods from a company in Japan, the transaction is typically denominated in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp" rel="noopener noreferrer">USD</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp" rel="noopener noreferrer">Japanese Yen</a>. These are frequently traded currencies, so it is relatively easy for the U.S.-based company to convert dollars into yen. Plus, both the U.S. and Japan have well-regulated and stable economies and this allows transactions to be conducted without any limitations. When the time comes for two international companies to do business, the choice of currency in an international transaction will often depend on the needs and desires of each individual business.  </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"> In some cases, the transaction is not as easily conducted. A business may purchase goods from a company located in a foreign country where it is more difficult to convert the currency. Companies are subject to the laws of the country where they do business. As a result, these laws may affect how business is conducted, how bank transactions are processed, and how the products are delivered. </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>Companies and corporations should always consider transfer risk issues when doing business with foreign companies and take the necessary steps to minimize the effects of these risks.</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_17-0"> <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_18-0"> A transfer risk puts a business in a tumultuous situation. With that said, there are certain measures one can take to limit the loss of capital. Some firms keep a reserve of cash, often known as allocated transfer risk reserve, to manage these challenges. This reserve is an allowance a company maintains to protect against country risks and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nonconvertiblecurrency.asp" rel="noopener noreferrer">inconvertible currencies</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"> The types of companies that maintain a transfer risk reserve will vary but can include large retail multinationals to large banks with exposure in various countries. A banking institution may establish an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/regulations/laws/rules/7500-1100.html" rel="noopener noreferrer">allocated transfer risk reserve</a> for specified international assets when required by the Board, according to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp" rel="noopener noreferrer">Federal Deposit Insurance Corporation</a> (FDIC).<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_21-0"></div> <span class="heading-toc" id="toc-example-of-transfer-risk"></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 Transfer Risk  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Suppose banking regulations in a country prevent a business from withdrawing funds in a foreign bank for several months after the sale has been completed. While the funds are being held, the value of the foreign currency decreases relative to the value of currency from the country where the business is located.  </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 end result is losing money on the overall transaction simply due to a timing issue that must be followed in accordance with the law. This is a transfer risk that some businesses face when engaging in commercial transactions with companies in foreign countries.  </p></div>

## What Is Transfer Risk? Transfer risk is defined as the threat that a local currency can't be converted into another nation's currency due to changes in [nominal value](https://www.investopedia.com/terms/n/nominalvalue.asp) or because of specific regulatory or exchange restrictions. Transfer risk, also known as conversion risk, may arise when a currency is not widely traded and [capital controls](https://www.investopedia.com/terms/c/capital_conrol.asp) prevent an investor or business from freely moving currency in or out of a country. ### Key Takeaways * Companies may face hurdles when conducting business with companies overseas. * Transfer risk is one issue to be aware of and involves the threat of the inability to convert local currency into the currency of another nation. * Timing issues associated with getting funds from a sale may prevent the currency from being converted into the proper amount. * Some companies maintain an allocated transfer risk reserve to combat transfer risks. * Companies that frequently do business with overseas companies are often better prepared to handle transfer risks. ## How Transfer Risk Works The transfer risk concept became a prominent issue in recent decades when businesses started to make international trade a large part of their normal operations. The benefits associated with international trade include increasing the flow of goods and services across the various borders and helping to keep prices low for a variety of goods. However, there are quite a few risks involved with buying goods from a company on the other side of the globe. For example, when a U.S. company buys goods from a company in Japan, the transaction is typically denominated in [USD](https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp) or [Japanese Yen](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp). These are frequently traded currencies, so it is relatively easy for the U.S.-based company to convert dollars into yen. Plus, both the U.S. and Japan have well-regulated and stable economies and this allows transactions to be conducted without any limitations. When the time comes for two international companies to do business, the choice of currency in an international transaction will often depend on the needs and desires of each individual business.  In some cases, the transaction is not as easily conducted. A business may purchase goods from a company located in a foreign country where it is more difficult to convert the currency. Companies are subject to the laws of the country where they do business. As a result, these laws may affect how business is conducted, how bank transactions are processed, and how the products are delivered. ### Companies and corporations should always consider transfer risk issues when doing business with foreign companies and take the necessary steps to minimize the effects of these risks. ## Special Considerations A transfer risk puts a business in a tumultuous situation. With that said, there are certain measures one can take to limit the loss of capital. Some firms keep a reserve of cash, often known as allocated transfer risk reserve, to manage these challenges. This reserve is an allowance a company maintains to protect against country risks and [inconvertible currencies](https://www.investopedia.com/terms/n/nonconvertiblecurrency.asp).  The types of companies that maintain a transfer risk reserve will vary but can include large retail multinationals to large banks with exposure in various countries. A banking institution may establish an [allocated transfer risk reserve](https://www.fdic.gov/regulations/laws/rules/7500-1100.html) for specified international assets when required by the Board, according to the [Federal Deposit Insurance Corporation](https://www.investopedia.com/terms/f/fdic.asp) (FDIC). ## Example of Transfer Risk Suppose banking regulations in a country prevent a business from withdrawing funds in a foreign bank for several months after the sale has been completed. While the funds are being held, the value of the foreign currency decreases relative to the value of currency from the country where the business is located.  The end result is losing money on the overall transaction simply due to a timing issue that must be followed in accordance with the law. This is a transfer risk that some businesses face when engaging in commercial transactions with companies in foreign countries. 

What Is Transfer Risk? Transfer risk is defined as the threat that a local currency can't be converted into another nation's currency due to changes in nominal value or because of specific regulatory or exchange restrictions. Transfer risk, also known as conversion risk, may arise when a currency is not widely traded and capital controls prevent an investor or business from freely moving currency in or out of a country. Key Takeaways Companies may face hurdles when conducting business with companies overseas.Transfer risk is one issue to be aware of and involves the threat of the inability to convert local currency into the currency of another nation. Timing issues associated with getting funds from a sale may prevent the currency from being converted into the proper amount. Some companies maintain an allocated transfer risk reserve to combat transfer risks. Companies that frequently do business with overseas companies are often better prepared to handle transfer risks.  How Transfer Risk Works The transfer risk concept became a prominent issue in recent decades when businesses started to make international trade a large part of their normal operations. The benefits associated with international trade include increasing the flow of goods and services across the various borders and helping to keep prices low for a variety of goods. However, there are quite a few risks involved with buying goods from a company on the other side of the globe. For example, when a U.S. company buys goods from a company in Japan, the transaction is typically denominated in USD or Japanese Yen. These are frequently traded currencies, so it is relatively easy for the U.S.-based company to convert dollars into yen. Plus, both the U.S. and Japan have well-regulated and stable economies and this allows transactions to be conducted without any limitations. When the time comes for two international companies to do business, the choice of currency in an international transaction will often depend on the needs and desires of each individual business.  In some cases, the transaction is not as easily conducted. A business may purchase goods from a company located in a foreign country where it is more difficult to convert the currency. Companies are subject to the laws of the country where they do business. As a result, these laws may affect how business is conducted, how bank transactions are processed, and how the products are delivered. Companies and corporations should always consider transfer risk issues when doing business with foreign companies and take the necessary steps to minimize the effects of these risks. Special Considerations  A transfer risk puts a business in a tumultuous situation. With that said, there are certain measures one can take to limit the loss of capital. Some firms keep a reserve of cash, often known as allocated transfer risk reserve, to manage these challenges. This reserve is an allowance a company maintains to protect against country risks and inconvertible currencies.  The types of companies that maintain a transfer risk reserve will vary but can include large retail multinationals to large banks with exposure in various countries. A banking institution may establish an allocated transfer risk reserve for specified international assets when required by the Board, according to the Federal Deposit Insurance Corporation (FDIC). Example of Transfer Risk  Suppose banking regulations in a country prevent a business from withdrawing funds in a foreign bank for several months after the sale has been completed. While the funds are being held, the value of the foreign currency decreases relative to the value of currency from the country where the business is located.  The end result is losing money on the overall transaction simply due to a timing issue that must be followed in accordance with the law. This is a transfer risk that some businesses face when engaging in commercial transactions with companies in foreign countries. 

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

What Is Sales Tax? Definition, Examples, and How It's 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"><span class="heading-toc" id="toc-what-is-a-sales-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 a Sales Tax? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the <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</a>, collected by the retailer, and passed on to the government. </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 business may be liable for sales taxes in a given jurisdiction if it has a presence there, which can be a brick-and-mortar location, an employee, or an affiliate, depending on the laws in that jurisdiction.<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_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 sales tax is a consumption tax on the sale of goods and services. </li><li>A sales tax is usually charged as a percentage of the retail cost at the point of purchase.</li><li>Local and municipal governments may charge their own sales tax, which is added to the state sales tax. </li><li>Four U.S. states do not have any sales taxes, while a fifth—Alaska—has no statewide sales tax. </li><li>Outside the United States, many countries impose a value-added tax rather than a sales tax. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-sales-tax"></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 Sales Tax </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Conventional or retail sales taxes are only charged to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/end-user.asp">end user</a> of a good or service. Because the majority of goods in modern economies pass through a number of stages of manufacturing, often handled by different entities, a significant amount of documentation is necessary to prove who is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-calculate-sales-tax-7113366">ultimately liable for sales tax</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"> Suppose a sheep farmer sells wool to a company that manufactures yarn. To avoid paying the sales tax, the yarn maker must obtain a resale certificate from the government saying that they are not the end user. The yarn maker then sells the product to a garment maker, who must also obtain a resale certificate. Finally, the garment maker sells fuzzy socks to a retail store, which will charge the customer sales tax as part of the price. </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"> Different jurisdictions can charge different levels of sales taxes. Also, states, counties, and municipalities may levy sales taxes of their own. This can make the purchase price of the same item in different locations differ. Sales taxes are closely related to <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/use-tax.asp">use taxes</a>, which apply to items purchased from outside their jurisdiction. </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"> Use taxes are generally set at the same rate as sales taxes but are difficult to enforce, except when applied to large purchases of tangible goods. An example of a use tax would be when a Georgia resident purchases a car in Florida. The buyer would be required to pay the local Georgia sales tax as though they had bought it there. Comparison shoppers might use the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/net-of-tax.asp">net of tax price</a> to see if buying an item in one location is beneficial over buying it in another location. </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-nexus"></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"> Nexus </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A nexus is generally defined as a physical presence, but this "presence" is not limited to having an office or a warehouse. Whether a business owes sales taxes to a particular government depends on the way that government defines a nexus. </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"> Having an employee in a state can constitute a nexus, as can having an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affiliate.asp">affiliate</a>, such as a partner website that directs traffic to your business' page in exchange for a share of profits. This scenario is an example of the tensions between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecommerce.asp">ecommerce</a> and sales taxes. For example, New York has passed "Amazon laws" requiring internet retailers such as Amazon.com Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>) to pay sales taxes despite their lack of physical presence in the state.<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_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-note" 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 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>There are four U.S. states with no sales taxes: Delaware, New Hampshire, Montana, and Oregon. Alaska also has no statewide sales tax but allows city and county governments to charge a local sales tax.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <span class="heading-toc" id="toc-excise-taxes"></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"> Excise Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In general, sales taxes take a percentage of the price of goods sold. A state might have a 4% sales tax, a county 2%, and a city 1.5%, so that residents of that city pay 7.5% in total. </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"> Certain items are often exempt, such as food. Others are exempt below a certain threshold, such as clothing purchases of less than $200. </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"> Conversely, some products carry special taxes, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/excisetax.asp">excise taxes</a>. "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sin_tax.asp">Sin taxes</a>" are a form of excise tax, such as the local excise tax of $1.50 New York City charges per pack of 20 cigarettes on top of the State excise tax of $4.35 per pack of 20 cigarettes.<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_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-important" 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">Sales Tax vs. VAT</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A Sales Tax is different from a Value-Added Tax in that the sales tax is only collected once. A VAT is collected throughout the production process.</p></div></div></div> <span class="heading-toc" id="toc-value-added-tax"></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"> Value-Added Tax </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The U.S. is one of the few developed countries where conventional sales taxes are still used. Outside of the U.S., many countries have adopted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueaddedtax.asp">value-added tax (VAT)</a> schemes.<span class="ql-inline-citation" data-cite="5"></span> These charge a percentage of the value added at every level of production of a good. </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"> In the example above, the yarn maker would pay a percentage of the difference between what they charge for yarn and what they pay for wool. Similarly, the garment maker would pay the same percentage on the difference between what they charge for socks and what they pay for yarn. This is a tax on each company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossmargin.asp">gross margins</a>, rather than on the end user. </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 main objective of the VAT is to eliminate tax on tax (i.e., double taxation) which cascades from the manufacturing level to the consumption level. </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 U.S. system with no VAT implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higher amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services. </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-what-is-the-sales-tax-in-california"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Sales Tax in California?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>California has a statewide sales tax of 7.25%. In addition, some municipalities may impose local sales taxes.<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_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-what-states-have-the-lowest-sales-tax"></span> <h2 class="mntl-sc-block-questionandanswer__question">What States Have the Lowest Sales Tax?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The states with the lowest average sales taxes are Hawai'i (4.44%), Wyoming (5.36%), and Alaska (1.76%). In addition, four states (Delaware, New Hampshire, Oregon, and Montana) do not allow any sales tax to be charged at all.</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-states-have-the-highest-sales-tax"></span> <h2 class="mntl-sc-block-questionandanswer__question">What States Have the Highest Sales Tax?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Louisiana has the highest sales tax, with a statewide average tax of 9.55% according to the AARP. This includes both state and (average) local taxes. Tennessee, Arkansas, and Washington also have high average sales taxes of above 9%.<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_47-0"></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_48-0"> <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_49-0"> A sales tax is a percentage-based tax on finished products at the point of sale. Sales taxes are common in the United States, where each level of government may charge an additional percentage of gross sales. They are less common outside the U.S., where many countries use a value-added tax instead.<br/> </p></div>

## What Is a Sales Tax? A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the [point of sale](https://www.investopedia.com/terms/p/point-of-sale.asp), collected by the retailer, and passed on to the government. A business may be liable for sales taxes in a given jurisdiction if it has a presence there, which can be a brick-and-mortar location, an employee, or an affiliate, depending on the laws in that jurisdiction.  ### Key Takeaways * A sales tax is a consumption tax on the sale of goods and services. * A sales tax is usually charged as a percentage of the retail cost at the point of purchase. * Local and municipal governments may charge their own sales tax, which is added to the state sales tax. * Four U.S. states do not have any sales taxes, while a fifth—Alaska—has no statewide sales tax. * Outside the United States, many countries impose a value-added tax rather than a sales tax. ## Understanding Sales Tax Conventional or retail sales taxes are only charged to the [end user](https://www.investopedia.com/terms/e/end-user.asp) of a good or service. Because the majority of goods in modern economies pass through a number of stages of manufacturing, often handled by different entities, a significant amount of documentation is necessary to prove who is [ultimately liable for sales tax](https://www.investopedia.com/how-to-calculate-sales-tax-7113366). Suppose a sheep farmer sells wool to a company that manufactures yarn. To avoid paying the sales tax, the yarn maker must obtain a resale certificate from the government saying that they are not the end user. The yarn maker then sells the product to a garment maker, who must also obtain a resale certificate. Finally, the garment maker sells fuzzy socks to a retail store, which will charge the customer sales tax as part of the price. Different jurisdictions can charge different levels of sales taxes. Also, states, counties, and municipalities may levy sales taxes of their own. This can make the purchase price of the same item in different locations differ. Sales taxes are closely related to [use taxes](https://www.investopedia.com/terms/u/use-tax.asp), which apply to items purchased from outside their jurisdiction. Use taxes are generally set at the same rate as sales taxes but are difficult to enforce, except when applied to large purchases of tangible goods. An example of a use tax would be when a Georgia resident purchases a car in Florida. The buyer would be required to pay the local Georgia sales tax as though they had bought it there. Comparison shoppers might use the [net of tax price](https://www.investopedia.com/terms/n/net-of-tax.asp) to see if buying an item in one location is beneficial over buying it in another location. ## Nexus A nexus is generally defined as a physical presence, but this "presence" is not limited to having an office or a warehouse. Whether a business owes sales taxes to a particular government depends on the way that government defines a nexus. Having an employee in a state can constitute a nexus, as can having an [affiliate](https://www.investopedia.com/terms/a/affiliate.asp), such as a partner website that directs traffic to your business' page in exchange for a share of profits. This scenario is an example of the tensions between [ecommerce](https://www.investopedia.com/terms/e/ecommerce.asp) and sales taxes. For example, New York has passed "Amazon laws" requiring internet retailers such as Amazon.com Inc. ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) to pay sales taxes despite their lack of physical presence in the state. ### There are four U.S. states with no sales taxes: Delaware, New Hampshire, Montana, and Oregon. Alaska also has no statewide sales tax but allows city and county governments to charge a local sales tax. ## Excise Taxes In general, sales taxes take a percentage of the price of goods sold. A state might have a 4% sales tax, a county 2%, and a city 1.5%, so that residents of that city pay 7.5% in total. Certain items are often exempt, such as food. Others are exempt below a certain threshold, such as clothing purchases of less than $200. Conversely, some products carry special taxes, known as [excise taxes](https://www.investopedia.com/terms/e/excisetax.asp). "[Sin taxes](https://www.investopedia.com/terms/s/sin_tax.asp)" are a form of excise tax, such as the local excise tax of $1.50 New York City charges per pack of 20 cigarettes on top of the State excise tax of $4.35 per pack of 20 cigarettes. ### Sales Tax vs. VAT A Sales Tax is different from a Value-Added Tax in that the sales tax is only collected once. A VAT is collected throughout the production process. ## Value-Added Tax The U.S. is one of the few developed countries where conventional sales taxes are still used. Outside of the U.S., many countries have adopted [value-added tax (VAT)](https://www.investopedia.com/terms/v/valueaddedtax.asp) schemes. These charge a percentage of the value added at every level of production of a good. In the example above, the yarn maker would pay a percentage of the difference between what they charge for yarn and what they pay for wool. Similarly, the garment maker would pay the same percentage on the difference between what they charge for socks and what they pay for yarn. This is a tax on each company's [gross margins](https://www.investopedia.com/terms/g/grossmargin.asp), rather than on the end user. The main objective of the VAT is to eliminate tax on tax (i.e., double taxation) which cascades from the manufacturing level to the consumption level. The U.S. system with no VAT implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higher amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services. ## What Is the Sales Tax in California? California has a statewide sales tax of 7.25%. In addition, some municipalities may impose local sales taxes. ## What States Have the Lowest Sales Tax? The states with the lowest average sales taxes are Hawai'i (4.44%), Wyoming (5.36%), and Alaska (1.76%). In addition, four states (Delaware, New Hampshire, Oregon, and Montana) do not allow any sales tax to be charged at all. ## What States Have the Highest Sales Tax? Louisiana has the highest sales tax, with a statewide average tax of 9.55% according to the AARP. This includes both state and (average) local taxes. Tennessee, Arkansas, and Washington also have high average sales taxes of above 9%. ## The Bottom Line A sales tax is a percentage-based tax on finished products at the point of sale. Sales taxes are common in the United States, where each level of government may charge an additional percentage of gross sales. They are less common outside the U.S., where many countries use a value-added tax instead.

What Is a Sales Tax? A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed on to the government. A business may be liable for sales taxes in a given jurisdiction if it has a presence there, which can be a brick-and-mortar location, an employee, or an affiliate, depending on the laws in that jurisdiction.  Key Takeaways A sales tax is a consumption tax on the sale of goods and services. A sales tax is usually charged as a percentage of the retail cost at the point of purchase.Local and municipal governments may charge their own sales tax, which is added to the state sales tax. Four U.S. states do not have any sales taxes, while a fifth—Alaska—has no statewide sales tax. Outside the United States, many countries impose a value-added tax rather than a sales tax. Understanding Sales Tax Conventional or retail sales taxes are only charged to the end user of a good or service. Because the majority of goods in modern economies pass through a number of stages of manufacturing, often handled by different entities, a significant amount of documentation is necessary to prove who is ultimately liable for sales tax. Suppose a sheep farmer sells wool to a company that manufactures yarn. To avoid paying the sales tax, the yarn maker must obtain a resale certificate from the government saying that they are not the end user. The yarn maker then sells the product to a garment maker, who must also obtain a resale certificate. Finally, the garment maker sells fuzzy socks to a retail store, which will charge the customer sales tax as part of the price. Different jurisdictions can charge different levels of sales taxes. Also, states, counties, and municipalities may levy sales taxes of their own. This can make the purchase price of the same item in different locations differ. Sales taxes are closely related to use taxes, which apply to items purchased from outside their jurisdiction. Use taxes are generally set at the same rate as sales taxes but are difficult to enforce, except when applied to large purchases of tangible goods. An example of a use tax would be when a Georgia resident purchases a car in Florida. The buyer would be required to pay the local Georgia sales tax as though they had bought it there. Comparison shoppers might use the net of tax price to see if buying an item in one location is beneficial over buying it in another location. Nexus A nexus is generally defined as a physical presence, but this "presence" is not limited to having an office or a warehouse. Whether a business owes sales taxes to a particular government depends on the way that government defines a nexus. Having an employee in a state can constitute a nexus, as can having an affiliate, such as a partner website that directs traffic to your business' page in exchange for a share of profits. This scenario is an example of the tensions between ecommerce and sales taxes. For example, New York has passed "Amazon laws" requiring internet retailers such as Amazon.com Inc. (AMZN) to pay sales taxes despite their lack of physical presence in the state. There are four U.S. states with no sales taxes: Delaware, New Hampshire, Montana, and Oregon. Alaska also has no statewide sales tax but allows city and county governments to charge a local sales tax. Excise Taxes In general, sales taxes take a percentage of the price of goods sold. A state might have a 4% sales tax, a county 2%, and a city 1.5%, so that residents of that city pay 7.5% in total. Certain items are often exempt, such as food. Others are exempt below a certain threshold, such as clothing purchases of less than $200. Conversely, some products carry special taxes, known as excise taxes. "Sin taxes" are a form of excise tax, such as the local excise tax of $1.50 New York City charges per pack of 20 cigarettes on top of the State excise tax of $4.35 per pack of 20 cigarettes. Sales Tax vs. VAT A Sales Tax is different from a Value-Added Tax in that the sales tax is only collected once. A VAT is collected throughout the production process. Value-Added Tax The U.S. is one of the few developed countries where conventional sales taxes are still used. Outside of the U.S., many countries have adopted value-added tax (VAT) schemes. These charge a percentage of the value added at every level of production of a good. In the example above, the yarn maker would pay a percentage of the difference between what they charge for yarn and what they pay for wool. Similarly, the garment maker would pay the same percentage on the difference between what they charge for socks and what they pay for yarn. This is a tax on each company's gross margins, rather than on the end user. The main objective of the VAT is to eliminate tax on tax (i.e., double taxation) which cascades from the manufacturing level to the consumption level. The U.S. system with no VAT implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higher amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services. What Is the Sales Tax in California? California has a statewide sales tax of 7.25%. In addition, some municipalities may impose local sales taxes. What States Have the Lowest Sales Tax? The states with the lowest average sales taxes are Hawai'i (4.44%), Wyoming (5.36%), and Alaska (1.76%). In addition, four states (Delaware, New Hampshire, Oregon, and Montana) do not allow any sales tax to be charged at all. What States Have the Highest Sales Tax? Louisiana has the highest sales tax, with a statewide average tax of 9.55% according to the AARP. This includes both state and (average) local taxes. Tennessee, Arkansas, and Washington also have high average sales taxes of above 9%. The Bottom Line A sales tax is a percentage-based tax on finished products at the point of sale. Sales taxes are common in the United States, where each level of government may charge an additional percentage of gross sales. They are less common outside the U.S., where many countries use a value-added tax instead.

https://www.investopedia.com/homebuilder-etfs-7975000

Homebuilder ETFs Had A Solid Year So Far, But Cracks May Be Appearing

<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>ETFs tracking the home construction industry have outperformed this year, but that may change as home construction slows and mortgage rates rise.</li><li>Popular homebuilder ETFs like SPDR S&amp;P Homebuilders ETF (XHB) are up more than 25% so far this year, but down from their peak two months ago.</li><li>U.S. housing starts tumbled last month to their lowest since June 2020, while sales of newly-built homes also fell unexpectedly.</li><li>30-year mortgage rates have risen back above 7%, and have more than doubled since the Fed started raising borrowing costs early last year.</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"> Homebuilder ETFs have outperformed this year thanks to demand for newly-built homes, but they may have reached an inflection point amid rising mortgage rates and a pullback in construction. </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-banner-year-for-homebuilder-etfs-may-be-turning"></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"> Banner Year For Homebuilder ETFs May Be Turning </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> In the past month, <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> that track homebuilders' performance—such as the SPDR S&amp;P Homebuilders ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XHB">XHB</a>), Invesco Building and Construction ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PKB">PKB</a>), and iShares U.S. Home Construction ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.tradingview.com/chart/0qapVavt/?symbol=AMEX%3AITB" rel="nofollow">ITB</a>)—have all fallen roughly 5%. </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"> This is a departure from the rest of the year up to that point. ITB is up almost 28% so far this year, with XHB and PKB trading 26% and 22% higher, respectively.<span class="ql-inline-citation" data-cite="5"></span> At its peak in July, ITB was up more than 47% year-to-date, while XHB and PKB were each up roughly 40% at the time. </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"> Shares of homebuilders like 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>), KB Home (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KBH">KBH</a>), and Lennar (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN">LEN</a>), which feature prominently in the portfolios of some homebuilder ETFs, were boosted by the resilience of the U.S. housing market. </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"> Sales of newly built homes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/real-estate-market-is-frozen-but-new-home-sales-are-booming-7814278">have boomed this year</a> amid a limited inventory of existing homes for sale, as homeowners who locked in record-low mortgage rates early in the pandemic have been reluctant to sell. </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"> Newly built homes accounted for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/one-third-of-homes-for-sale-are-new-construction-7644618">almost a third of all home sales</a> for the quarter ending in June, marking a second-quarter record and just below the all-time high of 34.5% set in the first quarter last year, according to Redfin.<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> <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_16-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:47.4%;"> <img alt="ITB, PKB, XHB YTD" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/oPml-GRDXjT1dkNhrl5fGLW6TdY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/oPml-GRDXjT1dkNhrl5fGLW6TdY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg" data-srcset="https://www.investopedia.com/thmb/hlLsSQ1zSrU2tocDFsXKhIlqxX4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg 750w" data-tracking-container="true" height="1286" id="mntl-sc-block-image_1-0" width="2710"/> <noscript> <img alt="ITB, PKB, XHB YTD" class="img--noscript universal-image__image" height="1286" sizes="750px" src="https://www.investopedia.com/thmb/oPml-GRDXjT1dkNhrl5fGLW6TdY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg" srcset="https://www.investopedia.com/thmb/hlLsSQ1zSrU2tocDFsXKhIlqxX4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg 750w" width="2710"/> </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> <span class="heading-toc" id="toc-so-whats-changed"></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"> So, What's Changed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A confluence of factors may have brought the housing market to an inflection point, as evidenced in recent economic data. </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"> Construction has slowed: U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/housingstarts.asp">housing starts</a> tumbled last month to their lowest since June 2020.<span class="ql-inline-citation" data-cite="3"></span> Meanwhile, sales of newly built homes also fell unexpectedly, to 675,000 from 739,000 in July, coming in well short of expectations of 700,000.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In theory, the lack of housing supply drove up prices, which provided a great opportunity for homebuilders to bridge that gap with newly constructed homes. However, 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>'s campaign against inflation has driven up interest rates, making <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/40-years-since-buying-a-house-was-this-unaffordable-7964673">mortgages unaffordable</a> and hurting construction companies as well. </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 average rate on a 30-year mortgage guaranteed by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freddiemac.asp">Freddie Mac</a> rose to 7.19% last week, up from less than 6.1% in February.<span class="ql-inline-citation" data-cite="2"></span> Rates have more than doubled since early 2022 before the Fed's rate hikes led to a surge in borrowing costs for consumer loans. </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"> For example, KB Home's gross profit margin for the latest quarter was down 5.2 percentage points from the year-ago quarter, partly reflecting higher mortgage rates and construction costs. </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 margin result relative to the prior year was primarily due to price decreases and other concessions aligned to housing market conditions, particularly the higher mortgage rate environment as well as higher construction costs and a shift in the mix of homes delivered," <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfo.asp">Chief Financial Officer (CFO)</a> Jeff Kaminski said on the company's latest earnings call.<span class="ql-inline-citation" data-cite="6"></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 * ETFs tracking the home construction industry have outperformed this year, but that may change as home construction slows and mortgage rates rise. * Popular homebuilder ETFs like SPDR S&P Homebuilders ETF (XHB) are up more than 25% so far this year, but down from their peak two months ago. * U.S. housing starts tumbled last month to their lowest since June 2020, while sales of newly-built homes also fell unexpectedly. * 30-year mortgage rates have risen back above 7%, and have more than doubled since the Fed started raising borrowing costs early last year. Homebuilder ETFs have outperformed this year thanks to demand for newly-built homes, but they may have reached an inflection point amid rising mortgage rates and a pullback in construction. ## Banner Year For Homebuilder ETFs May Be Turning In the past month, [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) that track homebuilders' performance—such as the SPDR S&P Homebuilders ETF ([XHB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XHB)), Invesco Building and Construction ETF ([PKB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PKB)), and iShares U.S. Home Construction ETF ([ITB](https://www.tradingview.com/chart/0qapVavt/?symbol=AMEX%3AITB))—have all fallen roughly 5%. This is a departure from the rest of the year up to that point. ITB is up almost 28% so far this year, with XHB and PKB trading 26% and 22% higher, respectively. At its peak in July, ITB was up more than 47% year-to-date, while XHB and PKB were each up roughly 40% at the time. Shares of homebuilders like D.R. Horton ([DHI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHI)), KB Home ([KBH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KBH)), and Lennar ([LEN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN)), which feature prominently in the portfolios of some homebuilder ETFs, were boosted by the resilience of the U.S. housing market. Sales of newly built homes [have boomed this year](https://www.investopedia.com/real-estate-market-is-frozen-but-new-home-sales-are-booming-7814278) amid a limited inventory of existing homes for sale, as homeowners who locked in record-low mortgage rates early in the pandemic have been reluctant to sell. Newly built homes accounted for [almost a third of all home sales](https://www.investopedia.com/one-third-of-homes-for-sale-are-new-construction-7644618) for the quarter ending in June, marking a second-quarter record and just below the all-time high of 34.5% set in the first quarter last year, according to Redfin. ![ITB, PKB, XHB YTD]() :max_bytes(150000):strip_icc()/ITB_2023-09-27_11-30-58copy-e65929de8a6040cab85901865c54a8e3.jpg) TradingView ## So, What's Changed? A confluence of factors may have brought the housing market to an inflection point, as evidenced in recent economic data. Construction has slowed: U.S. [housing starts](https://www.investopedia.com/terms/h/housingstarts.asp) tumbled last month to their lowest since June 2020. Meanwhile, sales of newly built homes also fell unexpectedly, to 675,000 from 739,000 in July, coming in well short of expectations of 700,000. In theory, the lack of housing supply drove up prices, which provided a great opportunity for homebuilders to bridge that gap with newly constructed homes. However, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp)'s campaign against inflation has driven up interest rates, making [mortgages unaffordable](https://www.investopedia.com/40-years-since-buying-a-house-was-this-unaffordable-7964673) and hurting construction companies as well. The average rate on a 30-year mortgage guaranteed by [Freddie Mac](https://www.investopedia.com/terms/f/freddiemac.asp) rose to 7.19% last week, up from less than 6.1% in February. Rates have more than doubled since early 2022 before the Fed's rate hikes led to a surge in borrowing costs for consumer loans. For example, KB Home's gross profit margin for the latest quarter was down 5.2 percentage points from the year-ago quarter, partly reflecting higher mortgage rates and construction costs. "The margin result relative to the prior year was primarily due to price decreases and other concessions aligned to housing market conditions, particularly the higher mortgage rate environment as well as higher construction costs and a shift in the mix of homes delivered," [Chief Financial Officer (CFO)](https://www.investopedia.com/terms/c/cfo.asp) Jeff Kaminski said on the company's latest earnings call. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways ETFs tracking the home construction industry have outperformed this year, but that may change as home construction slows and mortgage rates rise.Popular homebuilder ETFs like SPDR S&P Homebuilders ETF (XHB) are up more than 25% so far this year, but down from their peak two months ago.U.S. housing starts tumbled last month to their lowest since June 2020, while sales of newly-built homes also fell unexpectedly.30-year mortgage rates have risen back above 7%, and have more than doubled since the Fed started raising borrowing costs early last year. Homebuilder ETFs have outperformed this year thanks to demand for newly-built homes, but they may have reached an inflection point amid rising mortgage rates and a pullback in construction. Banner Year For Homebuilder ETFs May Be Turning In the past month, exchange-traded funds (ETFs) that track homebuilders' performance—such as the SPDR S&P Homebuilders ETF (XHB), Invesco Building and Construction ETF (PKB), and iShares U.S. Home Construction ETF (ITB)—have all fallen roughly 5%. This is a departure from the rest of the year up to that point. ITB is up almost 28% so far this year, with XHB and PKB trading 26% and 22% higher, respectively. At its peak in July, ITB was up more than 47% year-to-date, while XHB and PKB were each up roughly 40% at the time. Shares of homebuilders like D.R. Horton (DHI), KB Home (KBH), and Lennar (LEN), which feature prominently in the portfolios of some homebuilder ETFs, were boosted by the resilience of the U.S. housing market. Sales of newly built homes have boomed this year amid a limited inventory of existing homes for sale, as homeowners who locked in record-low mortgage rates early in the pandemic have been reluctant to sell. Newly built homes accounted for almost a third of all home sales for the quarter ending in June, marking a second-quarter record and just below the all-time high of 34.5% set in the first quarter last year, according to Redfin. TradingView So, What's Changed? A confluence of factors may have brought the housing market to an inflection point, as evidenced in recent economic data. Construction has slowed: U.S. housing starts tumbled last month to their lowest since June 2020. Meanwhile, sales of newly built homes also fell unexpectedly, to 675,000 from 739,000 in July, coming in well short of expectations of 700,000. In theory, the lack of housing supply drove up prices, which provided a great opportunity for homebuilders to bridge that gap with newly constructed homes. However, the Federal Reserve's campaign against inflation has driven up interest rates, making mortgages unaffordable and hurting construction companies as well. The average rate on a 30-year mortgage guaranteed by Freddie Mac rose to 7.19% last week, up from less than 6.1% in February. Rates have more than doubled since early 2022 before the Fed's rate hikes led to a surge in borrowing costs for consumer loans. For example, KB Home's gross profit margin for the latest quarter was down 5.2 percentage points from the year-ago quarter, partly reflecting higher mortgage rates and construction costs. "The margin result relative to the prior year was primarily due to price decreases and other concessions aligned to housing market conditions, particularly the higher mortgage rate environment as well as higher construction costs and a shift in the mix of homes delivered," Chief Financial Officer (CFO) Jeff Kaminski said on the company's latest earnings call. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/terms/g/gsci.asp

S&P GSCI Definition, Commodity Types Listed, Potential Drawbacks

<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-sp-gsci"></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 S&amp;P GSCI? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The S&amp;P GSCI is a composite <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodityindices.asp">index of commodities</a> that measures the performance of the commodities market. The index often serves as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> for commodities investments. Investing in a GSCI fund provides a broadly diversified, unleveraged <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long-only</a> position in commodity futures. </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 S&amp;P GSCI was simply called the Goldman Sachs Commodity Index (GSCI) before it was purchased by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">Standard &amp; Poor’s</a> in 2007. Although owned by S&amp;P Dow Jones Indices, the GSCI should not be confused with the similar <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dj-aigci.asp">Dow Jones Commodity Index</a> (DJCI). </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 S&amp;P GSCI is a benchmark commodities index that tracks the performance of the global commodities market.</li><li>It is made up of 24 exchange-traded futures contracts that cover physical commodities spanning five sectors.</li><li>The S&amp;P GSCI is designed to be investable, and there are ETF products designed to track its performance.</li><li>The S&amp;P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-sp-gsci-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 the S&amp;P GSCI Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The S&amp;P GSCI is weighted by world production and comprises the physical commodities that have active, liquid futures markets. There is no limit on the number of commodities that may be included in the S&amp;P GSCI; any commodity whose contract satisfies the eligibility criteria and the other conditions specified in this methodology are included. The S&amp;P GSCI is designed to reflect the relative significance of each of the constituent commodities to the world economy, while preserving the tradability of the index by limiting eligible contracts to those with adequate liquidity. The calculation of the relative weights of commodities in the index involves a four-step process based on world production levels.<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"> The methodology of the S&amp;P GSCI was left unchanged when Standard &amp; Poor's took over the index. The S&amp;P GSCI is made up of 24 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futuresexchange.asp">exchange-traded futures</a> contracts that cover physical commodities spanning five sectors. The sectors currently include energy, industrial metals, precious metals, agriculture, and livestock. This sector mix has been consistent over the years, but the weighting shifts year to year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-subheading__text"> Trading the S&amp;P GSCI </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The S&amp;P GSCI is designed to be investable, and there are ETF products designed to track its performance. The S&amp;P GSCI captures global inflation of core commodities. Therefore, it is useful for creating funds that have low correlations with traditional <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>. </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 iShares S&amp;P GSCI Commodity Index ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GSG">GSG</a>) is an ETF product that tracks the index. </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-components-of-the-sp-gsci"></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"> Components of the S&amp;P GSCI </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The index's components qualify for inclusion in the index based on liquidity measures and are weighted in relation to their global production levels. That makes the GSCI valuable as both an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economic_indicator.asp">economic indicator</a> and a commodities market benchmark. Below is a table of the 2021 reference percentage dollar weights (RPDW) for the S&amp;P GSCI.<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> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_21-0"> <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">GSCI Component Weights</th> </tr> <tr> <th><br/>Commodity Type<br/></th> <th><br/>2021 RPDW<br/>(nearest %)<br/></th> <th>Included Commodities</th> </tr> </thead> <tbody data-check="0"> <tr> <td><br/>Energy<br/></td> <td><br/>54%<br/></td> <td>Crude oil, Refined oil products, Natural gas</td> </tr> <tr> <td><br/>Grains<br/></td> <td><br/>15%<br/></td> <td>Wheat, Corn, Soybeans</td> </tr> <tr> <td><br/>Livestock<br/></td> <td><br/>8%<br/></td> <td>Hogs, Cattle</td> </tr> <tr> <td><br/>"Soft" Agriculture<br/></td> <td><br/>4%<br/></td> <td>Coffee, Sugar, Cocoa, Cotton</td> </tr> <tr> <td><br/>Industrial Metals<br/></td> <td><br/>12%</td> <td>Aluminum, Copper, Zinc, Nickel, Lead</td> </tr> <tr> <td><br/>Precious Metals<br/></td> <td><br/>7%<br/></td> <td>Gold, Silver, Platinum</td> </tr> </tbody> </table> <figcaption>Source: S&amp;P Dow Jones Indices</figcaption> </div></figure> <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"> Energy was the largest sector at 54% of the index. Agriculture had a 27% share, while metals were 19%. </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-drawbacks-of-the-sp-gsci-index"></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"> Drawbacks of the S&amp;P GSCI Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The S&amp;P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. Futures contracts are affected by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contango.asp">contango</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/backwardation.asp">backwardation</a>, and they can cause commodity futures to perform differently than actual commodities. </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"> In theory, professional commodities traders can also use contango and backwardation to profit at the expense of simple automatic rolling strategies. This may be a significant flaw in the S&amp;P GSCI. It could also be more theoretical than real, like many early criticisms of stock market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing-in-index-funds-4771002">index funds</a>. </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-callout mntl-block" id="mntl-sc-block_30-0"><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_31-0"><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 component mix of the S&amp;P GSCI is reevaluated and rebalanced on an annual basis.</p></div></div></div> <span class="heading-toc" id="toc-other-commodity-indexes"></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"> Other Commodity Indexes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Other widely watched and traded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodityindices.asp">commodity indexes</a> include the Credit Suisse Commodity Benchmark Index, the Rogers International Commodities Index, and the Bloomberg Commodity Total Return Index. The Dow Jones Commodity Index (DJCI) is a weighted index that tracks a wide range of 28 different commodity futures contracts, including metals, agricultural products, and energy commodities such as oil and gas. </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"> It is essential to understand how commodity indexes are weighted and rebalanced. These differences will affect the performance of tracking products over time. </p></div>

## What Is the S&P GSCI? The S&P GSCI is a composite [index of commodities](https://www.investopedia.com/terms/c/commodityindices.asp) that measures the performance of the commodities market. The index often serves as a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) for commodities investments. Investing in a GSCI fund provides a broadly diversified, unleveraged [long-only](https://www.investopedia.com/terms/l/long.asp) position in commodity futures. The S&P GSCI was simply called the Goldman Sachs Commodity Index (GSCI) before it was purchased by [Standard & Poor’s](https://www.investopedia.com/terms/s/sp.asp) in 2007. Although owned by S&P Dow Jones Indices, the GSCI should not be confused with the similar [Dow Jones Commodity Index](https://www.investopedia.com/terms/d/dj-aigci.asp) (DJCI). ### Key Takeaways * The S&P GSCI is a benchmark commodities index that tracks the performance of the global commodities market. * It is made up of 24 exchange-traded futures contracts that cover physical commodities spanning five sectors. * The S&P GSCI is designed to be investable, and there are ETF products designed to track its performance. * The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. ## How the S&P GSCI Works The S&P GSCI is weighted by world production and comprises the physical commodities that have active, liquid futures markets. There is no limit on the number of commodities that may be included in the S&P GSCI; any commodity whose contract satisfies the eligibility criteria and the other conditions specified in this methodology are included. The S&P GSCI is designed to reflect the relative significance of each of the constituent commodities to the world economy, while preserving the tradability of the index by limiting eligible contracts to those with adequate liquidity. The calculation of the relative weights of commodities in the index involves a four-step process based on world production levels. The methodology of the S&P GSCI was left unchanged when Standard & Poor's took over the index. The S&P GSCI is made up of 24 [exchange-traded futures](https://www.investopedia.com/terms/f/futuresexchange.asp) contracts that cover physical commodities spanning five sectors. The sectors currently include energy, industrial metals, precious metals, agriculture, and livestock. This sector mix has been consistent over the years, but the weighting shifts year to year. ### Trading the S&P GSCI The S&P GSCI is designed to be investable, and there are ETF products designed to track its performance. The S&P GSCI captures global inflation of core commodities. Therefore, it is useful for creating funds that have low correlations with traditional [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp). The iShares S&P GSCI Commodity Index ETF ([GSG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GSG)) is an ETF product that tracks the index. ## Components of the S&P GSCI The index's components qualify for inclusion in the index based on liquidity measures and are weighted in relation to their global production levels. That makes the GSCI valuable as both an [economic indicator](https://www.investopedia.com/terms/e/economic_indicator.asp) and a commodities market benchmark. Below is a table of the 2021 reference percentage dollar weights (RPDW) for the S&P GSCI. | GSCI Component Weights | | | | --- | --- | --- | | Commodity Type | 2021 RPDW(nearest %) | Included Commodities | | Energy | 54% | Crude oil, Refined oil products, Natural gas | | Grains | 15% | Wheat, Corn, Soybeans | | Livestock | 8% | Hogs, Cattle | | "Soft" Agriculture | 4% | Coffee, Sugar, Cocoa, Cotton | | Industrial Metals | 12% | Aluminum, Copper, Zinc, Nickel, Lead | | Precious Metals | 7% | Gold, Silver, Platinum | Source: S&P Dow Jones Indices Energy was the largest sector at 54% of the index. Agriculture had a 27% share, while metals were 19%. ## Drawbacks of the S&P GSCI Index The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. Futures contracts are affected by [contango](https://www.investopedia.com/terms/c/contango.asp) and [backwardation](https://www.investopedia.com/terms/b/backwardation.asp), and they can cause commodity futures to perform differently than actual commodities. In theory, professional commodities traders can also use contango and backwardation to profit at the expense of simple automatic rolling strategies. This may be a significant flaw in the S&P GSCI. It could also be more theoretical than real, like many early criticisms of stock market [index funds](https://www.investopedia.com/investing-in-index-funds-4771002). ### The component mix of the S&P GSCI is reevaluated and rebalanced on an annual basis. ## Other Commodity Indexes Other widely watched and traded [commodity indexes](https://www.investopedia.com/terms/c/commodityindices.asp) include the Credit Suisse Commodity Benchmark Index, the Rogers International Commodities Index, and the Bloomberg Commodity Total Return Index. The Dow Jones Commodity Index (DJCI) is a weighted index that tracks a wide range of 28 different commodity futures contracts, including metals, agricultural products, and energy commodities such as oil and gas. It is essential to understand how commodity indexes are weighted and rebalanced. These differences will affect the performance of tracking products over time.

What Is the S&P GSCI? The S&P GSCI is a composite index of commodities that measures the performance of the commodities market. The index often serves as a benchmark for commodities investments. Investing in a GSCI fund provides a broadly diversified, unleveraged long-only position in commodity futures. The S&P GSCI was simply called the Goldman Sachs Commodity Index (GSCI) before it was purchased by Standard & Poor’s in 2007. Although owned by S&P Dow Jones Indices, the GSCI should not be confused with the similar Dow Jones Commodity Index (DJCI). Key Takeaways The S&P GSCI is a benchmark commodities index that tracks the performance of the global commodities market.It is made up of 24 exchange-traded futures contracts that cover physical commodities spanning five sectors.The S&P GSCI is designed to be investable, and there are ETF products designed to track its performance.The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. How the S&P GSCI Works The S&P GSCI is weighted by world production and comprises the physical commodities that have active, liquid futures markets. There is no limit on the number of commodities that may be included in the S&P GSCI; any commodity whose contract satisfies the eligibility criteria and the other conditions specified in this methodology are included. The S&P GSCI is designed to reflect the relative significance of each of the constituent commodities to the world economy, while preserving the tradability of the index by limiting eligible contracts to those with adequate liquidity. The calculation of the relative weights of commodities in the index involves a four-step process based on world production levels. The methodology of the S&P GSCI was left unchanged when Standard & Poor's took over the index. The S&P GSCI is made up of 24 exchange-traded futures contracts that cover physical commodities spanning five sectors. The sectors currently include energy, industrial metals, precious metals, agriculture, and livestock. This sector mix has been consistent over the years, but the weighting shifts year to year. Trading the S&P GSCI The S&P GSCI is designed to be investable, and there are ETF products designed to track its performance. The S&P GSCI captures global inflation of core commodities. Therefore, it is useful for creating funds that have low correlations with traditional asset classes. The iShares S&P GSCI Commodity Index ETF (GSG) is an ETF product that tracks the index. Components of the S&P GSCI The index's components qualify for inclusion in the index based on liquidity measures and are weighted in relation to their global production levels. That makes the GSCI valuable as both an economic indicator and a commodities market benchmark. Below is a table of the 2021 reference percentage dollar weights (RPDW) for the S&P GSCI. GSCI Component Weights Commodity Type 2021 RPDW(nearest %) Included Commodities Energy 54% Crude oil, Refined oil products, Natural gas Grains 15% Wheat, Corn, Soybeans Livestock 8% Hogs, Cattle "Soft" Agriculture 4% Coffee, Sugar, Cocoa, Cotton Industrial Metals 12% Aluminum, Copper, Zinc, Nickel, Lead Precious Metals 7% Gold, Silver, Platinum Source: S&P Dow Jones Indices Energy was the largest sector at 54% of the index. Agriculture had a 27% share, while metals were 19%. Drawbacks of the S&P GSCI Index The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. Futures contracts are affected by contango and backwardation, and they can cause commodity futures to perform differently than actual commodities. In theory, professional commodities traders can also use contango and backwardation to profit at the expense of simple automatic rolling strategies. This may be a significant flaw in the S&P GSCI. It could also be more theoretical than real, like many early criticisms of stock market index funds. The component mix of the S&P GSCI is reevaluated and rebalanced on an annual basis. Other Commodity Indexes Other widely watched and traded commodity indexes include the Credit Suisse Commodity Benchmark Index, the Rogers International Commodities Index, and the Bloomberg Commodity Total Return Index. The Dow Jones Commodity Index (DJCI) is a weighted index that tracks a wide range of 28 different commodity futures contracts, including metals, agricultural products, and energy commodities such as oil and gas. It is essential to understand how commodity indexes are weighted and rebalanced. These differences will affect the performance of tracking products over time.

https://www.investopedia.com/biden-signs-deal-funding-government-through-march-averting-shutdown-8546405

Biden Signs Deal Funding Government Through March, Averting Shutdown

<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>President Joe Biden has signed a bill extending government funding through March, giving lawmakers more time to work out a budget.<br/></li><li>Democrats and Republicans in Congress have agreed on how much the federal government can spend, but must hammer out the details.<br/></li><li>The signing averts, at least for the time being, the possibility of a government shutdown.<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"> President Joe Biden signed a bill Friday funding the government until March, delaying—at least for the time being—a potential government shutdown.<span class="ql-inline-citation" data-cite="2"></span><br/><br/>Lawmakers have given themselves another few months to work out the details of next year’s budget, which was originally supposed to be approved in October. Democrats, who control the Senate, and Republicans, who control the House of Representatives, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-the-budget-deal-brightens-the-outlook-for-the-us-economy-8423801">agreed earlier in January on how much the government can spend</a> and now must work out the details of where the money will go.  </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 continuing resolution passed by the House and the Senate this week extends funding through March 1 for four of the 12 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appropriation.asp">appropriation</a> bills that make up the federal budget, and through March 8 for the other eight.<span class="ql-inline-citation" data-cite="1"></span><br/><br/>Some Republicans had threatened to block the spending bills if Democrats didn't agree to steep cuts to social programs, but the spending deal made a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/government-shutdown.asp">shutdown</a>, and the damage to the economy it would cause, more remote.<br/><br/>Lawmakers have been negotiating compromise spending bills, including a measure that would let more lower-income families benefit from the Child Tax Credit. As with past spending bills, they include tax cuts favored by Republicans and social spending increases favored by Democrats, leaving the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-national-debt-hit-a-record-usd34-trillion-how-much-should-you-worry-8421976">$34 trillion national debt on an upward trajectory</a>. </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 * President Joe Biden has signed a bill extending government funding through March, giving lawmakers more time to work out a budget. * Democrats and Republicans in Congress have agreed on how much the federal government can spend, but must hammer out the details. * The signing averts, at least for the time being, the possibility of a government shutdown. President Joe Biden signed a bill Friday funding the government until March, delaying—at least for the time being—a potential government shutdown. Lawmakers have given themselves another few months to work out the details of next year’s budget, which was originally supposed to be approved in October. Democrats, who control the Senate, and Republicans, who control the House of Representatives, [agreed earlier in January on how much the government can spend](https://www.investopedia.com/how-the-budget-deal-brightens-the-outlook-for-the-us-economy-8423801) and now must work out the details of where the money will go.  The continuing resolution passed by the House and the Senate this week extends funding through March 1 for four of the 12 [appropriation](https://www.investopedia.com/terms/a/appropriation.asp) bills that make up the federal budget, and through March 8 for the other eight. Some Republicans had threatened to block the spending bills if Democrats didn't agree to steep cuts to social programs, but the spending deal made a [shutdown](https://www.investopedia.com/terms/g/government-shutdown.asp), and the damage to the economy it would cause, more remote. Lawmakers have been negotiating compromise spending bills, including a measure that would let more lower-income families benefit from the Child Tax Credit. As with past spending bills, they include tax cuts favored by Republicans and social spending increases favored by Democrats, leaving the [$34 trillion national debt on an upward trajectory](https://www.investopedia.com/the-national-debt-hit-a-record-usd34-trillion-how-much-should-you-worry-8421976). Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways President Joe Biden has signed a bill extending government funding through March, giving lawmakers more time to work out a budget.Democrats and Republicans in Congress have agreed on how much the federal government can spend, but must hammer out the details.The signing averts, at least for the time being, the possibility of a government shutdown. President Joe Biden signed a bill Friday funding the government until March, delaying—at least for the time being—a potential government shutdown.Lawmakers have given themselves another few months to work out the details of next year’s budget, which was originally supposed to be approved in October. Democrats, who control the Senate, and Republicans, who control the House of Representatives, agreed earlier in January on how much the government can spend and now must work out the details of where the money will go.  The continuing resolution passed by the House and the Senate this week extends funding through March 1 for four of the 12 appropriation bills that make up the federal budget, and through March 8 for the other eight.Some Republicans had threatened to block the spending bills if Democrats didn't agree to steep cuts to social programs, but the spending deal made a shutdown, and the damage to the economy it would cause, more remote.Lawmakers have been negotiating compromise spending bills, including a measure that would let more lower-income families benefit from the Child Tax Credit. As with past spending bills, they include tax cuts favored by Republicans and social spending increases favored by Democrats, leaving the $34 trillion national debt on an upward trajectory. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/what-happened-to-first-republic-bank-7489214

What Happened to First Republic Bank?

<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"> First Republic Bank (FRB) became the second-largest bank failure in U.S. history on May 1, 2023, with most of its business <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-sold-jpmorgan-chase-7369927">sold to JPMorgan Chase</a> after federal regulators seized it. The bank suffered from a run on deposits just weeks after the collapse of two other large regional banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676">Silicon Valley Bank</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-signature-bank-7370710">Signature Bank</a>. All of them had large amounts of uninsured deposits.<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_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>First Republic Bank customers included businesses and individuals with deposits of more than the $250,000 Federal Deposit Insurance Corp. (FDIC) insurance limit. Nearly two-thirds of its deposits were uninsured.</li><li>First Republic’s failure was due to a run on deposits following the collapses of Silicon Valley Bank and Signature Bank.</li><li>JPMorgan Chase acquired First Republic Bank on May 1, 2023. </li><li>If you had insured or uninsured money in First Republic accounts, your funds are safe and now managed by JPMorgan Chase.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-was-first-republic-bank"></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 Was First Republic Bank? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> First Republic Bank was a San Francisco-based regional bank focused on <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 clients</a>. It closed in 2023 and was acquired by JPMorgan Chase. Part of the reason why it failed was because a large proportion of its deposits exceeded the limit for coverage by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</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"> The FDIC covers up to $250,000 per account holder, per account type. So, if a bank fails, depositors’ funds are protected for up to that amount. But anything over that is generally not considered covered.<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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> As of December 2022, 67.4% of First Republic’s deposits were uninsured, according to S&amp;P Global Market Intelligence data analysis. Following the collapses of Silicon Valley Bank and Signature Bank, many First Republic customers with uninsured funds became concerned about holding their money at a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-regional-bank-7479637">regional bank</a>, which led to a run on deposits.<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"> Just before its collapse, First Republic had $103.9 billion in deposits and $229.1 billion in assets. JPMorgan Chase acquired the majority of its assets and rebranded 84 branches in eight states, opening them on May 1, 2023. As a result, First Republic’s customers had uninterrupted service, and their funds—even their uninsured deposits—were safe.<span class="ql-inline-citation" data-cite="2"></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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> First Republic’s demise marked the third bank failure in 2023, along with Silicon Valley Bank and Signature Bank, according to the Federal Reserve’s failed-bank list. In total, the three banks had a combined $548.5 billion in assets, which was more than the total assets for all the failed banks in 2008, the height of 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">financial crisis</a>.<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> <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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/silvergate-stock-crashes-after-closing-crypto-bank-7252963">SIlvergate Capital Corp.</a>, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a>-focused bank, voluntarily closed in early 2023 after an $8.1 billion run on its deposits. Its failure was not included on the FDIC’s failed-bank list as of May 2023.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Each First Republic client had a “First Republic Relationship Manager” who served as a point of contact for personalized service. Services focused on private banking and private wealth management as well as private business banking. </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>Private banking and private wealth management</strong>: Services included mortgage and personal lending and accounts for checking, savings, and certificates of deposit (CDs). Private wealth management provided investment management, financial planning, foreign exchange, trust administration and custody, and brokerage and insurance services.</li><li><strong>Private business banking</strong>: Personalized business banking and lending services focused on industries like venture capital, private equity funds, hedge funds and firms, and investment management firms. Other target industries included property management and real estate investors, private clubs, independent schools, medical practices, and wineries.<span class="ql-inline-citation" data-cite="9"></span></li> </ul> <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-history-of-first-republic-bank"></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"> History of First Republic Bank </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> First Republic Bank was founded in 1985 by James H. Herbert II to focus on jumbo mortgages, CDs, and savings accounts. The bank operated in San Francisco, specializing in lending for luxury homes, second homes, condos and co-ops, and investment properties.<span class="ql-inline-citation" data-cite="11"></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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In the late 1990s, First Republic expanded into a full-service bank and added new services and markets on the West Coast and East Coast. Over the following decades, First Republic built its reputation on having fewer customer accounts with more individualized service and continued to focus on high-net-wealth clients.<span class="ql-inline-citation" data-cite="13"></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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In 2007, First Republic merged with Merrill Lynch, which in turn was acquired by Bank of America in 2008. In 2010, Herbert raised private equity capital and secured regulatory approval to buy back First Republic.<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_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-note" 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 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>From 2018 to 2021, First Republic more than doubled deposits, to $156 billion.<span class="ql-inline-citation" data-cite="15"></span> </p></div></div></div> <span class="heading-toc" id="toc-why-did-first-republic-bank-fail"></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"> Why Did First Republic Bank Fail? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> First Republic Bank failed for many of the same reasons that Silicon Valley Bank (SVB) and Signature Bank failed, including the fact that it carried a significant amount of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/uninsured-deposits-threaten-banking-system-7368338">uninsured deposits</a> and struggled with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>. Like SVB, it focused part of its business on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/startup.asp">startups</a> in Silicon Valley that held balances much higher than $250,000, according to news reports.<span class="ql-inline-citation" data-cite="37"></span><span class="ql-inline-citation" data-cite="27"></span> Compounding this was the broader fear among investors over regional banks. </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>Uninsured deposits</strong>: A high number of uninsured deposits can contribute to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankrun.asp">bank run</a> when investors start to panic. First Republic’s wealthy customer base had a high proportion of uninsured deposits, with more than 67% of the bank’s deposits being uninsured as of December 2022.<span class="ql-inline-citation" data-cite="4"></span></li> <li><strong>Lack of liquidity</strong>: First Republic’s primary income source was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/net-interest-income.asp">net interest income</a> from loans and investment securities. Many of its investments were in real estate loans and municipal securities, which were less liquid and not earning competitive interest rates. Among midsize banks, First Republic had the highest ratio of loans and securities to uninsured deposits in December 2022.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="18"></span></li> <li><strong>Credit ratings downgrades</strong>: First Republic Bank faced repeated <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-stock-slumps-again-on-s-and-p-debt-downgrade-7368934">credit agency downgrades</a> due to concerns that infusions wouldn’t resolve its challenges with liquidity, funding, and profitability.<span class="ql-inline-citation" data-cite="19"></span></li> <li><strong>Mistrust in regional banks</strong>: Due to the collapses of Silicon Valley Bank and Signature Bank earlier in the year, along with credit ratings downgrades, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> were increasingly concerned about keeping uninsured deposits with a regional bank.</li> </ul> <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"> First Republic began borrowing from the Federal Home Loan Bank Board (FHLB) and Federal Reserve and accepted a $30 billion cash infusion from a consortium of 11 banks as its deposits started rapidly declining after the failures of Silicon Valley Bank and Signature Bank. Meanwhile, its share price plunged from $122.50 on March 1, 2023, to $3.51 on April 28, 2023.<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_37-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_38-0"> <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>Total Deposits</b></td> <td><b>Uninsured Deposits</b></td> </tr> <tr> <td><b>December 2022</b><span data-cite="4"></span><span data-cite="20"></span></td> <td>$176.4 billion</td> <td>$119 billion</td> </tr> <tr> <td><b>March 2023</b><span data-cite="20"></span></td> <td>$104.1 billion</td> <td>$19.8 billion</td> </tr> <tr> <td><b>April 2023</b><span data-cite="20"></span></td> <td>$92.6 billion</td> <td>$8.4 billion</td> </tr> </tbody> </table> </div></figure> <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-timeline-of-the-2023-collapse"></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"> Timeline of the 2023 Collapse </span> </h2> <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"> 2022 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li><strong>Dec. 31</strong>: First Republic met all capital ratio requirements to be “well-capitalized.” However, the bank had already borrowed $14 billion from the Federal Home Loan Bank Board (FHLB).<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="20"></span></li> </ul> <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"> 2023 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li><strong>Feb. 28</strong>: First Republic’s annual report outlined its challenges, including the fact that most of its loan portfolio was secured by real estate and concentrated in California and the San Francisco Bay Area. The report noted that the bank “experienced rapid migration of deposits to higher yielding products and asset classes” due to rising interest rates.<span class="ql-inline-citation" data-cite="23"></span> </li> <li><strong>March 6</strong>: FRB’s stock fell more than 75% within days and never recovered.<span class="ql-inline-citation" data-cite="35"></span></li> <li><strong>March 10</strong>: Silicon Valley Bank was closed by the FDIC, and First Republic began experiencing what it called “unprecedented deposit outflows.”<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="36"></span></li> <li><strong>March 12</strong>: The FDIC closed Signature Bank.<span class="ql-inline-citation" data-cite="24"></span></li> <li><strong>March 15–19</strong>: Numerous credit rating agencies downgraded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-shares-plunge-on-sale-possibility-credit-rating-downgrade-7367941">First Republic’s credit rating</a>, signaling a lack of confidence in the bank.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="18"></span></li> <li><strong>March 16</strong>: To boost First Republic’s liquidity, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-s-usd30b-rescue-by-jp-morgan-citi-and-bank-of-america-7367932">11 banks contributed $30 billion</a> in uninsured deposits.<span class="ql-inline-citation" data-cite="25"></span></li> <li><strong>March 31</strong>: First Republic Bank had borrowed $105.4 billion from Federal Reserve and Federal Home Loan Bank Board (FHLB) funding.<span class="ql-inline-citation" data-cite="35"></span> </li> <li><strong>April 24</strong>: The bank <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-teeters-7485632">indicated</a> it was headed toward collapse as deposits declined almost 41% from December 2022. It announced plans to <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-republic-deposits-plunge-q1-fy2023-7484537">reduce its workforce</a> by up to 25%, among other cost-cutting steps.<span class="ql-inline-citation" data-cite="26"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>April 28</strong>: First Republic could not access more funding after $121.3 billion in outstanding borrowings from the Federal Reserve and FHLB funds.<strong> </strong>News outlets reported that the FDIC planned to find buyers for First Republic.<span class="ql-inline-citation" data-cite="20"></span><span class="ql-inline-citation" data-cite="27"></span></li> <li><strong>May 1</strong>: <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fdic-wants-first-republic-bids-jpmorgan-pnc-interested-7486879">JPMorgan Chase acquired</a> a substantial majority of First Republic Bank’s assets.<span class="ql-inline-citation" data-cite="2"></span><br/></li> </ul> <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-impact-on-depositors-and-investors"></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"> Impact on Depositors and Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> First Republic customers had uninterrupted service and their money was ultimately safe after the acquisition by JPMorgan Chase. </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"> As of May 5, 2023, the plan was to transition First Republic’s platforms and operations to JPMorgan Chase’s technology over time. Some existing First Republic branches were expected to be converted into J.P. Morgan wealth centers, and the bank’s private wealth management platform was slated to be merged with J.P. Morgan Advisors.<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_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-note" 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 with-title" id="mntl-sc-block-callout-heading_4-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>JPMorgan Chase did not assume First Republic Bank’s preferred stock. The New York Stock Exchange delisted FRB’s common stock on May 2, 2023.<span class="ql-inline-citation" data-cite="30"></span><span class="ql-inline-citation" data-cite="29"></span></p></div></div></div> <span class="heading-toc" id="toc-why-do-banks-keep-failing"></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"> Why Do Banks Keep Failing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Several common contributing factors led to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank (as well as Silvergate Capital) in early 2023. These include the banks’ high proportion of uninsured deposits and a focus on overly niche markets, such as venture capitalists in the case of SVB and commercial real estate in the case of Signature Bank.<span class="ql-inline-citation" data-cite="32"></span><span class="ql-inline-citation" data-cite="31"></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"> Following the collapse of SVB, investors were more motivated to move their uninsured deposits out of regional banks to protect their funds. </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 banks were also struggling with asset issues. During the COVID-19 pandemic, historically low interest rates led to banks amassing larger commercial and real estate lending portfolios. As interest rates rose in 2022, lending slowed, and banks were stuck with low-rate loans while paying higher interest rates to customers. </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-note" 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 with-title" id="mntl-sc-block-callout-heading_5-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Technology may have had a role in this spate of bank failures, as Automated Clearing House (ACH) and online banking has made transferring funds out of a bank account much easier.</p></div></div></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-who-paid-for-the-rescue-of-first-republic-bank"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Paid for the Rescue of First Republic Bank?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The FDIC and JPMorgan Chase paid for the rescue of First Republic Bank. JPMorgan Chase paid $10.6 billion to the FDIC for the acquisition of First Republic. The FDIC was expected to provide $50 billion in fixed-rate financing for balance sheet restructuring as well as some loss coverage for mortgages and commercial loans. The FDIC’s portion comes from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deposit-insurance-fund.asp">Deposit Insurance Fund (DIF)</a>, which is funded by quarterly fees that banks pay the FDIC to assess their risk.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="33"></span></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-is-my-money-safe-at-a-regional-bank"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is My Money Safe at a Regional Bank?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Clients who held their money at First Republic Bank found that their money was safe after the bank failed and JPMorgan Chase assumed control of its assets. Your money is generally considered safe in an FDIC-insured bank account up to the $250,000 FDIC-insured limit. Above that, you cannot be sure that you will recoup your funds in the event of a bank failure.<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_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-what-does-too-big-to-fail-mean"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does ‘Too Big to Fail’ Mean?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>This phrase “too big to fail” refers to a large financial firm so large that it creates a risk to the broader economy. When an institution is deemed “<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/too-big-to-fail.asp">too big to fail</a>,” the U.S. government may take any action to rescue it and prevent more widespread economic losses. Eight banks, including JPMorgan Chase, were considered “globally systemically important” and subject to heightened standards as of April 2022.<span class="ql-inline-citation" data-cite="34"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></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_69-0"> <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_70-0"> First Republic Bank was among a few regional banks that failed in early 2023 due to bank runs driven in part by the high volume of uninsured deposits that they carried, along with financial struggles caused by the broader interest rate environment. </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"> To ensure your funds are safe, consider keeping an amount under the minimum FDIC insurance limit of $250,000 in your bank account. If you need to deposit more than that, you could open another account at a different bank. A financial advisor can provide you with more guidance on how to handle distributing your money according to your personal circumstances.<br> </br></p></div>

First Republic Bank (FRB) became the second-largest bank failure in U.S. history on May 1, 2023, with most of its business [sold to JPMorgan Chase](https://www.investopedia.com/first-republic-sold-jpmorgan-chase-7369927) after federal regulators seized it. The bank suffered from a run on deposits just weeks after the collapse of two other large regional banks, [Silicon Valley Bank](https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676) and [Signature Bank](https://www.investopedia.com/what-happened-to-signature-bank-7370710). All of them had large amounts of uninsured deposits. ### Key Takeaways * First Republic Bank customers included businesses and individuals with deposits of more than the $250,000 Federal Deposit Insurance Corp. (FDIC) insurance limit. Nearly two-thirds of its deposits were uninsured. * First Republic’s failure was due to a run on deposits following the collapses of Silicon Valley Bank and Signature Bank. * JPMorgan Chase acquired First Republic Bank on May 1, 2023. * If you had insured or uninsured money in First Republic accounts, your funds are safe and now managed by JPMorgan Chase. ## What Was First Republic Bank? First Republic Bank was a San Francisco-based regional bank focused on [high-net-worth clients](https://www.investopedia.com/terms/h/hnwi.asp). It closed in 2023 and was acquired by JPMorgan Chase. Part of the reason why it failed was because a large proportion of its deposits exceeded the limit for coverage by the [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp). The FDIC covers up to $250,000 per account holder, per account type. So, if a bank fails, depositors’ funds are protected for up to that amount. But anything over that is generally not considered covered. As of December 2022, 67.4% of First Republic’s deposits were uninsured, according to S&P Global Market Intelligence data analysis. Following the collapses of Silicon Valley Bank and Signature Bank, many First Republic customers with uninsured funds became concerned about holding their money at a [regional bank](https://www.investopedia.com/what-is-a-regional-bank-7479637), which led to a run on deposits. Just before its collapse, First Republic had $103.9 billion in deposits and $229.1 billion in assets. JPMorgan Chase acquired the majority of its assets and rebranded 84 branches in eight states, opening them on May 1, 2023. As a result, First Republic’s customers had uninterrupted service, and their funds—even their uninsured deposits—were safe. First Republic’s demise marked the third bank failure in 2023, along with Silicon Valley Bank and Signature Bank, according to the Federal Reserve’s failed-bank list. In total, the three banks had a combined $548.5 billion in assets, which was more than the total assets for all the failed banks in 2008, the height of the [financial crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp). ### Note [SIlvergate Capital Corp.](https://www.investopedia.com/silvergate-stock-crashes-after-closing-crypto-bank-7252963), a [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp)-focused bank, voluntarily closed in early 2023 after an $8.1 billion run on its deposits. Its failure was not included on the FDIC’s failed-bank list as of May 2023. Each First Republic client had a “First Republic Relationship Manager” who served as a point of contact for personalized service. Services focused on private banking and private wealth management as well as private business banking. * **Private banking and private wealth management**: Services included mortgage and personal lending and accounts for checking, savings, and certificates of deposit (CDs). Private wealth management provided investment management, financial planning, foreign exchange, trust administration and custody, and brokerage and insurance services. * **Private business banking**: Personalized business banking and lending services focused on industries like venture capital, private equity funds, hedge funds and firms, and investment management firms. Other target industries included property management and real estate investors, private clubs, independent schools, medical practices, and wineries. ## History of First Republic Bank First Republic Bank was founded in 1985 by James H. Herbert II to focus on jumbo mortgages, CDs, and savings accounts. The bank operated in San Francisco, specializing in lending for luxury homes, second homes, condos and co-ops, and investment properties. In the late 1990s, First Republic expanded into a full-service bank and added new services and markets on the West Coast and East Coast. Over the following decades, First Republic built its reputation on having fewer customer accounts with more individualized service and continued to focus on high-net-wealth clients. In 2007, First Republic merged with Merrill Lynch, which in turn was acquired by Bank of America in 2008. In 2010, Herbert raised private equity capital and secured regulatory approval to buy back First Republic. ### From 2018 to 2021, First Republic more than doubled deposits, to $156 billion.  ## Why Did First Republic Bank Fail? First Republic Bank failed for many of the same reasons that Silicon Valley Bank (SVB) and Signature Bank failed, including the fact that it carried a significant amount of [uninsured deposits](https://www.investopedia.com/uninsured-deposits-threaten-banking-system-7368338) and struggled with [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). Like SVB, it focused part of its business on [startups](https://www.investopedia.com/terms/s/startup.asp) in Silicon Valley that held balances much higher than $250,000, according to news reports. Compounding this was the broader fear among investors over regional banks. * **Uninsured deposits**: A high number of uninsured deposits can contribute to a [bank run](https://www.investopedia.com/terms/b/bankrun.asp) when investors start to panic. First Republic’s wealthy customer base had a high proportion of uninsured deposits, with more than 67% of the bank’s deposits being uninsured as of December 2022. * **Lack of liquidity**: First Republic’s primary income source was [net interest income](https://www.investopedia.com/terms/n/net-interest-income.asp) from loans and investment securities. Many of its investments were in real estate loans and municipal securities, which were less liquid and not earning competitive interest rates. Among midsize banks, First Republic had the highest ratio of loans and securities to uninsured deposits in December 2022. * **Credit ratings downgrades**: First Republic Bank faced repeated [credit agency downgrades](https://www.investopedia.com/first-republic-stock-slumps-again-on-s-and-p-debt-downgrade-7368934) due to concerns that infusions wouldn’t resolve its challenges with liquidity, funding, and profitability. * **Mistrust in regional banks**: Due to the collapses of Silicon Valley Bank and Signature Bank earlier in the year, along with credit ratings downgrades, [investors](https://www.investopedia.com/terms/i/investor.asp) were increasingly concerned about keeping uninsured deposits with a regional bank. First Republic began borrowing from the Federal Home Loan Bank Board (FHLB) and Federal Reserve and accepted a $30 billion cash infusion from a consortium of 11 banks as its deposits started rapidly declining after the failures of Silicon Valley Bank and Signature Bank. Meanwhile, its share price plunged from $122.50 on March 1, 2023, to $3.51 on April 28, 2023. | | **Total Deposits** | **Uninsured Deposits** | | --- | --- | --- | | **December 2022** | $176.4 billion | $119 billion | | **March 2023** | $104.1 billion | $19.8 billion | | **April 2023** | $92.6 billion | $8.4 billion | ## Timeline of the 2023 Collapse ### 2022 * **Dec. 31**: First Republic met all capital ratio requirements to be “well-capitalized.” However, the bank had already borrowed $14 billion from the Federal Home Loan Bank Board (FHLB). ### 2023 * **Feb. 28**: First Republic’s annual report outlined its challenges, including the fact that most of its loan portfolio was secured by real estate and concentrated in California and the San Francisco Bay Area. The report noted that the bank “experienced rapid migration of deposits to higher yielding products and asset classes” due to rising interest rates. * **March 6**: FRB’s stock fell more than 75% within days and never recovered. * **March 10**: Silicon Valley Bank was closed by the FDIC, and First Republic began experiencing what it called “unprecedented deposit outflows.” * **March 12**: The FDIC closed Signature Bank. * **March 15–19**: Numerous credit rating agencies downgraded [First Republic’s credit rating](https://www.investopedia.com/first-republic-shares-plunge-on-sale-possibility-credit-rating-downgrade-7367941), signaling a lack of confidence in the bank. * **March 16**: To boost First Republic’s liquidity, [11 banks contributed $30 billion](https://www.investopedia.com/first-republic-s-usd30b-rescue-by-jp-morgan-citi-and-bank-of-america-7367932) in uninsured deposits. * **March 31**: First Republic Bank had borrowed $105.4 billion from Federal Reserve and Federal Home Loan Bank Board (FHLB) funding. * **April 24**: The bank [indicated](https://www.investopedia.com/first-republic-teeters-7485632) it was headed toward collapse as deposits declined almost 41% from December 2022. It announced plans to [reduce its workforce](https://www.investopedia.com/first-republic-deposits-plunge-q1-fy2023-7484537) by up to 25%, among other cost-cutting steps. * **April 28**: First Republic could not access more funding after $121.3 billion in outstanding borrowings from the Federal Reserve and FHLB funds.News outlets reported that the FDIC planned to find buyers for First Republic. * **May 1**: [JPMorgan Chase acquired](https://www.investopedia.com/fdic-wants-first-republic-bids-jpmorgan-pnc-interested-7486879) a substantial majority of First Republic Bank’s assets. ## Impact on Depositors and Investors First Republic customers had uninterrupted service and their money was ultimately safe after the acquisition by JPMorgan Chase. As of May 5, 2023, the plan was to transition First Republic’s platforms and operations to JPMorgan Chase’s technology over time. Some existing First Republic branches were expected to be converted into J.P. Morgan wealth centers, and the bank’s private wealth management platform was slated to be merged with J.P. Morgan Advisors. ### Note JPMorgan Chase did not assume First Republic Bank’s preferred stock. The New York Stock Exchange delisted FRB’s common stock on May 2, 2023. ## Why Do Banks Keep Failing? Several common contributing factors led to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank (as well as Silvergate Capital) in early 2023. These include the banks’ high proportion of uninsured deposits and a focus on overly niche markets, such as venture capitalists in the case of SVB and commercial real estate in the case of Signature Bank. Following the collapse of SVB, investors were more motivated to move their uninsured deposits out of regional banks to protect their funds. The banks were also struggling with asset issues. During the COVID-19 pandemic, historically low interest rates led to banks amassing larger commercial and real estate lending portfolios. As interest rates rose in 2022, lending slowed, and banks were stuck with low-rate loans while paying higher interest rates to customers. ### Important Technology may have had a role in this spate of bank failures, as Automated Clearing House (ACH) and online banking has made transferring funds out of a bank account much easier. ## Who Paid for the Rescue of First Republic Bank? The FDIC and JPMorgan Chase paid for the rescue of First Republic Bank. JPMorgan Chase paid $10.6 billion to the FDIC for the acquisition of First Republic. The FDIC was expected to provide $50 billion in fixed-rate financing for balance sheet restructuring as well as some loss coverage for mortgages and commercial loans. The FDIC’s portion comes from the [Deposit Insurance Fund (DIF)](https://www.investopedia.com/terms/d/deposit-insurance-fund.asp), which is funded by quarterly fees that banks pay the FDIC to assess their risk. ## Is My Money Safe at a Regional Bank? Clients who held their money at First Republic Bank found that their money was safe after the bank failed and JPMorgan Chase assumed control of its assets. Your money is generally considered safe in an FDIC-insured bank account up to the $250,000 FDIC-insured limit. Above that, you cannot be sure that you will recoup your funds in the event of a bank failure. ## What Does ‘Too Big to Fail’ Mean? This phrase “too big to fail” refers to a large financial firm so large that it creates a risk to the broader economy. When an institution is deemed “[too big to fail](https://www.investopedia.com/terms/t/too-big-to-fail.asp),” the U.S. government may take any action to rescue it and prevent more widespread economic losses. Eight banks, including JPMorgan Chase, were considered “globally systemically important” and subject to heightened standards as of April 2022. ## The Bottom Line First Republic Bank was among a few regional banks that failed in early 2023 due to bank runs driven in part by the high volume of uninsured deposits that they carried, along with financial struggles caused by the broader interest rate environment. To ensure your funds are safe, consider keeping an amount under the minimum FDIC insurance limit of $250,000 in your bank account. If you need to deposit more than that, you could open another account at a different bank. A financial advisor can provide you with more guidance on how to handle distributing your money according to your personal circumstances.

First Republic Bank (FRB) became the second-largest bank failure in U.S. history on May 1, 2023, with most of its business sold to JPMorgan Chase after federal regulators seized it. The bank suffered from a run on deposits just weeks after the collapse of two other large regional banks, Silicon Valley Bank and Signature Bank. All of them had large amounts of uninsured deposits. Key Takeaways First Republic Bank customers included businesses and individuals with deposits of more than the $250,000 Federal Deposit Insurance Corp. (FDIC) insurance limit. Nearly two-thirds of its deposits were uninsured.First Republic’s failure was due to a run on deposits following the collapses of Silicon Valley Bank and Signature Bank.JPMorgan Chase acquired First Republic Bank on May 1, 2023. If you had insured or uninsured money in First Republic accounts, your funds are safe and now managed by JPMorgan Chase. What Was First Republic Bank? First Republic Bank was a San Francisco-based regional bank focused on high-net-worth clients. It closed in 2023 and was acquired by JPMorgan Chase. Part of the reason why it failed was because a large proportion of its deposits exceeded the limit for coverage by the Federal Deposit Insurance Corp. (FDIC). The FDIC covers up to $250,000 per account holder, per account type. So, if a bank fails, depositors’ funds are protected for up to that amount. But anything over that is generally not considered covered. As of December 2022, 67.4% of First Republic’s deposits were uninsured, according to S&P Global Market Intelligence data analysis. Following the collapses of Silicon Valley Bank and Signature Bank, many First Republic customers with uninsured funds became concerned about holding their money at a regional bank, which led to a run on deposits. Just before its collapse, First Republic had $103.9 billion in deposits and $229.1 billion in assets. JPMorgan Chase acquired the majority of its assets and rebranded 84 branches in eight states, opening them on May 1, 2023. As a result, First Republic’s customers had uninterrupted service, and their funds—even their uninsured deposits—were safe. First Republic’s demise marked the third bank failure in 2023, along with Silicon Valley Bank and Signature Bank, according to the Federal Reserve’s failed-bank list. In total, the three banks had a combined $548.5 billion in assets, which was more than the total assets for all the failed banks in 2008, the height of the financial crisis. Note SIlvergate Capital Corp., a cryptocurrency-focused bank, voluntarily closed in early 2023 after an $8.1 billion run on its deposits. Its failure was not included on the FDIC’s failed-bank list as of May 2023. Each First Republic client had a “First Republic Relationship Manager” who served as a point of contact for personalized service. Services focused on private banking and private wealth management as well as private business banking. Private banking and private wealth management: Services included mortgage and personal lending and accounts for checking, savings, and certificates of deposit (CDs). Private wealth management provided investment management, financial planning, foreign exchange, trust administration and custody, and brokerage and insurance services.Private business banking: Personalized business banking and lending services focused on industries like venture capital, private equity funds, hedge funds and firms, and investment management firms. Other target industries included property management and real estate investors, private clubs, independent schools, medical practices, and wineries. History of First Republic Bank First Republic Bank was founded in 1985 by James H. Herbert II to focus on jumbo mortgages, CDs, and savings accounts. The bank operated in San Francisco, specializing in lending for luxury homes, second homes, condos and co-ops, and investment properties. In the late 1990s, First Republic expanded into a full-service bank and added new services and markets on the West Coast and East Coast. Over the following decades, First Republic built its reputation on having fewer customer accounts with more individualized service and continued to focus on high-net-wealth clients. In 2007, First Republic merged with Merrill Lynch, which in turn was acquired by Bank of America in 2008. In 2010, Herbert raised private equity capital and secured regulatory approval to buy back First Republic. From 2018 to 2021, First Republic more than doubled deposits, to $156 billion.  Why Did First Republic Bank Fail? First Republic Bank failed for many of the same reasons that Silicon Valley Bank (SVB) and Signature Bank failed, including the fact that it carried a significant amount of uninsured deposits and struggled with liquidity. Like SVB, it focused part of its business on startups in Silicon Valley that held balances much higher than $250,000, according to news reports. Compounding this was the broader fear among investors over regional banks. Uninsured deposits: A high number of uninsured deposits can contribute to a bank run when investors start to panic. First Republic’s wealthy customer base had a high proportion of uninsured deposits, with more than 67% of the bank’s deposits being uninsured as of December 2022. Lack of liquidity: First Republic’s primary income source was net interest income from loans and investment securities. Many of its investments were in real estate loans and municipal securities, which were less liquid and not earning competitive interest rates. Among midsize banks, First Republic had the highest ratio of loans and securities to uninsured deposits in December 2022. Credit ratings downgrades: First Republic Bank faced repeated credit agency downgrades due to concerns that infusions wouldn’t resolve its challenges with liquidity, funding, and profitability. Mistrust in regional banks: Due to the collapses of Silicon Valley Bank and Signature Bank earlier in the year, along with credit ratings downgrades, investors were increasingly concerned about keeping uninsured deposits with a regional bank. First Republic began borrowing from the Federal Home Loan Bank Board (FHLB) and Federal Reserve and accepted a $30 billion cash infusion from a consortium of 11 banks as its deposits started rapidly declining after the failures of Silicon Valley Bank and Signature Bank. Meanwhile, its share price plunged from $122.50 on March 1, 2023, to $3.51 on April 28, 2023.   Total Deposits Uninsured Deposits December 2022 $176.4 billion $119 billion March 2023 $104.1 billion $19.8 billion April 2023 $92.6 billion $8.4 billion Timeline of the 2023 Collapse 2022 Dec. 31: First Republic met all capital ratio requirements to be “well-capitalized.” However, the bank had already borrowed $14 billion from the Federal Home Loan Bank Board (FHLB). 2023 Feb. 28: First Republic’s annual report outlined its challenges, including the fact that most of its loan portfolio was secured by real estate and concentrated in California and the San Francisco Bay Area. The report noted that the bank “experienced rapid migration of deposits to higher yielding products and asset classes” due to rising interest rates.  March 6: FRB’s stock fell more than 75% within days and never recovered. March 10: Silicon Valley Bank was closed by the FDIC, and First Republic began experiencing what it called “unprecedented deposit outflows.” March 12: The FDIC closed Signature Bank. March 15–19: Numerous credit rating agencies downgraded First Republic’s credit rating, signaling a lack of confidence in the bank. March 16: To boost First Republic’s liquidity, 11 banks contributed $30 billion in uninsured deposits. March 31: First Republic Bank had borrowed $105.4 billion from Federal Reserve and Federal Home Loan Bank Board (FHLB) funding.  April 24: The bank indicated it was headed toward collapse as deposits declined almost 41% from December 2022. It announced plans to reduce its workforce by up to 25%, among other cost-cutting steps. April 28: First Republic could not access more funding after $121.3 billion in outstanding borrowings from the Federal Reserve and FHLB funds. News outlets reported that the FDIC planned to find buyers for First Republic. May 1: JPMorgan Chase acquired a substantial majority of First Republic Bank’s assets. Impact on Depositors and Investors First Republic customers had uninterrupted service and their money was ultimately safe after the acquisition by JPMorgan Chase. As of May 5, 2023, the plan was to transition First Republic’s platforms and operations to JPMorgan Chase’s technology over time. Some existing First Republic branches were expected to be converted into J.P. Morgan wealth centers, and the bank’s private wealth management platform was slated to be merged with J.P. Morgan Advisors. Note JPMorgan Chase did not assume First Republic Bank’s preferred stock. The New York Stock Exchange delisted FRB’s common stock on May 2, 2023. Why Do Banks Keep Failing? Several common contributing factors led to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank (as well as Silvergate Capital) in early 2023. These include the banks’ high proportion of uninsured deposits and a focus on overly niche markets, such as venture capitalists in the case of SVB and commercial real estate in the case of Signature Bank. Following the collapse of SVB, investors were more motivated to move their uninsured deposits out of regional banks to protect their funds. The banks were also struggling with asset issues. During the COVID-19 pandemic, historically low interest rates led to banks amassing larger commercial and real estate lending portfolios. As interest rates rose in 2022, lending slowed, and banks were stuck with low-rate loans while paying higher interest rates to customers. Important Technology may have had a role in this spate of bank failures, as Automated Clearing House (ACH) and online banking has made transferring funds out of a bank account much easier. Who Paid for the Rescue of First Republic Bank? The FDIC and JPMorgan Chase paid for the rescue of First Republic Bank. JPMorgan Chase paid $10.6 billion to the FDIC for the acquisition of First Republic. The FDIC was expected to provide $50 billion in fixed-rate financing for balance sheet restructuring as well as some loss coverage for mortgages and commercial loans. The FDIC’s portion comes from the Deposit Insurance Fund (DIF), which is funded by quarterly fees that banks pay the FDIC to assess their risk. Is My Money Safe at a Regional Bank? Clients who held their money at First Republic Bank found that their money was safe after the bank failed and JPMorgan Chase assumed control of its assets. Your money is generally considered safe in an FDIC-insured bank account up to the $250,000 FDIC-insured limit. Above that, you cannot be sure that you will recoup your funds in the event of a bank failure. What Does ‘Too Big to Fail’ Mean? This phrase “too big to fail” refers to a large financial firm so large that it creates a risk to the broader economy. When an institution is deemed “too big to fail,” the U.S. government may take any action to rescue it and prevent more widespread economic losses. Eight banks, including JPMorgan Chase, were considered “globally systemically important” and subject to heightened standards as of April 2022. The Bottom Line First Republic Bank was among a few regional banks that failed in early 2023 due to bank runs driven in part by the high volume of uninsured deposits that they carried, along with financial struggles caused by the broader interest rate environment. To ensure your funds are safe, consider keeping an amount under the minimum FDIC insurance limit of $250,000 in your bank account. If you need to deposit more than that, you could open another account at a different bank. A financial advisor can provide you with more guidance on how to handle distributing your money according to your personal circumstances.

https://www.investopedia.com/ask/answers/042315/what-difference-between-compounding-interest-and-simple-interest.asp

Simple Interest vs. Compound Interest: 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-simple-interest-vs-compound-interest-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"> Simple Interest vs. Compound Interest: An Overview </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 amount of money you must pay to borrow money in addition to the loan's principal. It's also the amount you are paid over time when you deposit money in a savings account or certificate of deposit. You are essentially loaning money to the bank, and it is paying you interest. </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 interest rate is a percentage of the loan amount, such as 4%. </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"> But the percentage paid can be radically different in real dollar terms depending on whether it is calculated as simple interest or compound interest: </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>Simple interest is the percentage of a loan amount that will be paid by the borrower annually in addition to paying the loan principal.</li><li>Compound interest may be the same percentage rate, but it is calculated periodically. Every time it is calculated, the new interest payment is added to the principal amount, thus increasing the dollar amount due every time it is calculated. In other words, your interest is earning interest.</li> </ul> <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>Interest is the cost of borrowing money, expressed as a percentage of the total amount of the loan.</li><li>Simple interest is an annual percentage of the amount borrowed, referred to as the annual interest rate.</li><li>Compound interest is based on the sum of the principal amount and the previous interest payments on it. </li><li>So, if interest on an account is compounded daily, the interest paid is higher by a fractional amount every day.</li></ul></div></div></div> <span class="heading-toc" id="toc-simple-interest"></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"> Simple Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Simple interest is the annual percentage of a loan amount that must be paid to the lender in addition to the principal amount of the loan. The total dollar amount of interest is determined by the length of time it takes for the loan to be repaid.</p> <p>Simple interest is calculated using the following formula:</p> <p><span data-value="\begin{aligned} &amp;\text{Simple Interest} = P \times r \times n \\ &amp;\textbf{where:} \\ &amp;P = \text{Principal amount} \\ &amp;r = \text{Annual interest rate} \\ &amp;n = \text{Term of loan, in years} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Simple Interest </mtext> <mo> = </mo> <mi> P </mi> <mo> × </mo> <mi> r </mi> <mo> × </mo> <mi> n </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> <mi> P </mi> <mo> = </mo> <mtext> Principal amount </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> r </mi> <mo> = </mo> <mtext> Annual interest rate </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> Term of loan, in years </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{Simple Interest} = P \times r \times n \\ &amp;\textbf{where:} \\ &amp;P = \text{Principal amount} \\ &amp;r = \text{Annual interest rate} \\ &amp;n = \text{Term of loan, in years} \\ \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><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">Simple Interest</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord mathnormal">P</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord mathnormal">r</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord mathnormal">n</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 mathnormal">P</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Principal amount</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">r</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Annual interest rate</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Term of loan, in years</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><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <p>To find simple interest, multiply the original<strong> borrowed (principal amount)</strong> by the <strong>interest rate (annual interest rate),</strong> written as a decimal instead of a percentage. To change a percentage into a decimal, divide the amount by 100 or move the decimal point in the percentage figure two places to the left—for example, 5% can be changed to .05.</p> <p>Then, multiply that number by how long you'll leave the money in the account or the <strong>loan time (term of the loan in years)</strong>.</p> <h4>Simple Interest Example<br/></h4> <p>Let's say a student gets a loan to pay for one year of college tuition. The original amount is $18,000. The loan's annual <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> is 6%. The student gets a great job after graduation, cuts spending, and repays the loan over three years. How much interest will the student pay in total?</p> <p>To find the answer, multiply the original amount borrowed ($18,000) by the interest rate (6% becomes .06). This amount is $1,080. The student will pay $1,080 per year in interest.</p> <p>Then multiply that number by the loan term, or years of repayment, which is three years. <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>This amount is $3,240. The student will repay $3,240 over that time.</p> <p>So the quick formula to find the simple interest the student will pay is:</p> <p><span data-value="\begin{aligned} &amp;\$3,240 = \$18,000 \times 0.06 \times 3 \\ \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> $ </mi> <mn> 3 </mn> <mo> , </mo> <mn> 240 </mn> <mo> = </mo> <mi> $ </mi> <mn> 18 </mn> <mo> , </mo> <mn> 000 </mn> <mo> × </mo> <mn> 0.06 </mn> <mo> × </mo> <mn> 3 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$3,240 = \$18,000 \times 0.06 \times 3 \\ \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><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">$3</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">240</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$18</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">0.06</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">3</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> <p>How much will the student pay back in total, including the principal and all interest payments? <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>Add the principal amount ($18,000) plus simple interest ($3,240) to find this. The student will repay $21,240 in total to borrow money for college.</p> <p><span data-value="\begin{aligned} &amp;\$21,240 = \$18,000 + \$3,240 \\ \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> $ </mi> <mn> 21 </mn> <mo> , </mo> <mn> 240 </mn> <mo> = </mo> <mi> $ </mi> <mn> 18 </mn> <mo> , </mo> <mn> 000 </mn> <mo> + </mo> <mi> $ </mi> <mn> 3 </mn> <mo> , </mo> <mn> 240 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$21,240 = \$18,000 + \$3,240 \\ \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><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">$21</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">240</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$18</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$3</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">240</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_14-0"></div> <span class="heading-toc" id="toc-compound-interest"></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"> Compound Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Compound interest is more complicated. Unlike simple interest, compound interest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accrue.asp">accrues</a> or builds over time. You earn interest on the principal plus any interest that was paid previously.</p> <p>If you're borrowing money with compound interest, this means you'll pay interest on the principal plus any interest that has built up. If you're depositing money in the bank, it means the interest payment on your money will grow over time in real dollar terms.</p> <p>Interest may be compounded daily, monthly, quarterly, semiannually, or annually. The more often it's compounded, the more you earn or pay.</p> <p>The formula for compound interest is:<br/></p> <p><span data-value="\begin{aligned} &amp;\text{Compound Interest} = P \times \left ( 1 + r \right )^t - P \\ &amp;\textbf{where:} \\ &amp;P = \text{Principal amount} \\ &amp;r = \text{Annual interest rate} \\ &amp;t = \text{Number of years interest is applied} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Compound Interest </mtext> <mo> = </mo> <mi> P </mi> <mo> × </mo> <msup> <mrow> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mi> r </mi> <mo> ) </mo> </mrow> <mi> t </mi> </msup> <mo> − </mo> <mi> P </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> <mi> P </mi> <mo> = </mo> <mtext> Principal amount </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> r </mi> <mo> = </mo> <mtext> Annual interest rate </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> t </mi> <mo> = </mo> <mtext> Number of years interest is applied </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{Compound Interest} = P \times \left ( 1 + r \right )^t - P \\ &amp;\textbf{where:} \\ &amp;P = \text{Principal amount} \\ &amp;r = \text{Annual interest rate} \\ &amp;t = \text{Number of years interest is applied} \\ \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><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">Compound Interest</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord mathnormal">P</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="minner"><span class="minner"><span class="mopen delimcenter">(</span><span class="mord">1</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord mathnormal">r</span><span class="mclose delimcenter">)</span></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 mathnormal mtight">t</span></span></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord mathnormal">P</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 mathnormal">P</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Principal amount</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">r</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Annual interest rate</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">t</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of years interest is applied</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><br/></p><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <h4>Compound Interest Example</h4> <p>Imagine you have an interest rate of 10%, a principal amount of $100, and a period of two years.</p> <p>Use the formula to calculate the total amount you'll pay back or earn in interest:</p> <ul> <li>P = $100</li> <li>r = 10% or 0.10</li> <li>t = 2</li> <li>$100 x (1 + 0.10)² - $100</li> <li>$100 x (1.10)² - $100</li> <li>$100 x 1.21 - $100</li> <li>$121 - $100 = $21<br/></li> </ul> <p>It might be easier to use an online calculator, but it's good to understand how the formula works. </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-more-simple-interest-vs-compound-interest-examples"></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"> More Simple Interest vs. Compound Interest Examples </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Below are some examples of simple and compound interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Example 1: Simple Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Suppose you put $5,000 into a 1-year <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>. The CD pays simple interest at 3% per year. The interest you earn after one year is $150:</p> <p><span data-value="\begin{aligned} &amp;\$5,000 \times 3\% \times 1 \\ \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> $ </mi> <mn> 5 </mn> <mo> , </mo> <mn> 000 </mn> <mo> × </mo> <mn> 3 </mn> <mi> % </mi> <mo> × </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$5,000 \times 3\% \times 1 \\ \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><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">$5</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">3%</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">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></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Example 2: Simple Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Suppose you don't want to get a 1-year CD but a 4-month CD.</p> <p>If you cash the CD after four months, how much would you earn in interest if the interest rates are based on an annual rate?</p> <p>You would receive $50. You multiply the principal ($5,000) by the annual interest rate (3% or 0.03) by the months the CD was active (4 out of 12 months).</p> <p><span data-value="\begin{aligned} &amp;\$5,000 \times 3\% \times \frac{ 4 }{ 12 } \\ \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> $ </mi> <mn> 5 </mn> <mo> , </mo> <mn> 000 </mn> <mo> × </mo> <mn> 3 </mn> <mi> % </mi> <mo> × </mo> <mfrac> <mn> 4 </mn> <mn> 12 </mn> </mfrac> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$5,000 \times 3\% \times \frac{ 4 }{ 12 } \\ \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><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">$5</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">3%</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="mord">12</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">4</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 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_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Example 3: Simple Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Suppose you want to start a business after college by creating a cool new app. To fund all the costs involved, you borrow $500,000 for three years from a wealthy aunt, paying 5% simple interest. You plan to repay the loan in three years in one lump sum, with profits you make after someone buys your business.</p> <p>How much would you have to pay in interest charges every year in the meantime? You have to pay $25,000 in interest charges every year, using the below formula:</p> <p><span data-value="\begin{aligned} &amp;\$500,000 \times 5\% \times 1 \\ \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> $ </mi> <mn> 500 </mn> <mo> , </mo> <mn> 000 </mn> <mo> × </mo> <mn> 5 </mn> <mi> % </mi> <mo> × </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$500,000 \times 5\% \times 1 \\ \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><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">$500</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">5%</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">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></span><br/></p><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <p>What would your total interest charges be after three years? You would pay $75,000 in total interest charges after three years, using the below formula:</p> <p><span data-value="\begin{aligned} &amp;\$25,000 \times 3 \\ \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> $ </mi> <mn> 25 </mn> <mo> , </mo> <mn> 000 </mn> <mo> × </mo> <mn> 3 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\$25,000 \times 3 \\ \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><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">$25</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">3</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_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"> Example 4: Compound Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Continuing with the above example, suppose you can't find a buyer but still believe in the company. You determine you need to borrow an additional $500,000 for three more years. Unfortunately, your rich aunt is tapped out but has granted you an extension on repaying her.</p> <p>So, you apply to a bank for a loan at an interest rate of 5% per year. But this time, the interest is compounded annually. The entire loan amount and interest are payable after three years. What would be the total interest you pay?</p> <p>Since compound interest is calculated on the principal and accumulated interest, here's how it adds up:</p> <p><span data-value="\begin{aligned} &amp;\text{After Year One, Interest Payable} = \$25,000 \text{,} \\ &amp;\text{or } \$500,000 \text{ (Loan Principal)} \times 5\% \times 1 \\ &amp;\text{After Year Two, Interest Payable} = \$26,250 \text{,} \\ &amp;\text{or } \$525,000 \text{ (Loan Principal + Year One Interest)} \\ &amp;\times 5\% \times 1 \\ &amp;\text{After Year Three, Interest Payable} = \$27,562.50 \text{,} \\ &amp;\text{or } \$551,250 \text{ Loan Principal + Interest for Years One} \\ &amp;\text{and Two)} \times 5\% \times 1 \\ &amp;\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &amp;\text{or } \$25,000 + \$26,250 + \$27,562.50 \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> After Year One, Interest Payable </mtext> <mo> = </mo> <mi> $ </mi> <mn> 25 </mn> <mo> , </mo> <mn> 000 </mn> <mtext> , </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> or  </mtext> <mi> $ </mi> <mn> 500 </mn> <mo> , </mo> <mn> 000 </mn> <mtext>  (Loan Principal) </mtext> <mo> × </mo> <mn> 5 </mn> <mi> % </mi> <mo> × </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> After Year Two, Interest Payable </mtext> <mo> = </mo> <mi> $ </mi> <mn> 26 </mn> <mo> , </mo> <mn> 250 </mn> <mtext> , </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> or  </mtext> <mi> $ </mi> <mn> 525 </mn> <mo> , </mo> <mn> 000 </mn> <mtext>  (Loan Principal + Year One Interest) </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> × </mo> <mn> 5 </mn> <mi> % </mi> <mo> × </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> After Year Three, Interest Payable </mtext> <mo> = </mo> <mi> $ </mi> <mn> 27 </mn> <mo> , </mo> <mn> 562.50 </mn> <mtext> , </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> or  </mtext> <mi> $ </mi> <mn> 551 </mn> <mo> , </mo> <mn> 250 </mn> <mtext>  Loan Principal + Interest for Years One </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> and Two) </mtext> <mo> × </mo> <mn> 5 </mn> <mi> % </mi> <mo> × </mo> <mn> 1 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Total Interest Payable After Three Years </mtext> <mo> = </mo> <mi> $ </mi> <mn> 78 </mn> <mo> , </mo> <mn> 812.50 </mn> <mtext> , </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> or  </mtext> <mi> $ </mi> <mn> 25 </mn> <mo> , </mo> <mn> 000 </mn> <mo> + </mo> <mi> $ </mi> <mn> 26 </mn> <mo> , </mo> <mn> 250 </mn> <mo> + </mo> <mi> $ </mi> <mn> 27 </mn> <mo> , </mo> <mn> 562.50 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{After Year One, Interest Payable} = \$25,000 \text{,} \\ &amp;\text{or } \$500,000 \text{ (Loan Principal)} \times 5\% \times 1 \\ &amp;\text{After Year Two, Interest Payable} = \$26,250 \text{,} \\ &amp;\text{or } \$525,000 \text{ (Loan Principal + Year One Interest)} \\ &amp;\times 5\% \times 1 \\ &amp;\text{After Year Three, Interest Payable} = \$27,562.50 \text{,} \\ &amp;\text{or } \$551,250 \text{ Loan Principal + Interest for Years One} \\ &amp;\text{and Two)} \times 5\% \times 1 \\ &amp;\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &amp;\text{or } \$25,000 + \$26,250 + \$27,562.50 \\ \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 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">After Year One, Interest Payable</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$25</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mord text"><span class="mord">,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">or </span></span><span class="mord">$500</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mord text"><span class="mord"> (Loan Principal)</span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">5%</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">1</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">After Year Two, Interest Payable</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$26</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">250</span><span class="mord text"><span class="mord">,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">or </span></span><span class="mord">$525</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mord text"><span class="mord"> (Loan Principal + Year One Interest)</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">5%</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">1</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">After Year Three, Interest Payable</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$27</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">562.50</span><span class="mord text"><span class="mord">,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">or </span></span><span class="mord">$551</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">250</span><span class="mord text"><span class="mord"> Loan Principal + Interest for Years One</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">and Two)</span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">5%</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">1</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Total Interest Payable After Three Years</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$78</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">812.50</span><span class="mord text"><span class="mord">,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">or </span></span><span class="mord">$25</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$26</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">250</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$27</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">562.50</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><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <p>You can also calculate your total interest using the compound interest formula from above:</p> <p><span data-value="\begin{aligned} &amp;\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &amp;\text{or } \$500,000 \text{ (Loan Principal)} \times (1 + 0.05)^3 - \$500,000 \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Total Interest Payable After Three Years </mtext> <mo> = </mo> <mi> $ </mi> <mn> 78 </mn> <mo> , </mo> <mn> 812.50 </mn> <mtext> , </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> or  </mtext> <mi> $ </mi> <mn> 500 </mn> <mo> , </mo> <mn> 000 </mn> <mtext>  (Loan Principal) </mtext> <mo> × </mo> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mn> 0.05 </mn> <msup> <mo> ) </mo> <mn> 3 </mn> </msup> <mo> − </mo> <mi> $ </mi> <mn> 500 </mn> <mo> , </mo> <mn> 000 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &amp;\text{or } \$500,000 \text{ (Loan Principal)} \times (1 + 0.05)^3 - \$500,000 \\ \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><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">Total Interest Payable After Three Years</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$78</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">812.50</span><span class="mord text"><span class="mord">,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">or </span></span><span class="mord">$500</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</span><span class="mord text"><span class="mord"> (Loan Principal)</span></span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></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">0.05</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">3</span></span></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">$500</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">000</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> <p>This shows how compound interest quickly adds up when borrowing—and how carefully you should consider big loans that you pay back over a long time. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-which-is-better-simple-or-compound-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is Better, Simple or Compound Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on whether you're saving or borrowing. Compound interest is better for you if you're saving money in a bank account or being repaid for a loan.</p><p>If you're borrowing money, you'll pay less over time with simple interest.</p><p>Simple interest really is simple to calculate. If you want to know how much simple interest you'll pay on a loan over a given time frame, simply sum those payments to arrive at your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cumulative_interest.asp">cumulative interest</a>.</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-do-teens-benefit-from-compound-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Teens Benefit From Compound Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Teens have the advantage of youth and time. The earlier you start saving money, the more money you earn in interest. If it is compound interest, your interest earns interest, meaning you're earning more every time interest is paid. Keep adding to your savings to increase your earnings even more.</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-what-is-the-rule-of-72"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the Rule of 72?</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/ask/answers/what-is-the-rule-72/">The Rule of 72</a> helps you estimate how long it will take your investment to double if you have a fixed annual interest rate. Divide the number 72 by your investment’s interest rate. For example, if your interest rate is 4%, divide 72 by 4. You get 18. It will take roughly 18 years for your investment to double in value.</p><p>The Rule of 72 is more accurate for lower rates of return.</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"> Compound interest can benefit you greatly, particularly if you're young with many years to save ahead of you. Compound interest earns you more money in your bank account, even if you don't add to your account in the meantime. </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"> But if you borrow money, you'll pay more with compound interest, and the shorter the compounding period, the more you'll pay over time. </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"> Understanding these formulas can help you see why it makes good sense to save early and leave the money in the account for as long as possible—and why it's usually best to pay off loans quickly if you can. </p></div>

## Simple Interest vs. Compound Interest: An Overview Interest is the amount of money you must pay to borrow money in addition to the loan's principal. It's also the amount you are paid over time when you deposit money in a savings account or certificate of deposit. You are essentially loaning money to the bank, and it is paying you interest. The interest rate is a percentage of the loan amount, such as 4%. But the percentage paid can be radically different in real dollar terms depending on whether it is calculated as simple interest or compound interest: * Simple interest is the percentage of a loan amount that will be paid by the borrower annually in addition to paying the loan principal. * Compound interest may be the same percentage rate, but it is calculated periodically. Every time it is calculated, the new interest payment is added to the principal amount, thus increasing the dollar amount due every time it is calculated. In other words, your interest is earning interest. ### Key Takeaways * Interest is the cost of borrowing money, expressed as a percentage of the total amount of the loan. * Simple interest is an annual percentage of the amount borrowed, referred to as the annual interest rate. * Compound interest is based on the sum of the principal amount and the previous interest payments on it. * So, if interest on an account is compounded daily, the interest paid is higher by a fractional amount every day. ## Simple Interest Simple interest is the annual percentage of a loan amount that must be paid to the lender in addition to the principal amount of the loan. The total dollar amount of interest is determined by the length of time it takes for the loan to be repaid. Simple interest is calculated using the following formula: Simple Interest = P × r × n where: P = Principal amount r = Annual interest rate n = Term of loan, in years \begin{aligned} &\text{Simple Interest} = P \times r \times n \\ &\textbf{where:} \\ &P = \text{Principal amount} \\ &r = \text{Annual interest rate} \\ &n = \text{Term of loan, in years} \\ \end{aligned} ​Simple Interest=P×r×nwhere:P=Principal amountr=Annual interest raten=Term of loan, in years​ To find simple interest, multiply the original **borrowed (principal amount)** by the **interest rate (annual interest rate),** written as a decimal instead of a percentage. To change a percentage into a decimal, divide the amount by 100 or move the decimal point in the percentage figure two places to the left—for example, 5% can be changed to .05. Then, multiply that number by how long you'll leave the money in the account or the **loan time (term of the loan in years)**. #### Simple Interest Example Let's say a student gets a loan to pay for one year of college tuition. The original amount is $18,000. The loan's annual [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) is 6%. The student gets a great job after graduation, cuts spending, and repays the loan over three years. How much interest will the student pay in total? To find the answer, multiply the original amount borrowed ($18,000) by the interest rate (6% becomes .06). This amount is $1,080. The student will pay $1,080 per year in interest. Then multiply that number by the loan term, or years of repayment, which is three years. This amount is $3,240. The student will repay $3,240 over that time. So the quick formula to find the simple interest the student will pay is: $ 3 , 240 = $ 18 , 000 × 0.06 × 3 \begin{aligned} &\$3,240 = \$18,000 \times 0.06 \times 3 \\ \end{aligned} ​$3,240=$18,000×0.06×3​ How much will the student pay back in total, including the principal and all interest payments? Add the principal amount ($18,000) plus simple interest ($3,240) to find this. The student will repay $21,240 in total to borrow money for college. $ 21 , 240 = $ 18 , 000 + $ 3 , 240 \begin{aligned} &\$21,240 = \$18,000 + \$3,240 \\ \end{aligned} ​$21,240=$18,000+$3,240​ ## Compound Interest Compound interest is more complicated. Unlike simple interest, compound interest [accrues](https://www.investopedia.com/terms/a/accrue.asp) or builds over time. You earn interest on the principal plus any interest that was paid previously. If you're borrowing money with compound interest, this means you'll pay interest on the principal plus any interest that has built up. If you're depositing money in the bank, it means the interest payment on your money will grow over time in real dollar terms. Interest may be compounded daily, monthly, quarterly, semiannually, or annually. The more often it's compounded, the more you earn or pay. The formula for compound interest is: Compound Interest = P × ( 1 + r ) t − P where: P = Principal amount r = Annual interest rate t = Number of years interest is applied \begin{aligned} &\text{Compound Interest} = P \times \left ( 1 + r \right )^t - P \\ &\textbf{where:} \\ &P = \text{Principal amount} \\ &r = \text{Annual interest rate} \\ &t = \text{Number of years interest is applied} \\ \end{aligned} ​Compound Interest=P×(1+r)t−Pwhere:P=Principal amountr=Annual interest ratet=Number of years interest is applied​ #### Compound Interest Example Imagine you have an interest rate of 10%, a principal amount of $100, and a period of two years. Use the formula to calculate the total amount you'll pay back or earn in interest: * P = $100 * r = 10% or 0.10 * t = 2 * $100 x (1 + 0.10)2 - $100 * $100 x (1.10)2 - $100 * $100 x 1.21 - $100 * $121 - $100 = $21 It might be easier to use an online calculator, but it's good to understand how the formula works. ## More Simple Interest vs. Compound Interest Examples Below are some examples of simple and compound interest. ### Example 1: Simple Interest Suppose you put $5,000 into a 1-year [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). The CD pays simple interest at 3% per year. The interest you earn after one year is $150: $ 5 , 000 × 3 % × 1 \begin{aligned} &\$5,000 \times 3\% \times 1 \\ \end{aligned} ​$5,000×3%×1​ ### Example 2: Simple Interest Suppose you don't want to get a 1-year CD but a 4-month CD. If you cash the CD after four months, how much would you earn in interest if the interest rates are based on an annual rate? You would receive $50. You multiply the principal ($5,000) by the annual interest rate (3% or 0.03) by the months the CD was active (4 out of 12 months). $ 5 , 000 × 3 % × 4 12 \begin{aligned} &\$5,000 \times 3\% \times \frac{ 4 }{ 12 } \\ \end{aligned} ​$5,000×3%×124​​ ### Example 3: Simple Interest Suppose you want to start a business after college by creating a cool new app. To fund all the costs involved, you borrow $500,000 for three years from a wealthy aunt, paying 5% simple interest. You plan to repay the loan in three years in one lump sum, with profits you make after someone buys your business. How much would you have to pay in interest charges every year in the meantime? You have to pay $25,000 in interest charges every year, using the below formula: $ 500 , 000 × 5 % × 1 \begin{aligned} &\$500,000 \times 5\% \times 1 \\ \end{aligned} ​$500,000×5%×1​ What would your total interest charges be after three years? You would pay $75,000 in total interest charges after three years, using the below formula: $ 25 , 000 × 3 \begin{aligned} &\$25,000 \times 3 \\ \end{aligned} ​$25,000×3​ ### Example 4: Compound Interest Continuing with the above example, suppose you can't find a buyer but still believe in the company. You determine you need to borrow an additional $500,000 for three more years. Unfortunately, your rich aunt is tapped out but has granted you an extension on repaying her. So, you apply to a bank for a loan at an interest rate of 5% per year. But this time, the interest is compounded annually. The entire loan amount and interest are payable after three years. What would be the total interest you pay? Since compound interest is calculated on the principal and accumulated interest, here's how it adds up: After Year One, Interest Payable = $ 25 , 000 , or  $ 500 , 000  (Loan Principal) × 5 % × 1 After Year Two, Interest Payable = $ 26 , 250 , or  $ 525 , 000  (Loan Principal + Year One Interest) × 5 % × 1 After Year Three, Interest Payable = $ 27 , 562.50 , or  $ 551 , 250  Loan Principal + Interest for Years One and Two) × 5 % × 1 Total Interest Payable After Three Years = $ 78 , 812.50 , or  $ 25 , 000 + $ 26 , 250 + $ 27 , 562.50 \begin{aligned} &\text{After Year One, Interest Payable} = \$25,000 \text{,} \\ &\text{or } \$500,000 \text{ (Loan Principal)} \times 5\% \times 1 \\ &\text{After Year Two, Interest Payable} = \$26,250 \text{,} \\ &\text{or } \$525,000 \text{ (Loan Principal + Year One Interest)} \\ &\times 5\% \times 1 \\ &\text{After Year Three, Interest Payable} = \$27,562.50 \text{,} \\ &\text{or } \$551,250 \text{ Loan Principal + Interest for Years One} \\ &\text{and Two)} \times 5\% \times 1 \\ &\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &\text{or } \$25,000 + \$26,250 + \$27,562.50 \\ \end{aligned} ​After Year One, Interest Payable=$25,000,or $500,000 (Loan Principal)×5%×1After Year Two, Interest Payable=$26,250,or $525,000 (Loan Principal + Year One Interest)×5%×1After Year Three, Interest Payable=$27,562.50,or $551,250 Loan Principal + Interest for Years Oneand Two)×5%×1Total Interest Payable After Three Years=$78,812.50,or $25,000+$26,250+$27,562.50​ You can also calculate your total interest using the compound interest formula from above: Total Interest Payable After Three Years = $ 78 , 812.50 , or  $ 500 , 000  (Loan Principal) × ( 1 + 0.05 ) 3 − $ 500 , 000 \begin{aligned} &\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &\text{or } \$500,000 \text{ (Loan Principal)} \times (1 + 0.05)^3 - \$500,000 \\ \end{aligned} ​Total Interest Payable After Three Years=$78,812.50,or $500,000 (Loan Principal)×(1+0.05)3−$500,000​ This shows how compound interest quickly adds up when borrowing—and how carefully you should consider big loans that you pay back over a long time. ## Which Is Better, Simple or Compound Interest? It depends on whether you're saving or borrowing. Compound interest is better for you if you're saving money in a bank account or being repaid for a loan. If you're borrowing money, you'll pay less over time with simple interest. Simple interest really is simple to calculate. If you want to know how much simple interest you'll pay on a loan over a given time frame, simply sum those payments to arrive at your [cumulative interest](https://www.investopedia.com/terms/c/cumulative_interest.asp). ## How Do Teens Benefit From Compound Interest? Teens have the advantage of youth and time. The earlier you start saving money, the more money you earn in interest. If it is compound interest, your interest earns interest, meaning you're earning more every time interest is paid. Keep adding to your savings to increase your earnings even more. ## What is the Rule of 72? [The Rule of 72](https://www.investopedia.com/ask/answers/what-is-the-rule-72/) helps you estimate how long it will take your investment to double if you have a fixed annual interest rate. Divide the number 72 by your investment’s interest rate. For example, if your interest rate is 4%, divide 72 by 4. You get 18. It will take roughly 18 years for your investment to double in value. The Rule of 72 is more accurate for lower rates of return. ## The Bottom Line Compound interest can benefit you greatly, particularly if you're young with many years to save ahead of you. Compound interest earns you more money in your bank account, even if you don't add to your account in the meantime. But if you borrow money, you'll pay more with compound interest, and the shorter the compounding period, the more you'll pay over time. Understanding these formulas can help you see why it makes good sense to save early and leave the money in the account for as long as possible—and why it's usually best to pay off loans quickly if you can.

Simple Interest vs. Compound Interest: An Overview Interest is the amount of money you must pay to borrow money in addition to the loan's principal. It's also the amount you are paid over time when you deposit money in a savings account or certificate of deposit. You are essentially loaning money to the bank, and it is paying you interest. The interest rate is a percentage of the loan amount, such as 4%. But the percentage paid can be radically different in real dollar terms depending on whether it is calculated as simple interest or compound interest: Simple interest is the percentage of a loan amount that will be paid by the borrower annually in addition to paying the loan principal.Compound interest may be the same percentage rate, but it is calculated periodically. Every time it is calculated, the new interest payment is added to the principal amount, thus increasing the dollar amount due every time it is calculated. In other words, your interest is earning interest. Key Takeaways Interest is the cost of borrowing money, expressed as a percentage of the total amount of the loan.Simple interest is an annual percentage of the amount borrowed, referred to as the annual interest rate.Compound interest is based on the sum of the principal amount and the previous interest payments on it. So, if interest on an account is compounded daily, the interest paid is higher by a fractional amount every day. Simple Interest Simple interest is the annual percentage of a loan amount that must be paid to the lender in addition to the principal amount of the loan. The total dollar amount of interest is determined by the length of time it takes for the loan to be repaid. Simple interest is calculated using the following formula: Simple Interest = P × r × n where: P = Principal amount r = Annual interest rate n = Term of loan, in years \begin{aligned} &\text{Simple Interest} = P \times r \times n \\ &\textbf{where:} \\ &P = \text{Principal amount} \\ &r = \text{Annual interest rate} \\ &n = \text{Term of loan, in years} \\ \end{aligned} ​Simple Interest=P×r×nwhere:P=Principal amountr=Annual interest raten=Term of loan, in years​ To find simple interest, multiply the original borrowed (principal amount) by the interest rate (annual interest rate), written as a decimal instead of a percentage. To change a percentage into a decimal, divide the amount by 100 or move the decimal point in the percentage figure two places to the left—for example, 5% can be changed to .05. Then, multiply that number by how long you'll leave the money in the account or the loan time (term of the loan in years). Simple Interest Example Let's say a student gets a loan to pay for one year of college tuition. The original amount is $18,000. The loan's annual interest rate is 6%. The student gets a great job after graduation, cuts spending, and repays the loan over three years. How much interest will the student pay in total? To find the answer, multiply the original amount borrowed ($18,000) by the interest rate (6% becomes .06). This amount is $1,080. The student will pay $1,080 per year in interest. Then multiply that number by the loan term, or years of repayment, which is three years. This amount is $3,240. The student will repay $3,240 over that time. So the quick formula to find the simple interest the student will pay is: $ 3 , 240 = $ 18 , 000 × 0.06 × 3 \begin{aligned} &\$3,240 = \$18,000 \times 0.06 \times 3 \\ \end{aligned} ​$3,240=$18,000×0.06×3​ How much will the student pay back in total, including the principal and all interest payments? Add the principal amount ($18,000) plus simple interest ($3,240) to find this. The student will repay $21,240 in total to borrow money for college. $ 21 , 240 = $ 18 , 000 + $ 3 , 240 \begin{aligned} &\$21,240 = \$18,000 + \$3,240 \\ \end{aligned} ​$21,240=$18,000+$3,240​ Compound Interest Compound interest is more complicated. Unlike simple interest, compound interest accrues or builds over time. You earn interest on the principal plus any interest that was paid previously. If you're borrowing money with compound interest, this means you'll pay interest on the principal plus any interest that has built up. If you're depositing money in the bank, it means the interest payment on your money will grow over time in real dollar terms. Interest may be compounded daily, monthly, quarterly, semiannually, or annually. The more often it's compounded, the more you earn or pay. The formula for compound interest is: Compound Interest = P × ( 1 + r ) t − P where: P = Principal amount r = Annual interest rate t = Number of years interest is applied \begin{aligned} &\text{Compound Interest} = P \times \left ( 1 + r \right )^t - P \\ &\textbf{where:} \\ &P = \text{Principal amount} \\ &r = \text{Annual interest rate} \\ &t = \text{Number of years interest is applied} \\ \end{aligned} ​Compound Interest=P×(1+r)t−Pwhere:P=Principal amountr=Annual interest ratet=Number of years interest is applied​ Compound Interest Example Imagine you have an interest rate of 10%, a principal amount of $100, and a period of two years. Use the formula to calculate the total amount you'll pay back or earn in interest: P = $100 r = 10% or 0.10 t = 2 $100 x (1 + 0.10)2 - $100 $100 x (1.10)2 - $100 $100 x 1.21 - $100 $121 - $100 = $21 It might be easier to use an online calculator, but it's good to understand how the formula works. More Simple Interest vs. Compound Interest Examples Below are some examples of simple and compound interest. Example 1: Simple Interest Suppose you put $5,000 into a 1-year certificate of deposit (CD). The CD pays simple interest at 3% per year. The interest you earn after one year is $150: $ 5 , 000 × 3 % × 1 \begin{aligned} &\$5,000 \times 3\% \times 1 \\ \end{aligned} ​$5,000×3%×1​ Example 2: Simple Interest Suppose you don't want to get a 1-year CD but a 4-month CD. If you cash the CD after four months, how much would you earn in interest if the interest rates are based on an annual rate? You would receive $50. You multiply the principal ($5,000) by the annual interest rate (3% or 0.03) by the months the CD was active (4 out of 12 months). $ 5 , 000 × 3 % × 4 12 \begin{aligned} &\$5,000 \times 3\% \times \frac{ 4 }{ 12 } \\ \end{aligned} ​$5,000×3%×124​​ Example 3: Simple Interest Suppose you want to start a business after college by creating a cool new app. To fund all the costs involved, you borrow $500,000 for three years from a wealthy aunt, paying 5% simple interest. You plan to repay the loan in three years in one lump sum, with profits you make after someone buys your business. How much would you have to pay in interest charges every year in the meantime? You have to pay $25,000 in interest charges every year, using the below formula: $ 500 , 000 × 5 % × 1 \begin{aligned} &\$500,000 \times 5\% \times 1 \\ \end{aligned} ​$500,000×5%×1​ What would your total interest charges be after three years? You would pay $75,000 in total interest charges after three years, using the below formula: $ 25 , 000 × 3 \begin{aligned} &\$25,000 \times 3 \\ \end{aligned} ​$25,000×3​ Example 4: Compound Interest Continuing with the above example, suppose you can't find a buyer but still believe in the company. You determine you need to borrow an additional $500,000 for three more years. Unfortunately, your rich aunt is tapped out but has granted you an extension on repaying her. So, you apply to a bank for a loan at an interest rate of 5% per year. But this time, the interest is compounded annually. The entire loan amount and interest are payable after three years. What would be the total interest you pay? Since compound interest is calculated on the principal and accumulated interest, here's how it adds up: After Year One, Interest Payable = $ 25 , 000 , or  $ 500 , 000  (Loan Principal) × 5 % × 1 After Year Two, Interest Payable = $ 26 , 250 , or  $ 525 , 000  (Loan Principal + Year One Interest) × 5 % × 1 After Year Three, Interest Payable = $ 27 , 562.50 , or  $ 551 , 250  Loan Principal + Interest for Years One and Two) × 5 % × 1 Total Interest Payable After Three Years = $ 78 , 812.50 , or  $ 25 , 000 + $ 26 , 250 + $ 27 , 562.50 \begin{aligned} &\text{After Year One, Interest Payable} = \$25,000 \text{,} \\ &\text{or } \$500,000 \text{ (Loan Principal)} \times 5\% \times 1 \\ &\text{After Year Two, Interest Payable} = \$26,250 \text{,} \\ &\text{or } \$525,000 \text{ (Loan Principal + Year One Interest)} \\ &\times 5\% \times 1 \\ &\text{After Year Three, Interest Payable} = \$27,562.50 \text{,} \\ &\text{or } \$551,250 \text{ Loan Principal + Interest for Years One} \\ &\text{and Two)} \times 5\% \times 1 \\ &\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &\text{or } \$25,000 + \$26,250 + \$27,562.50 \\ \end{aligned} ​After Year One, Interest Payable=$25,000,or $500,000 (Loan Principal)×5%×1After Year Two, Interest Payable=$26,250,or $525,000 (Loan Principal + Year One Interest)×5%×1After Year Three, Interest Payable=$27,562.50,or $551,250 Loan Principal + Interest for Years Oneand Two)×5%×1Total Interest Payable After Three Years=$78,812.50,or $25,000+$26,250+$27,562.50​ You can also calculate your total interest using the compound interest formula from above: Total Interest Payable After Three Years = $ 78 , 812.50 , or  $ 500 , 000  (Loan Principal) × ( 1 + 0.05 ) 3 − $ 500 , 000 \begin{aligned} &\text{Total Interest Payable After Three Years} = \$78,812.50 \text{,} \\ &\text{or } \$500,000 \text{ (Loan Principal)} \times (1 + 0.05)^3 - \$500,000 \\ \end{aligned} ​Total Interest Payable After Three Years=$78,812.50,or $500,000 (Loan Principal)×(1+0.05)3−$500,000​ This shows how compound interest quickly adds up when borrowing—and how carefully you should consider big loans that you pay back over a long time. Which Is Better, Simple or Compound Interest? It depends on whether you're saving or borrowing. Compound interest is better for you if you're saving money in a bank account or being repaid for a loan.If you're borrowing money, you'll pay less over time with simple interest.Simple interest really is simple to calculate. If you want to know how much simple interest you'll pay on a loan over a given time frame, simply sum those payments to arrive at your cumulative interest. How Do Teens Benefit From Compound Interest? Teens have the advantage of youth and time. The earlier you start saving money, the more money you earn in interest. If it is compound interest, your interest earns interest, meaning you're earning more every time interest is paid. Keep adding to your savings to increase your earnings even more. What is the Rule of 72? The Rule of 72 helps you estimate how long it will take your investment to double if you have a fixed annual interest rate. Divide the number 72 by your investment’s interest rate. For example, if your interest rate is 4%, divide 72 by 4. You get 18. It will take roughly 18 years for your investment to double in value.The Rule of 72 is more accurate for lower rates of return. The Bottom Line Compound interest can benefit you greatly, particularly if you're young with many years to save ahead of you. Compound interest earns you more money in your bank account, even if you don't add to your account in the meantime. But if you borrow money, you'll pay more with compound interest, and the shorter the compounding period, the more you'll pay over time. Understanding these formulas can help you see why it makes good sense to save early and leave the money in the account for as long as possible—and why it's usually best to pay off loans quickly if you can.

https://www.investopedia.com/ask/answers/042215/what-non-linear-exposure-value-risk-var.asp

What Is a "Nonlinear" Exposure in Value at Risk (VaR)?

<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 building a portfolio of investments, investors and traders seek to minimize the risk and the potential loss. Traditional practices, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp" rel="noopener noreferrer">diversification</a>, help reduce the risk of a portfolio. </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"> To actually reduce the risk of a portfolio and to achieve a point at which a trader would be comfortable with a certain loss, the trader first has to understand what the potential loss of their portfolio is and make adjustments. There are a variety of statistical tools that help traders and investors determine the risk of the portfolio, one of the most common being the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/var.asp" rel="noopener noreferrer">value at risk</a> (VaR). </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>Traders and investors aim to minimize the risk and potential losses of their trading portfolios.</li><li>One of the most common statistical tools to help determine the risk and the potential loss is value at risk (VaR).</li><li>VaR measures the potential loss of a portfolio within a specified time frame with a degree of confidence.</li><li>There are two types of risk exposure: linear and nonlinear.</li><li>Nonlinear derivatives are those whose payoffs change with time and the location of the strike price to the spot price.</li><li>Nonlinear derivatives come with nonlinear risk exposure where the distribution of returns is skewed.</li><li>Because the returns of a nonlinear derivative are not normally distributed, a standard VaR model would not work and instead, another model, such as a Monte Carlo VaR, would need to be used.</li></ul></div></div></div> <span class="heading-toc" id="toc-value-at-risk-var"></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"> Value at Risk (VaR) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Value at risk (VaR) is a statistical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskmanagement.asp" rel="noopener noreferrer">risk management</a> technique that determines the amount of financial risk associated with a portfolio. The VaR of a portfolio measures the amount of potential loss within a specified time period with a degree of confidence. For example, consider a portfolio that has a 1% one-day value at risk of $5 million. With 99% confidence, the expected worst daily loss will not exceed $5 million. There is a 1% chance that the portfolio could lose more than $5 million on any given day. </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"> There are generally two types of risk exposures in a portfolio: linear or nonlinear. Nonlinear risk arises from nonlinear <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp" rel="noopener noreferrer">derivatives</a>; those whose payoff changes with time and the location of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strikeprice.asp" rel="noopener noreferrer">strike price</a> to the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp" rel="noopener noreferrer">spot price</a>. </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">Types of Derivatives</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Derivatives can either be linear or nonlinear, depending on their payout profile. It is important to use the right statistical models for a specific type of derivative.</p></div></div></div> <span class="heading-toc" id="toc-nonlinear-considerations"></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"> Nonlinear Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Nonlinear risk exposure arises in the VaR calculation of a portfolio of nonlinear derivatives. Nonlinear derivatives, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a>, depend on a variety of characteristics, including implied volatility, time to maturity, underlying asset price, and the current interest rate. </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"> It is difficult to collect the historical data on the returns because the option returns would need to be conditioned on all of the characteristics to use the standard VaR approach. Inputting all of the characteristics associated with options into the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blackscholes.asp">Black-Scholes model</a> or another option pricing model causes the models to be nonlinear due to the nature of the derivative. Therefore, the payoff curves are nonlinear because the corresponding value is not proportional to the input due to the time and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> portion of the model, in particular since options are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wastingasset.asp">wasting assets</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"> The nonlinearity of certain derivatives leads to nonlinear risk exposures in the VaR of a portfolio. Nonlinearity can be witnessed in the payoff diagram of a plain vanilla <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>. The payoff diagram has a strong positive convex payoff profile before the option's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expiration date</a>, with respect to the stock price. </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"> When the call option reaches a point where the option is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inthemoney.asp">in the money</a>, it reaches a point where the payoff becomes linear. Conversely, as a call option becomes increasingly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofthemoney.asp">out of the money</a>, the rate at which the option loses money decreases until the option premium is zero. </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-kurtosis"></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"> Kurtosis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> If a portfolio includes nonlinear derivatives, such as options, the distribution of the portfolio returns will have a positive or negative skew or high or low kurtosis. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/skewness.asp" rel="noopener noreferrer">skewness</a> measures the asymmetry of a probability distribution around its mean. Kurtosis measures the distribution around the mean; a high kurtosis has fatter tail ends of the distribution, and a low <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kurtosis.asp" rel="noopener noreferrer">kurtosis</a> has skinny tail ends of the distribution. </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"> Therefore, it is difficult to use the VaR method that assumes the returns are normally distributed. Instead, the VaR calculation of a portfolio containing nonlinear exposures is usually calculated using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/montecarlosimulation.asp" rel="noopener noreferrer">Monte Carlo</a> VaR simulations of options pricing models to estimate the VaR of the portfolio. </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Value at Risk (VaR) is a statistical tool that measures the potential loss of a portfolio at a given time with a certain confidence level. A standard VaR approach does not suit nonlinear derivatives, as their returns are not normally distributed. Other VaR approaches, such as the Monte Carlo VaR, are better suited to predict the measure of loss for irregular distributions of returns. </p></div>

When building a portfolio of investments, investors and traders seek to minimize the risk and the potential loss. Traditional practices, such as [diversification](https://www.investopedia.com/terms/d/diversification.asp), help reduce the risk of a portfolio. To actually reduce the risk of a portfolio and to achieve a point at which a trader would be comfortable with a certain loss, the trader first has to understand what the potential loss of their portfolio is and make adjustments. There are a variety of statistical tools that help traders and investors determine the risk of the portfolio, one of the most common being the [value at risk](https://www.investopedia.com/terms/v/var.asp) (VaR). ### Key Takeaways * Traders and investors aim to minimize the risk and potential losses of their trading portfolios. * One of the most common statistical tools to help determine the risk and the potential loss is value at risk (VaR). * VaR measures the potential loss of a portfolio within a specified time frame with a degree of confidence. * There are two types of risk exposure: linear and nonlinear. * Nonlinear derivatives are those whose payoffs change with time and the location of the strike price to the spot price. * Nonlinear derivatives come with nonlinear risk exposure where the distribution of returns is skewed. * Because the returns of a nonlinear derivative are not normally distributed, a standard VaR model would not work and instead, another model, such as a Monte Carlo VaR, would need to be used. ## Value at Risk (VaR) Value at risk (VaR) is a statistical [risk management](https://www.investopedia.com/terms/r/riskmanagement.asp) technique that determines the amount of financial risk associated with a portfolio. The VaR of a portfolio measures the amount of potential loss within a specified time period with a degree of confidence. For example, consider a portfolio that has a 1% one-day value at risk of $5 million. With 99% confidence, the expected worst daily loss will not exceed $5 million. There is a 1% chance that the portfolio could lose more than $5 million on any given day. There are generally two types of risk exposures in a portfolio: linear or nonlinear. Nonlinear risk arises from nonlinear [derivatives](https://www.investopedia.com/terms/d/derivative.asp); those whose payoff changes with time and the location of the [strike price](https://www.investopedia.com/terms/s/strikeprice.asp) to the [spot price](https://www.investopedia.com/terms/s/spotprice.asp). ### Types of Derivatives Derivatives can either be linear or nonlinear, depending on their payout profile. It is important to use the right statistical models for a specific type of derivative. ## Nonlinear Considerations Nonlinear risk exposure arises in the VaR calculation of a portfolio of nonlinear derivatives. Nonlinear derivatives, such as [options](https://www.investopedia.com/terms/o/option.asp), depend on a variety of characteristics, including implied volatility, time to maturity, underlying asset price, and the current interest rate. It is difficult to collect the historical data on the returns because the option returns would need to be conditioned on all of the characteristics to use the standard VaR approach. Inputting all of the characteristics associated with options into the [Black-Scholes model](https://www.investopedia.com/terms/b/blackscholes.asp) or another option pricing model causes the models to be nonlinear due to the nature of the derivative. Therefore, the payoff curves are nonlinear because the corresponding value is not proportional to the input due to the time and [volatility](https://www.investopedia.com/terms/v/volatility.asp) portion of the model, in particular since options are [wasting assets](https://www.investopedia.com/terms/w/wastingasset.asp). The nonlinearity of certain derivatives leads to nonlinear risk exposures in the VaR of a portfolio. Nonlinearity can be witnessed in the payoff diagram of a plain vanilla [call option](https://www.investopedia.com/terms/c/calloption.asp). The payoff diagram has a strong positive convex payoff profile before the option's [expiration date](https://www.investopedia.com/terms/e/expirationdate.asp), with respect to the stock price. When the call option reaches a point where the option is [in the money](https://www.investopedia.com/terms/i/inthemoney.asp), it reaches a point where the payoff becomes linear. Conversely, as a call option becomes increasingly [out of the money](https://www.investopedia.com/terms/o/outofthemoney.asp), the rate at which the option loses money decreases until the option premium is zero. ## Kurtosis If a portfolio includes nonlinear derivatives, such as options, the distribution of the portfolio returns will have a positive or negative skew or high or low kurtosis. The [skewness](https://www.investopedia.com/terms/s/skewness.asp) measures the asymmetry of a probability distribution around its mean. Kurtosis measures the distribution around the mean; a high kurtosis has fatter tail ends of the distribution, and a low [kurtosis](https://www.investopedia.com/terms/k/kurtosis.asp) has skinny tail ends of the distribution. Therefore, it is difficult to use the VaR method that assumes the returns are normally distributed. Instead, the VaR calculation of a portfolio containing nonlinear exposures is usually calculated using [Monte Carlo](https://www.investopedia.com/terms/m/montecarlosimulation.asp) VaR simulations of options pricing models to estimate the VaR of the portfolio. ## The Bottom Line Value at Risk (VaR) is a statistical tool that measures the potential loss of a portfolio at a given time with a certain confidence level. A standard VaR approach does not suit nonlinear derivatives, as their returns are not normally distributed. Other VaR approaches, such as the Monte Carlo VaR, are better suited to predict the measure of loss for irregular distributions of returns.

When building a portfolio of investments, investors and traders seek to minimize the risk and the potential loss. Traditional practices, such as diversification, help reduce the risk of a portfolio. To actually reduce the risk of a portfolio and to achieve a point at which a trader would be comfortable with a certain loss, the trader first has to understand what the potential loss of their portfolio is and make adjustments. There are a variety of statistical tools that help traders and investors determine the risk of the portfolio, one of the most common being the value at risk (VaR). Key Takeaways Traders and investors aim to minimize the risk and potential losses of their trading portfolios.One of the most common statistical tools to help determine the risk and the potential loss is value at risk (VaR).VaR measures the potential loss of a portfolio within a specified time frame with a degree of confidence.There are two types of risk exposure: linear and nonlinear.Nonlinear derivatives are those whose payoffs change with time and the location of the strike price to the spot price.Nonlinear derivatives come with nonlinear risk exposure where the distribution of returns is skewed.Because the returns of a nonlinear derivative are not normally distributed, a standard VaR model would not work and instead, another model, such as a Monte Carlo VaR, would need to be used. Value at Risk (VaR) Value at risk (VaR) is a statistical risk management technique that determines the amount of financial risk associated with a portfolio. The VaR of a portfolio measures the amount of potential loss within a specified time period with a degree of confidence. For example, consider a portfolio that has a 1% one-day value at risk of $5 million. With 99% confidence, the expected worst daily loss will not exceed $5 million. There is a 1% chance that the portfolio could lose more than $5 million on any given day. There are generally two types of risk exposures in a portfolio: linear or nonlinear. Nonlinear risk arises from nonlinear derivatives; those whose payoff changes with time and the location of the strike price to the spot price. Types of Derivatives Derivatives can either be linear or nonlinear, depending on their payout profile. It is important to use the right statistical models for a specific type of derivative. Nonlinear Considerations Nonlinear risk exposure arises in the VaR calculation of a portfolio of nonlinear derivatives. Nonlinear derivatives, such as options, depend on a variety of characteristics, including implied volatility, time to maturity, underlying asset price, and the current interest rate. It is difficult to collect the historical data on the returns because the option returns would need to be conditioned on all of the characteristics to use the standard VaR approach. Inputting all of the characteristics associated with options into the Black-Scholes model or another option pricing model causes the models to be nonlinear due to the nature of the derivative. Therefore, the payoff curves are nonlinear because the corresponding value is not proportional to the input due to the time and volatility portion of the model, in particular since options are wasting assets. The nonlinearity of certain derivatives leads to nonlinear risk exposures in the VaR of a portfolio. Nonlinearity can be witnessed in the payoff diagram of a plain vanilla call option. The payoff diagram has a strong positive convex payoff profile before the option's expiration date, with respect to the stock price. When the call option reaches a point where the option is in the money, it reaches a point where the payoff becomes linear. Conversely, as a call option becomes increasingly out of the money, the rate at which the option loses money decreases until the option premium is zero. Kurtosis If a portfolio includes nonlinear derivatives, such as options, the distribution of the portfolio returns will have a positive or negative skew or high or low kurtosis. The skewness measures the asymmetry of a probability distribution around its mean. Kurtosis measures the distribution around the mean; a high kurtosis has fatter tail ends of the distribution, and a low kurtosis has skinny tail ends of the distribution. Therefore, it is difficult to use the VaR method that assumes the returns are normally distributed. Instead, the VaR calculation of a portfolio containing nonlinear exposures is usually calculated using Monte Carlo VaR simulations of options pricing models to estimate the VaR of the portfolio. The Bottom Line Value at Risk (VaR) is a statistical tool that measures the potential loss of a portfolio at a given time with a certain confidence level. A standard VaR approach does not suit nonlinear derivatives, as their returns are not normally distributed. Other VaR approaches, such as the Monte Carlo VaR, are better suited to predict the measure of loss for irregular distributions of returns.

https://www.investopedia.com/ulta-beauty-falls-as-jefferies-downgrades-stock-citing-competition-aging-product-lineup-8636114

Ulta Beauty Falls as Jefferies Downgrades Stock Citing Competition, Aging Product Lineup

<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>Ulta Beauty shares sank Friday as Jefferies lowered its rating and price target on concerns about increased competition and an aging product lineup.</li><li>Jefferies dropped Ulta Beauty's rating to "hold" from "buy," and slashed the stock's price target by one-quarter to $438.</li><li>Jefferies analysts said “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.”</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 beauty products retailer Ulta Beauty (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ULTA">ULTA</a>) fell close to 3% Friday as Jefferies downgraded the stock, citing concerns about increased competition and an aging product lineup. </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"> Jefferies cut its rating on the stock to "hold" from "buy," and slashed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricetarget.asp">price target</a> to $438 from $585.<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"> Jefferies analysts wrote “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.” </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"> They noted that prestige cosmetics and hair care products are key, high-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profitmargin.asp">margin</a> categories for Ulta Beauty, and that the company has lost <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketshare.asp">market share</a> in those. In addition, efforts to strengthen Ulta's brand mix “have been misdirected toward small unproven brands, while competition (Sephora) has been relentlessly adding zeitgeist emerging brands, some of which are exclusives.” </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 analysts added "we were hopeful that Charlotte Tilbury and Sol de Janeiro would breathe life into ULTA's business, but initial checks don't show any major improvement." </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"> Ulta Beauty shares finished 2.7% lower at $413.50 Friday. They traded near their all-time high last month, but have steadily declined and are in negative territory for 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></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_15-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:61.5%;"> <img alt="ULTA" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/XoAtFlPGjlC0ZAd-Qa7U48vpfRI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/XoAtFlPGjlC0ZAd-Qa7U48vpfRI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png" data-srcset="https://www.investopedia.com/thmb/0XWgsRQ6lPjRYSIPH9qHTJw0UVI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1626"/> <noscript> <img alt="ULTA" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/XoAtFlPGjlC0ZAd-Qa7U48vpfRI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png" srcset="https://www.investopedia.com/thmb/0XWgsRQ6lPjRYSIPH9qHTJw0UVI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png 750w" width="1626"/> </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> <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 * Ulta Beauty shares sank Friday as Jefferies lowered its rating and price target on concerns about increased competition and an aging product lineup. * Jefferies dropped Ulta Beauty's rating to "hold" from "buy," and slashed the stock's price target by one-quarter to $438. * Jefferies analysts said “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.” Shares of beauty products retailer Ulta Beauty ([ULTA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ULTA)) fell close to 3% Friday as Jefferies downgraded the stock, citing concerns about increased competition and an aging product lineup. Jefferies cut its rating on the stock to "hold" from "buy," and slashed the [price target](https://www.investopedia.com/terms/p/pricetarget.asp) to $438 from $585. Jefferies analysts wrote “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.” They noted that prestige cosmetics and hair care products are key, high-[margin](https://www.investopedia.com/terms/p/profitmargin.asp) categories for Ulta Beauty, and that the company has lost [market share](https://www.investopedia.com/terms/m/marketshare.asp) in those. In addition, efforts to strengthen Ulta's brand mix “have been misdirected toward small unproven brands, while competition (Sephora) has been relentlessly adding zeitgeist emerging brands, some of which are exclusives.” The analysts added "we were hopeful that Charlotte Tilbury and Sol de Janeiro would breathe life into ULTA's business, but initial checks don't show any major improvement." Ulta Beauty shares finished 2.7% lower at $413.50 Friday. They traded near their all-time high last month, but have steadily declined and are in negative territory for 2024. ![ULTA]() :max_bytes(150000):strip_icc()/ULTA_2024-04-19_17-17-09-3d567670404e40c3bfef205b68fd5a88.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Ulta Beauty shares sank Friday as Jefferies lowered its rating and price target on concerns about increased competition and an aging product lineup.Jefferies dropped Ulta Beauty's rating to "hold" from "buy," and slashed the stock's price target by one-quarter to $438.Jefferies analysts said “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.” Shares of beauty products retailer Ulta Beauty (ULTA) fell close to 3% Friday as Jefferies downgraded the stock, citing concerns about increased competition and an aging product lineup. Jefferies cut its rating on the stock to "hold" from "buy," and slashed the price target to $438 from $585. Jefferies analysts wrote “we have viewed Ulta as a share taker in current macro, but see constraints on ULTA's prestige biz (50% sales) due to lack of newness and increasing pressure from Sephora.” They noted that prestige cosmetics and hair care products are key, high-margin categories for Ulta Beauty, and that the company has lost market share in those. In addition, efforts to strengthen Ulta's brand mix “have been misdirected toward small unproven brands, while competition (Sephora) has been relentlessly adding zeitgeist emerging brands, some of which are exclusives.” The analysts added "we were hopeful that Charlotte Tilbury and Sol de Janeiro would breathe life into ULTA's business, but initial checks don't show any major improvement." Ulta Beauty shares finished 2.7% lower at $413.50 Friday. They traded near their all-time high last month, but have steadily declined and are in negative territory for 2024. TradingView Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/2023-investopedia-terms-of-the-year-8409161

The 2023 Investopedia Terms of the 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"> 2023 will leave us with a lot of memories, many of which we might like to forget. It was a year that brought us several bank failures, a spike in treasury yields and borrowing costs, questions about the future of the U.S. dollar as the world’s dominant currency, and the rise of artificial intelligence threatening to disrupt every industry it touches. For investors, 2023 also brought us a recovery in the stock market that seemed hard to believe, even as the bond market continued to tumble into a three-year bear market. Old rules of investing were questioned, and for many, hopes of achieving their financial goals were thrown into doubt. <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:52.6%;"> <img alt="Investopedia's 2023 Terms of the Year" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/jfEGMYcs7oh5CyNiKVn8dvFcDtU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/jfEGMYcs7oh5CyNiKVn8dvFcDtU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg" data-srcset="https://www.investopedia.com/thmb/Vyh_QhBZ_QmxtM7FrDJbhVVAoE8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg 750w" data-tracking-container="true" height="1184" id="mntl-sc-block-image_1-0" width="2250"/> <noscript> <img alt="Investopedia's 2023 Terms of the Year" class="img--noscript universal-image__image" height="1184" sizes="750px" src="https://www.investopedia.com/thmb/jfEGMYcs7oh5CyNiKVn8dvFcDtU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg" srcset="https://www.investopedia.com/thmb/Vyh_QhBZ_QmxtM7FrDJbhVVAoE8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg 750w" width="2250"/> </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_4-0"> Through it all, however, our millions of monthly readers kept searching for ways to understand the market and economic dynamics that shaped the past year. Here are Investopedia’s top terms of 2023: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></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_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="2023 Investopedia Terms of the Year" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/v0PsJ5mt6S_P0Ts1wu1vNKtCAxM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/v0PsJ5mt6S_P0Ts1wu1vNKtCAxM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png" data-srcset="https://www.investopedia.com/thmb/0l9r_--6H5vQJGsKNZTxDHzAgOo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png 750w" data-tracking-container="true" height="2000" id="mntl-sc-block-image_2-0" width="3000"/> <noscript> <img alt="2023 Investopedia Terms of the Year" class="img--noscript universal-image__image" height="2000" sizes="750px" src="https://www.investopedia.com/thmb/v0PsJ5mt6S_P0Ts1wu1vNKtCAxM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png" srcset="https://www.investopedia.com/thmb/0l9r_--6H5vQJGsKNZTxDHzAgOo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png 750w" width="3000"/> </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>Amanda Morelli / Investopedia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-american-dream"></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"> American Dream </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The term “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/american-dream.asp">American Dream</a>” originated in the depths of the Great Depression in 1931, and was coined by writer James Truslow Adams in his book <em>Epic of America</em>. He described it as "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement." It’s typically used to refer to a collection of milestones like buying a home and car, getting married, having kids, and economically prospering. Yet the economic dynamics of the past year made most of those accomplishments too expensive to achieve for many. Saving, owning a home, raising a child, and building wealth were severely impacted in 2023 by persistent inflation, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">spike in mortgage rates</a>, and ever-rising home prices, putting the modern day American Dream out of reach for millions of Americans. </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_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-american-dream-now-costs-over-usd3-million-8409951">American Dream now costs $3,455,305</a>—that's the estimated lifetime cost of common milestones including marriage, two children, homes, healthcare, cars, and education.</p></div></div></div> <span class="heading-toc" id="toc-bank-failures"></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"> Bank Failures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Banks are supposed to be boring, but they were anything but in 2023. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-failure.asp">bank failures</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676">Silicon Valley Bank</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-signature-bank-7370710">Signature Bank</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-first-republic-bank-7489214">First Republic</a> shook the financial world and sent savers in search of a better understanding of <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happens-if-my-bank-fails-7378029">if and how their money is protected</a>. Our readers became experts in the role of the <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">FDIC</a>, <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/treasury-fed-reserve.asp">how the Treasury supports the banking industry</a>, and the real dangers of how and where banks invest their money. </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-artificial-intelligence"></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"> Artificial Intelligence </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The future went mainstream this year as <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 (A.I.)</a> became the hottest investment theme of the year, and the most terrifying, fascinating, and controversial technology we’ve ever encountered in decades. A.I. became a dominant element in every industry it touched, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/economic-impact-of-generative-ai-7976252">it touches a lot of them</a>. Our readers were learning about how it works, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-use-artificial-intelligence-in-your-investing-7973810">the opportunities it presents if used effectively</a>, the pitfalls it presents, and, of course, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-invest-in-ai-7504987">how to invest in its potential</a>. It’s not a surprise that A.I. was also our readers’ top pick for the 2023 Term of the Year. </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-certificate-of-deposit"></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"> Certificate of Deposit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> This year offered savers a real choice for their safety nets, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">Certificates of Deposit (CDs)</a> were among the most popular products in 2023. As banks offered higher yields to keep pace with the Federal Reserve’s rate-hiking campaign, our readers were learning everything they could about how CDs work and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">which banks were offering the highest yield</a> at that moment. </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-inverted-yield-curve"></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"> Inverted Yield Curve </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> This dislocation in the U.S. Treasury market lasted all year, bringing threats of a recession and a bear market with it. We got neither, but an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/invertedyieldcurve.asp">inverted yield curve</a> for the 2-year and the 10-year U.S. Treasuries was but one of several dislocations in the Treasury market that befuddled investors in 2023. Given the economic uncertainty, yield curve inversions might just be the new normal for a while. </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-debt-ceiling"></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"> Debt Ceiling </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Sadly, threats of a government shutdown as the U.S. government approached the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-ceiling.asp">debt ceiling</a> made their annual return as members of Congress could not come to terms on approving continuing resolutions to fund the government until the very last minute, once again. They did, but it <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/after-8347322">cost the House Speaker his job</a>, and the can was simply kicked down the road, guaranteeing that we will likely see this term again next year. </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-treasury-bill"></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"> Treasury Bill </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Alexander Hamilton’s creation got a lot of attention in 2023 as treasury prices slid into their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/we-re-in-the-biggest-treasury-bond-bear-market-of-all-time-bank-of-america-says-8348729">third year of a bear market</a>, and the public’s appetite for them was called into question. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insights/how-will-fed-reduce-balance-sheet/">Federal Reserve’s unwinding of its balance sheet</a> also put trillions of dollars of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">Treasury Bills (T-Bills)</a> back onto the market as part of its quantitative tightening regime. This disruption in what was traditionally thought of as the safest and most widely-held asset on the planet drove our readers to learn more about <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp">how the treasury market actually works</a>, and how to take advantage of the higher yields these government bonds offered. </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-brics"></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"> BRICS </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As the U.S. Treasury market continued to spiral lower and tensions between the U.S. and Russia, and the U.S. and China heightened, there was more talk of the rising dominance of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brics.asp">BRICS</a>: Brazil, Russia, India, China and South Africa as global superpowers. The dominance of the U.S. dollar was also questioned as OPEC and its allies floated suggestions about moving away from the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp">dollar as the de facto currency in the oil markets</a>. The rise of the BRICS was a popular topic for our readers and likely will be for years to come. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-assumable-mortgage"></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"> Assumable Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The spike in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">30-year fixed mortgage to more than 8%</a> this year made homebuying impossible for many Americans. The U.S. housing market has been in a deep freeze all of 2023, forcing buyers and sellers to get creative about how to make a deal, including using an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assumablemortgage.asp">assumable mortgage</a>, effectively transferring the existing mortgage from the buyer to the seller as part of the transaction. If interest rates are indeed going to be higher for longer, expect this crafty strategy to become even more popular next year. </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-racketeering"></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"> Racketeering </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> This criminal activity always seems to find its way into our most searched terms of the year. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/racketeering.asp">Racketeering</a> charges against Donald Trump brought by a Georgia court drove the headlines this year, but there were several other high-profile cases that got our readers attention. SHEIN, the popular e-commerce fashion platform, was sued for racketeering by three independent designers who claim the company stole their designs. </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>

2023 will leave us with a lot of memories, many of which we might like to forget. It was a year that brought us several bank failures, a spike in treasury yields and borrowing costs, questions about the future of the U.S. dollar as the world’s dominant currency, and the rise of artificial intelligence threatening to disrupt every industry it touches. For investors, 2023 also brought us a recovery in the stock market that seemed hard to believe, even as the bond market continued to tumble into a three-year bear market. Old rules of investing were questioned, and for many, hopes of achieving their financial goals were thrown into doubt.  ![Investopedia's 2023 Terms of the Year]() :max_bytes(150000):strip_icc()/INVTermsoftheYear1-cb7535fefccc4ebba0de2db8acab882c.jpg) Investopedia Through it all, however, our millions of monthly readers kept searching for ways to understand the market and economic dynamics that shaped the past year. Here are Investopedia’s top terms of 2023: ![2023 Investopedia Terms of the Year]() :max_bytes(150000):strip_icc()/2023InvestopediaTermsoftheYear-013deefb4f204ec5a1c52eca0ebb532d.png) Amanda Morelli / Investopedia ## American Dream The term “[American Dream](https://www.investopedia.com/terms/a/american-dream.asp)” originated in the depths of the Great Depression in 1931, and was coined by writer James Truslow Adams in his book *Epic of America*. He described it as "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement." It’s typically used to refer to a collection of milestones like buying a home and car, getting married, having kids, and economically prospering. Yet the economic dynamics of the past year made most of those accomplishments too expensive to achieve for many. Saving, owning a home, raising a child, and building wealth were severely impacted in 2023 by persistent inflation, a [spike in mortgage rates](https://www.investopedia.com/mortgage-rates-5094943), and ever-rising home prices, putting the modern day American Dream out of reach for millions of Americans. ### The [American Dream now costs $3,455,305](https://www.investopedia.com/the-american-dream-now-costs-over-usd3-million-8409951)—that's the estimated lifetime cost of common milestones including marriage, two children, homes, healthcare, cars, and education. ## Bank Failures Banks are supposed to be boring, but they were anything but in 2023. The [bank failures](https://www.investopedia.com/terms/b/bank-failure.asp) of [Silicon Valley Bank](https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676), [Signature Bank](https://www.investopedia.com/what-happened-to-signature-bank-7370710), and [First Republic](https://www.investopedia.com/what-happened-to-first-republic-bank-7489214) shook the financial world and sent savers in search of a better understanding of [if and how their money is protected](https://www.investopedia.com/what-happens-if-my-bank-fails-7378029). Our readers became experts in the role of the [FDIC](https://www.investopedia.com/terms/f/fdic.asp), [how the Treasury supports the banking industry](https://www.investopedia.com/articles/economics/08/treasury-fed-reserve.asp), and the real dangers of how and where banks invest their money. ## Artificial Intelligence The future went mainstream this year as [artificial intelligence (A.I.)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) became the hottest investment theme of the year, and the most terrifying, fascinating, and controversial technology we’ve ever encountered in decades. A.I. became a dominant element in every industry it touched, and [it touches a lot of them](https://www.investopedia.com/economic-impact-of-generative-ai-7976252). Our readers were learning about how it works, [the opportunities it presents if used effectively](https://www.investopedia.com/how-to-use-artificial-intelligence-in-your-investing-7973810), the pitfalls it presents, and, of course, [how to invest in its potential](https://www.investopedia.com/how-to-invest-in-ai-7504987). It’s not a surprise that A.I. was also our readers’ top pick for the 2023 Term of the Year. ## Certificate of Deposit This year offered savers a real choice for their safety nets, and [Certificates of Deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) were among the most popular products in 2023. As banks offered higher yields to keep pace with the Federal Reserve’s rate-hiking campaign, our readers were learning everything they could about how CDs work and [which banks were offering the highest yield](https://www.investopedia.com/best-cd-rates-4770214) at that moment. ## Inverted Yield Curve This dislocation in the U.S. Treasury market lasted all year, bringing threats of a recession and a bear market with it. We got neither, but an [inverted yield curve](https://www.investopedia.com/terms/i/invertedyieldcurve.asp) for the 2-year and the 10-year U.S. Treasuries was but one of several dislocations in the Treasury market that befuddled investors in 2023. Given the economic uncertainty, yield curve inversions might just be the new normal for a while. ## Debt Ceiling Sadly, threats of a government shutdown as the U.S. government approached the [debt ceiling](https://www.investopedia.com/terms/d/debt-ceiling.asp) made their annual return as members of Congress could not come to terms on approving continuing resolutions to fund the government until the very last minute, once again. They did, but it [cost the House Speaker his job](https://www.investopedia.com/after-8347322), and the can was simply kicked down the road, guaranteeing that we will likely see this term again next year. ## Treasury Bill Alexander Hamilton’s creation got a lot of attention in 2023 as treasury prices slid into their [third year of a bear market](https://www.investopedia.com/we-re-in-the-biggest-treasury-bond-bear-market-of-all-time-bank-of-america-says-8348729), and the public’s appetite for them was called into question. The [Federal Reserve’s unwinding of its balance sheet](https://www.investopedia.com/insights/how-will-fed-reduce-balance-sheet/) also put trillions of dollars of [Treasury Bills (T-Bills)](https://www.investopedia.com/terms/t/treasurybill.asp) back onto the market as part of its quantitative tightening regime. This disruption in what was traditionally thought of as the safest and most widely-held asset on the planet drove our readers to learn more about [how the treasury market actually works](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp), and how to take advantage of the higher yields these government bonds offered. ## BRICS As the U.S. Treasury market continued to spiral lower and tensions between the U.S. and Russia, and the U.S. and China heightened, there was more talk of the rising dominance of the [BRICS](https://www.investopedia.com/terms/b/brics.asp): Brazil, Russia, India, China and South Africa as global superpowers. The dominance of the U.S. dollar was also questioned as OPEC and its allies floated suggestions about moving away from the [dollar as the de facto currency in the oil markets](https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp). The rise of the BRICS was a popular topic for our readers and likely will be for years to come. ## Assumable Mortgage The spike in the [30-year fixed mortgage to more than 8%](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) this year made homebuying impossible for many Americans. The U.S. housing market has been in a deep freeze all of 2023, forcing buyers and sellers to get creative about how to make a deal, including using an [assumable mortgage](https://www.investopedia.com/terms/a/assumablemortgage.asp), effectively transferring the existing mortgage from the buyer to the seller as part of the transaction. If interest rates are indeed going to be higher for longer, expect this crafty strategy to become even more popular next year. ## Racketeering This criminal activity always seems to find its way into our most searched terms of the year. [Racketeering](https://www.investopedia.com/terms/r/racketeering.asp) charges against Donald Trump brought by a Georgia court drove the headlines this year, but there were several other high-profile cases that got our readers attention. SHEIN, the popular e-commerce fashion platform, was sued for racketeering by three independent designers who claim the company stole their designs. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

2023 will leave us with a lot of memories, many of which we might like to forget. It was a year that brought us several bank failures, a spike in treasury yields and borrowing costs, questions about the future of the U.S. dollar as the world’s dominant currency, and the rise of artificial intelligence threatening to disrupt every industry it touches. For investors, 2023 also brought us a recovery in the stock market that seemed hard to believe, even as the bond market continued to tumble into a three-year bear market. Old rules of investing were questioned, and for many, hopes of achieving their financial goals were thrown into doubt.  Investopedia Through it all, however, our millions of monthly readers kept searching for ways to understand the market and economic dynamics that shaped the past year. Here are Investopedia’s top terms of 2023: Amanda Morelli / Investopedia American Dream The term “American Dream” originated in the depths of the Great Depression in 1931, and was coined by writer James Truslow Adams in his book Epic of America. He described it as "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement." It’s typically used to refer to a collection of milestones like buying a home and car, getting married, having kids, and economically prospering. Yet the economic dynamics of the past year made most of those accomplishments too expensive to achieve for many. Saving, owning a home, raising a child, and building wealth were severely impacted in 2023 by persistent inflation, a spike in mortgage rates, and ever-rising home prices, putting the modern day American Dream out of reach for millions of Americans. The American Dream now costs $3,455,305—that's the estimated lifetime cost of common milestones including marriage, two children, homes, healthcare, cars, and education. Bank Failures Banks are supposed to be boring, but they were anything but in 2023. The bank failures of Silicon Valley Bank, Signature Bank, and First Republic shook the financial world and sent savers in search of a better understanding of if and how their money is protected. Our readers became experts in the role of the FDIC, how the Treasury supports the banking industry, and the real dangers of how and where banks invest their money. Artificial Intelligence The future went mainstream this year as artificial intelligence (A.I.) became the hottest investment theme of the year, and the most terrifying, fascinating, and controversial technology we’ve ever encountered in decades. A.I. became a dominant element in every industry it touched, and it touches a lot of them. Our readers were learning about how it works, the opportunities it presents if used effectively, the pitfalls it presents, and, of course, how to invest in its potential. It’s not a surprise that A.I. was also our readers’ top pick for the 2023 Term of the Year. Certificate of Deposit This year offered savers a real choice for their safety nets, and Certificates of Deposit (CDs) were among the most popular products in 2023. As banks offered higher yields to keep pace with the Federal Reserve’s rate-hiking campaign, our readers were learning everything they could about how CDs work and which banks were offering the highest yield at that moment. Inverted Yield Curve This dislocation in the U.S. Treasury market lasted all year, bringing threats of a recession and a bear market with it. We got neither, but an inverted yield curve for the 2-year and the 10-year U.S. Treasuries was but one of several dislocations in the Treasury market that befuddled investors in 2023. Given the economic uncertainty, yield curve inversions might just be the new normal for a while. Debt Ceiling Sadly, threats of a government shutdown as the U.S. government approached the debt ceiling made their annual return as members of Congress could not come to terms on approving continuing resolutions to fund the government until the very last minute, once again. They did, but it cost the House Speaker his job, and the can was simply kicked down the road, guaranteeing that we will likely see this term again next year. Treasury Bill Alexander Hamilton’s creation got a lot of attention in 2023 as treasury prices slid into their third year of a bear market, and the public’s appetite for them was called into question. The Federal Reserve’s unwinding of its balance sheet also put trillions of dollars of Treasury Bills (T-Bills) back onto the market as part of its quantitative tightening regime. This disruption in what was traditionally thought of as the safest and most widely-held asset on the planet drove our readers to learn more about how the treasury market actually works, and how to take advantage of the higher yields these government bonds offered. BRICS As the U.S. Treasury market continued to spiral lower and tensions between the U.S. and Russia, and the U.S. and China heightened, there was more talk of the rising dominance of the BRICS: Brazil, Russia, India, China and South Africa as global superpowers. The dominance of the U.S. dollar was also questioned as OPEC and its allies floated suggestions about moving away from the dollar as the de facto currency in the oil markets. The rise of the BRICS was a popular topic for our readers and likely will be for years to come. Assumable Mortgage The spike in the 30-year fixed mortgage to more than 8% this year made homebuying impossible for many Americans. The U.S. housing market has been in a deep freeze all of 2023, forcing buyers and sellers to get creative about how to make a deal, including using an assumable mortgage, effectively transferring the existing mortgage from the buyer to the seller as part of the transaction. If interest rates are indeed going to be higher for longer, expect this crafty strategy to become even more popular next year. Racketeering This criminal activity always seems to find its way into our most searched terms of the year. Racketeering charges against Donald Trump brought by a Georgia court drove the headlines this year, but there were several other high-profile cases that got our readers attention. SHEIN, the popular e-commerce fashion platform, was sued for racketeering by three independent designers who claim the company stole their designs. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/trucking-firm-knight-swift-stock-skids-after-slashing-guidance-8635018

Trucking Firm Knight-Swift's Stock Skids After Slashing Guidance

<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>Knight-Swift shares tumbled Wednesday after the company slashed its current and second-quarter outlook on headwinds facing the transportation industry.</li><li>The trucking firm said the full truckload industry continues to be "challenging" and oversupplied with capacity.</li><li>Knight-Swift said pressure on freight rates was greater than expected, and it lost some business because it refused to cut its prices.</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"> Knight-Swift Transportation Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KNX">KNX</a>) shares fell over 4% Wednesday as the trucking firm slashed its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/guidance.asp">guidance</a> because of headwinds facing the transportation industry. </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 company reduced its current-quarter outlook for <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> to a range of 11 cents to 12 cents, down from the previous 37 cents to 41 cents. It noted that the update included a loss of 8 cents per share resulting from the shutdown of its third-party insurance business.<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"> Knight-Swift said “the full truckload industry continues to be challenging and oversupplied with capacity.” It said it faced greater-than-expected pressure on freight rates, with some shippers still trying to push them down further. The company added that it has lost contractual volumes “because we were not willing to commit to further concessions on what we view as unsustainable contractual rates.” Knight-Swift also said weather disruptions in January had a greater impact on its business than initially anticipated. </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"> Along with the first-quarter revision, the company slashed its second-quarter EPS forecast to 26 cents to 30 cents from the earlier 53 cents to 57 cents. It expects to provide third-quarter estimates when it reports first-quarter results next Wednesday. </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 news came a day after rival J.B. Hunt Transport (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBHT">JBHT</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jb-hunt-stock-drops-as-logistics-company-earnings-miss-estimates-amid-soft-demand-8634682">reported weaker-than-expected earnings</a> because of a drop in revenue for its intermodal and truckload business, and fewer loads in its freight brokerage business. </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"> Shares of Knight-Swift fell 4.4% to $48.53 and J.B. Hunt shares finished 8.1% lower at $168.13 Wednesday. J.B. Hunt shares have lost 14% of their value since the start of 2024, while Knight-Swift shares have lost 15.5%. </p></div>

### Key Takeaways * Knight-Swift shares tumbled Wednesday after the company slashed its current and second-quarter outlook on headwinds facing the transportation industry. * The trucking firm said the full truckload industry continues to be "challenging" and oversupplied with capacity. * Knight-Swift said pressure on freight rates was greater than expected, and it lost some business because it refused to cut its prices. Knight-Swift Transportation Holdings ([KNX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KNX)) shares fell over 4% Wednesday as the trucking firm slashed its [guidance](https://www.investopedia.com/terms/g/guidance.asp) because of headwinds facing the transportation industry. The company reduced its current-quarter outlook for [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) to a range of 11 cents to 12 cents, down from the previous 37 cents to 41 cents. It noted that the update included a loss of 8 cents per share resulting from the shutdown of its third-party insurance business. Knight-Swift said “the full truckload industry continues to be challenging and oversupplied with capacity.” It said it faced greater-than-expected pressure on freight rates, with some shippers still trying to push them down further. The company added that it has lost contractual volumes “because we were not willing to commit to further concessions on what we view as unsustainable contractual rates.” Knight-Swift also said weather disruptions in January had a greater impact on its business than initially anticipated. Along with the first-quarter revision, the company slashed its second-quarter EPS forecast to 26 cents to 30 cents from the earlier 53 cents to 57 cents. It expects to provide third-quarter estimates when it reports first-quarter results next Wednesday. The news came a day after rival J.B. Hunt Transport ([JBHT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBHT)) [reported weaker-than-expected earnings](https://www.investopedia.com/jb-hunt-stock-drops-as-logistics-company-earnings-miss-estimates-amid-soft-demand-8634682) because of a drop in revenue for its intermodal and truckload business, and fewer loads in its freight brokerage business. Shares of Knight-Swift fell 4.4% to $48.53 and J.B. Hunt shares finished 8.1% lower at $168.13 Wednesday. J.B. Hunt shares have lost 14% of their value since the start of 2024, while Knight-Swift shares have lost 15.5%.

Key Takeaways Knight-Swift shares tumbled Wednesday after the company slashed its current and second-quarter outlook on headwinds facing the transportation industry.The trucking firm said the full truckload industry continues to be "challenging" and oversupplied with capacity.Knight-Swift said pressure on freight rates was greater than expected, and it lost some business because it refused to cut its prices. Knight-Swift Transportation Holdings (KNX) shares fell over 4% Wednesday as the trucking firm slashed its guidance because of headwinds facing the transportation industry. The company reduced its current-quarter outlook for earnings per share (EPS) to a range of 11 cents to 12 cents, down from the previous 37 cents to 41 cents. It noted that the update included a loss of 8 cents per share resulting from the shutdown of its third-party insurance business. Knight-Swift said “the full truckload industry continues to be challenging and oversupplied with capacity.” It said it faced greater-than-expected pressure on freight rates, with some shippers still trying to push them down further. The company added that it has lost contractual volumes “because we were not willing to commit to further concessions on what we view as unsustainable contractual rates.” Knight-Swift also said weather disruptions in January had a greater impact on its business than initially anticipated. Along with the first-quarter revision, the company slashed its second-quarter EPS forecast to 26 cents to 30 cents from the earlier 53 cents to 57 cents. It expects to provide third-quarter estimates when it reports first-quarter results next Wednesday. The news came a day after rival J.B. Hunt Transport (JBHT) reported weaker-than-expected earnings because of a drop in revenue for its intermodal and truckload business, and fewer loads in its freight brokerage business. Shares of Knight-Swift fell 4.4% to $48.53 and J.B. Hunt shares finished 8.1% lower at $168.13 Wednesday. J.B. Hunt shares have lost 14% of their value since the start of 2024, while Knight-Swift shares have lost 15.5%.

https://www.investopedia.com/spot-bitcoin-etf-winners-and-losers-as-net-inflows-top-usd12b-in-q1-2024-8621721

Spot Bitcoin ETF Winners and Losers As Net Inflows Top $12B In Q1 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"><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 first quarter of spot bitcoin ETF trading has concluded, with the eleven SEC-approved offerings enjoying roughly $12.1 billion in total inflows.</li><li>Blackrock's IBIT has been the biggest winner up to this point, accumulating $13.9 billion in flows since trading began in January.</li><li>GBTC is a key outlier with flow data, seeing $14.7 billion of outflows due to the relatively high fees associated with the offering.</li><li>The spot bitcoin ETF inflows were also a boon to the underlying bitcoin price during the first quarter of the year, enjoying a roughly 67% increase on a year-to-date (YTD) basis.</li><li>Going forward, Bitwise's Matt Hougan expects the inflows into spot bitcoin ETFs to continue in the coming years as more asset managers develop their own bitcoin strategies.</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 (ETF) amassed net inflows of roughly $12.1 billion at the end of the first quarter, according to BitMEX Research.<span class="ql-inline-citation" data-cite="2"></span> That's in a little less than three months for the ETFs that first began trading on January 11. </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"> These funds were credited for boosting demand for bitcoin and in turn the price for the cryptocurrency that shattered one record after another, crossing $73,000 for the first time ever.<br/> </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-how-much-money-flowed-into-spot-bitcoin-etfs"></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 Much Money Flowed Into Spot Bitcoin ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Daily net inflows peaked at a little over $1 billion on March 12th and bottomed out at $326.2 million worth of outflows on March 20th. </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"> Here are the cumulative Q1 2024 flows for each of the eleven spot bitcoin ETFs currently available for trade:<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> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_12-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 333px;"></colgroup> <colgroup span="1" style="width: 168px;"></colgroup> <thead> <tr> <th>Spot Bitcoin ETF</th> <th>Net Inflows (Jan. 11-Mar. 28, 2024)</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Blackrock's iShares Bitcoin Trust (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibit" rel="noopener noreferrer">IBIT</a>)</td> <td>$13.9 billion </td> </tr> <tr> <td>Fidelity Wise Origin Bitcoin Trust (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FBTC" rel="noopener noreferrer">FBTC</a>)</td> <td>$7.5 billion</td> </tr> <tr> <td>ARK 21Shares Bitcoin ETF (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARKB" rel="noopener noreferrer">ARKB</a>)</td> <td>$2.3 billion</td> </tr> <tr> <td>Bitwise Bitcoin ETF (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITB" rel="noopener noreferrer">BITB</a>)</td> <td>$1.6 billion</td> </tr> <tr> <td>Valkyrie Bitcoin Fund (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRRR" rel="noopener noreferrer">BRRR</a>)</td> <td>$452 million</td> </tr> <tr> <td>VanEck Bitcoin Trust (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hodl" rel="noopener noreferrer">HODL</a>)</td> <td>$439 million</td> </tr> <tr> <td>Franklin Bitcoin ETF (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EZBC" rel="noopener noreferrer">EZBC</a>)</td> <td>$277.9 million</td> </tr> <tr> <td>Invesco Galaxy Bitcoin ETF (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCO" rel="noopener noreferrer">BTCO</a>)</td> <td>$227.3 million</td> </tr> <tr> <td>WisdomTree Bitcoin Fund (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCW" rel="noopener noreferrer">BTCW</a>)</td> <td>$60 million</td> </tr> <tr> <td>Hashdex Bitcoin ETF (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DEFI" rel="noopener noreferrer">DEFI</a>)</td> <td>-$3.6 million </td> </tr> <tr> <td>Grayscale Bitcoin Trust (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC" rel="noopener noreferrer">GBTC</a>)</td> <td>-$14.7 billion</td> </tr> </tbody> </table> </div></figure> <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"> Up to this point, Blackrock's iShares Bitcoin Trust (IBIT)has been the winner of the spot bitcoin ETF inflows race with roughly $13.9 billion in inflows. </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"> "IBIT is the fastest growing ETF in the history of ETFs," Blackrock (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK">BLK</a>) CEO Larry Fink recently declared in an interview with Fox Business.<span class="ql-inline-citation" data-cite="3"></span> Fidelity's FBTC is the only other spot bitcoin ETF anywhere near the same ballpark as IBIT in terms of inflows thus far. </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"> On the flip side of things, GBTC has been a massive loser since spot bitcoin ETF trading began, as the preexisting fund has experienced $14.7 billion in outflows. Much of these outflows are thought to be due to the relatively high fees found with GBTC, in addition to the potential for investors to prefer offerings from more reputable firms. </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"> Recently, Grayscale <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/grayscale-wants-to-launch-a-mini-bitcoin-fund-amid-gbtc-outflows-8607872">filed</a> an application to list a secondary spot bitcoin ETF under the BTC ticker, which is expected to come with lower fees. If the current trends continue, IBIT could overtake GBTC as the largest spot bitcoin ETF in the coming months. </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"> Another point to note is that Hashdex's DEFI ETF was originally traded as a bitcoin futures ETF and converted to a spot bitcoin ETF only on March 27.<span class="ql-inline-citation" data-cite="4"></span> With the conversion of the DEFI ETF, all eleven spot bitcoin ETFs approved by the SEC earlier this year are trading. </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-whats-next-for-spot-bitcoin-etfs"></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's Next For Spot Bitcoin ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In terms of what happens next, Bitwise Chief Investment Officer Matt Hougan is convinced the flows into spot bitcoin ETFs will continue for years to come and are a sign of long-term, sustained demand. "The truth is, most professional investors still cannot buy bitcoin ETFs," Hougan said on X.<span class="ql-inline-citation" data-cite="1"></span> "That will change through a series of 100+ individual due diligence processes over the next two years." </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 underlying bitcoin price (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD">BTC</a>) has benefited greatly from the listing of regulated spot bitcoin ETFs on exchanges as well, with the price already up 67% on the year. There is also excitement around further price gains later in the year due to the upcoming <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bitcoin-halving-4843769">halving event</a> and the development of various <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-are-layer-1-and-layer-2-blockchain-scaling-solutions-7104877">layer-two Bitcoin networks</a> that intend to bring much of the technological innovation happening elsewhere in crypto back to the world's largest crypto network by market cap. </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 first quarter of spot bitcoin ETF trading has concluded, with the eleven SEC-approved offerings enjoying roughly $12.1 billion in total inflows. * Blackrock's IBIT has been the biggest winner up to this point, accumulating $13.9 billion in flows since trading began in January. * GBTC is a key outlier with flow data, seeing $14.7 billion of outflows due to the relatively high fees associated with the offering. * The spot bitcoin ETF inflows were also a boon to the underlying bitcoin price during the first quarter of the year, enjoying a roughly 67% increase on a year-to-date (YTD) basis. * Going forward, Bitwise's Matt Hougan expects the inflows into spot bitcoin ETFs to continue in the coming years as more asset managers develop their own bitcoin strategies. Spot bitcoin exchange-traded funds (ETF) amassed net inflows of roughly $12.1 billion at the end of the first quarter, according to BitMEX Research. That's in a little less than three months for the ETFs that first began trading on January 11. These funds were credited for boosting demand for bitcoin and in turn the price for the cryptocurrency that shattered one record after another, crossing $73,000 for the first time ever. ## How Much Money Flowed Into Spot Bitcoin ETFs? Daily net inflows peaked at a little over $1 billion on March 12th and bottomed out at $326.2 million worth of outflows on March 20th. Here are the cumulative Q1 2024 flows for each of the eleven spot bitcoin ETFs currently available for trade: | Spot Bitcoin ETF | Net Inflows (Jan. 11-Mar. 28, 2024) | | --- | --- | | Blackrock's iShares Bitcoin Trust ([IBIT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ibit)) | $13.9 billion | | Fidelity Wise Origin Bitcoin Trust ([FBTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FBTC)) | $7.5 billion | | ARK 21Shares Bitcoin ETF ([ARKB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARKB)) | $2.3 billion | | Bitwise Bitcoin ETF ([BITB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITB)) | $1.6 billion | | Valkyrie Bitcoin Fund ([BRRR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRRR)) | $452 million | | VanEck Bitcoin Trust ([HODL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hodl)) | $439 million | | Franklin Bitcoin ETF ([EZBC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EZBC)) | $277.9 million | | Invesco Galaxy Bitcoin ETF ([BTCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCO)) | $227.3 million | | WisdomTree Bitcoin Fund ([BTCW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCW)) | $60 million | | Hashdex Bitcoin ETF ([DEFI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DEFI)) | -$3.6 million | | Grayscale Bitcoin Trust ([GBTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC)) | -$14.7 billion | Up to this point, Blackrock's iShares Bitcoin Trust (IBIT)has been the winner of the spot bitcoin ETF inflows race with roughly $13.9 billion in inflows. "IBIT is the fastest growing ETF in the history of ETFs," Blackrock ([BLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK)) CEO Larry Fink recently declared in an interview with Fox Business. Fidelity's FBTC is the only other spot bitcoin ETF anywhere near the same ballpark as IBIT in terms of inflows thus far. On the flip side of things, GBTC has been a massive loser since spot bitcoin ETF trading began, as the preexisting fund has experienced $14.7 billion in outflows. Much of these outflows are thought to be due to the relatively high fees found with GBTC, in addition to the potential for investors to prefer offerings from more reputable firms. Recently, Grayscale [filed](https://www.investopedia.com/grayscale-wants-to-launch-a-mini-bitcoin-fund-amid-gbtc-outflows-8607872) an application to list a secondary spot bitcoin ETF under the BTC ticker, which is expected to come with lower fees. If the current trends continue, IBIT could overtake GBTC as the largest spot bitcoin ETF in the coming months. Another point to note is that Hashdex's DEFI ETF was originally traded as a bitcoin futures ETF and converted to a spot bitcoin ETF only on March 27. With the conversion of the DEFI ETF, all eleven spot bitcoin ETFs approved by the SEC earlier this year are trading. ## What's Next For Spot Bitcoin ETFs? In terms of what happens next, Bitwise Chief Investment Officer Matt Hougan is convinced the flows into spot bitcoin ETFs will continue for years to come and are a sign of long-term, sustained demand. "The truth is, most professional investors still cannot buy bitcoin ETFs," Hougan said on X. "That will change through a series of 100+ individual due diligence processes over the next two years." The underlying bitcoin price ([BTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD)) has benefited greatly from the listing of regulated spot bitcoin ETFs on exchanges as well, with the price already up 67% on the year. There is also excitement around further price gains later in the year due to the upcoming [halving event](https://www.investopedia.com/bitcoin-halving-4843769) and the development of various [layer-two Bitcoin networks](https://www.investopedia.com/what-are-layer-1-and-layer-2-blockchain-scaling-solutions-7104877) that intend to bring much of the technological innovation happening elsewhere in crypto back to the world's largest crypto network by market cap. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The first quarter of spot bitcoin ETF trading has concluded, with the eleven SEC-approved offerings enjoying roughly $12.1 billion in total inflows.Blackrock's IBIT has been the biggest winner up to this point, accumulating $13.9 billion in flows since trading began in January.GBTC is a key outlier with flow data, seeing $14.7 billion of outflows due to the relatively high fees associated with the offering.The spot bitcoin ETF inflows were also a boon to the underlying bitcoin price during the first quarter of the year, enjoying a roughly 67% increase on a year-to-date (YTD) basis.Going forward, Bitwise's Matt Hougan expects the inflows into spot bitcoin ETFs to continue in the coming years as more asset managers develop their own bitcoin strategies. Spot bitcoin exchange-traded funds (ETF) amassed net inflows of roughly $12.1 billion at the end of the first quarter, according to BitMEX Research. That's in a little less than three months for the ETFs that first began trading on January 11. These funds were credited for boosting demand for bitcoin and in turn the price for the cryptocurrency that shattered one record after another, crossing $73,000 for the first time ever. How Much Money Flowed Into Spot Bitcoin ETFs? Daily net inflows peaked at a little over $1 billion on March 12th and bottomed out at $326.2 million worth of outflows on March 20th. Here are the cumulative Q1 2024 flows for each of the eleven spot bitcoin ETFs currently available for trade: Spot Bitcoin ETF Net Inflows (Jan. 11-Mar. 28, 2024) Blackrock's iShares Bitcoin Trust (IBIT) $13.9 billion  Fidelity Wise Origin Bitcoin Trust (FBTC) $7.5 billion ARK 21Shares Bitcoin ETF (ARKB) $2.3 billion Bitwise Bitcoin ETF (BITB) $1.6 billion Valkyrie Bitcoin Fund (BRRR) $452 million VanEck Bitcoin Trust (HODL) $439 million Franklin Bitcoin ETF (EZBC) $277.9 million Invesco Galaxy Bitcoin ETF (BTCO) $227.3 million WisdomTree Bitcoin Fund (BTCW) $60 million Hashdex Bitcoin ETF (DEFI) -$3.6 million  Grayscale Bitcoin Trust (GBTC) -$14.7 billion Up to this point, Blackrock's iShares Bitcoin Trust (IBIT)has been the winner of the spot bitcoin ETF inflows race with roughly $13.9 billion in inflows. "IBIT is the fastest growing ETF in the history of ETFs," Blackrock (BLK) CEO Larry Fink recently declared in an interview with Fox Business. Fidelity's FBTC is the only other spot bitcoin ETF anywhere near the same ballpark as IBIT in terms of inflows thus far. On the flip side of things, GBTC has been a massive loser since spot bitcoin ETF trading began, as the preexisting fund has experienced $14.7 billion in outflows. Much of these outflows are thought to be due to the relatively high fees found with GBTC, in addition to the potential for investors to prefer offerings from more reputable firms. Recently, Grayscale filed an application to list a secondary spot bitcoin ETF under the BTC ticker, which is expected to come with lower fees. If the current trends continue, IBIT could overtake GBTC as the largest spot bitcoin ETF in the coming months. Another point to note is that Hashdex's DEFI ETF was originally traded as a bitcoin futures ETF and converted to a spot bitcoin ETF only on March 27. With the conversion of the DEFI ETF, all eleven spot bitcoin ETFs approved by the SEC earlier this year are trading. What's Next For Spot Bitcoin ETFs? In terms of what happens next, Bitwise Chief Investment Officer Matt Hougan is convinced the flows into spot bitcoin ETFs will continue for years to come and are a sign of long-term, sustained demand. "The truth is, most professional investors still cannot buy bitcoin ETFs," Hougan said on X. "That will change through a series of 100+ individual due diligence processes over the next two years." The underlying bitcoin price (BTC) has benefited greatly from the listing of regulated spot bitcoin ETFs on exchanges as well, with the price already up 67% on the year. There is also excitement around further price gains later in the year due to the upcoming halving event and the development of various layer-two Bitcoin networks that intend to bring much of the technological innovation happening elsewhere in crypto back to the world's largest crypto network by market cap. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/can-adult-child-collect-parent-social-security-benefits-5221671

Can an Adult Child Inherit a Parent’s Social Security 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"> Social Security benefits are not inheritable for adult children. An adult whose parents received Social Security benefits cannot "inherit" those benefits directly when their parent dies. Only adult children with disabilities can receive Social Security benefits after their parents die. </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 the deceased parent was retired and receiving retirement benefits, those payments stop after death. Usually, the funeral home informs the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssa.asp">Social Security Administration (SSA)</a> of the individual’s death, stopping the payments automatically. If the SSA makes any benefit payments after the individual’s death, those checks must be returned.<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 a parent dies, their Social Security benefits cease. An adult child can't inherit the benefits.</li> <li>Only adult children with disabilities can receive Social Security benefits after their parents die.</li> <li>The amount of the monthly benefit payment is based on the parent's contributions in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oasdi.asp">the form of SSA taxes (OASDI)</a>.</li> </ul></div></div></div> <span class="heading-toc" id="toc-social-security-benefits-for-survivors"></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"> Social Security Benefits for Survivors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When a parent’s Social Security benefits cease, an adult child cannot collect or inherit those benefits. The only time an adult child may be able to receive Social Security benefits after a parent dies is if they have a qualifying disability. </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"> Other types of survivors—spouses in particular—can receive other forms of Social Security benefits, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/social-security-survivor-benefits-work/">Social Security survivor benefits</a>. The goal of this program is to partially replace the income that is lost due to old age, the death of a spouse or qualifying ex-spouse, or disability.<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> <span class="heading-toc" id="toc-social-security-benefits-for-adult-children"></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"> Social Security Benefits for Adult Children </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Adult children are eligible to receive survivor benefits if: </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>They are between the ages of 18 and 19 and a full-time high school student</li> <li>They are 18 or older with a disability that began before age 22 and never earned over <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/substantialgainfulactivity.asp">substantial gainful activity (SGA)</a></li> <li>The disabled adult child is unmarried or married to a disabled spouse</li> <li>Their deceased parent worked for long enough at a job at which they paid Social Security taxes</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"> The disabled adult child’s disability must be approved according to SSA medical criteria. </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 an individual’s SSA retirement benefit, the amount of the payment the adult child receives is tied to their parents’ SSA tax contributions and their parents’ age when they took retirement. An adult child with a disability receives 75% of the deceased parent’s benefit.<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"> To ensure that their disabled adult child receives that benefit, parents can take steps while they're still alive to smooth the process by having basic documents prepared ahead of time.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Here are a few things that can be done: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>The surviving disabled adult child must be documented as the parent’s child with a birth certificate or adoption papers.</li><li>The deceased parent and surviving child must have Social Security numbers</li><li>If the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living<br/></li> </ul> <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">Auxiliary Disabled Adult Child Benefit</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you are the parent of a child you believe meets the criteria for a disabled adult child benefit and you are on Social Security retirement or disability, you can get them added as an auxiliary to your record before you pass. This increases their benefit amount while you are still living and will significantly streamline the process for them to convert to a survivor benefit after your passing.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-enroll-for-ssi-benefits"></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"> How to Enroll for SSI Benefits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Another step that parents of a disabled adult child may be able to take to ensure their child receives benefits is to get them into the Social Security benefits system while the parents are alive. They may be eligible to receive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income (SSI)</a> on the disabled child’s behalf. SSI is a monthly payment designed to help needy families, including families raising a child with a disability.<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> SSI payments are made until the child is 18. After age 18, the disabled child becomes eligible for SSDI benefits as a disabled adult child. Upon the death of the parent, they become eligible for the survivor’s benefit described above.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> If the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living. This is by far the most streamlined process for receiving Social Security benefits.<br/> </p> <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-can-adult-children-inherit-social-security-retirement-benefits"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Adult Children Inherit Social Security Retirement Benefits?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Social Security retirement benefit payments cease upon the death of the beneficiary. In this case, that's the parent. The only time a child may be able to collect is if they have a disability.</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-when-can-an-adult-child-begin-receiving-ssdi-benefits"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Can an Adult Child Begin Receiving SSDI Benefits?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If the adult child is disabled with a disability that began before the age of 22, that individual will be eligible for benefits after their parent or guardian dies. They must be unmarried, age 18 or older, have a qualified disability that started before age 22, have never worked over <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/substantialgainfulactivity.asp">SGA</a>, and meet the definition of disability for adults.<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_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-much-will-an-adult-child-receive"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Will an Adult Child Receive?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>After the parent dies, the benefit to disabled adult children will be based on the amount the parent paid into the SSA while they were alive and working. You can estimate this amount by looking at your My Social Security account on SSA.gov. Your survivor would be eligible for 75% of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primary-insurance-amount.asp">primary insurance amount (PIA)</a> on your account. Your PIA adjusts any year there is a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cola.asp">cost-of-living adjustment (COLA)</a> or you have wages, so check back every year.<span class="ql-inline-citation" data-cite="13"></span><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_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-what-is-the-lump-sum-death-payment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Lump-Sum Death Payment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The lump-sum death payment (LSDP) is a one-time payment of $255. The LSDP is available only to people who could have been considered dependents at the time of the individual's passing. Spouses, children under the age of 18, or disabled adult children can qualify for the LSDP, but non-disabled adult children cannot.<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_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"> Although adult children cannot inherit a parent's or guardian's retirement benefits when the parent dies, they may be eligible for Social Security benefits if they are disabled. When comfortable, adult children should talk to their parents about their finances to ensure their estate is set up for when they die.<br/> </p></div>

Social Security benefits are not inheritable for adult children. An adult whose parents received Social Security benefits cannot "inherit" those benefits directly when their parent dies. Only adult children with disabilities can receive Social Security benefits after their parents die. If the deceased parent was retired and receiving retirement benefits, those payments stop after death. Usually, the funeral home informs the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp) of the individual’s death, stopping the payments automatically. If the SSA makes any benefit payments after the individual’s death, those checks must be returned. ### Key Takeaways * When a parent dies, their Social Security benefits cease. An adult child can't inherit the benefits. * Only adult children with disabilities can receive Social Security benefits after their parents die. * The amount of the monthly benefit payment is based on the parent's contributions in [the form of SSA taxes (OASDI)](https://www.investopedia.com/terms/o/oasdi.asp). ## Social Security Benefits for Survivors When a parent’s Social Security benefits cease, an adult child cannot collect or inherit those benefits. The only time an adult child may be able to receive Social Security benefits after a parent dies is if they have a qualifying disability. Other types of survivors—spouses in particular—can receive other forms of Social Security benefits, known as [Social Security survivor benefits](https://www.investopedia.com/personal-finance/social-security-survivor-benefits-work/). The goal of this program is to partially replace the income that is lost due to old age, the death of a spouse or qualifying ex-spouse, or disability. ## Social Security Benefits for Adult Children Adult children are eligible to receive survivor benefits if: * They are between the ages of 18 and 19 and a full-time high school student * They are 18 or older with a disability that began before age 22 and never earned over [substantial gainful activity (SGA)](https://www.investopedia.com/terms/s/substantialgainfulactivity.asp) * The disabled adult child is unmarried or married to a disabled spouse * Their deceased parent worked for long enough at a job at which they paid Social Security taxes The disabled adult child’s disability must be approved according to SSA medical criteria. Like an individual’s SSA retirement benefit, the amount of the payment the adult child receives is tied to their parents’ SSA tax contributions and their parents’ age when they took retirement. An adult child with a disability receives 75% of the deceased parent’s benefit. To ensure that their disabled adult child receives that benefit, parents can take steps while they're still alive to smooth the process by having basic documents prepared ahead of time. Here are a few things that can be done: * The surviving disabled adult child must be documented as the parent’s child with a birth certificate or adoption papers. * The deceased parent and surviving child must have Social Security numbers * If the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living ### Auxiliary Disabled Adult Child Benefit If you are the parent of a child you believe meets the criteria for a disabled adult child benefit and you are on Social Security retirement or disability, you can get them added as an auxiliary to your record before you pass. This increases their benefit amount while you are still living and will significantly streamline the process for them to convert to a survivor benefit after your passing. ## How to Enroll for SSI Benefits Another step that parents of a disabled adult child may be able to take to ensure their child receives benefits is to get them into the Social Security benefits system while the parents are alive. They may be eligible to receive [Supplemental Security Income (SSI)](https://www.investopedia.com/terms/s/ssi.asp) on the disabled child’s behalf. SSI is a monthly payment designed to help needy families, including families raising a child with a disability. SSI payments are made until the child is 18. After age 18, the disabled child becomes eligible for SSDI benefits as a disabled adult child. Upon the death of the parent, they become eligible for the survivor’s benefit described above. If the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living. This is by far the most streamlined process for receiving Social Security benefits. ## Can Adult Children Inherit Social Security Retirement Benefits? No. Social Security retirement benefit payments cease upon the death of the beneficiary. In this case, that's the parent. The only time a child may be able to collect is if they have a disability. ## When Can an Adult Child Begin Receiving SSDI Benefits? If the adult child is disabled with a disability that began before the age of 22, that individual will be eligible for benefits after their parent or guardian dies. They must be unmarried, age 18 or older, have a qualified disability that started before age 22, have never worked over [SGA](https://www.investopedia.com/terms/s/substantialgainfulactivity.asp), and meet the definition of disability for adults. ## How Much Will an Adult Child Receive? After the parent dies, the benefit to disabled adult children will be based on the amount the parent paid into the SSA while they were alive and working. You can estimate this amount by looking at your My Social Security account on SSA.gov. Your survivor would be eligible for 75% of the [primary insurance amount (PIA)](https://www.investopedia.com/terms/p/primary-insurance-amount.asp) on your account. Your PIA adjusts any year there is a [cost-of-living adjustment (COLA)](https://www.investopedia.com/terms/c/cola.asp) or you have wages, so check back every year. ## What Is the Lump-Sum Death Payment? The lump-sum death payment (LSDP) is a one-time payment of $255. The LSDP is available only to people who could have been considered dependents at the time of the individual's passing. Spouses, children under the age of 18, or disabled adult children can qualify for the LSDP, but non-disabled adult children cannot. ## The Bottom Line Although adult children cannot inherit a parent's or guardian's retirement benefits when the parent dies, they may be eligible for Social Security benefits if they are disabled. When comfortable, adult children should talk to their parents about their finances to ensure their estate is set up for when they die.

Social Security benefits are not inheritable for adult children. An adult whose parents received Social Security benefits cannot "inherit" those benefits directly when their parent dies. Only adult children with disabilities can receive Social Security benefits after their parents die. If the deceased parent was retired and receiving retirement benefits, those payments stop after death. Usually, the funeral home informs the Social Security Administration (SSA) of the individual’s death, stopping the payments automatically. If the SSA makes any benefit payments after the individual’s death, those checks must be returned. Key Takeaways When a parent dies, their Social Security benefits cease. An adult child can't inherit the benefits. Only adult children with disabilities can receive Social Security benefits after their parents die. The amount of the monthly benefit payment is based on the parent's contributions in the form of SSA taxes (OASDI). Social Security Benefits for Survivors When a parent’s Social Security benefits cease, an adult child cannot collect or inherit those benefits. The only time an adult child may be able to receive Social Security benefits after a parent dies is if they have a qualifying disability. Other types of survivors—spouses in particular—can receive other forms of Social Security benefits, known as Social Security survivor benefits. The goal of this program is to partially replace the income that is lost due to old age, the death of a spouse or qualifying ex-spouse, or disability. Social Security Benefits for Adult Children Adult children are eligible to receive survivor benefits if: They are between the ages of 18 and 19 and a full-time high school student They are 18 or older with a disability that began before age 22 and never earned over substantial gainful activity (SGA) The disabled adult child is unmarried or married to a disabled spouse Their deceased parent worked for long enough at a job at which they paid Social Security taxes The disabled adult child’s disability must be approved according to SSA medical criteria. Like an individual’s SSA retirement benefit, the amount of the payment the adult child receives is tied to their parents’ SSA tax contributions and their parents’ age when they took retirement. An adult child with a disability receives 75% of the deceased parent’s benefit. To ensure that their disabled adult child receives that benefit, parents can take steps while they're still alive to smooth the process by having basic documents prepared ahead of time. Here are a few things that can be done: The surviving disabled adult child must be documented as the parent’s child with a birth certificate or adoption papers.The deceased parent and surviving child must have Social Security numbersIf the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living Auxiliary Disabled Adult Child Benefit If you are the parent of a child you believe meets the criteria for a disabled adult child benefit and you are on Social Security retirement or disability, you can get them added as an auxiliary to your record before you pass. This increases their benefit amount while you are still living and will significantly streamline the process for them to convert to a survivor benefit after your passing. How to Enroll for SSI Benefits Another step that parents of a disabled adult child may be able to take to ensure their child receives benefits is to get them into the Social Security benefits system while the parents are alive. They may be eligible to receive Supplemental Security Income (SSI) on the disabled child’s behalf. SSI is a monthly payment designed to help needy families, including families raising a child with a disability. SSI payments are made until the child is 18. After age 18, the disabled child becomes eligible for SSDI benefits as a disabled adult child. Upon the death of the parent, they become eligible for the survivor’s benefit described above. If the parent is already on Social Security retirement or disability benefits themselves, they can have their disabled adult child added to their account as an auxiliary while they are still living. This is by far the most streamlined process for receiving Social Security benefits. Can Adult Children Inherit Social Security Retirement Benefits? No. Social Security retirement benefit payments cease upon the death of the beneficiary. In this case, that's the parent. The only time a child may be able to collect is if they have a disability. When Can an Adult Child Begin Receiving SSDI Benefits? If the adult child is disabled with a disability that began before the age of 22, that individual will be eligible for benefits after their parent or guardian dies. They must be unmarried, age 18 or older, have a qualified disability that started before age 22, have never worked over SGA, and meet the definition of disability for adults. How Much Will an Adult Child Receive? After the parent dies, the benefit to disabled adult children will be based on the amount the parent paid into the SSA while they were alive and working. You can estimate this amount by looking at your My Social Security account on SSA.gov. Your survivor would be eligible for 75% of the primary insurance amount (PIA) on your account. Your PIA adjusts any year there is a cost-of-living adjustment (COLA) or you have wages, so check back every year. What Is the Lump-Sum Death Payment? The lump-sum death payment (LSDP) is a one-time payment of $255. The LSDP is available only to people who could have been considered dependents at the time of the individual's passing. Spouses, children under the age of 18, or disabled adult children can qualify for the LSDP, but non-disabled adult children cannot. The Bottom Line Although adult children cannot inherit a parent's or guardian's retirement benefits when the parent dies, they may be eligible for Social Security benefits if they are disabled. When comfortable, adult children should talk to their parents about their finances to ensure their estate is set up for when they die.

https://www.investopedia.com/articles/pf/05/042105.asp

New Wheels: Lease or Buy?

<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"> Buying a car can be overwhelming. In fact, the pleasure of getting a new car can be quickly clouded during the financing decision-making process and price negotiations. Besides price haggling, many car shoppers are stymied by the decision to lease or buy. This article will compare the two options and hopefully help you decide which financing decision is right for you. </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>The decision to lease or buy a car is a difficult one that depends on your financial situation, business, and lifestyle needs.</li><li>If your objective is to one day be rid of car payments and take ownership, buying a car is the best option; If your goal is to drive a new set of wheels every few years and minimize monthly costs, leasing is the way to go.</li><li>Insurance premiums are lower when you buy versus lease a car, but the monthly costs are higher; in addition, buying typically requires a hefty down payment, as opposed to leasing.</li><li>Leasing isn't ideal if you drive a lot, with many agreements specifying a fee if you drive more than 12,000 miles per year; leasing also means making a payment every month the whole time you have the car.</li></ul></div></div></div> <span class="heading-toc" id="toc-buying-a-car"></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"> Buying a Car </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Buying a car is the most straightforward way of obtaining one—you either pay cash or take out a loan to cover the cost. But that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netadvantagetoleasing.asp">doesn't mean the benefits will outweigh the drawbacks</a> for your particular 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"> Benefits of Buying a Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> By far, the greatest benefit of buying a car is you will actually own it one day, which also means you'll be free of car payments until you decide to buy another one. The car is yours to sell at any time, and you are not locked into any type of fixed ownership period. </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 you buy a car, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">insurance premiums</a> are typically lower than if you lease. In addition, by owning a car, you're free to rack up the mileage without worrying about financial penalties or restrictions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-subheading__text"> Drawbacks  of Buying a Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The most obvious downside of owning versus leasing is the monthly payment, which is usually higher on a purchased car. Additionally, the dealers usually require a reasonable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payment</a>, so the initial out-of-pocket cost is higher when buying a car. </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"> Presumably, as you pay down your car loan, you have the ability to build equity in the vehicle. Unfortunately, however, this is not always the case. When you purchase a car, your payments reflect the whole cost of the car, usually <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amortization.asp">amortized</a> over a four- to six-year period. But <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciation</a> can take a nasty toll on the value of your car, especially in the first couple of years. As a result, buyers with down payments can end up financing a considerable portion of the car and even find themselves in an "upside-down situation," in which the car comes to be worth less than what the buyer stills owes on it at a given time. </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"> Like the monthly payments of a mortgage, monthly car payments are divided between paying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> and interest, and the amounts dedicated to each vary from payment to payment. In the first years of your car loan, the majority of each payment goes toward <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> rather than the principal. During this time, most new vehicles also depreciate 20% to 40%. The loss in equity is a double whammy: your car depreciates dramatically, and because the monthly payments you've been making have mostly gone towards interest rather than the principal, you are left with very little equity in the car. </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-leasing-a-vehicle"></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"> Leasing a Vehicle </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> For those who have never leased a car, the process can seem confusing and geared more toward business owners, who <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inclusion-amount.asp">might deduct the expense</a>, or individuals who simply can't afford car payments. But in reality, there are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/012715/when-leasing-car-better-buying.asp">benefits to leasing a car</a> regardless of your career or income status. </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"> Benefits of Leasing a Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment, and there are no upfront <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/salestax.asp">sales tax</a> charges. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years. </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"> With a lease, you are essentially renting the car for a fixed amount of time (typically 36 to 48 months). Therefore, you pay only for the use (depreciation) of the car for that period instead of absorbing the full depreciation cost of the vehicle. Leasing a car will never put you in an upside-down position. </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"> Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes. </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"> Drawbacks of Leasing a Car </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> By leasing a car, you always have a car payment because you will never actually own the vehicle. So if you don't like that prospect, leasing is probably not right for you. However, depending on your type of lease, when your lease term is up you may have the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/012915/car-leases-should-you-take-purchase-option.asp">option of financing</a> the remaining value of the vehicle, which means you will own it when you finish making the loan payments. </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 mileage restrictions of leasing pose another drawback. If you drive a great deal during the year, purchasing a car may be the better choice. At the very least, you will want to look into an open-end lease, which we discuss below. Most leases restrict your mile usage to 15,000 miles per year (sometimes 12,000 per year). If you go over your allotted miles, you'll pay anywhere between 10 and 25 cents for every extra mile, depending on your lease agreement and the type of vehicle involved. This penalty can leave you with a fairly large bill to pay at the end of the lease if you rack up a lot of extra miles.  </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"> Finally, insurers usually charge higher coverage costs for leased vehicles. However, depending on your age, driving record and place of residence, that additional cost may be nominal. </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"> Key Differences Between Buying and Leasing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The decision to lease a new vehicle rather than buying it depends on someone's priorities. For some it may be a straightforward financial decision: Which costs less? Other drivers may be more interested in less tangible factors, such as the ability to drive a later-model car. Here's a look at a few key distinctions. </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>Leasing a car</strong> </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>Leasing a vehicle is essentially renting from the dealer for a certain length of time.</li> <li>The payments on a leased car don't let you build up any equity in the vehicle.</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-it-cost-to-lease-a-car-5186685">Lease payments</a> are generally lower than the monthly loan payments for a new vehicle.</li> </ul> <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>Buying a car</strong> </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>When you buy a car, the insurance premiums are typically lower than if you lease.</li><li>Owning a car means you are free to rack up mileage without worrying about financial penalties or restrictions.</li><li>Depreciation can take a nasty toll on the value of your car, especially in the first couple of years.</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-words-of-caution"></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"> Words of Caution </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> A downside to leasing is you essentially pay for the most expensive years of a vehicle's life. The amount you pay to lease is the difference between the purchase price and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/residual-value.asp">residual value</a>, which is the predetermined value of the car at the end of the lease period. The residual value the dealer includes in your contract directly impacts your monthly payment. </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"> When leasing, it's better to consider a vehicle retains its value and steer clear of cars with a high depreciation rate. Devious dealers may try to shift more of the depreciation cost onto you by embedding an unfairly low residual value. </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"> Also, when entering a lease agreement, be aware of any clauses in the contract regarding additional charges for "excess wear and tear" or above-average costs for additional mileage. You want to minimize any surprise costs as much as possible. </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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Your time horizon is important when considering leasing versus buying; in the short run, leasing is more economical, but in the long run, buying a car is typically better for your wallet.</p></div></div></div> <span class="heading-toc" id="toc-types-of-car-leases"></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"> Types of Car Leases </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> There are two types of car leases: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closed-endlease.asp">closed-end</a> and open-end. Closed-end leases allow you to walk away from the car at the end of the lease term. If you owe for any extra mileage or excessive wear and tear, this is when you'd have to pay for it. </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"> With an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/open-endlease.asp">open-end lease</a> (also known as an equity lease), you must purchase the car at the end of the lease period for a predetermined amount. This is often the type of lease used by businesses or individuals who drive a lot. Most consumer groups suggest the closed-end lease is the best option because it poses less risk upon the expiration of the lease term. </p></div>

Buying a car can be overwhelming. In fact, the pleasure of getting a new car can be quickly clouded during the financing decision-making process and price negotiations. Besides price haggling, many car shoppers are stymied by the decision to lease or buy. This article will compare the two options and hopefully help you decide which financing decision is right for you. ### Key Takeaways * The decision to lease or buy a car is a difficult one that depends on your financial situation, business, and lifestyle needs. * If your objective is to one day be rid of car payments and take ownership, buying a car is the best option; If your goal is to drive a new set of wheels every few years and minimize monthly costs, leasing is the way to go. * Insurance premiums are lower when you buy versus lease a car, but the monthly costs are higher; in addition, buying typically requires a hefty down payment, as opposed to leasing. * Leasing isn't ideal if you drive a lot, with many agreements specifying a fee if you drive more than 12,000 miles per year; leasing also means making a payment every month the whole time you have the car. ## Buying a Car Buying a car is the most straightforward way of obtaining one—you either pay cash or take out a loan to cover the cost. But that [doesn't mean the benefits will outweigh the drawbacks](https://www.investopedia.com/terms/n/netadvantagetoleasing.asp) for your particular situation. ### Benefits of Buying a Car By far, the greatest benefit of buying a car is you will actually own it one day, which also means you'll be free of car payments until you decide to buy another one. The car is yours to sell at any time, and you are not locked into any type of fixed ownership period. When you buy a car, the [insurance premiums](https://www.investopedia.com/terms/i/insurance-premium.asp) are typically lower than if you lease. In addition, by owning a car, you're free to rack up the mileage without worrying about financial penalties or restrictions. ### Drawbacks  of Buying a Car The most obvious downside of owning versus leasing is the monthly payment, which is usually higher on a purchased car. Additionally, the dealers usually require a reasonable [down payment](https://www.investopedia.com/terms/d/down_payment.asp), so the initial out-of-pocket cost is higher when buying a car. Presumably, as you pay down your car loan, you have the ability to build equity in the vehicle. Unfortunately, however, this is not always the case. When you purchase a car, your payments reflect the whole cost of the car, usually [amortized](https://www.investopedia.com/terms/a/amortization.asp) over a four- to six-year period. But [depreciation](https://www.investopedia.com/terms/d/depreciation.asp) can take a nasty toll on the value of your car, especially in the first couple of years. As a result, buyers with down payments can end up financing a considerable portion of the car and even find themselves in an "upside-down situation," in which the car comes to be worth less than what the buyer stills owes on it at a given time. Like the monthly payments of a mortgage, monthly car payments are divided between paying [principal](https://www.investopedia.com/terms/p/principal.asp) and interest, and the amounts dedicated to each vary from payment to payment. In the first years of your car loan, the majority of each payment goes toward [interest](https://www.investopedia.com/terms/i/interest.asp) rather than the principal. During this time, most new vehicles also depreciate 20% to 40%. The loss in equity is a double whammy: your car depreciates dramatically, and because the monthly payments you've been making have mostly gone towards interest rather than the principal, you are left with very little equity in the car. ## Leasing a Vehicle For those who have never leased a car, the process can seem confusing and geared more toward business owners, who [might deduct the expense](https://www.investopedia.com/terms/i/inclusion-amount.asp), or individuals who simply can't afford car payments. But in reality, there are [benefits to leasing a car](https://www.investopedia.com/articles/personal-finance/012715/when-leasing-car-better-buying.asp) regardless of your career or income status. ### Benefits of Leasing a Car Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment, and there are no upfront [sales tax](https://www.investopedia.com/terms/s/salestax.asp) charges. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years. With a lease, you are essentially renting the car for a fixed amount of time (typically 36 to 48 months). Therefore, you pay only for the use (depreciation) of the car for that period instead of absorbing the full depreciation cost of the vehicle. Leasing a car will never put you in an upside-down position. Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes. ### Drawbacks of Leasing a Car By leasing a car, you always have a car payment because you will never actually own the vehicle. So if you don't like that prospect, leasing is probably not right for you. However, depending on your type of lease, when your lease term is up you may have the [option of financing](https://www.investopedia.com/articles/personal-finance/012915/car-leases-should-you-take-purchase-option.asp) the remaining value of the vehicle, which means you will own it when you finish making the loan payments. The mileage restrictions of leasing pose another drawback. If you drive a great deal during the year, purchasing a car may be the better choice. At the very least, you will want to look into an open-end lease, which we discuss below. Most leases restrict your mile usage to 15,000 miles per year (sometimes 12,000 per year). If you go over your allotted miles, you'll pay anywhere between 10 and 25 cents for every extra mile, depending on your lease agreement and the type of vehicle involved. This penalty can leave you with a fairly large bill to pay at the end of the lease if you rack up a lot of extra miles.  Finally, insurers usually charge higher coverage costs for leased vehicles. However, depending on your age, driving record and place of residence, that additional cost may be nominal. ### Key Differences Between Buying and Leasing The decision to lease a new vehicle rather than buying it depends on someone's priorities. For some it may be a straightforward financial decision: Which costs less? Other drivers may be more interested in less tangible factors, such as the ability to drive a later-model car. Here's a look at a few key distinctions. **Leasing a car** * Leasing a vehicle is essentially renting from the dealer for a certain length of time. * The payments on a leased car don't let you build up any equity in the vehicle. * [Lease payments](https://www.investopedia.com/how-much-does-it-cost-to-lease-a-car-5186685) are generally lower than the monthly loan payments for a new vehicle. **Buying a car** * When you buy a car, the insurance premiums are typically lower than if you lease. * Owning a car means you are free to rack up mileage without worrying about financial penalties or restrictions. * Depreciation can take a nasty toll on the value of your car, especially in the first couple of years. ## Words of Caution A downside to leasing is you essentially pay for the most expensive years of a vehicle's life. The amount you pay to lease is the difference between the purchase price and the [residual value](https://www.investopedia.com/terms/r/residual-value.asp), which is the predetermined value of the car at the end of the lease period. The residual value the dealer includes in your contract directly impacts your monthly payment. When leasing, it's better to consider a vehicle retains its value and steer clear of cars with a high depreciation rate. Devious dealers may try to shift more of the depreciation cost onto you by embedding an unfairly low residual value. Also, when entering a lease agreement, be aware of any clauses in the contract regarding additional charges for "excess wear and tear" or above-average costs for additional mileage. You want to minimize any surprise costs as much as possible. ### Your time horizon is important when considering leasing versus buying; in the short run, leasing is more economical, but in the long run, buying a car is typically better for your wallet. ## Types of Car Leases There are two types of car leases: [closed-end](https://www.investopedia.com/terms/c/closed-endlease.asp) and open-end. Closed-end leases allow you to walk away from the car at the end of the lease term. If you owe for any extra mileage or excessive wear and tear, this is when you'd have to pay for it. With an [open-end lease](https://www.investopedia.com/terms/o/open-endlease.asp) (also known as an equity lease), you must purchase the car at the end of the lease period for a predetermined amount. This is often the type of lease used by businesses or individuals who drive a lot. Most consumer groups suggest the closed-end lease is the best option because it poses less risk upon the expiration of the lease term.

Buying a car can be overwhelming. In fact, the pleasure of getting a new car can be quickly clouded during the financing decision-making process and price negotiations. Besides price haggling, many car shoppers are stymied by the decision to lease or buy. This article will compare the two options and hopefully help you decide which financing decision is right for you. Key Takeaways The decision to lease or buy a car is a difficult one that depends on your financial situation, business, and lifestyle needs.If your objective is to one day be rid of car payments and take ownership, buying a car is the best option; If your goal is to drive a new set of wheels every few years and minimize monthly costs, leasing is the way to go.Insurance premiums are lower when you buy versus lease a car, but the monthly costs are higher; in addition, buying typically requires a hefty down payment, as opposed to leasing.Leasing isn't ideal if you drive a lot, with many agreements specifying a fee if you drive more than 12,000 miles per year; leasing also means making a payment every month the whole time you have the car. Buying a Car Buying a car is the most straightforward way of obtaining one—you either pay cash or take out a loan to cover the cost. But that doesn't mean the benefits will outweigh the drawbacks for your particular situation. Benefits of Buying a Car By far, the greatest benefit of buying a car is you will actually own it one day, which also means you'll be free of car payments until you decide to buy another one. The car is yours to sell at any time, and you are not locked into any type of fixed ownership period. When you buy a car, the insurance premiums are typically lower than if you lease. In addition, by owning a car, you're free to rack up the mileage without worrying about financial penalties or restrictions. Drawbacks  of Buying a Car The most obvious downside of owning versus leasing is the monthly payment, which is usually higher on a purchased car. Additionally, the dealers usually require a reasonable down payment, so the initial out-of-pocket cost is higher when buying a car. Presumably, as you pay down your car loan, you have the ability to build equity in the vehicle. Unfortunately, however, this is not always the case. When you purchase a car, your payments reflect the whole cost of the car, usually amortized over a four- to six-year period. But depreciation can take a nasty toll on the value of your car, especially in the first couple of years. As a result, buyers with down payments can end up financing a considerable portion of the car and even find themselves in an "upside-down situation," in which the car comes to be worth less than what the buyer stills owes on it at a given time. Like the monthly payments of a mortgage, monthly car payments are divided between paying principal and interest, and the amounts dedicated to each vary from payment to payment. In the first years of your car loan, the majority of each payment goes toward interest rather than the principal. During this time, most new vehicles also depreciate 20% to 40%. The loss in equity is a double whammy: your car depreciates dramatically, and because the monthly payments you've been making have mostly gone towards interest rather than the principal, you are left with very little equity in the car. Leasing a Vehicle For those who have never leased a car, the process can seem confusing and geared more toward business owners, who might deduct the expense, or individuals who simply can't afford car payments. But in reality, there are benefits to leasing a car regardless of your career or income status. Benefits of Leasing a Car Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment, and there are no upfront sales tax charges. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years. With a lease, you are essentially renting the car for a fixed amount of time (typically 36 to 48 months). Therefore, you pay only for the use (depreciation) of the car for that period instead of absorbing the full depreciation cost of the vehicle. Leasing a car will never put you in an upside-down position. Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes. Drawbacks of Leasing a Car By leasing a car, you always have a car payment because you will never actually own the vehicle. So if you don't like that prospect, leasing is probably not right for you. However, depending on your type of lease, when your lease term is up you may have the option of financing the remaining value of the vehicle, which means you will own it when you finish making the loan payments. The mileage restrictions of leasing pose another drawback. If you drive a great deal during the year, purchasing a car may be the better choice. At the very least, you will want to look into an open-end lease, which we discuss below. Most leases restrict your mile usage to 15,000 miles per year (sometimes 12,000 per year). If you go over your allotted miles, you'll pay anywhere between 10 and 25 cents for every extra mile, depending on your lease agreement and the type of vehicle involved. This penalty can leave you with a fairly large bill to pay at the end of the lease if you rack up a lot of extra miles.  Finally, insurers usually charge higher coverage costs for leased vehicles. However, depending on your age, driving record and place of residence, that additional cost may be nominal. Key Differences Between Buying and Leasing The decision to lease a new vehicle rather than buying it depends on someone's priorities. For some it may be a straightforward financial decision: Which costs less? Other drivers may be more interested in less tangible factors, such as the ability to drive a later-model car. Here's a look at a few key distinctions. Leasing a car Leasing a vehicle is essentially renting from the dealer for a certain length of time. The payments on a leased car don't let you build up any equity in the vehicle. Lease payments are generally lower than the monthly loan payments for a new vehicle. Buying a car When you buy a car, the insurance premiums are typically lower than if you lease.Owning a car means you are free to rack up mileage without worrying about financial penalties or restrictions.Depreciation can take a nasty toll on the value of your car, especially in the first couple of years. Words of Caution A downside to leasing is you essentially pay for the most expensive years of a vehicle's life. The amount you pay to lease is the difference between the purchase price and the residual value, which is the predetermined value of the car at the end of the lease period. The residual value the dealer includes in your contract directly impacts your monthly payment. When leasing, it's better to consider a vehicle retains its value and steer clear of cars with a high depreciation rate. Devious dealers may try to shift more of the depreciation cost onto you by embedding an unfairly low residual value. Also, when entering a lease agreement, be aware of any clauses in the contract regarding additional charges for "excess wear and tear" or above-average costs for additional mileage. You want to minimize any surprise costs as much as possible. Your time horizon is important when considering leasing versus buying; in the short run, leasing is more economical, but in the long run, buying a car is typically better for your wallet. Types of Car Leases There are two types of car leases: closed-end and open-end. Closed-end leases allow you to walk away from the car at the end of the lease term. If you owe for any extra mileage or excessive wear and tear, this is when you'd have to pay for it. With an open-end lease (also known as an equity lease), you must purchase the car at the end of the lease period for a predetermined amount. This is often the type of lease used by businesses or individuals who drive a lot. Most consumer groups suggest the closed-end lease is the best option because it poses less risk upon the expiration of the lease term.

https://www.investopedia.com/how-to-insure-wine-7970439

How to Insure Fine Wine

<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"> Wine collectors invest a significant amount of time and money into building their collections. Fine wines are often passed down through the generations, and their value increases with age. </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/articles/personal-finance/061815/risks-investing-art-and-collectibles.asp">Much like art and fine jewelry</a>, fine wine is a substantial financial asset that requires protection. Wine <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance.asp">insurance</a> provides coverage in the event of damage, theft, or spoilage. </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>Wine insurance protects collectors against financial losses from damage, theft, and spoilage.</li><li>Policies cover wine in home cellars, storage facilities, in transit, and/or on display.</li><li>Damage coverage may include loss from natural disasters, fire, water, theft, and spoilage from equipment failure.</li><li>For quick claims, policyholders must document inventory details, explain damage or losses, and provide prompt notice to the insurance provider.</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"> An average bottle of wine may cost just $20 at a local shop, but a collectible 1982 Lafites starts at about $8,000 at Sotheby’s Wine Auction (set at $65,000 in Hong Kong dollars), and a 1959 Romanée-Contis costs over $18,000.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span> At resale values this high, a wine collection of only 100 to 200 bottles could be worth seven figures. </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"> Hence, deciding on the right wine insurance is very important for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/wine-investment.asp">serious collectors</a>. Coverage options, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance_claim.asp">claims</a> processing, and add-ons for spoilage and spillage can differentiate a good policy from a great one. </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-different-types-of-wine-insurance"></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"> Different Types of Wine Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Wine insurance policies vary by type and level of coverage. Here are four common options.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="12"></span><br/> </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><strong>Damage coverage</strong>: Damage coverage protects against financial losses if wine is damaged due to natural disasters, fire from electrical failures, water from plumbing issues, extreme weather events, accidental breakage from improper storage or handling, and breakage during transit or shipping.</li><li><strong>Theft coverage</strong>: Theft coverage protects against losses if wine is stolen through burglary or robbery of a home, business, or storage facility. This may also cover mysterious disappearance; i.e., if bottles go missing without any explanation. Similarly, it protects against fraud during sales or trades and theft while wine is on display or consigned.</li><li><strong>Spoilage coverage</strong>: Spoilage coverage provides protection when heat, cold, power failure, or mechanical breakdown damages or destroys your wine. This includes excessive temperature fluctuations, power outages disrupting climate control, refrigeration equipment failure, and poor storage conditions that lead to seepage or corking issues.</li><li><strong>Transit coverage</strong>: For collectors who frequently ship wine, transit coverage insures against breakage, theft, and/or temperature damage during transport for sales, trades, or general shipment.<br/></li> </ul> <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-what-else-does-wine-insurance-cover"></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"> What Else Does Wine Insurance Cover? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In addition to the above ways that insurance will cover the unexpected, you may want to consider the following coverages as part of your fine wine insurance policy. </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><strong>Replacement-cost coverage</strong>: To replace rare and valuable bottles</li> <li><strong>Agreed-value coverage</strong>: For wines with set <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appraisal.asp">appraisal</a> values</li> <li><strong>Collectible components coverage</strong>: For bottles, labels, capsules, boxes, and other collectible components</li> <li><strong>Cleanup coverage</strong>: Removal of debris and cleanup costs from a covered loss</li> <li><strong>Appraisal fee coverage</strong>: Payment of appraisal fees needed to resolve claims</li> <li><strong>Worldwide coverage</strong>: For international collectors</li> <li><strong>Auction and display coverage</strong>: Coverage for damage and theft for wines displayed at exhibitions or auction houses</li> </ul> <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-do-i-really-need-wine-insurance"></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"> Do I Really Need Wine Insurance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> For the average consumer with several bottles stored in a home cellar, wine insurance is not a necessary expense. The Horton Group recommends covering a collection worth $85,000, though it also suggests that “you may wish to begin insuring well below that value.”<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_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The financial risks posed by damage, theft, and spoilage make the cost of insurance worthwhile. Those with climate-controlled cellars may consider this protection more seriously, because any faulty equipment could result in the entire collection being ruined. Similarly, those who have inherited a collection may have both a sentimental and financial incentive to insure their collection for the benefit of future generations. </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-factors-to-consider-when-choosing-wine-insurance"></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"> Factors to Consider When Choosing Wine Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> When selecting a wine insurance policy, there are a few key factors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li><strong>Coverage limits</strong>: Choose limits adequate to cover the full collection value. Alternatively, consider per-bottle limits, which typically range from $1,000 to $25,000 each.</li> <li><strong>Deductibles</strong>: As with any other insurance, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071515/why-do-insurance-policies-have-deductibles.asp">deductibles</a> range. This is the upfront cost that the insured pays on any claim before the remainder is covered by the insurance company. A lower deductible, like 2% to 5% of loss value, can reduce out-of-pocket costs in case of an incident. Higher deductibles, 10% and up, will cost the insured more at the time of a claim, but recurring monthly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">premiums</a> will cost less over the life of the policy.</li> <li><strong>Exclusions</strong>: Excluded risks vary. Read the fine print and expect that loss or damage for incidents such as war, nuclear accidents, ordinary wear and tear, and gradual deterioration may not be covered.</li> <li><strong>Provider reputation</strong>: Select an established insurer known for wine expertise and fast claims processing. Big names in the wine insurance space include American International Group (AIG), Chubb, Horton, and Pure.<span class="ql-inline-citation" data-cite="6"></span><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="3"></span></li> <li><strong>Premium costs</strong>: Compare quotes to find the right balance of premium affordability and coverage.<br/></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-how-much-does-wine-insurance-cost"></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"> How Much Does Wine Insurance Cost? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Premiums vary greatly based on the collection’s value and risk factors. It costs anywhere from 40 cents to 80 cents to insure $100 worth of wine, so if your collection is worth $100,000, the annual premium could be anywhere from $400 to $800.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> However, there may be additional costs depending on how frequently the bottles are moved (transit), the conditions in which they are normally stored (climate-controlled or not), and where the bottles are located (United States, abroad, and/or seasonal risks in storage locations). These factors and a combination of factors determine the final cost of each policy.<br> </br></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-how-to-insure-a-wine-collection"></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"> How to Insure a Wine Collection </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The first step in insuring a wine collection is to inventory the collection by detailing wine types, year, origin, bottle sizes, values, and storage locations. Hobbyists may already have a ballpark figure from searching on online sites, such as wine-searcher and Wine Owners, for comparable bottles.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Others may want to get an appraisal to establish value for rare or expensive bottles. While many insurance companies will not require you to conduct an appraisal before offering an insurance product, it is wise to do your own <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>. With an independent appraisal, you can learn a lot about your collection—especially if you inherited it—and learn more about resale and replacement values, in addition to just insurance coverage needed. </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"> After obtaining generic quotes from multiple specialized wine insurers, compare coverage terms and pricing before selecting the best policy. </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-tip" 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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Read online reviews to learn more about how easy the company is to work with and how fast it addresses claims and reimburses for them.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Complete the chosen insurers’ applications and provide inventory documentation to get an exact quote to determine the best option. Before paying the premium to activate coverage, ask how easy it is to expand coverage as you continue to acquire more wine, confirm whether the policy will pass on to other inheritors of the collection (or just the person who originally signed up for it), and ask who else might need to be named on the policy, such as a sommelier, an estate or a trust manager, or a family member. </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"> Once you make a selection, store your policy documents safely in physical and digital formats. Maintain the policy in good standing by updating the inventory regularly, tracking origin and acquisition documentation in an accessible place, and recalibrating values based on use and sales of comparable vintage bottles.<br/> </p> <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-tips-for-filing-a-wine-insurance-claim"></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"> Tips for Filing a Wine Insurance Claim </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> If disaster strikes, wine insurance claims can be filed just as with any other insurance. Contact the insurance company immediately to explain the concern and circumstances. </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"> Know that even your first call is being documented, so be careful not to speculate about cause or fault. Take reasonable steps to prevent further losses, such as removing unaffected bottles from a water-damaged cellar. Thoroughly document damage and losses with photos, video, and detailed written notes. Report any theft to the police and obtain a copy of the report to attach to the claim. </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"> These days, many insurers use an online portal for document collection and claims communication, but others may still work best via phone or email. Ask about claim processing time frames, settlement options, and the right to appeal. </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"> Work cooperatively with the insurer’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adjuster.asp">adjuster</a> to determine and verify losses. This may include a site visit or other kinds of verifications. Keep records of all claim-related expenses that the policy covers. Pass on accurate bills and receipts to the insurance company as they arise. </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-does-homeowners-insurance-cover-wine"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Homeowners Insurance Cover Wine?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most homeowners insurance does not provide special sub-limits of coverage for wine.<span class="ql-inline-citation" data-cite="5"></span> For broader protection against damage, spoilage, etc., specialized wine insurance is recommended.</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-should-a-wine-insurance-policy-cover"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Should a Wine Insurance Policy Cover?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Quality wine insurance should include damage, loss, theft, spoilage, transit, and offsite storage losses. Added coverages to consider include replacement-cost and agreed-value valuations, cleanup costs, the value of collectible components, worldwide applicability, and appraisal fees.</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-can-you-insure-a-whiskey-collection"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Insure a Whiskey Collection?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can. As with fine wine, there are insurance policies available that specialize in covering whiskey collections. Many of the biggest names in wine insurance also cover spirits. Two reputable providers with specialized whiskey insurance are Horton and Woodruff Sawyer.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> Chubb and AIG, named above, offer blanket wine and spirits insurance.<br/></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"> It is easy to go from casual wine collector to connoisseur in just a few years. Also, inheriting a collection could put a layperson in the position of needing to safeguard what they now own. For large or especially valuable collections, insurance can safeguard wine investments over the long term. </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"> Before signing up for wine insurance, however, it is best to properly document holdings, understand the coverage options, and choose a trusted provider. Insurance provides peace of mind that fine wine can mature safely with adequate financial protection from life’s perils.<br/> </p></div>

Wine collectors invest a significant amount of time and money into building their collections. Fine wines are often passed down through the generations, and their value increases with age. [Much like art and fine jewelry](https://www.investopedia.com/articles/personal-finance/061815/risks-investing-art-and-collectibles.asp), fine wine is a substantial financial asset that requires protection. Wine [insurance](https://www.investopedia.com/terms/i/insurance.asp) provides coverage in the event of damage, theft, or spoilage. ### Key Takeaways * Wine insurance protects collectors against financial losses from damage, theft, and spoilage. * Policies cover wine in home cellars, storage facilities, in transit, and/or on display. * Damage coverage may include loss from natural disasters, fire, water, theft, and spoilage from equipment failure. * For quick claims, policyholders must document inventory details, explain damage or losses, and provide prompt notice to the insurance provider. An average bottle of wine may cost just $20 at a local shop, but a collectible 1982 Lafites starts at about $8,000 at Sotheby’s Wine Auction (set at $65,000 in Hong Kong dollars), and a 1959 Romanée-Contis costs over $18,000. At resale values this high, a wine collection of only 100 to 200 bottles could be worth seven figures. Hence, deciding on the right wine insurance is very important for [serious collectors](https://www.investopedia.com/articles/pf/08/wine-investment.asp). Coverage options, [claims](https://www.investopedia.com/terms/i/insurance_claim.asp) processing, and add-ons for spoilage and spillage can differentiate a good policy from a great one. ## Different Types of Wine Insurance Wine insurance policies vary by type and level of coverage. Here are four common options. * **Damage coverage**: Damage coverage protects against financial losses if wine is damaged due to natural disasters, fire from electrical failures, water from plumbing issues, extreme weather events, accidental breakage from improper storage or handling, and breakage during transit or shipping. * **Theft coverage**: Theft coverage protects against losses if wine is stolen through burglary or robbery of a home, business, or storage facility. This may also cover mysterious disappearance; i.e., if bottles go missing without any explanation. Similarly, it protects against fraud during sales or trades and theft while wine is on display or consigned. * **Spoilage coverage**: Spoilage coverage provides protection when heat, cold, power failure, or mechanical breakdown damages or destroys your wine. This includes excessive temperature fluctuations, power outages disrupting climate control, refrigeration equipment failure, and poor storage conditions that lead to seepage or corking issues. * **Transit coverage**: For collectors who frequently ship wine, transit coverage insures against breakage, theft, and/or temperature damage during transport for sales, trades, or general shipment. ## What Else Does Wine Insurance Cover? In addition to the above ways that insurance will cover the unexpected, you may want to consider the following coverages as part of your fine wine insurance policy. * **Replacement-cost coverage**: To replace rare and valuable bottles * **Agreed-value coverage**: For wines with set [appraisal](https://www.investopedia.com/terms/a/appraisal.asp) values * **Collectible components coverage**: For bottles, labels, capsules, boxes, and other collectible components * **Cleanup coverage**: Removal of debris and cleanup costs from a covered loss * **Appraisal fee coverage**: Payment of appraisal fees needed to resolve claims * **Worldwide coverage**: For international collectors * **Auction and display coverage**: Coverage for damage and theft for wines displayed at exhibitions or auction houses ## Do I Really Need Wine Insurance? For the average consumer with several bottles stored in a home cellar, wine insurance is not a necessary expense. The Horton Group recommends covering a collection worth $85,000, though it also suggests that “you may wish to begin insuring well below that value.” The financial risks posed by damage, theft, and spoilage make the cost of insurance worthwhile. Those with climate-controlled cellars may consider this protection more seriously, because any faulty equipment could result in the entire collection being ruined. Similarly, those who have inherited a collection may have both a sentimental and financial incentive to insure their collection for the benefit of future generations. ## Factors to Consider When Choosing Wine Insurance When selecting a wine insurance policy, there are a few key factors. * **Coverage limits**: Choose limits adequate to cover the full collection value. Alternatively, consider per-bottle limits, which typically range from $1,000 to $25,000 each. * **Deductibles**: As with any other insurance, [deductibles](https://www.investopedia.com/ask/answers/071515/why-do-insurance-policies-have-deductibles.asp) range. This is the upfront cost that the insured pays on any claim before the remainder is covered by the insurance company. A lower deductible, like 2% to 5% of loss value, can reduce out-of-pocket costs in case of an incident. Higher deductibles, 10% and up, will cost the insured more at the time of a claim, but recurring monthly [premiums](https://www.investopedia.com/terms/i/insurance-premium.asp) will cost less over the life of the policy. * **Exclusions**: Excluded risks vary. Read the fine print and expect that loss or damage for incidents such as war, nuclear accidents, ordinary wear and tear, and gradual deterioration may not be covered. * **Provider reputation**: Select an established insurer known for wine expertise and fast claims processing. Big names in the wine insurance space include American International Group (AIG), Chubb, Horton, and Pure. * **Premium costs**: Compare quotes to find the right balance of premium affordability and coverage. ## How Much Does Wine Insurance Cost? Premiums vary greatly based on the collection’s value and risk factors. It costs anywhere from 40 cents to 80 cents to insure $100 worth of wine, so if your collection is worth $100,000, the annual premium could be anywhere from $400 to $800. However, there may be additional costs depending on how frequently the bottles are moved (transit), the conditions in which they are normally stored (climate-controlled or not), and where the bottles are located (United States, abroad, and/or seasonal risks in storage locations). These factors and a combination of factors determine the final cost of each policy. ## How to Insure a Wine Collection The first step in insuring a wine collection is to inventory the collection by detailing wine types, year, origin, bottle sizes, values, and storage locations. Hobbyists may already have a ballpark figure from searching on online sites, such as wine-searcher and Wine Owners, for comparable bottles. Others may want to get an appraisal to establish value for rare or expensive bottles. While many insurance companies will not require you to conduct an appraisal before offering an insurance product, it is wise to do your own [due diligence](https://www.investopedia.com/terms/d/duediligence.asp). With an independent appraisal, you can learn a lot about your collection—especially if you inherited it—and learn more about resale and replacement values, in addition to just insurance coverage needed. After obtaining generic quotes from multiple specialized wine insurers, compare coverage terms and pricing before selecting the best policy. ### Read online reviews to learn more about how easy the company is to work with and how fast it addresses claims and reimburses for them. Complete the chosen insurers’ applications and provide inventory documentation to get an exact quote to determine the best option. Before paying the premium to activate coverage, ask how easy it is to expand coverage as you continue to acquire more wine, confirm whether the policy will pass on to other inheritors of the collection (or just the person who originally signed up for it), and ask who else might need to be named on the policy, such as a sommelier, an estate or a trust manager, or a family member. Once you make a selection, store your policy documents safely in physical and digital formats. Maintain the policy in good standing by updating the inventory regularly, tracking origin and acquisition documentation in an accessible place, and recalibrating values based on use and sales of comparable vintage bottles. ## Tips for Filing a Wine Insurance Claim If disaster strikes, wine insurance claims can be filed just as with any other insurance. Contact the insurance company immediately to explain the concern and circumstances. Know that even your first call is being documented, so be careful not to speculate about cause or fault. Take reasonable steps to prevent further losses, such as removing unaffected bottles from a water-damaged cellar. Thoroughly document damage and losses with photos, video, and detailed written notes. Report any theft to the police and obtain a copy of the report to attach to the claim. These days, many insurers use an online portal for document collection and claims communication, but others may still work best via phone or email. Ask about claim processing time frames, settlement options, and the right to appeal. Work cooperatively with the insurer’s [adjuster](https://www.investopedia.com/terms/a/adjuster.asp) to determine and verify losses. This may include a site visit or other kinds of verifications. Keep records of all claim-related expenses that the policy covers. Pass on accurate bills and receipts to the insurance company as they arise. ## Does Homeowners Insurance Cover Wine? Most homeowners insurance does not provide special sub-limits of coverage for wine. For broader protection against damage, spoilage, etc., specialized wine insurance is recommended. ## What Should a Wine Insurance Policy Cover? Quality wine insurance should include damage, loss, theft, spoilage, transit, and offsite storage losses. Added coverages to consider include replacement-cost and agreed-value valuations, cleanup costs, the value of collectible components, worldwide applicability, and appraisal fees. ## Can You Insure a Whiskey Collection? Yes, you can. As with fine wine, there are insurance policies available that specialize in covering whiskey collections. Many of the biggest names in wine insurance also cover spirits. Two reputable providers with specialized whiskey insurance are Horton and Woodruff Sawyer. Chubb and AIG, named above, offer blanket wine and spirits insurance. ## The Bottom Line It is easy to go from casual wine collector to connoisseur in just a few years. Also, inheriting a collection could put a layperson in the position of needing to safeguard what they now own. For large or especially valuable collections, insurance can safeguard wine investments over the long term. Before signing up for wine insurance, however, it is best to properly document holdings, understand the coverage options, and choose a trusted provider. Insurance provides peace of mind that fine wine can mature safely with adequate financial protection from life’s perils.

Wine collectors invest a significant amount of time and money into building their collections. Fine wines are often passed down through the generations, and their value increases with age. Much like art and fine jewelry, fine wine is a substantial financial asset that requires protection. Wine insurance provides coverage in the event of damage, theft, or spoilage. Key Takeaways Wine insurance protects collectors against financial losses from damage, theft, and spoilage.Policies cover wine in home cellars, storage facilities, in transit, and/or on display.Damage coverage may include loss from natural disasters, fire, water, theft, and spoilage from equipment failure.For quick claims, policyholders must document inventory details, explain damage or losses, and provide prompt notice to the insurance provider. An average bottle of wine may cost just $20 at a local shop, but a collectible 1982 Lafites starts at about $8,000 at Sotheby’s Wine Auction (set at $65,000 in Hong Kong dollars), and a 1959 Romanée-Contis costs over $18,000. At resale values this high, a wine collection of only 100 to 200 bottles could be worth seven figures. Hence, deciding on the right wine insurance is very important for serious collectors. Coverage options, claims processing, and add-ons for spoilage and spillage can differentiate a good policy from a great one. Different Types of Wine Insurance Wine insurance policies vary by type and level of coverage. Here are four common options. Damage coverage: Damage coverage protects against financial losses if wine is damaged due to natural disasters, fire from electrical failures, water from plumbing issues, extreme weather events, accidental breakage from improper storage or handling, and breakage during transit or shipping.Theft coverage: Theft coverage protects against losses if wine is stolen through burglary or robbery of a home, business, or storage facility. This may also cover mysterious disappearance; i.e., if bottles go missing without any explanation. Similarly, it protects against fraud during sales or trades and theft while wine is on display or consigned.Spoilage coverage: Spoilage coverage provides protection when heat, cold, power failure, or mechanical breakdown damages or destroys your wine. This includes excessive temperature fluctuations, power outages disrupting climate control, refrigeration equipment failure, and poor storage conditions that lead to seepage or corking issues.Transit coverage: For collectors who frequently ship wine, transit coverage insures against breakage, theft, and/or temperature damage during transport for sales, trades, or general shipment. What Else Does Wine Insurance Cover? In addition to the above ways that insurance will cover the unexpected, you may want to consider the following coverages as part of your fine wine insurance policy. Replacement-cost coverage: To replace rare and valuable bottles Agreed-value coverage: For wines with set appraisal values Collectible components coverage: For bottles, labels, capsules, boxes, and other collectible components Cleanup coverage: Removal of debris and cleanup costs from a covered loss Appraisal fee coverage: Payment of appraisal fees needed to resolve claims Worldwide coverage: For international collectors Auction and display coverage: Coverage for damage and theft for wines displayed at exhibitions or auction houses Do I Really Need Wine Insurance? For the average consumer with several bottles stored in a home cellar, wine insurance is not a necessary expense. The Horton Group recommends covering a collection worth $85,000, though it also suggests that “you may wish to begin insuring well below that value.” The financial risks posed by damage, theft, and spoilage make the cost of insurance worthwhile. Those with climate-controlled cellars may consider this protection more seriously, because any faulty equipment could result in the entire collection being ruined. Similarly, those who have inherited a collection may have both a sentimental and financial incentive to insure their collection for the benefit of future generations. Factors to Consider When Choosing Wine Insurance When selecting a wine insurance policy, there are a few key factors. Coverage limits: Choose limits adequate to cover the full collection value. Alternatively, consider per-bottle limits, which typically range from $1,000 to $25,000 each. Deductibles: As with any other insurance, deductibles range. This is the upfront cost that the insured pays on any claim before the remainder is covered by the insurance company. A lower deductible, like 2% to 5% of loss value, can reduce out-of-pocket costs in case of an incident. Higher deductibles, 10% and up, will cost the insured more at the time of a claim, but recurring monthly premiums will cost less over the life of the policy. Exclusions: Excluded risks vary. Read the fine print and expect that loss or damage for incidents such as war, nuclear accidents, ordinary wear and tear, and gradual deterioration may not be covered. Provider reputation: Select an established insurer known for wine expertise and fast claims processing. Big names in the wine insurance space include American International Group (AIG), Chubb, Horton, and Pure. Premium costs: Compare quotes to find the right balance of premium affordability and coverage. How Much Does Wine Insurance Cost? Premiums vary greatly based on the collection’s value and risk factors. It costs anywhere from 40 cents to 80 cents to insure $100 worth of wine, so if your collection is worth $100,000, the annual premium could be anywhere from $400 to $800. However, there may be additional costs depending on how frequently the bottles are moved (transit), the conditions in which they are normally stored (climate-controlled or not), and where the bottles are located (United States, abroad, and/or seasonal risks in storage locations). These factors and a combination of factors determine the final cost of each policy. How to Insure a Wine Collection The first step in insuring a wine collection is to inventory the collection by detailing wine types, year, origin, bottle sizes, values, and storage locations. Hobbyists may already have a ballpark figure from searching on online sites, such as wine-searcher and Wine Owners, for comparable bottles. Others may want to get an appraisal to establish value for rare or expensive bottles. While many insurance companies will not require you to conduct an appraisal before offering an insurance product, it is wise to do your own due diligence. With an independent appraisal, you can learn a lot about your collection—especially if you inherited it—and learn more about resale and replacement values, in addition to just insurance coverage needed. After obtaining generic quotes from multiple specialized wine insurers, compare coverage terms and pricing before selecting the best policy. Read online reviews to learn more about how easy the company is to work with and how fast it addresses claims and reimburses for them. Complete the chosen insurers’ applications and provide inventory documentation to get an exact quote to determine the best option. Before paying the premium to activate coverage, ask how easy it is to expand coverage as you continue to acquire more wine, confirm whether the policy will pass on to other inheritors of the collection (or just the person who originally signed up for it), and ask who else might need to be named on the policy, such as a sommelier, an estate or a trust manager, or a family member. Once you make a selection, store your policy documents safely in physical and digital formats. Maintain the policy in good standing by updating the inventory regularly, tracking origin and acquisition documentation in an accessible place, and recalibrating values based on use and sales of comparable vintage bottles. Tips for Filing a Wine Insurance Claim If disaster strikes, wine insurance claims can be filed just as with any other insurance. Contact the insurance company immediately to explain the concern and circumstances. Know that even your first call is being documented, so be careful not to speculate about cause or fault. Take reasonable steps to prevent further losses, such as removing unaffected bottles from a water-damaged cellar. Thoroughly document damage and losses with photos, video, and detailed written notes. Report any theft to the police and obtain a copy of the report to attach to the claim. These days, many insurers use an online portal for document collection and claims communication, but others may still work best via phone or email. Ask about claim processing time frames, settlement options, and the right to appeal. Work cooperatively with the insurer’s adjuster to determine and verify losses. This may include a site visit or other kinds of verifications. Keep records of all claim-related expenses that the policy covers. Pass on accurate bills and receipts to the insurance company as they arise. Does Homeowners Insurance Cover Wine? Most homeowners insurance does not provide special sub-limits of coverage for wine. For broader protection against damage, spoilage, etc., specialized wine insurance is recommended. What Should a Wine Insurance Policy Cover? Quality wine insurance should include damage, loss, theft, spoilage, transit, and offsite storage losses. Added coverages to consider include replacement-cost and agreed-value valuations, cleanup costs, the value of collectible components, worldwide applicability, and appraisal fees. Can You Insure a Whiskey Collection? Yes, you can. As with fine wine, there are insurance policies available that specialize in covering whiskey collections. Many of the biggest names in wine insurance also cover spirits. Two reputable providers with specialized whiskey insurance are Horton and Woodruff Sawyer. Chubb and AIG, named above, offer blanket wine and spirits insurance. The Bottom Line It is easy to go from casual wine collector to connoisseur in just a few years. Also, inheriting a collection could put a layperson in the position of needing to safeguard what they now own. For large or especially valuable collections, insurance can safeguard wine investments over the long term. Before signing up for wine insurance, however, it is best to properly document holdings, understand the coverage options, and choose a trusted provider. Insurance provides peace of mind that fine wine can mature safely with adequate financial protection from life’s perils.

https://www.investopedia.com/how-to-use-gift-letter-5220664

Gift Letter: 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gift.asp">gift</a>. The most common use of gift letters is when a borrower has received assistance in making a <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> on a new home or other real estate property. Such letters state that the money received is not expected to be paid back in any way, shape, or form. If you have received a gift from friends or family to buy property, your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/mortgage-lenders/">mortgage provider</a> may require you to sign a gift letter. </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"> In this guide, we’ll look at what a gift letter is, how and why you can use one, and what the tax implications of gifts are. </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>A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift.</li><li>Gift letters are important when it comes to paying a real estate down payment, for example, because lenders tend to frown upon borrowers using additional borrowed money for a down payment on a home or other property. </li><li>A lender may require a receipt of a gift letter if there are abnormally large deposits into your bank account leading up to the purchase of real estate or an indication of third-party funds helping fund the purchase.</li><li>A gift letter must contain the donor's name, the gift's value, confirmation that the gift is not to be repaid, and the donor's signature.</li><li>For tax year 2022, the Internal Revenue Service (IRS) says that the annual exclusion on a gift per person per year is $16,000. In 2023, this amount is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. <span class="ql-inline-citation" data-cite="5"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-gift-letter"></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 a Gift Letter? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. </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"> A gift can be broadly defined to include a sale, exchange, or other transfer of property from one person (the donor) to another (the recipient). Common forms of gifts 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>Cash, check, or other tangible items   </li><li>Transferring a title to stocks or real property without receiving anything in exchange   </li><li>Forgiving debt   </li><li>Below-market loans   </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"> While gift letters are most common with mortgage down payments, they can be provided for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estateplanning.asp">estate planning</a> purposes or with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gift_of_equity.asp">gift of equity</a>. An equity gift letter accompanies a home sale below market value.<span class="ql-inline-citation" data-cite="6"></span> This usually occurs when someone gifts real estate property to a relative.<br/> </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-gift-letters-and-mortgages"></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"> Gift Letters and Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. If you are buying property, and if you have received a monetary gift that you plan to use toward a mortgage down payment or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingcosts.asp">closing costs</a>, then you must provide a gift letter to prove that the money is not a loan.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> During the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a> process for a mortgage loan, lenders may check a loan applicant’s financial status and verify that they have the means to repay the loan. In addition, this additional debt may be considered when factoring in the pricing and terms of the mortgage agreement. </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"> For example, suppose you just got married and your grandparents gave you $5,000 as a wedding gift. You can use this money toward a down payment and closing costs on a home, but to do so, you’ll have to reassure your mortgage provider that it wasn’t a loan. </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 do that, you have your grandparents draw up a gift letter that you can then give to a mortgage lender. The gift letter will indicate their relationship to you, the exact amount and source of the funds, and state that you’re under no obligation to pay it back.<br> </br></p> <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-callout mntl-block" id="mntl-sc-block_25-0"><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_26-0"><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 plan on using wedding gift money to put a down payment on a home, make sure it comes from an eligible donor. Gift letter requirements and acceptable donors vary by mortgage loan type.</p></div></div></div> <span class="heading-toc" id="toc-how-to-write-a-gift-letter"></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"> How To Write a Gift Letter </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Gift letters follow a fairly standard format, but some mortgage lenders (or other financial institutions) prefer you to use a template. In general, the person giving the gift must write and sign the gift letter. Ideally, they should provide the gift letter at the time of the gift, but this doesn’t always happen and the letter may be written and signed at a later date. </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"> A gift letter should include the following information: </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>The exact dollar amount of the gift</li><li>The donor’s name, address, and phone number</li><li>The donor’s relationship to the loan applicant   </li><li>The date when the funds were or will be transferred   </li><li>A statement that no repayment is expected   </li><li>The address of the property being purchased (if known at the time)   </li><li>The recipient’s and donor’s signatures<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"> Bear in mind that your mortgage lender may well look into the circumstances of the gift and may ask you for more information or evidence about it. This could include bank statements, check copies, and proof of wire transfer. This research is done to validate your financial situation, assess risk, and ensure that you can repay the loan to which you are applying the gifted money to. It’s possible to use multiple gifts toward your down payment, but you’ll need a separate gift letter for each one. </p> <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-callout mntl-block" id="mntl-sc-block_36-0"><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_37-0"><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>Check with your mortgage provider about what evidence you should provide with a gift letter—otherwise, your application may be delayed.</p></div></div></div> <span class="heading-toc" id="toc-gifts-and-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"> Gifts and Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Not all gifts are taxable.<span class="ql-inline-citation" data-cite="3"></span> Gifts that fall into the following categories are not taxable: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <li>Gifts that are not more than the annual exclusion for the calendar year</li><li>Tuition or medical expenses that you pay for someone else</li><li>Gifts to your spouse. Married couples may take advantage of a “gift splitting” tax rule and give up to $30,000 combined without incurring tax penalties.</li><li>Gifts to a political organization</li> </ul> <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"> If a gift is taxable, the donor is usually the one who pays the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.thebalancemoney.com:443/how-is-the-gift-tax-calculated-3505674" rel="nofollow">gift tax</a> unless the gift recipient makes an arrangement to pay it.<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_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As of 2022, 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> determined that the annual exclusion on a gift per person per year is $16,000. In 2023, this gift tax exemption is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that.<span class="ql-inline-citation" data-cite="5"></span> For example, if someone gives you $25,000, they will have to pay taxes on the amount over the annual exclusion. For 2023, this would be $8,000. </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"> Lastly, be aware that even if gift amounts fall within the IRS gift exclusions and exemptions, donors will still need to file a tax return so that their donations can be counted toward their lifetime tax exemption.<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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-which-gifts-are-not-taxable"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Gifts Are Not Taxable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You don’t pay taxes on some types of gifts. These include gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses, gifts to your spouse, or gifts to a political organization.<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_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-a-gift-letter-legally-binding"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Gift Letter Legally Binding?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document.</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-does-a-gift-letter-need-to-be-signed"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does a Gift Letter Need to be Signed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Because a gift letter is legally binding, lenders will require the letter to be signed by the donor. It is less important for the recipient to sign the letter, as the letter is primarily focused on confirming the donor expects to not receive their money back.</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-how-do-i-write-a-gift-letter"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Write a Gift Letter?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most mortgage providers will have a template that you can follow, but in general, your gift letter should include:</p><ul><li>The donor’s name, address and phone number</li><li>The donor’s relationship to the client</li><li>The dollar amount of the gift</li><li>The date when the funds were transferred</li><li>A statement from the donor that no repayment is expected</li><li>The donor’s signature</li><li>The address of the property being purchased, if known</li></ul></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 gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. </p></div>

A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a [gift](https://www.investopedia.com/terms/g/gift.asp). The most common use of gift letters is when a borrower has received assistance in making a [down payment](https://www.investopedia.com/terms/d/down_payment.asp) on a new home or other real estate property. Such letters state that the money received is not expected to be paid back in any way, shape, or form. If you have received a gift from friends or family to buy property, your [mortgage provider](https://www.investopedia.com/mortgage/mortgage-guide/mortgage-lenders/) may require you to sign a gift letter. In this guide, we’ll look at what a gift letter is, how and why you can use one, and what the tax implications of gifts are. ### Key Takeaways * A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift. * Gift letters are important when it comes to paying a real estate down payment, for example, because lenders tend to frown upon borrowers using additional borrowed money for a down payment on a home or other property. * A lender may require a receipt of a gift letter if there are abnormally large deposits into your bank account leading up to the purchase of real estate or an indication of third-party funds helping fund the purchase. * A gift letter must contain the donor's name, the gift's value, confirmation that the gift is not to be repaid, and the donor's signature. * For tax year 2022, the Internal Revenue Service (IRS) says that the annual exclusion on a gift per person per year is $16,000. In 2023, this amount is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. ## What Is a Gift Letter? A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. A gift can be broadly defined to include a sale, exchange, or other transfer of property from one person (the donor) to another (the recipient). Common forms of gifts include: * Cash, check, or other tangible items * Transferring a title to stocks or real property without receiving anything in exchange * Forgiving debt * Below-market loans While gift letters are most common with mortgage down payments, they can be provided for [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp) purposes or with a [gift of equity](https://www.investopedia.com/terms/g/gift_of_equity.asp). An equity gift letter accompanies a home sale below market value. This usually occurs when someone gifts real estate property to a relative. ## Gift Letters and Mortgages Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. If you are buying property, and if you have received a monetary gift that you plan to use toward a mortgage down payment or [closing costs](https://www.investopedia.com/terms/c/closingcosts.asp), then you must provide a gift letter to prove that the money is not a loan. During the [underwriting](https://www.investopedia.com/terms/u/underwriting.asp) process for a mortgage loan, lenders may check a loan applicant’s financial status and verify that they have the means to repay the loan. In addition, this additional debt may be considered when factoring in the pricing and terms of the mortgage agreement. For example, suppose you just got married and your grandparents gave you $5,000 as a wedding gift. You can use this money toward a down payment and closing costs on a home, but to do so, you’ll have to reassure your mortgage provider that it wasn’t a loan. To do that, you have your grandparents draw up a gift letter that you can then give to a mortgage lender. The gift letter will indicate their relationship to you, the exact amount and source of the funds, and state that you’re under no obligation to pay it back. ### If you plan on using wedding gift money to put a down payment on a home, make sure it comes from an eligible donor. Gift letter requirements and acceptable donors vary by mortgage loan type. ## How To Write a Gift Letter Gift letters follow a fairly standard format, but some mortgage lenders (or other financial institutions) prefer you to use a template. In general, the person giving the gift must write and sign the gift letter. Ideally, they should provide the gift letter at the time of the gift, but this doesn’t always happen and the letter may be written and signed at a later date. A gift letter should include the following information: * The exact dollar amount of the gift * The donor’s name, address, and phone number * The donor’s relationship to the loan applicant * The date when the funds were or will be transferred * A statement that no repayment is expected * The address of the property being purchased (if known at the time) * The recipient’s and donor’s signatures Bear in mind that your mortgage lender may well look into the circumstances of the gift and may ask you for more information or evidence about it. This could include bank statements, check copies, and proof of wire transfer. This research is done to validate your financial situation, assess risk, and ensure that you can repay the loan to which you are applying the gifted money to. It’s possible to use multiple gifts toward your down payment, but you’ll need a separate gift letter for each one. ### Check with your mortgage provider about what evidence you should provide with a gift letter—otherwise, your application may be delayed. ## Gifts and Taxes Not all gifts are taxable. Gifts that fall into the following categories are not taxable: * Gifts that are not more than the annual exclusion for the calendar year * Tuition or medical expenses that you pay for someone else * Gifts to your spouse. Married couples may take advantage of a “gift splitting” tax rule and give up to $30,000 combined without incurring tax penalties. * Gifts to a political organization If a gift is taxable, the donor is usually the one who pays the [gift tax](https://www.thebalancemoney.com:443/how-is-the-gift-tax-calculated-3505674) unless the gift recipient makes an arrangement to pay it. As of 2022, the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) determined that the annual exclusion on a gift per person per year is $16,000. In 2023, this gift tax exemption is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. For example, if someone gives you $25,000, they will have to pay taxes on the amount over the annual exclusion. For 2023, this would be $8,000. Lastly, be aware that even if gift amounts fall within the IRS gift exclusions and exemptions, donors will still need to file a tax return so that their donations can be counted toward their lifetime tax exemption. ## Which Gifts Are Not Taxable? You don’t pay taxes on some types of gifts. These include gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses, gifts to your spouse, or gifts to a political organization. ## Is a Gift Letter Legally Binding? Yes. Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document. ## Does a Gift Letter Need to be Signed? Because a gift letter is legally binding, lenders will require the letter to be signed by the donor. It is less important for the recipient to sign the letter, as the letter is primarily focused on confirming the donor expects to not receive their money back. ## How Do I Write a Gift Letter? Most mortgage providers will have a template that you can follow, but in general, your gift letter should include: * The donor’s name, address and phone number * The donor’s relationship to the client * The dollar amount of the gift * The date when the funds were transferred * A statement from the donor that no repayment is expected * The donor’s signature * The address of the property being purchased, if known ## The Bottom Line A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property.

A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift. The most common use of gift letters is when a borrower has received assistance in making a down payment on a new home or other real estate property. Such letters state that the money received is not expected to be paid back in any way, shape, or form. If you have received a gift from friends or family to buy property, your mortgage provider may require you to sign a gift letter. In this guide, we’ll look at what a gift letter is, how and why you can use one, and what the tax implications of gifts are. Key Takeaways A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift.Gift letters are important when it comes to paying a real estate down payment, for example, because lenders tend to frown upon borrowers using additional borrowed money for a down payment on a home or other property. A lender may require a receipt of a gift letter if there are abnormally large deposits into your bank account leading up to the purchase of real estate or an indication of third-party funds helping fund the purchase.A gift letter must contain the donor's name, the gift's value, confirmation that the gift is not to be repaid, and the donor's signature.For tax year 2022, the Internal Revenue Service (IRS) says that the annual exclusion on a gift per person per year is $16,000. In 2023, this amount is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. What Is a Gift Letter? A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. A gift can be broadly defined to include a sale, exchange, or other transfer of property from one person (the donor) to another (the recipient). Common forms of gifts include: Cash, check, or other tangible items   Transferring a title to stocks or real property without receiving anything in exchange   Forgiving debt   Below-market loans    While gift letters are most common with mortgage down payments, they can be provided for estate planning purposes or with a gift of equity. An equity gift letter accompanies a home sale below market value. This usually occurs when someone gifts real estate property to a relative. Gift Letters and Mortgages Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. If you are buying property, and if you have received a monetary gift that you plan to use toward a mortgage down payment or closing costs, then you must provide a gift letter to prove that the money is not a loan. During the underwriting process for a mortgage loan, lenders may check a loan applicant’s financial status and verify that they have the means to repay the loan. In addition, this additional debt may be considered when factoring in the pricing and terms of the mortgage agreement. For example, suppose you just got married and your grandparents gave you $5,000 as a wedding gift. You can use this money toward a down payment and closing costs on a home, but to do so, you’ll have to reassure your mortgage provider that it wasn’t a loan. To do that, you have your grandparents draw up a gift letter that you can then give to a mortgage lender. The gift letter will indicate their relationship to you, the exact amount and source of the funds, and state that you’re under no obligation to pay it back. If you plan on using wedding gift money to put a down payment on a home, make sure it comes from an eligible donor. Gift letter requirements and acceptable donors vary by mortgage loan type. How To Write a Gift Letter Gift letters follow a fairly standard format, but some mortgage lenders (or other financial institutions) prefer you to use a template. In general, the person giving the gift must write and sign the gift letter. Ideally, they should provide the gift letter at the time of the gift, but this doesn’t always happen and the letter may be written and signed at a later date. A gift letter should include the following information: The exact dollar amount of the giftThe donor’s name, address, and phone numberThe donor’s relationship to the loan applicant   The date when the funds were or will be transferred   A statement that no repayment is expected   The address of the property being purchased (if known at the time)   The recipient’s and donor’s signatures Bear in mind that your mortgage lender may well look into the circumstances of the gift and may ask you for more information or evidence about it. This could include bank statements, check copies, and proof of wire transfer. This research is done to validate your financial situation, assess risk, and ensure that you can repay the loan to which you are applying the gifted money to. It’s possible to use multiple gifts toward your down payment, but you’ll need a separate gift letter for each one. Check with your mortgage provider about what evidence you should provide with a gift letter—otherwise, your application may be delayed. Gifts and Taxes Not all gifts are taxable. Gifts that fall into the following categories are not taxable: Gifts that are not more than the annual exclusion for the calendar yearTuition or medical expenses that you pay for someone elseGifts to your spouse. Married couples may take advantage of a “gift splitting” tax rule and give up to $30,000 combined without incurring tax penalties.Gifts to a political organization If a gift is taxable, the donor is usually the one who pays the gift tax unless the gift recipient makes an arrangement to pay it. As of 2022, the Internal Revenue Service (IRS) determined that the annual exclusion on a gift per person per year is $16,000. In 2023, this gift tax exemption is increasing to $17,000. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. For example, if someone gives you $25,000, they will have to pay taxes on the amount over the annual exclusion. For 2023, this would be $8,000. Lastly, be aware that even if gift amounts fall within the IRS gift exclusions and exemptions, donors will still need to file a tax return so that their donations can be counted toward their lifetime tax exemption. Which Gifts Are Not Taxable? You don’t pay taxes on some types of gifts. These include gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses, gifts to your spouse, or gifts to a political organization. Is a Gift Letter Legally Binding? Yes. Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document. Does a Gift Letter Need to be Signed? Because a gift letter is legally binding, lenders will require the letter to be signed by the donor. It is less important for the recipient to sign the letter, as the letter is primarily focused on confirming the donor expects to not receive their money back. How Do I Write a Gift Letter? Most mortgage providers will have a template that you can follow, but in general, your gift letter should include:The donor’s name, address and phone numberThe donor’s relationship to the clientThe dollar amount of the giftThe date when the funds were transferredA statement from the donor that no repayment is expectedThe donor’s signatureThe address of the property being purchased, if known The Bottom Line A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property.

https://www.investopedia.com/terms/r/rcn.asp

Reverse Convertible Note (RCN): 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-reverse-convertible-note-rcn"></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 Reverse Convertible Note (RCN)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A reverse convertible note (RCN) is a financial product that shares characteristics with both bonds and stocks. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp" rel="noopener noreferrer">coupon-bearing</a> investment, it offers a payout at maturity which depends on the performance of an underlying stock. Structured as high-yield short-term investments, most RCNs have maturity periods of three months to two years. </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 reverse convertible note is a coupon-bearing investment that offers a payout at maturity which depends on the performance of an underlying stock.</li> <li>The potential reward may come at a hefty cost. RCNs typically have high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp" rel="noopener noreferrer">commission</a> fees and are considered by some money managers to be highly risky and even toxic assets.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-a-reverse-convertible-note-rcn-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 Reverse Convertible Note (RCN) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Reverse convertible notes have a face value which matures as shares or cash, whichever the issuer chooses, and a fixed coupon rate based on bonds. RCNs are frequently touted as a way for investors to diversify their portfolios without buying both stocks and bonds. The short <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> period and potential for a high-yield payoff appeal to most investors looking for relatively quick rewards. However, investors must tolerate the level of risk involved. </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 potential reward may come at a hefty cost. RCNs typically have high commission fees and are considered by some money managers to be highly risky and even toxic assets. </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-risks-and-considerations-of-reverse-convertible-notes"></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"> Risks and Considerations of Reverse Convertible Notes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The adage “buyer beware” is something investors should consider when investing in RCNs. Their complicated setup can be confusing to the average investor, who may not fully appreciate the risks involved. The lure of attractive returns and a quick maturity may distract investors and cause them to overlook important caveats and downsides of RCNs. </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"> If the stock tied to your RCN drops in value when the maturity date arrives, the principal you receive may be less than the value of the note. The investor could end up with a bunch of stock worth much less than expected. Even if they sell the stock quickly, they will take a loss, possibly a big one. Along the way, the investor looking for quick gains will incur hefty fees.  </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 <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> issued several alerts which detail the risks involved with RCNs. At least one of those alerts was prompted by FINRA enforcement actions, including one case in which the agency forced a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerage firm</a> to pay more than $1.4 million in fines and restitution for “supervisory failures resulting in sales of unsuitable reverse convertibles.”<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are also tax implications to consider, which, as with other aspects of RCNs, can be complex. Because of the way <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp">reverse convertible notes (RCNs)</a> are set up, they are subject to special tax treatment. Returns you see from your RCN investments could be subject to both capital gains tax and income tax. </p></div>

## What Is a Reverse Convertible Note (RCN)? A reverse convertible note (RCN) is a financial product that shares characteristics with both bonds and stocks. A [coupon-bearing](https://www.investopedia.com/terms/c/coupon.asp) investment, it offers a payout at maturity which depends on the performance of an underlying stock. Structured as high-yield short-term investments, most RCNs have maturity periods of three months to two years. ### Key Takeaways * A reverse convertible note is a coupon-bearing investment that offers a payout at maturity which depends on the performance of an underlying stock. * The potential reward may come at a hefty cost. RCNs typically have high [commission](https://www.investopedia.com/terms/c/commission.asp) fees and are considered by some money managers to be highly risky and even toxic assets. ## How a Reverse Convertible Note (RCN) Works Reverse convertible notes have a face value which matures as shares or cash, whichever the issuer chooses, and a fixed coupon rate based on bonds. RCNs are frequently touted as a way for investors to diversify their portfolios without buying both stocks and bonds. The short [maturity](https://www.investopedia.com/terms/m/maturity.asp) period and potential for a high-yield payoff appeal to most investors looking for relatively quick rewards. However, investors must tolerate the level of risk involved. The potential reward may come at a hefty cost. RCNs typically have high commission fees and are considered by some money managers to be highly risky and even toxic assets. ## Risks and Considerations of Reverse Convertible Notes The adage “buyer beware” is something investors should consider when investing in RCNs. Their complicated setup can be confusing to the average investor, who may not fully appreciate the risks involved. The lure of attractive returns and a quick maturity may distract investors and cause them to overlook important caveats and downsides of RCNs. If the stock tied to your RCN drops in value when the maturity date arrives, the principal you receive may be less than the value of the note. The investor could end up with a bunch of stock worth much less than expected. Even if they sell the stock quickly, they will take a loss, possibly a big one. Along the way, the investor looking for quick gains will incur hefty fees.  The [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) issued several alerts which detail the risks involved with RCNs. At least one of those alerts was prompted by FINRA enforcement actions, including one case in which the agency forced a [brokerage firm](https://www.investopedia.com/terms/b/brokerage-company.asp) to pay more than $1.4 million in fines and restitution for “supervisory failures resulting in sales of unsuitable reverse convertibles.” There are also tax implications to consider, which, as with other aspects of RCNs, can be complex. Because of the way [reverse convertible notes (RCNs)](https://www.investopedia.com/articles/bonds/08/reverse-convertible-note.asp) are set up, they are subject to special tax treatment. Returns you see from your RCN investments could be subject to both capital gains tax and income tax.

What Is a Reverse Convertible Note (RCN)? A reverse convertible note (RCN) is a financial product that shares characteristics with both bonds and stocks. A coupon-bearing investment, it offers a payout at maturity which depends on the performance of an underlying stock. Structured as high-yield short-term investments, most RCNs have maturity periods of three months to two years. Key Takeaways A reverse convertible note is a coupon-bearing investment that offers a payout at maturity which depends on the performance of an underlying stock. The potential reward may come at a hefty cost. RCNs typically have high commission fees and are considered by some money managers to be highly risky and even toxic assets. How a Reverse Convertible Note (RCN) Works Reverse convertible notes have a face value which matures as shares or cash, whichever the issuer chooses, and a fixed coupon rate based on bonds. RCNs are frequently touted as a way for investors to diversify their portfolios without buying both stocks and bonds. The short maturity period and potential for a high-yield payoff appeal to most investors looking for relatively quick rewards. However, investors must tolerate the level of risk involved. The potential reward may come at a hefty cost. RCNs typically have high commission fees and are considered by some money managers to be highly risky and even toxic assets. Risks and Considerations of Reverse Convertible Notes The adage “buyer beware” is something investors should consider when investing in RCNs. Their complicated setup can be confusing to the average investor, who may not fully appreciate the risks involved. The lure of attractive returns and a quick maturity may distract investors and cause them to overlook important caveats and downsides of RCNs. If the stock tied to your RCN drops in value when the maturity date arrives, the principal you receive may be less than the value of the note. The investor could end up with a bunch of stock worth much less than expected. Even if they sell the stock quickly, they will take a loss, possibly a big one. Along the way, the investor looking for quick gains will incur hefty fees.  The Financial Industry Regulatory Authority (FINRA) issued several alerts which detail the risks involved with RCNs. At least one of those alerts was prompted by FINRA enforcement actions, including one case in which the agency forced a brokerage firm to pay more than $1.4 million in fines and restitution for “supervisory failures resulting in sales of unsuitable reverse convertibles.” There are also tax implications to consider, which, as with other aspects of RCNs, can be complex. Because of the way reverse convertible notes (RCNs) are set up, they are subject to special tax treatment. Returns you see from your RCN investments could be subject to both capital gains tax and income tax.

https://www.investopedia.com/articles/company-insights/090916/top-4-companies-owned-british-petroleum-bp-ojscy.asp

The Top 5 Companies Owned by British Petroleum

<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"> British Petroleum, BP Plc (BP), known as BP, is one of the world’s largest integrated oil and gas companies. The company is involved in almost every step of the oil and natural gas supply chain, from exploration to the sale and marketing of energy products, and its shares often appear in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insights/062016/top-5-british-petroleum-shareholders-bp.asp">portfolios of institutional investors</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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> BP also engages in producing renewable energy through the wind farms that it owns and also produces a variety of petrochemical products. BP's history dates back to the early 1900s. The company, headquartered in London, was founded by William D'Arcy in 1909, a year after oil was discovered in the Middle East.<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_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>BP is a major integrated oil and gas company that owns brand names related to its petroleum product and gas station business.</li><li>Castrol manufactures industrial and automotive lubricants for the international market.</li><li>Aral AG is the owner of Aral-branded fuel stations in Germany and Luxembourg.</li><li>BP America owns most of ARCO's assets and convenience store chain ampm.</li><li>BP purchased Amoco, the largest oil and natural gas producer in the United States.</li><li>Thornton operates in conjunction with gas stations in the Midwest.</li></ul></div></div></div> <span class="heading-toc" id="toc-bp-financials"></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"> BP Financials </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> BP has a footprint in more than 60 countries worldwide and produced 797,000 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/barrelofoilequivalent.asp">barrels of oil equivalent</a> (BOE) per day in 2022. The U.S. accounted for 296,000 BOE per day.<span class="ql-inline-citation" data-cite="17"></span><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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In 2022, BP operated four segments—gas and low carbon energy, oil production and operations, customers and products, and other businesses and corporate. It reported adjusted earnings before interest, depreciation, and amortization (EBITDA) of $60.7 billion, a net loss of $1.4 billion, and a market capitalization of $99.5 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BP">billion on June 30, 2023</a>.<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_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> BP's current plan is to invest more in decarbonizing efforts, oil, and gas. It is exploring ways to balance resilient hydrocarbons, convenience and mobility, and low-carbon energy by acquiring or partnering with bioenergy and biofuel companies. In 2022, BP acquired TravelCenters of America, a network of roadside stops in the U.S. that provide fuel and conveniences to travelers.<span class="ql-inline-citation" data-cite="20"></span> It also acquired Archea Energy, a renewable natural gas provider.<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_13-0"></div> <span class="heading-toc" id="toc-1-castrol"></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"> #1. Castrol </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Type of business: Industrial and automotive lubricants</li><li>Acquisition price: $4.7 billion</li><li>Acquisition date: 2002</li><li>FY 2022 revenue: ₹11.7 billion ($1.43 million)</li><li>FY 2022 net profit after tax: ₹1.93 billion ($23 million)<span class="ql-inline-citation" data-cite="22"></span></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"> Castrol is a U.K.-based producer of industrial and automotive lubricants for a global <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market.asp">market</a>. The company was founded by Charles Wakefield in London in 1899.<span class="ql-inline-citation" data-cite="15"></span> It was <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mergersandacquisitions.asp?ad=dirN&amp;qo=investopediaSiteSearch&amp;qsrc=0&amp;o=40186">acquired</a> by BP in 2002.<span class="ql-inline-citation" data-cite="3"></span> Castrol lubricants are sold in automotive stores and gas stations in over 150 countries. </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-2-aral"></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"> #2. Aral </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler</li><li>Acquisition price: £4 billion</li><li>Acquisition date: 2002</li><li>FY 2022 revenue: Included in BP's consolidated financials</li><li>FY 2022 net profit: Included in BP's consolidated financials<br/></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"> Aral is a well-known brand of fuel stations in Germany and Luxembourg owned by Aral AG, a BP-owned company. Germany has approximately 2,300 Aral stations, making it the largest gas station chain in the country.<span class="ql-inline-citation" data-cite="23"></span> Aral stations offer fuel and diesel to customers and may also provide natural gas and propane. </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"> Many Aral stations also have a car wash and retail store. The retail stores provide convenience items and food through Aral's food store, Petit Bistro. More than 300 Petit Bistros are attached to Aral stations, which offer snacks, meals, and beverages, including fresh, sustainably harvested coffee. </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-3-arco-and-ampm"></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"> #3. ARCO and ampm </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li>Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler</li><li>Acquisition price: $26.8 billion</li><li>Acquisition date: 1999</li><li>FY 2022 revenue: Included in BP's consolidated financials</li><li>FY 2022 net profit: Included in BP's consolidated financials</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"> In 1999, BP America purchased most of ARCO's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp?ad=dirN&amp;qo=investopediaSiteSearch&amp;qsrc=0&amp;o=40186">assets</a>, and ARCO was integrated under the BP name. Many gas stations, even those owned by BP, are still branded as ARCO. BP also took ownership of the ampm convenience store chain—whose first location opened in 1978—through this purchase.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> These stores are now found associated with both ARCO- and BP-branded gas stations and offer grab-n-go sandwiches and snacks, among other items. Select stores even sell beer (where legally available). There are more than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ampm.com/storelocator">1,000 ampm stores</a> in America across California, Oregon, Washington, Nevada, and Arizona.<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_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-note" 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 with-title" id="mntl-sc-block-callout-heading_2-0">20,650</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The rough number of gas stations BP owns worldwide.<span class="ql-inline-citation" data-cite="24"></span></p></div></div></div> <span class="heading-toc" id="toc-4-amoco"></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"> #4. AMOCO </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li>Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler</li><li>Acquisition price: $48.2 billion</li><li>Acquisition date: 1998</li><li>FY 2022 revenue: Included in BP's consolidated financials</li><li>FY 2022 net profit: Included in BP's consolidated financials</li> </ul> <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"> BP reintroduced Amoco, the BP brand for the U.S. fuel retail sector, in 2017. Originally called Standard Oil of Indiana, Amoco was North America's largest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/12/natural-gas-primer.asp">natural gas</a> producer by 1912.<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"> Amoco and BP merged in 1998, making BP Amoco the largest oil and natural gas producer in the United States. That merged company was renamed BP in 2001.<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_41-0"></div> <span class="heading-toc" id="toc-5-thorntons"></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"> #5. Thorntons </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li>Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler</li><li>Acquisition price: Unreleased (as of June 2023)</li><li>Acquisition date: 2021</li><li>FY 2022 revenue: Included in BP's consolidated financials</li><li>FY 2022 net profit: Included in BP's consolidated financials</li> </ul> <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"> Hungry mid-western motorists who stop to refuel their cars can also refuel themselves with to-go foods, freshly ground coffee, snacks, and travel supplies for the road at Thorntons. </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-what-companies-are-owned-by-bp"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Companies are Owned by BP?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>BP owns Castrol, Aral, BP Pulse, Amoco, BP Connect, ampm, Thorntons, Wild Bean Cafe, and AirBP.</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-are-shell-and-bp-the-same-company"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Shell and BP the Same Company?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Shell and BP are two of the largest oil and gas companies. They are not the same company.</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-company-did-bp-buy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Company Did BP Buy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Recent BP acquisitions are Thorntons and Wild Bean Cafe.</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"> All the companies owned by BP help the company increase its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenues</a> by selling its main product, fuel. But the company also relies on its portfolio of brand names to help boost its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bottomline.asp">bottom line</a>. For instance, BP gas station customers can also purchase Castrol lubricants, while ampm, Amoco, and Thorntons sell food and beverages to motorists visiting BP-branded gas stations, including Aral in Germany. </p></div>

British Petroleum, BP Plc (BP), known as BP, is one of the world’s largest integrated oil and gas companies. The company is involved in almost every step of the oil and natural gas supply chain, from exploration to the sale and marketing of energy products, and its shares often appear in the [portfolios of institutional investors](https://www.investopedia.com/articles/insights/062016/top-5-british-petroleum-shareholders-bp.asp). BP also engages in producing renewable energy through the wind farms that it owns and also produces a variety of petrochemical products. BP's history dates back to the early 1900s. The company, headquartered in London, was founded by William D'Arcy in 1909, a year after oil was discovered in the Middle East. ### Key Takeaways * BP is a major integrated oil and gas company that owns brand names related to its petroleum product and gas station business. * Castrol manufactures industrial and automotive lubricants for the international market. * Aral AG is the owner of Aral-branded fuel stations in Germany and Luxembourg. * BP America owns most of ARCO's assets and convenience store chain ampm. * BP purchased Amoco, the largest oil and natural gas producer in the United States. * Thornton operates in conjunction with gas stations in the Midwest. ## BP Financials BP has a footprint in more than 60 countries worldwide and produced 797,000 [barrels of oil equivalent](https://www.investopedia.com/terms/b/barrelofoilequivalent.asp) (BOE) per day in 2022. The U.S. accounted for 296,000 BOE per day. In 2022, BP operated four segments—gas and low carbon energy, oil production and operations, customers and products, and other businesses and corporate. It reported adjusted earnings before interest, depreciation, and amortization (EBITDA) of $60.7 billion, a net loss of $1.4 billion, and a market capitalization of $99.5 [billion on June 30, 2023](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BP). BP's current plan is to invest more in decarbonizing efforts, oil, and gas. It is exploring ways to balance resilient hydrocarbons, convenience and mobility, and low-carbon energy by acquiring or partnering with bioenergy and biofuel companies. In 2022, BP acquired TravelCenters of America, a network of roadside stops in the U.S. that provide fuel and conveniences to travelers. It also acquired Archea Energy, a renewable natural gas provider. ## #1. Castrol * Type of business: Industrial and automotive lubricants * Acquisition price: $4.7 billion * Acquisition date: 2002 * FY 2022 revenue: ₹11.7 billion ($1.43 million) * FY 2022 net profit after tax: ₹1.93 billion ($23 million) Castrol is a U.K.-based producer of industrial and automotive lubricants for a global [market](https://www.investopedia.com/terms/m/market.asp). The company was founded by Charles Wakefield in London in 1899. It was [acquired](https://www.investopedia.com/terms/m/mergersandacquisitions.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186) by BP in 2002. Castrol lubricants are sold in automotive stores and gas stations in over 150 countries. ## #2. Aral * Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler * Acquisition price: £4 billion * Acquisition date: 2002 * FY 2022 revenue: Included in BP's consolidated financials * FY 2022 net profit: Included in BP's consolidated financials Aral is a well-known brand of fuel stations in Germany and Luxembourg owned by Aral AG, a BP-owned company. Germany has approximately 2,300 Aral stations, making it the largest gas station chain in the country. Aral stations offer fuel and diesel to customers and may also provide natural gas and propane. Many Aral stations also have a car wash and retail store. The retail stores provide convenience items and food through Aral's food store, Petit Bistro. More than 300 Petit Bistros are attached to Aral stations, which offer snacks, meals, and beverages, including fresh, sustainably harvested coffee. ## #3. ARCO and ampm * Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler * Acquisition price: $26.8 billion * Acquisition date: 1999 * FY 2022 revenue: Included in BP's consolidated financials * FY 2022 net profit: Included in BP's consolidated financials In 1999, BP America purchased most of ARCO's [assets](https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186), and ARCO was integrated under the BP name. Many gas stations, even those owned by BP, are still branded as ARCO. BP also took ownership of the ampm convenience store chain—whose first location opened in 1978—through this purchase. These stores are now found associated with both ARCO- and BP-branded gas stations and offer grab-n-go sandwiches and snacks, among other items. Select stores even sell beer (where legally available). There are more than [1,000 ampm stores](https://www.ampm.com/storelocator) in America across California, Oregon, Washington, Nevada, and Arizona. ### 20,650 The rough number of gas stations BP owns worldwide. ## #4. AMOCO * Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler * Acquisition price: $48.2 billion * Acquisition date: 1998 * FY 2022 revenue: Included in BP's consolidated financials * FY 2022 net profit: Included in BP's consolidated financials BP reintroduced Amoco, the BP brand for the U.S. fuel retail sector, in 2017. Originally called Standard Oil of Indiana, Amoco was North America's largest [natural gas](https://www.investopedia.com/articles/fundamental-analysis/12/natural-gas-primer.asp) producer by 1912. Amoco and BP merged in 1998, making BP Amoco the largest oil and natural gas producer in the United States. That merged company was renamed BP in 2001. ## #5. Thorntons * Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesaler * Acquisition price: Unreleased (as of June 2023) * Acquisition date: 2021 * FY 2022 revenue: Included in BP's consolidated financials * FY 2022 net profit: Included in BP's consolidated financials Hungry mid-western motorists who stop to refuel their cars can also refuel themselves with to-go foods, freshly ground coffee, snacks, and travel supplies for the road at Thorntons. ## What Companies are Owned by BP? BP owns Castrol, Aral, BP Pulse, Amoco, BP Connect, ampm, Thorntons, Wild Bean Cafe, and AirBP. ## Are Shell and BP the Same Company? Shell and BP are two of the largest oil and gas companies. They are not the same company. ## What Company Did BP Buy? Recent BP acquisitions are Thorntons and Wild Bean Cafe. ## The Bottom Line All the companies owned by BP help the company increase its [revenues](https://www.investopedia.com/terms/r/revenue.asp) by selling its main product, fuel. But the company also relies on its portfolio of brand names to help boost its [bottom line](https://www.investopedia.com/terms/b/bottomline.asp). For instance, BP gas station customers can also purchase Castrol lubricants, while ampm, Amoco, and Thorntons sell food and beverages to motorists visiting BP-branded gas stations, including Aral in Germany.

British Petroleum, BP Plc (BP), known as BP, is one of the world’s largest integrated oil and gas companies. The company is involved in almost every step of the oil and natural gas supply chain, from exploration to the sale and marketing of energy products, and its shares often appear in the portfolios of institutional investors. BP also engages in producing renewable energy through the wind farms that it owns and also produces a variety of petrochemical products. BP's history dates back to the early 1900s. The company, headquartered in London, was founded by William D'Arcy in 1909, a year after oil was discovered in the Middle East. Key Takeaways BP is a major integrated oil and gas company that owns brand names related to its petroleum product and gas station business.Castrol manufactures industrial and automotive lubricants for the international market.Aral AG is the owner of Aral-branded fuel stations in Germany and Luxembourg.BP America owns most of ARCO's assets and convenience store chain ampm.BP purchased Amoco, the largest oil and natural gas producer in the United States.Thornton operates in conjunction with gas stations in the Midwest. BP Financials BP has a footprint in more than 60 countries worldwide and produced 797,000 barrels of oil equivalent (BOE) per day in 2022. The U.S. accounted for 296,000 BOE per day. In 2022, BP operated four segments—gas and low carbon energy, oil production and operations, customers and products, and other businesses and corporate. It reported adjusted earnings before interest, depreciation, and amortization (EBITDA) of $60.7 billion, a net loss of $1.4 billion, and a market capitalization of $99.5 billion on June 30, 2023. BP's current plan is to invest more in decarbonizing efforts, oil, and gas. It is exploring ways to balance resilient hydrocarbons, convenience and mobility, and low-carbon energy by acquiring or partnering with bioenergy and biofuel companies. In 2022, BP acquired TravelCenters of America, a network of roadside stops in the U.S. that provide fuel and conveniences to travelers. It also acquired Archea Energy, a renewable natural gas provider. #1. Castrol Type of business: Industrial and automotive lubricantsAcquisition price: $4.7 billionAcquisition date: 2002FY 2022 revenue: ₹11.7 billion ($1.43 million)FY 2022 net profit after tax: ₹1.93 billion ($23 million) Castrol is a U.K.-based producer of industrial and automotive lubricants for a global market. The company was founded by Charles Wakefield in London in 1899. It was acquired by BP in 2002. Castrol lubricants are sold in automotive stores and gas stations in over 150 countries. #2. Aral Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesalerAcquisition price: £4 billionAcquisition date: 2002FY 2022 revenue: Included in BP's consolidated financialsFY 2022 net profit: Included in BP's consolidated financials Aral is a well-known brand of fuel stations in Germany and Luxembourg owned by Aral AG, a BP-owned company. Germany has approximately 2,300 Aral stations, making it the largest gas station chain in the country. Aral stations offer fuel and diesel to customers and may also provide natural gas and propane. Many Aral stations also have a car wash and retail store. The retail stores provide convenience items and food through Aral's food store, Petit Bistro. More than 300 Petit Bistros are attached to Aral stations, which offer snacks, meals, and beverages, including fresh, sustainably harvested coffee. #3. ARCO and ampm Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesalerAcquisition price: $26.8 billionAcquisition date: 1999FY 2022 revenue: Included in BP's consolidated financialsFY 2022 net profit: Included in BP's consolidated financials In 1999, BP America purchased most of ARCO's assets, and ARCO was integrated under the BP name. Many gas stations, even those owned by BP, are still branded as ARCO. BP also took ownership of the ampm convenience store chain—whose first location opened in 1978—through this purchase. These stores are now found associated with both ARCO- and BP-branded gas stations and offer grab-n-go sandwiches and snacks, among other items. Select stores even sell beer (where legally available). There are more than 1,000 ampm stores in America across California, Oregon, Washington, Nevada, and Arizona. 20,650 The rough number of gas stations BP owns worldwide. #4. AMOCO Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesalerAcquisition price: $48.2 billionAcquisition date: 1998FY 2022 revenue: Included in BP's consolidated financialsFY 2022 net profit: Included in BP's consolidated financials BP reintroduced Amoco, the BP brand for the U.S. fuel retail sector, in 2017. Originally called Standard Oil of Indiana, Amoco was North America's largest natural gas producer by 1912. Amoco and BP merged in 1998, making BP Amoco the largest oil and natural gas producer in the United States. That merged company was renamed BP in 2001. #5. Thorntons Type of business: Petroleum, petroleum product, durable goods, non-durable goods wholesalerAcquisition price: Unreleased (as of June 2023)Acquisition date: 2021FY 2022 revenue: Included in BP's consolidated financialsFY 2022 net profit: Included in BP's consolidated financials Hungry mid-western motorists who stop to refuel their cars can also refuel themselves with to-go foods, freshly ground coffee, snacks, and travel supplies for the road at Thorntons. What Companies are Owned by BP? BP owns Castrol, Aral, BP Pulse, Amoco, BP Connect, ampm, Thorntons, Wild Bean Cafe, and AirBP. Are Shell and BP the Same Company? Shell and BP are two of the largest oil and gas companies. They are not the same company. What Company Did BP Buy? Recent BP acquisitions are Thorntons and Wild Bean Cafe. The Bottom Line All the companies owned by BP help the company increase its revenues by selling its main product, fuel. But the company also relies on its portfolio of brand names to help boost its bottom line. For instance, BP gas station customers can also purchase Castrol lubricants, while ampm, Amoco, and Thorntons sell food and beverages to motorists visiting BP-branded gas stations, including Aral in Germany.

https://www.investopedia.com/google-announces-its-first-arm-based-custom-chip-axion-8628764

Google Announces Its First Arm-Based Custom Chip Axion

<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>Google introduced the Axion Processor, a custom Arm-based chip designed for data centers ahead of its Cloud Next conference keynote Tuesday.</li><li>Microsoft and Amazon have already announced custom silicon chips as big tech faces an artificial intelligence (AI) race.</li><li>Google said Axion is a result of significant investment in custom silicon and "delivers industry-leading performance and energy efficiency."</li><li>Google plans to scale existing Google services such as the YouTube Ads platform on Axion.</li><li>Axion will be available to Google Cloud customers later in the year, Google said.<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"> Alphabet's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) Google unveiled the Google Axion Processor, a custom Arm-based (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM">ARM</a>) chip designed for data centers that the company says "delivers industry-leading performance and energy efficiency" ahead of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-from-google-cloud-next-conference-8628320">Google Cloud Next</a> conference keynote Tuesday.<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"> Google's Axion announcement comes as big tech companies compete to gain amid the <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> boom with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-unveils-new-ai-chip-and-copilot-ai-features-8402186">Microsoft</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amazon-double-clicks-into-ai-with-new-chip-and-nvidia-partnership-8407439">Amazon</a> (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) offering similar custom silicon chips. </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 Axion Processor is Google's first custom Arm-based central processing unit (CPU), and comes as a result of "significant investment" in custom silicon, combining "Google’s silicon expertise with Arm’s highest performing CPU cores," Google said. </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 company reported that Axion recorded up to 30% better performance than the fastest Arm-based instances currently available on the cloud. Axion is "up to 50% better performance and up to 60% better energy-efficiency" when compared to current generation tech, Google said. </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 company said it plans to scale existing Google services including the Google Earth Engine and the YouTube Ads platform on Axion. </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 new processor will be available to Google Cloud customers later in 2024. Some Google customers and partners set to use Axion include Broadcom (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo">AVGO</a>), CrowdStrike (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRWD">CRWD</a>), and Snap (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=snap">SNAP</a>), among others.<br/> </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"> Alphabet shares were up 0.7% at $155.96 as of 10:45 a.m. ET Tuesday. The stock has gained nearly 13% since the start of 2024 and more than 46% over the past 12 months.<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 * Google introduced the Axion Processor, a custom Arm-based chip designed for data centers ahead of its Cloud Next conference keynote Tuesday. * Microsoft and Amazon have already announced custom silicon chips as big tech faces an artificial intelligence (AI) race. * Google said Axion is a result of significant investment in custom silicon and "delivers industry-leading performance and energy efficiency." * Google plans to scale existing Google services such as the YouTube Ads platform on Axion. * Axion will be available to Google Cloud customers later in the year, Google said. Alphabet's ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) Google unveiled the Google Axion Processor, a custom Arm-based ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM)) chip designed for data centers that the company says "delivers industry-leading performance and energy efficiency" ahead of the [Google Cloud Next](https://www.investopedia.com/what-to-expect-from-google-cloud-next-conference-8628320) conference keynote Tuesday. Google's Axion announcement comes as big tech companies compete to gain amid the [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) boom with [Microsoft](https://www.investopedia.com/microsoft-unveils-new-ai-chip-and-copilot-ai-features-8402186) ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and [Amazon](https://www.investopedia.com/amazon-double-clicks-into-ai-with-new-chip-and-nvidia-partnership-8407439) ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) offering similar custom silicon chips. The Axion Processor is Google's first custom Arm-based central processing unit (CPU), and comes as a result of "significant investment" in custom silicon, combining "Google’s silicon expertise with Arm’s highest performing CPU cores," Google said. The company reported that Axion recorded up to 30% better performance than the fastest Arm-based instances currently available on the cloud. Axion is "up to 50% better performance and up to 60% better energy-efficiency" when compared to current generation tech, Google said. The company said it plans to scale existing Google services including the Google Earth Engine and the YouTube Ads platform on Axion. The new processor will be available to Google Cloud customers later in 2024. Some Google customers and partners set to use Axion include Broadcom ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo)), CrowdStrike ([CRWD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRWD)), and Snap ([SNAP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=snap)), among others. Alphabet shares were up 0.7% at $155.96 as of 10:45 a.m. ET Tuesday. The stock has gained nearly 13% since the start of 2024 and more than 46% over the past 12 months. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways Google introduced the Axion Processor, a custom Arm-based chip designed for data centers ahead of its Cloud Next conference keynote Tuesday.Microsoft and Amazon have already announced custom silicon chips as big tech faces an artificial intelligence (AI) race.Google said Axion is a result of significant investment in custom silicon and "delivers industry-leading performance and energy efficiency."Google plans to scale existing Google services such as the YouTube Ads platform on Axion.Axion will be available to Google Cloud customers later in the year, Google said. Alphabet's (GOOGL) Google unveiled the Google Axion Processor, a custom Arm-based (ARM) chip designed for data centers that the company says "delivers industry-leading performance and energy efficiency" ahead of the Google Cloud Next conference keynote Tuesday. Google's Axion announcement comes as big tech companies compete to gain amid the artificial intelligence (AI) boom with Microsoft (MSFT) and Amazon (AMZN) offering similar custom silicon chips. The Axion Processor is Google's first custom Arm-based central processing unit (CPU), and comes as a result of "significant investment" in custom silicon, combining "Google’s silicon expertise with Arm’s highest performing CPU cores," Google said. The company reported that Axion recorded up to 30% better performance than the fastest Arm-based instances currently available on the cloud. Axion is "up to 50% better performance and up to 60% better energy-efficiency" when compared to current generation tech, Google said. The company said it plans to scale existing Google services including the Google Earth Engine and the YouTube Ads platform on Axion. The new processor will be available to Google Cloud customers later in 2024. Some Google customers and partners set to use Axion include Broadcom (AVGO), CrowdStrike (CRWD), and Snap (SNAP), among others. Alphabet shares were up 0.7% at $155.96 as of 10:45 a.m. ET Tuesday. The stock has gained nearly 13% since the start of 2024 and more than 46% over the past 12 months. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/articles/active-trading/022315/how-brokerage-fees-work.asp

How Brokerage Fees 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"> Investing costs money. However, it's just more than the initial capital that you put up. Most people don't think beyond their initial investment or purchase price and completely forget about the fees involved. These fees are commonly known in the financial industry as brokerage fees. Here's a brief guide to how <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-fee.asp">brokerage fees</a> work with different types of firms.<br/> </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>Brokerage fees are any commissions or fees charged by brokers.</li><li>These fees can be named annual fees, research fees, and inactivity fees among others.</li><li>Be prepared to pay higher brokerage fees with full-service brokers, which offer a range of services like investment research.</li><li>Discount brokers typically work on lower commissions and fees because they operate online and don't offer research.</li><li>Whatever route you choose, make sure you do your research and make trades that align with your investment goals and style.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-brokerage-fees"></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 Brokerage Fees? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Brokerage fees are any commissions or fees that your broker charges you. Also called broker fees, they are generally charged if you buy or sell shares and other investments, or complete any negotiations or delivery orders. Some brokerages also charge fees for consultations. </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"> Brokerage fees are commonly charged as a flat fee or as a percentage of the transaction executed. In some cases, they may be a hybrid of both of these types. Keep in mind that the fees may vary according to the type of industry and the broker involved. It's always a good idea to ask so you know what to expect to be out of pocket before you complete any transactions. </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-note" 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 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>Brokerage fees are common in various parts of the financial industry, including banking, investing, insurance, delivery services, and real estate.</p></div></div></div> <span class="heading-toc" id="toc-types-of-brokerage-fees"></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"> Types of Brokerage Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Not all fees come packaged under the same umbrella. You may see the following under your brokerage contract or regular statements: </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><strong>Annual Fees: </strong>These are charges that investors may incur on an annual basis for maintaining their brokerage accounts. Annual fees can cover administrative costs associated with account maintenance, access to trading platforms, and customer support services.</li> <li><strong>Research Fees: </strong>Some brokerage firms offer research and analysis tools to help investors make informed trading decisions. Research fees may apply for access to premium research reports, investment data, <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-research.asp">market analysis</a>, and other research-related services provided by the brokerage firm.</li> <li><strong>Inactivity Fees:</strong> If investors do not execute trades or maintain a minimum level of activity within their accounts over a specified period, they may be subject to inactivity fees. These fees are designed to incentivize regular trading activity and cover the costs of maintaining inactive accounts.</li> <li><strong>Fund Fees:</strong> Investors who invest in mutual funds or ETFs may incur fund fees, which are expenses associated with managing and operating these investment funds. Fund fees typically include management fees, administrative expenses, and other operational costs.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Account Fees:</strong> These fees cover various administrative and service-related expenses associated with maintaining a brokerage account. Account fees may include charges for account opening, closing, transferring funds, or other account-related transactions.</li> <li><strong>Assets Under Management (AUM) Fees: </strong>Some brokerage firms or investment advisors charge fees based on the total value of <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>. AUM fees are typically calculated as a percentage of the investor's total assets and are charged periodically, such as monthly or annually. These fees are common in wealth management services and advisory accounts.</li> </ul> <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-factors-that-influence-brokerage-fees"></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"> Factors That Influence Brokerage Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There's several key items that may have an impact on what brokerage fees are charged. Generally speaking, the more critical ones are listed below, though this list is not meant to be exhaustive of all factors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Type of Asset </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Different types of financial assets may have distinct fee structures associated with them. For example, many brokerage firms charge a commission fee for buying or selling stocks. This fee can be a fixed amount per trade or a percentage of the trade value. In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">forex trading</a>, brokers typically earn revenue through spreads (the differences between the buying and selling prices of currency pairs). Meanwhile, trading options and futures contracts may involve different fee structures such as per-contract fees. </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"> Trading Volume </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Some brokerage firms offer volume-based discounts to clients where the commission per trade decreases as the trading volume increases. This incentivizes high-volume traders to execute more trades and can result in cost savings for active investors. Volume-based discounts may be tiered, with different commission rates applying to different levels of trading volume. </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"> Brokerage Firm </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Different brokerage firms have varying fee structures and levels of service. This means that brokerage fees will vary based on their business models, target customer segments, and the range of services offered. We'll talk more about the two main types of firms later in this article: full-service brokerage firms and discount brokerage firms. </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"> Trading Platform </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Last, fees can also vary based on the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-platform.asp">trading platform</a> used by investors. Advanced trading platforms with sophisticated features, advanced charting tools, and real-time market data may come with higher fees or subscription costs. Note that when choosing a brokerage firm, some firms offer proprietary trading platforms to their clients. This may be a factor that, because the firm needs to recover costs to maintain that software, results in higher brokerage fees. </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-full-service-broker-fees"></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"> Full-Service Broker Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Full-service brokers are paid commissions. These fees are based on the transactions they execute for their clients. At a full-service broker, you pay a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premium</a> for research, education, and advice. It’s important to remember that full-service brokers are also salespeople. </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"> Full service brokers may charge their fees in a variety of ways. For example, as mentioned above, they can charge per transaction (i.e. $x per transaction). They can also charge annual fees of x% based on the value of the portfolio. Note that those figures will vary widely between firms; if you're interested in this option, you'd be best suited to contact local firms in your region that can cater to your specific needs to get relevant pricing quotes. </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"> Full-service brokers will also have an incentive to perform well because if your portfolio's assets under management increase, this means that they make more for managing them. If you're interested in the full-service broker space, Investopedia has a list of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">best full-service</a> brokers. </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-discount-broker-fees"></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"> Discount Broker Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Discount brokers became popular with the rise of the internet. Most brokers that fall into this category operate through online portals, allowing you to trade easily with the click of a button. </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"> The majority of discount brokers generally do not offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-advice.asp">investment advice</a>. This means that fees tend to be much less than traditional full-service brokers. Trading fees for online discount brokers range anywhere from $4.95 to $20, but most are between $7 and $10. This rate is subject to change since discount brokers are consistently lowering their fees in order to attract more customers and gain market share. Some even offer free trades. </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"> If you do your homework, discount brokers can save you a lot of money when it comes to transaction costs. For those interested in the discount broker space, Investopedia has a list of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-low-costs-4587874">best discount brokers</a>. </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-callout mntl-block" id="mntl-sc-block_46-0"><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_47-0"><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>Consult a financial professional if you're unsure of the market or just need some advice on how to trade.</p></div></div></div> <span class="heading-toc" id="toc-do-your-own-research"></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"> Do Your Own Research </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Most investors don’t bother reading <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC) filings, but SEC filings are available to the public, and the information within them is like taking an open book test. The answers are provided for you. Unlike press releases, a public company must state the facts in its SEC filings. This makes it relatively easy to research stocks.  </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"> Do your research to determine the best options that fit your own personal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing_style.asp">investment style</a>. This means that you shouldn't jump on the bandwagon just because a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trend.asp">trend</a> is hot or simply because the market is moving one way. You have to make sure that any moves you make align with your goals. </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"> As a general rule, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> growth is the key factor driving stock price appreciation if the broader market is hot. Investors and traders love revenue growth in bull market environments. But if the broader market is cold, net income growth and a strong balance sheet are likely to be the keys to success. Investors and traders like to run to safety for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp">share buybacks</a> in these environments. But again, make sure whatever moves you make reflect your style. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-how-are-brokerage-fees-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are Brokerage Fees Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The calculation of brokerage fees depends on several factors, including the type of asset being traded, the size of the trade, and the brokerage firm's fee structure.</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-can-brokerage-fees-vary-depending-on-trading-volume"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Brokerage Fees Vary Depending on Trading Volume?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some brokerage firms offer volume-based discounts, where the commission per trade decreases as the trading volume increases. This means that high-volume traders may be eligible for lower commission rates, incentivizing increased trading activity and potentially reducing overall trading costs.</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-do-brokerage-firms-offer-commission-free-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Brokerage Firms Offer Commission-Free Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, some brokerage firms offer commission-free trading for certain types of assets or accounts, particularly in the case of stocks, ETFs, or mutual funds. Commission-free trading has become increasingly common as brokerage firms compete to attract clients and differentiate their services in the market.</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-are-there-additional-fees-besides-commission-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Additional Fees Besides Commission Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, investors may encounter additional fees besides commission when engaging with brokerage firms. These fees can include inactivity fees, account maintenance fees, fund fees, research fees, and AUM fees. As you begin working with a broker, ask for a complete list of their fees, including context on when each fee may be charged.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></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_63-0"> <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_64-0"> The financial industry has gone through significant changes thanks to the internet. This includes the way we trade. There was a time when your only options were to go to a full-service broker. Now, there are so many options from which financially-savvy investors can choose if they want to trade on their own—and often, at a cheaper rate. If you do decide to work with a broker, be mindful of their fees and when those fees may be charged. </p></div>

Investing costs money. However, it's just more than the initial capital that you put up. Most people don't think beyond their initial investment or purchase price and completely forget about the fees involved. These fees are commonly known in the financial industry as brokerage fees. Here's a brief guide to how [brokerage fees](https://www.investopedia.com/terms/b/brokerage-fee.asp) work with different types of firms. ### Key Takeaways * Brokerage fees are any commissions or fees charged by brokers. * These fees can be named annual fees, research fees, and inactivity fees among others. * Be prepared to pay higher brokerage fees with full-service brokers, which offer a range of services like investment research. * Discount brokers typically work on lower commissions and fees because they operate online and don't offer research. * Whatever route you choose, make sure you do your research and make trades that align with your investment goals and style. ## What Are Brokerage Fees? Brokerage fees are any commissions or fees that your broker charges you. Also called broker fees, they are generally charged if you buy or sell shares and other investments, or complete any negotiations or delivery orders. Some brokerages also charge fees for consultations. Brokerage fees are commonly charged as a flat fee or as a percentage of the transaction executed. In some cases, they may be a hybrid of both of these types. Keep in mind that the fees may vary according to the type of industry and the broker involved. It's always a good idea to ask so you know what to expect to be out of pocket before you complete any transactions. ### Brokerage fees are common in various parts of the financial industry, including banking, investing, insurance, delivery services, and real estate. ## Types of Brokerage Fees Not all fees come packaged under the same umbrella. You may see the following under your brokerage contract or regular statements: * **Annual Fees:** These are charges that investors may incur on an annual basis for maintaining their brokerage accounts. Annual fees can cover administrative costs associated with account maintenance, access to trading platforms, and customer support services. * **Research Fees:** Some brokerage firms offer research and analysis tools to help investors make informed trading decisions. Research fees may apply for access to premium research reports, investment data, [market analysis](https://www.investopedia.com/terms/m/market-research.asp), and other research-related services provided by the brokerage firm. * **Inactivity Fees:** If investors do not execute trades or maintain a minimum level of activity within their accounts over a specified period, they may be subject to inactivity fees. These fees are designed to incentivize regular trading activity and cover the costs of maintaining inactive accounts. * **Fund Fees:** Investors who invest in mutual funds or ETFs may incur fund fees, which are expenses associated with managing and operating these investment funds. Fund fees typically include management fees, administrative expenses, and other operational costs. * **Account Fees:** These fees cover various administrative and service-related expenses associated with maintaining a brokerage account. Account fees may include charges for account opening, closing, transferring funds, or other account-related transactions. * **Assets Under Management (AUM) Fees:** Some brokerage firms or investment advisors charge fees based on the total value of [assets under management](https://www.investopedia.com/terms/a/aum.asp). AUM fees are typically calculated as a percentage of the investor's total assets and are charged periodically, such as monthly or annually. These fees are common in wealth management services and advisory accounts. ## Factors That Influence Brokerage Fees There's several key items that may have an impact on what brokerage fees are charged. Generally speaking, the more critical ones are listed below, though this list is not meant to be exhaustive of all factors. ### Type of Asset Different types of financial assets may have distinct fee structures associated with them. For example, many brokerage firms charge a commission fee for buying or selling stocks. This fee can be a fixed amount per trade or a percentage of the trade value. In [forex trading](https://www.investopedia.com/terms/f/forex.asp), brokers typically earn revenue through spreads (the differences between the buying and selling prices of currency pairs). Meanwhile, trading options and futures contracts may involve different fee structures such as per-contract fees. ### Trading Volume Some brokerage firms offer volume-based discounts to clients where the commission per trade decreases as the trading volume increases. This incentivizes high-volume traders to execute more trades and can result in cost savings for active investors. Volume-based discounts may be tiered, with different commission rates applying to different levels of trading volume. ### Brokerage Firm Different brokerage firms have varying fee structures and levels of service. This means that brokerage fees will vary based on their business models, target customer segments, and the range of services offered. We'll talk more about the two main types of firms later in this article: full-service brokerage firms and discount brokerage firms. ### Trading Platform Last, fees can also vary based on the [trading platform](https://www.investopedia.com/terms/t/trading-platform.asp) used by investors. Advanced trading platforms with sophisticated features, advanced charting tools, and real-time market data may come with higher fees or subscription costs. Note that when choosing a brokerage firm, some firms offer proprietary trading platforms to their clients. This may be a factor that, because the firm needs to recover costs to maintain that software, results in higher brokerage fees. ## Full-Service Broker Fees Full-service brokers are paid commissions. These fees are based on the transactions they execute for their clients. At a full-service broker, you pay a [premium](https://www.investopedia.com/terms/p/premium.asp) for research, education, and advice. It’s important to remember that full-service brokers are also salespeople. Full service brokers may charge their fees in a variety of ways. For example, as mentioned above, they can charge per transaction (i.e. $x per transaction). They can also charge annual fees of x% based on the value of the portfolio. Note that those figures will vary widely between firms; if you're interested in this option, you'd be best suited to contact local firms in your region that can cater to your specific needs to get relevant pricing quotes. Full-service brokers will also have an incentive to perform well because if your portfolio's assets under management increase, this means that they make more for managing them. If you're interested in the full-service broker space, Investopedia has a list of the [best full-service](https://www.investopedia.com/best-online-brokers-4587872) brokers. ## Discount Broker Fees Discount brokers became popular with the rise of the internet. Most brokers that fall into this category operate through online portals, allowing you to trade easily with the click of a button. The majority of discount brokers generally do not offer [investment advice](https://www.investopedia.com/terms/i/investment-advice.asp). This means that fees tend to be much less than traditional full-service brokers. Trading fees for online discount brokers range anywhere from $4.95 to $20, but most are between $7 and $10. This rate is subject to change since discount brokers are consistently lowering their fees in order to attract more customers and gain market share. Some even offer free trades. If you do your homework, discount brokers can save you a lot of money when it comes to transaction costs. For those interested in the discount broker space, Investopedia has a list of the [best discount brokers](https://www.investopedia.com/best-brokers-for-low-costs-4587874). ### Consult a financial professional if you're unsure of the market or just need some advice on how to trade. ## Do Your Own Research Most investors don’t bother reading [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) filings, but SEC filings are available to the public, and the information within them is like taking an open book test. The answers are provided for you. Unlike press releases, a public company must state the facts in its SEC filings. This makes it relatively easy to research stocks.  Do your research to determine the best options that fit your own personal [investment style](https://www.investopedia.com/terms/i/investing_style.asp). This means that you shouldn't jump on the bandwagon just because a [trend](https://www.investopedia.com/terms/t/trend.asp) is hot or simply because the market is moving one way. You have to make sure that any moves you make align with your goals. As a general rule, [revenue](https://www.investopedia.com/terms/r/revenue.asp) growth is the key factor driving stock price appreciation if the broader market is hot. Investors and traders love revenue growth in bull market environments. But if the broader market is cold, net income growth and a strong balance sheet are likely to be the keys to success. Investors and traders like to run to safety for [dividends](https://www.investopedia.com/terms/d/dividend.asp) and [share buybacks](https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp) in these environments. But again, make sure whatever moves you make reflect your style. ## How Are Brokerage Fees Calculated? The calculation of brokerage fees depends on several factors, including the type of asset being traded, the size of the trade, and the brokerage firm's fee structure. ## Can Brokerage Fees Vary Depending on Trading Volume? Some brokerage firms offer volume-based discounts, where the commission per trade decreases as the trading volume increases. This means that high-volume traders may be eligible for lower commission rates, incentivizing increased trading activity and potentially reducing overall trading costs. ## Do Brokerage Firms Offer Commission-Free Trading? Yes, some brokerage firms offer commission-free trading for certain types of assets or accounts, particularly in the case of stocks, ETFs, or mutual funds. Commission-free trading has become increasingly common as brokerage firms compete to attract clients and differentiate their services in the market. ## Are There Additional Fees Besides Commission Fees? Yes, investors may encounter additional fees besides commission when engaging with brokerage firms. These fees can include inactivity fees, account maintenance fees, fund fees, research fees, and AUM fees. As you begin working with a broker, ask for a complete list of their fees, including context on when each fee may be charged. ## The Bottom Line The financial industry has gone through significant changes thanks to the internet. This includes the way we trade. There was a time when your only options were to go to a full-service broker. Now, there are so many options from which financially-savvy investors can choose if they want to trade on their own—and often, at a cheaper rate. If you do decide to work with a broker, be mindful of their fees and when those fees may be charged.

Investing costs money. However, it's just more than the initial capital that you put up. Most people don't think beyond their initial investment or purchase price and completely forget about the fees involved. These fees are commonly known in the financial industry as brokerage fees. Here's a brief guide to how brokerage fees work with different types of firms. Key Takeaways Brokerage fees are any commissions or fees charged by brokers.These fees can be named annual fees, research fees, and inactivity fees among others.Be prepared to pay higher brokerage fees with full-service brokers, which offer a range of services like investment research.Discount brokers typically work on lower commissions and fees because they operate online and don't offer research.Whatever route you choose, make sure you do your research and make trades that align with your investment goals and style. What Are Brokerage Fees? Brokerage fees are any commissions or fees that your broker charges you. Also called broker fees, they are generally charged if you buy or sell shares and other investments, or complete any negotiations or delivery orders. Some brokerages also charge fees for consultations. Brokerage fees are commonly charged as a flat fee or as a percentage of the transaction executed. In some cases, they may be a hybrid of both of these types. Keep in mind that the fees may vary according to the type of industry and the broker involved. It's always a good idea to ask so you know what to expect to be out of pocket before you complete any transactions. Brokerage fees are common in various parts of the financial industry, including banking, investing, insurance, delivery services, and real estate. Types of Brokerage Fees Not all fees come packaged under the same umbrella. You may see the following under your brokerage contract or regular statements: Annual Fees: These are charges that investors may incur on an annual basis for maintaining their brokerage accounts. Annual fees can cover administrative costs associated with account maintenance, access to trading platforms, and customer support services. Research Fees: Some brokerage firms offer research and analysis tools to help investors make informed trading decisions. Research fees may apply for access to premium research reports, investment data, market analysis, and other research-related services provided by the brokerage firm. Inactivity Fees: If investors do not execute trades or maintain a minimum level of activity within their accounts over a specified period, they may be subject to inactivity fees. These fees are designed to incentivize regular trading activity and cover the costs of maintaining inactive accounts. Fund Fees: Investors who invest in mutual funds or ETFs may incur fund fees, which are expenses associated with managing and operating these investment funds. Fund fees typically include management fees, administrative expenses, and other operational costs. Account Fees: These fees cover various administrative and service-related expenses associated with maintaining a brokerage account. Account fees may include charges for account opening, closing, transferring funds, or other account-related transactions. Assets Under Management (AUM) Fees: Some brokerage firms or investment advisors charge fees based on the total value of assets under management. AUM fees are typically calculated as a percentage of the investor's total assets and are charged periodically, such as monthly or annually. These fees are common in wealth management services and advisory accounts. Factors That Influence Brokerage Fees There's several key items that may have an impact on what brokerage fees are charged. Generally speaking, the more critical ones are listed below, though this list is not meant to be exhaustive of all factors. Type of Asset Different types of financial assets may have distinct fee structures associated with them. For example, many brokerage firms charge a commission fee for buying or selling stocks. This fee can be a fixed amount per trade or a percentage of the trade value. In forex trading, brokers typically earn revenue through spreads (the differences between the buying and selling prices of currency pairs). Meanwhile, trading options and futures contracts may involve different fee structures such as per-contract fees. Trading Volume Some brokerage firms offer volume-based discounts to clients where the commission per trade decreases as the trading volume increases. This incentivizes high-volume traders to execute more trades and can result in cost savings for active investors. Volume-based discounts may be tiered, with different commission rates applying to different levels of trading volume. Brokerage Firm Different brokerage firms have varying fee structures and levels of service. This means that brokerage fees will vary based on their business models, target customer segments, and the range of services offered. We'll talk more about the two main types of firms later in this article: full-service brokerage firms and discount brokerage firms. Trading Platform Last, fees can also vary based on the trading platform used by investors. Advanced trading platforms with sophisticated features, advanced charting tools, and real-time market data may come with higher fees or subscription costs. Note that when choosing a brokerage firm, some firms offer proprietary trading platforms to their clients. This may be a factor that, because the firm needs to recover costs to maintain that software, results in higher brokerage fees. Full-Service Broker Fees Full-service brokers are paid commissions. These fees are based on the transactions they execute for their clients. At a full-service broker, you pay a premium for research, education, and advice. It’s important to remember that full-service brokers are also salespeople. Full service brokers may charge their fees in a variety of ways. For example, as mentioned above, they can charge per transaction (i.e. $x per transaction). They can also charge annual fees of x% based on the value of the portfolio. Note that those figures will vary widely between firms; if you're interested in this option, you'd be best suited to contact local firms in your region that can cater to your specific needs to get relevant pricing quotes. Full-service brokers will also have an incentive to perform well because if your portfolio's assets under management increase, this means that they make more for managing them. If you're interested in the full-service broker space, Investopedia has a list of the best full-service brokers. Discount Broker Fees Discount brokers became popular with the rise of the internet. Most brokers that fall into this category operate through online portals, allowing you to trade easily with the click of a button. The majority of discount brokers generally do not offer investment advice. This means that fees tend to be much less than traditional full-service brokers. Trading fees for online discount brokers range anywhere from $4.95 to $20, but most are between $7 and $10. This rate is subject to change since discount brokers are consistently lowering their fees in order to attract more customers and gain market share. Some even offer free trades. If you do your homework, discount brokers can save you a lot of money when it comes to transaction costs. For those interested in the discount broker space, Investopedia has a list of the best discount brokers. Consult a financial professional if you're unsure of the market or just need some advice on how to trade. Do Your Own Research Most investors don’t bother reading Securities and Exchange Commission (SEC) filings, but SEC filings are available to the public, and the information within them is like taking an open book test. The answers are provided for you. Unlike press releases, a public company must state the facts in its SEC filings. This makes it relatively easy to research stocks.  Do your research to determine the best options that fit your own personal investment style. This means that you shouldn't jump on the bandwagon just because a trend is hot or simply because the market is moving one way. You have to make sure that any moves you make align with your goals. As a general rule, revenue growth is the key factor driving stock price appreciation if the broader market is hot. Investors and traders love revenue growth in bull market environments. But if the broader market is cold, net income growth and a strong balance sheet are likely to be the keys to success. Investors and traders like to run to safety for dividends and share buybacks in these environments. But again, make sure whatever moves you make reflect your style. How Are Brokerage Fees Calculated? The calculation of brokerage fees depends on several factors, including the type of asset being traded, the size of the trade, and the brokerage firm's fee structure. Can Brokerage Fees Vary Depending on Trading Volume? Some brokerage firms offer volume-based discounts, where the commission per trade decreases as the trading volume increases. This means that high-volume traders may be eligible for lower commission rates, incentivizing increased trading activity and potentially reducing overall trading costs. Do Brokerage Firms Offer Commission-Free Trading? Yes, some brokerage firms offer commission-free trading for certain types of assets or accounts, particularly in the case of stocks, ETFs, or mutual funds. Commission-free trading has become increasingly common as brokerage firms compete to attract clients and differentiate their services in the market. Are There Additional Fees Besides Commission Fees? Yes, investors may encounter additional fees besides commission when engaging with brokerage firms. These fees can include inactivity fees, account maintenance fees, fund fees, research fees, and AUM fees. As you begin working with a broker, ask for a complete list of their fees, including context on when each fee may be charged. The Bottom Line The financial industry has gone through significant changes thanks to the internet. This includes the way we trade. There was a time when your only options were to go to a full-service broker. Now, there are so many options from which financially-savvy investors can choose if they want to trade on their own—and often, at a cheaper rate. If you do decide to work with a broker, be mindful of their fees and when those fees may be charged.

https://www.investopedia.com/800-plus-credit-score-how-to-make-the-most-of-it-4685008

800 Credit Score: How to Get One—and Make the Most of It

<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 your credit score is at 800 or higher, well done. That demonstrates to lenders that you are an exceptional borrower and puts you well above the average score of U.S. consumers. In addition to bragging rights, an 800 credit score or higher can qualify you for the best offers and faster approvals when you apply for new credit. Here's what you need to know to make the most of that 800-plus credit score, plus some advice on how to get one if you aren't quite there yet. Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club. </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>An 800 credit score shows lenders you are an exceptional borrower.</li><li>You may qualify for better mortgage and auto loan terms with a high credit score.</li><li>You may also qualify for credit cards with better rewards and perks, such as access to airport lounges and free hotel breakfasts.</li><li>Achieving an 800 credit score requires on-time payments to creditors, low credit utilization, a long credit history, a good mix of credit types, and occasional new credit applications.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-credit-scores-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 Credit Scores Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> First, a refresher on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a>. A credit score is a three-digit number, typically ranging from 300 to 850, that summarizes your credit risk, based on the information in 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>. The most common credit scores are FICO scores, which are calculated using five categories of data. Here they are, along with the percentage of your score they each represent:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li><strong>Payment History (35%).</strong> Basically whether you've paid your past credit bills on time</li> <li><strong>Amounts Owed (30%).</strong> Not only how much debt you have in total but how much you owe compared to all the credit you have available to you (known as your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization ratio</a>)</li> <li><strong>Length of Credit History (15%). </strong>How long you've had your credit accounts, with older being better</li> <li><strong>Credit Mix (10%). </strong>The types of credit you've had (e.g., mortgage, auto loan, credit cards)</li> <li><strong>New Credit (10%). </strong>Frequency of credit inquires and new account openings</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"> If your credit score isn't yet in the 800+ league, concentrating on improving in those five areas—particularly the highly important first two—can help you get there. </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 each lender has its own credit risk standards, the following chart from FICO is a general guide to what each score range represents:<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> <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_14-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:54.2%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_Io4DzKmrTadRpccsLVmdwQod60=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_Io4DzKmrTadRpccsLVmdwQod60=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg" data-srcset="https://www.investopedia.com/thmb/zevwQJMbvTBGX11OMOcr5A16cvc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg 750w" data-tracking-container="true" height="3246" id="mntl-sc-block-image_1-0" width="5983"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3246" sizes="750px" src="https://www.investopedia.com/thmb/_Io4DzKmrTadRpccsLVmdwQod60=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg" srcset="https://www.investopedia.com/thmb/zevwQJMbvTBGX11OMOcr5A16cvc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg 750w" width="5983"/> </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 2021</p></span> </figcaption></figure> <span class="heading-toc" id="toc-the-800-credit-score-club-is-growing"></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 800 Credit Score Club Is Growing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> As of 2022, the average FICO score in the U.S. was 716. While that's unchanged from 2021, it represents the highest average score so far. Until 2017, when average scores hit 700 for the first time, they hovered in the 680s and 690s.<span class="ql-inline-citation" data-cite="8"></span> A score of 716 is considered to be in the "good" range.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are also more people scoring in the "exceptional" range, between 800 and 850. As of 2022, 23.3% of consumers now score in the 800 to 850 range, compared with 16.2% back in 2005.<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_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>If your credit card issuers or other lenders offer auto-pay it can be a great way to make sure you make on-time payments on a consistent basis.</p></div></div></div> <span class="heading-toc" id="toc-the-benefits-of-an-800-credit-score"></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"> The Benefits of an 800 Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> You've worked hard to achieve an 800 credit score, so be sure you make the most of it. In addition to bragging rights, your exceptional credit score sets you up to take advantage of any number of financial benefits, including: </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"> You're more likely to be approved when you apply for new credit. </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> If you have a high credit score, lenders will view you as less risky, which means you're more likely to be approved for a credit card, line of credit, or loan. </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"> You'll qualify for lower interest rates and higher credit limits. </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> With an 800-plus credit score, lenders can offer you better deals. This is true whether you're getting a mortgage, an auto loan, or trying to score a better interest rate on your credit card. </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"> In general, you'll automatically be offered better terms on a mortgage or car loan if you have an exceptional credit score (assuming everything else is in order). If you have an existing loan, you might be able to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance at a better rate</a> now that you have a high credit score. Like any refi, crunch the numbers first (including any fees) to make sure the move makes financial sense. </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"> Credit cards are different, and you might have to ask to get a better deal, especially if you've had the card for a while. If your credit score recently hit the 800-plus range—or if you've never taken a close look at your cards' terms before—call your existing credit issuers, let them know your credit score, and ask if they can drop the interest rate or increase your credit line. Even if you don't need a higher limit, it can make it easier to maintain a good credit utilization ratio. </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"> You'll qualify for better credit cards with better rewards. </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Using the same credit card you've had for decades can be good in terms of the length of your credit history, but you could be missing out on valuable benefits. With an 800-plus credit score, you might qualify for perks such as access to airport lounges (great if you have a long layover), free breakfast in hotels, and the chance to earn cash back and airline miles at a faster rate—for example, one-and-a-half miles per dollar spent instead of the standard one mile per dollar. </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"> One easy way to find a better deal is to call your existing credit card issuer and ask if you qualify for a different card with better rewards and benefits. If so, your issuer can explain the application process (it might be something you can do over the phone or online) and get you switched over to the new card. You can also research credit cards online to find one that work best for you.   </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-how-to-check-your-credit-report-and-credit-score"></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"> How to Check Your Credit Report and Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> You're entitled by federal law to one free credit report from each of the "big three" credit bureaus—Equifax, Experian, and TransUnion—at least once a year.<span class="ql-inline-citation" data-cite="1"></span> If you stagger your requests, you can get a credit report once every four months, so you can keep an eye on your credit report throughout the year. There is only one place to get your free, federally mandated report: AnnualCreditReport.com. </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 your credit report doesn't include your FICO score, you may be able to check it for free if your credit card issuer takes part in the FICO Score Open Access program. According to FICO, more than 200 financial institutions participate, including Bank of America, Citi, Discover, HSBC, the Navy Federal Credit Union, PNC Bank, and Wells Fargo.<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"> If your credit card issuer participates, you'll be able to check your score when you log into your account online, or it will be included in your monthly statement (or both). If you don't have access to your score through your card issuer or other lender, there are other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp">ways to obtain it free of charge</a>. </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-what-is-a-good-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Different lenders may have different requirements, but a "good" FICO score is generally in the 670 to 739 range, while a "good" VantageScore is in the 661 to 780 range, according to the credit bureau Experian.<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-what-is-a-vantagescore"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a VantageScore?</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/terms/v/vantagescore.asp">VantageScore</a> is a FICO competitor established by the three major credit bureaus. VantageScores work similarly to FICO scores and also use a scale of 300 to 850.</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-information-is-in-a-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Information Is in a Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Your credit report primarily includes information specifically related your past and present use of credit, including a month-by-month accounting of whether you've paid your bills on time going back seven years. It doesn't include your income, employment history, education, age, gender, marital status, or race.<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_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"> Attaining a solid credit score is important for a host of reasons—even if it takes a while to break into the exalted 800 credit score tier. Your score affects your both ability to get credit and the terms that lenders will offer you, such as the interest rate on a mortgage. Your score may also be factored into the rate you pay for auto and homeowners insurance and even impact your job opportunities (employers often run credit checks) and housing options (landlords also run credit checks). </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"> If you're able to attain a score of 800-plus, it's worth remembering the smart credit habits that got you there and to do whatever you can to keep it up. </p></div>

If your credit score is at 800 or higher, well done. That demonstrates to lenders that you are an exceptional borrower and puts you well above the average score of U.S. consumers. In addition to bragging rights, an 800 credit score or higher can qualify you for the best offers and faster approvals when you apply for new credit. Here's what you need to know to make the most of that 800-plus credit score, plus some advice on how to get one if you aren't quite there yet. Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club. ### Key Takeaways * An 800 credit score shows lenders you are an exceptional borrower. * You may qualify for better mortgage and auto loan terms with a high credit score. * You may also qualify for credit cards with better rewards and perks, such as access to airport lounges and free hotel breakfasts. * Achieving an 800 credit score requires on-time payments to creditors, low credit utilization, a long credit history, a good mix of credit types, and occasional new credit applications. ## How Credit Scores Work First, a refresher on [credit scores](https://www.investopedia.com/terms/c/credit_score.asp). A credit score is a three-digit number, typically ranging from 300 to 850, that summarizes your credit risk, based on the information in your [credit reports](https://www.investopedia.com/terms/c/creditreport.asp). The most common credit scores are FICO scores, which are calculated using five categories of data. Here they are, along with the percentage of your score they each represent: * **Payment History (35%).** Basically whether you've paid your past credit bills on time * **Amounts Owed (30%).** Not only how much debt you have in total but how much you owe compared to all the credit you have available to you (known as your [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp)) * **Length of Credit History (15%).** How long you've had your credit accounts, with older being better * **Credit Mix (10%).** The types of credit you've had (e.g., mortgage, auto loan, credit cards) * **New Credit (10%).** Frequency of credit inquires and new account openings If your credit score isn't yet in the 800+ league, concentrating on improving in those five areas—particularly the highly important first two—can help you get there. While each lender has its own credit risk standards, the following chart from FICO is a general guide to what each score range represents: ![Image]() :max_bytes(150000):strip_icc()/dotdash_final_800_Plus_Credit_Score_How_to_Make_the_Most_of_It_Dec_2020-01-eab02cc511db4ce19ab3c1869e750d3b.jpg) Image by Sabrina Jiang © Investopedia 2021 ## The 800 Credit Score Club Is Growing As of 2022, the average FICO score in the U.S. was 716. While that's unchanged from 2021, it represents the highest average score so far. Until 2017, when average scores hit 700 for the first time, they hovered in the 680s and 690s. A score of 716 is considered to be in the "good" range. There are also more people scoring in the "exceptional" range, between 800 and 850. As of 2022, 23.3% of consumers now score in the 800 to 850 range, compared with 16.2% back in 2005. ### If your credit card issuers or other lenders offer auto-pay it can be a great way to make sure you make on-time payments on a consistent basis. ## The Benefits of an 800 Credit Score You've worked hard to achieve an 800 credit score, so be sure you make the most of it. In addition to bragging rights, your exceptional credit score sets you up to take advantage of any number of financial benefits, including: ### You're more likely to be approved when you apply for new credit. If you have a high credit score, lenders will view you as less risky, which means you're more likely to be approved for a credit card, line of credit, or loan. ### You'll qualify for lower interest rates and higher credit limits. With an 800-plus credit score, lenders can offer you better deals. This is true whether you're getting a mortgage, an auto loan, or trying to score a better interest rate on your credit card. In general, you'll automatically be offered better terms on a mortgage or car loan if you have an exceptional credit score (assuming everything else is in order). If you have an existing loan, you might be able to [refinance at a better rate](https://www.investopedia.com/terms/r/refinance.asp) now that you have a high credit score. Like any refi, crunch the numbers first (including any fees) to make sure the move makes financial sense. Credit cards are different, and you might have to ask to get a better deal, especially if you've had the card for a while. If your credit score recently hit the 800-plus range—or if you've never taken a close look at your cards' terms before—call your existing credit issuers, let them know your credit score, and ask if they can drop the interest rate or increase your credit line. Even if you don't need a higher limit, it can make it easier to maintain a good credit utilization ratio. ### You'll qualify for better credit cards with better rewards. Using the same credit card you've had for decades can be good in terms of the length of your credit history, but you could be missing out on valuable benefits. With an 800-plus credit score, you might qualify for perks such as access to airport lounges (great if you have a long layover), free breakfast in hotels, and the chance to earn cash back and airline miles at a faster rate—for example, one-and-a-half miles per dollar spent instead of the standard one mile per dollar. One easy way to find a better deal is to call your existing credit card issuer and ask if you qualify for a different card with better rewards and benefits. If so, your issuer can explain the application process (it might be something you can do over the phone or online) and get you switched over to the new card. You can also research credit cards online to find one that work best for you.   ## How to Check Your Credit Report and Credit Score You're entitled by federal law to one free credit report from each of the "big three" credit bureaus—Equifax, Experian, and TransUnion—at least once a year. If you stagger your requests, you can get a credit report once every four months, so you can keep an eye on your credit report throughout the year. There is only one place to get your free, federally mandated report: AnnualCreditReport.com. While your credit report doesn't include your FICO score, you may be able to check it for free if your credit card issuer takes part in the FICO Score Open Access program. According to FICO, more than 200 financial institutions participate, including Bank of America, Citi, Discover, HSBC, the Navy Federal Credit Union, PNC Bank, and Wells Fargo. If your credit card issuer participates, you'll be able to check your score when you log into your account online, or it will be included in your monthly statement (or both). If you don't have access to your score through your card issuer or other lender, there are other [ways to obtain it free of charge](https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp). ## What Is a Good Credit Score? Different lenders may have different requirements, but a "good" FICO score is generally in the 670 to 739 range, while a "good" VantageScore is in the 661 to 780 range, according to the credit bureau Experian. ## What Is a VantageScore? [VantageScore](https://www.investopedia.com/terms/v/vantagescore.asp) is a FICO competitor established by the three major credit bureaus. VantageScores work similarly to FICO scores and also use a scale of 300 to 850. ## What Information Is in a Credit Report? Your credit report primarily includes information specifically related your past and present use of credit, including a month-by-month accounting of whether you've paid your bills on time going back seven years. It doesn't include your income, employment history, education, age, gender, marital status, or race. ## The Bottom Line Attaining a solid credit score is important for a host of reasons—even if it takes a while to break into the exalted 800 credit score tier. Your score affects your both ability to get credit and the terms that lenders will offer you, such as the interest rate on a mortgage. Your score may also be factored into the rate you pay for auto and homeowners insurance and even impact your job opportunities (employers often run credit checks) and housing options (landlords also run credit checks). If you're able to attain a score of 800-plus, it's worth remembering the smart credit habits that got you there and to do whatever you can to keep it up.

If your credit score is at 800 or higher, well done. That demonstrates to lenders that you are an exceptional borrower and puts you well above the average score of U.S. consumers. In addition to bragging rights, an 800 credit score or higher can qualify you for the best offers and faster approvals when you apply for new credit. Here's what you need to know to make the most of that 800-plus credit score, plus some advice on how to get one if you aren't quite there yet. Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club. Key Takeaways An 800 credit score shows lenders you are an exceptional borrower.You may qualify for better mortgage and auto loan terms with a high credit score.You may also qualify for credit cards with better rewards and perks, such as access to airport lounges and free hotel breakfasts.Achieving an 800 credit score requires on-time payments to creditors, low credit utilization, a long credit history, a good mix of credit types, and occasional new credit applications. How Credit Scores Work First, a refresher on credit scores. A credit score is a three-digit number, typically ranging from 300 to 850, that summarizes your credit risk, based on the information in your credit reports. The most common credit scores are FICO scores, which are calculated using five categories of data. Here they are, along with the percentage of your score they each represent: Payment History (35%). Basically whether you've paid your past credit bills on time Amounts Owed (30%). Not only how much debt you have in total but how much you owe compared to all the credit you have available to you (known as your credit utilization ratio) Length of Credit History (15%). How long you've had your credit accounts, with older being better Credit Mix (10%). The types of credit you've had (e.g., mortgage, auto loan, credit cards) New Credit (10%). Frequency of credit inquires and new account openings If your credit score isn't yet in the 800+ league, concentrating on improving in those five areas—particularly the highly important first two—can help you get there. While each lender has its own credit risk standards, the following chart from FICO is a general guide to what each score range represents: Image by Sabrina Jiang © Investopedia 2021 The 800 Credit Score Club Is Growing As of 2022, the average FICO score in the U.S. was 716. While that's unchanged from 2021, it represents the highest average score so far. Until 2017, when average scores hit 700 for the first time, they hovered in the 680s and 690s. A score of 716 is considered to be in the "good" range. There are also more people scoring in the "exceptional" range, between 800 and 850. As of 2022, 23.3% of consumers now score in the 800 to 850 range, compared with 16.2% back in 2005. If your credit card issuers or other lenders offer auto-pay it can be a great way to make sure you make on-time payments on a consistent basis. The Benefits of an 800 Credit Score You've worked hard to achieve an 800 credit score, so be sure you make the most of it. In addition to bragging rights, your exceptional credit score sets you up to take advantage of any number of financial benefits, including: You're more likely to be approved when you apply for new credit. If you have a high credit score, lenders will view you as less risky, which means you're more likely to be approved for a credit card, line of credit, or loan. You'll qualify for lower interest rates and higher credit limits. With an 800-plus credit score, lenders can offer you better deals. This is true whether you're getting a mortgage, an auto loan, or trying to score a better interest rate on your credit card. In general, you'll automatically be offered better terms on a mortgage or car loan if you have an exceptional credit score (assuming everything else is in order). If you have an existing loan, you might be able to refinance at a better rate now that you have a high credit score. Like any refi, crunch the numbers first (including any fees) to make sure the move makes financial sense. Credit cards are different, and you might have to ask to get a better deal, especially if you've had the card for a while. If your credit score recently hit the 800-plus range—or if you've never taken a close look at your cards' terms before—call your existing credit issuers, let them know your credit score, and ask if they can drop the interest rate or increase your credit line. Even if you don't need a higher limit, it can make it easier to maintain a good credit utilization ratio. You'll qualify for better credit cards with better rewards. Using the same credit card you've had for decades can be good in terms of the length of your credit history, but you could be missing out on valuable benefits. With an 800-plus credit score, you might qualify for perks such as access to airport lounges (great if you have a long layover), free breakfast in hotels, and the chance to earn cash back and airline miles at a faster rate—for example, one-and-a-half miles per dollar spent instead of the standard one mile per dollar. One easy way to find a better deal is to call your existing credit card issuer and ask if you qualify for a different card with better rewards and benefits. If so, your issuer can explain the application process (it might be something you can do over the phone or online) and get you switched over to the new card. You can also research credit cards online to find one that work best for you.   How to Check Your Credit Report and Credit Score You're entitled by federal law to one free credit report from each of the "big three" credit bureaus—Equifax, Experian, and TransUnion—at least once a year. If you stagger your requests, you can get a credit report once every four months, so you can keep an eye on your credit report throughout the year. There is only one place to get your free, federally mandated report: AnnualCreditReport.com. While your credit report doesn't include your FICO score, you may be able to check it for free if your credit card issuer takes part in the FICO Score Open Access program. According to FICO, more than 200 financial institutions participate, including Bank of America, Citi, Discover, HSBC, the Navy Federal Credit Union, PNC Bank, and Wells Fargo. If your credit card issuer participates, you'll be able to check your score when you log into your account online, or it will be included in your monthly statement (or both). If you don't have access to your score through your card issuer or other lender, there are other ways to obtain it free of charge. What Is a Good Credit Score? Different lenders may have different requirements, but a "good" FICO score is generally in the 670 to 739 range, while a "good" VantageScore is in the 661 to 780 range, according to the credit bureau Experian. What Is a VantageScore? VantageScore is a FICO competitor established by the three major credit bureaus. VantageScores work similarly to FICO scores and also use a scale of 300 to 850. What Information Is in a Credit Report? Your credit report primarily includes information specifically related your past and present use of credit, including a month-by-month accounting of whether you've paid your bills on time going back seven years. It doesn't include your income, employment history, education, age, gender, marital status, or race. The Bottom Line Attaining a solid credit score is important for a host of reasons—even if it takes a while to break into the exalted 800 credit score tier. Your score affects your both ability to get credit and the terms that lenders will offer you, such as the interest rate on a mortgage. Your score may also be factored into the rate you pay for auto and homeowners insurance and even impact your job opportunities (employers often run credit checks) and housing options (landlords also run credit checks). If you're able to attain a score of 800-plus, it's worth remembering the smart credit habits that got you there and to do whatever you can to keep it up.

https://www.investopedia.com/terms/d/depository.asp

Depository: Definition, Meaning, Types, 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-depository"></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 Depository? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term depository can refer to a facility in which something is deposited for storage or safeguarding, or an institution that accepts currency deposits from customers, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">bank</a> or a savings association. A depository also can be an organization, bank, or institution that holds <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a> and assists in the trading of securities. Deposits placed in a depository must be returned in the same condition upon request. </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"> Depositories provide security and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> in the market. They use money deposited for safekeeping to lend to others, they invest in other securities, and they provide a funds <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transfer.asp">transfer</a> system. </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 depository can be a facility or institution, such as a building, office, or warehouse, where something is deposited for storage or safeguarding.</li><li>Depositories also may be organizations, banks, or institutions that hold currency or securities and assist in the trading of securities.</li><li>They provide security, liquidity, and a means of transferring funds.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-depositories"></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 Depositories </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Depositories are buildings, offices, and warehouses that allow consumers and businesses to deposit money, securities, and other valuable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> for safekeeping. Depositories may include banks, safehouses, vaults, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstitution.asp">financial institutions</a>, and other organizations. </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"> Depositories serve multiple purposes for the general public. First, they eliminate the owner's <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> of holding physical assets by providing a safe place to store them. For instance, banks and other financial institutions give consumers a place to deposit their money by offering time deposit and demand deposit accounts. </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"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timedeposit.asp">time deposit</a> is an interest-bearing account with a specific date of maturity, such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a>. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demanddeposit.asp">demand deposit</a> account holds funds until they need to be withdrawn, such as with a checking or savings account. </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"> Deposits can also be securities, such as stocks or bonds. When these assets are deposited, the institution holds the securities, either in electronic form, also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bookentrysecurities.asp">book-entry </a>form, or in paper form, such as a physical stock certificate. </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"> Depository organizations also help create liquidity in the market. Customers give their money to a financial institution; the company holds it for a time and returns it when the customer wants it back. These institutions accept customers' money and pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> on their deposits over time. While holding the customers' money, the institutions lend it to others in the form of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> or business loans, generating more interest on the money loaned than the interest they paid to customers. </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-a-depository"></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 a Depository </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/euroclear.asp">Euroclear</a> is a clearinghouse that acts as a central securities depository for its clients, many of whom trade on European <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchanges</a>. Most of its clients are banks, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-dealer.asp">broker-dealers</a>, and other institutions professionally engaged in managing new issues of securities, market-making, trading, or holding a wide variety of securities.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Euroclear <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crest.asp">settles domestic and international securities transactions</a>, covering bonds, equities, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a>, and investment funds. Domestic securities from more than 40 markets are accepted in the system, covering a broad range of internationally traded fixed- and floating-rate <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp">debt instruments</a>, convertibles, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/warrant.asp">warrants</a>, and equities.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> This includes domestic debt instruments, short- and medium-term instruments, equities and equity-linked instruments, and international bonds from the major markets of Europe, Asia-Pacific, Africa and the Americas. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Transferring the ownership of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shares.asp">shares</a> from one investor's account to another account when a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade.asp">trade</a> is executed is one of the primary functions of a depository. This helps reduce the paperwork for executing a trade and speeds up the transfer process. </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"> Another function of a depository is the elimination of the risk of holding the securities in physical form. These risks can include theft, loss, fraud, damage, or delay in deliveries. </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"> An investor who wants to purchase precious metals can purchase them in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullion.asp">physical bullion</a> or paper form. Gold or silver bars or coins can be purchased from a dealer and kept with a third-party depository. Investing in gold through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contracts</a> is not equivalent to the investor owning gold. Instead, gold is owed to the investor. </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 trader or hedger looking to take actual delivery on a futures contract must first establish a long (buy) futures position and wait until a short (seller) tenders a notice to delivery. With gold futures contracts, the seller is committing to deliver the gold to the buyer at the contract <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expiry date</a>. The seller must have the metal—in this case, gold—in an approved depository. This is represented by holding COMEX-approved electronic depository warrants, which are required to make or take delivery.<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_32-0"></div> <span class="heading-toc" id="toc-types-of-depositories"></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"> Types of Depositories </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The three main types of depository institutions are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit unions</a>, savings institutions, and commercial banks. The main source of funding for these institutions is through deposits from customers. Customer deposits and accounts are insured by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a> up to certain limits.<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_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_36-0"><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_37-0"><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 depository's institutional function or type determines which agency or agencies are responsible for its oversight.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Credit unions are nonprofit companies highly focused on customer services. Customers make deposits into a credit union account, which is similar to buying shares in that credit union. Credit union earnings are distributed in the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> to every customer. </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"> Savings institutions are for-profit companies also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-savings-and-loan.asp">savings and loan institutions</a>. These institutions focus primarily on consumer mortgage lending but may also offer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit cards</a> and commercial loans. Customers deposit money into an account, which buys shares in the company. For example, a savings institution may approve 71,000 mortgage loans, 714 real estate loans, 340,000 credit cards, and 252,000 auto and personal consumer loans while earning interest on all these products during a single fiscal year. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialbank.asp">Commercial banks</a> are for-profit companies and are the largest type of depository institutions. These banks offer a range of services to consumers and businesses such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">savings accounts</a>, consumer and commercial loans, credit cards, and investment products. These institutions accept deposits and primarily use the deposits to offer mortgage loans, commercial loans, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercial-real-estate-loan.asp">real estate loans</a>. </p> <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-depository-vs-repository"></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"> Depository vs. Repository </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> A depository is not the same thing as a repository, although they can often be confused. </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"> A repository is where things are kept for safekeeping. But unlike a depository, the items kept in a repository are generally abstract such as knowledge. For instance, data can be kept in a software repository or a central location where files are housed. Investopedia is also considered a repository—in this case, it's a repository for financial information. </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-is-a-depository-institution"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Depository Institution?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A depository institution is a financial institution whose main source of funds is deposits from customers. A commercial bank is a type of depository institution, as is a credit union or a savings and loan association.</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-non-depository-financial-institution"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Non-Depository Financial Institution?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A non-depository institution is a type of financial institution that does not primarily rely on customer deposits for its main income. Instead, it acts as a third party to financial transactions. One example of a non-depository institution is a life insurance company. Insurance companies accept payment for insurance products, but they do not typically hold funds for safekeeping, as a depository does.</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-benefits-of-a-depository-institution"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of a Depository Institution?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several advantages to using a depository institution such as a bank. First, depositories provide safekeeping for assets, cash, and valuables, eliminating the risk of theft and loss. They typically pay interest on your deposits, which will grow your balance. Depositories also create liquidity by lending out money.</p></div> </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> A depository is a place to deposit, or place, assets such as cash or securities. Depository institutions can include banks, credit unions, and savings and loans institutions. When you place your funds in a depository, the organization often will pay you interest on your deposit. It may also loan out those funds in the form of mortgages or personal loans. However, a depository must return your deposit when you request it. The Federal Deposit Insurance Corporation guarantees your deposits at participating institutions, up to certain limits. </p></div>

## What Is a Depository? The term depository can refer to a facility in which something is deposited for storage or safeguarding, or an institution that accepts currency deposits from customers, such as a [bank](https://www.investopedia.com/terms/b/bank.asp) or a savings association. A depository also can be an organization, bank, or institution that holds [securities](https://www.investopedia.com/terms/s/security.asp) and assists in the trading of securities. Deposits placed in a depository must be returned in the same condition upon request. Depositories provide security and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) in the market. They use money deposited for safekeeping to lend to others, they invest in other securities, and they provide a funds [transfer](https://www.investopedia.com/terms/t/transfer.asp) system. ### Key Takeaways * A depository can be a facility or institution, such as a building, office, or warehouse, where something is deposited for storage or safeguarding. * Depositories also may be organizations, banks, or institutions that hold currency or securities and assist in the trading of securities. * They provide security, liquidity, and a means of transferring funds. ## Understanding Depositories Depositories are buildings, offices, and warehouses that allow consumers and businesses to deposit money, securities, and other valuable [assets](https://www.investopedia.com/terms/a/asset.asp) for safekeeping. Depositories may include banks, safehouses, vaults, [financial institutions](https://www.investopedia.com/terms/f/financialinstitution.asp), and other organizations. Depositories serve multiple purposes for the general public. First, they eliminate the owner's [risk](https://www.investopedia.com/terms/r/risk.asp) of holding physical assets by providing a safe place to store them. For instance, banks and other financial institutions give consumers a place to deposit their money by offering time deposit and demand deposit accounts. A [time deposit](https://www.investopedia.com/terms/t/timedeposit.asp) is an interest-bearing account with a specific date of maturity, such as a [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). A [demand deposit](https://www.investopedia.com/terms/d/demanddeposit.asp) account holds funds until they need to be withdrawn, such as with a checking or savings account. Deposits can also be securities, such as stocks or bonds. When these assets are deposited, the institution holds the securities, either in electronic form, also known as [book-entry](https://www.investopedia.com/terms/b/bookentrysecurities.asp) form, or in paper form, such as a physical stock certificate. Depository organizations also help create liquidity in the market. Customers give their money to a financial institution; the company holds it for a time and returns it when the customer wants it back. These institutions accept customers' money and pay [interest](https://www.investopedia.com/terms/i/interest.asp) on their deposits over time. While holding the customers' money, the institutions lend it to others in the form of [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) or business loans, generating more interest on the money loaned than the interest they paid to customers. ## Example of a Depository [Euroclear](https://www.investopedia.com/terms/e/euroclear.asp) is a clearinghouse that acts as a central securities depository for its clients, many of whom trade on European [exchanges](https://www.investopedia.com/terms/e/exchange.asp). Most of its clients are banks, [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp), and other institutions professionally engaged in managing new issues of securities, market-making, trading, or holding a wide variety of securities. Euroclear [settles domestic and international securities transactions](https://www.investopedia.com/terms/c/crest.asp), covering bonds, equities, [derivatives](https://www.investopedia.com/terms/d/derivative.asp), and investment funds. Domestic securities from more than 40 markets are accepted in the system, covering a broad range of internationally traded fixed- and floating-rate [debt instruments](https://www.investopedia.com/terms/d/debtinstrument.asp), convertibles, [warrants](https://www.investopedia.com/terms/w/warrant.asp), and equities. This includes domestic debt instruments, short- and medium-term instruments, equities and equity-linked instruments, and international bonds from the major markets of Europe, Asia-Pacific, Africa and the Americas. ## Special Considerations Transferring the ownership of [shares](https://www.investopedia.com/terms/s/shares.asp) from one investor's account to another account when a [trade](https://www.investopedia.com/terms/t/trade.asp) is executed is one of the primary functions of a depository. This helps reduce the paperwork for executing a trade and speeds up the transfer process. Another function of a depository is the elimination of the risk of holding the securities in physical form. These risks can include theft, loss, fraud, damage, or delay in deliveries. An investor who wants to purchase precious metals can purchase them in [physical bullion](https://www.investopedia.com/terms/b/bullion.asp) or paper form. Gold or silver bars or coins can be purchased from a dealer and kept with a third-party depository. Investing in gold through [futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp) is not equivalent to the investor owning gold. Instead, gold is owed to the investor. A trader or hedger looking to take actual delivery on a futures contract must first establish a long (buy) futures position and wait until a short (seller) tenders a notice to delivery. With gold futures contracts, the seller is committing to deliver the gold to the buyer at the contract [expiry date](https://www.investopedia.com/terms/e/expirationdate.asp). The seller must have the metal—in this case, gold—in an approved depository. This is represented by holding COMEX-approved electronic depository warrants, which are required to make or take delivery. ## Types of Depositories The three main types of depository institutions are [credit unions](https://www.investopedia.com/terms/c/creditunion.asp), savings institutions, and commercial banks. The main source of funding for these institutions is through deposits from customers. Customer deposits and accounts are insured by the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) up to certain limits. ### A depository's institutional function or type determines which agency or agencies are responsible for its oversight. Credit unions are nonprofit companies highly focused on customer services. Customers make deposits into a credit union account, which is similar to buying shares in that credit union. Credit union earnings are distributed in the form of [dividends](https://www.investopedia.com/terms/d/dividend.asp) to every customer. Savings institutions are for-profit companies also known as [savings and loan institutions](https://www.investopedia.com/terms/f/federal-savings-and-loan.asp). These institutions focus primarily on consumer mortgage lending but may also offer [credit cards](https://www.investopedia.com/terms/c/creditcard.asp) and commercial loans. Customers deposit money into an account, which buys shares in the company. For example, a savings institution may approve 71,000 mortgage loans, 714 real estate loans, 340,000 credit cards, and 252,000 auto and personal consumer loans while earning interest on all these products during a single fiscal year. [Commercial banks](https://www.investopedia.com/terms/c/commercialbank.asp) are for-profit companies and are the largest type of depository institutions. These banks offer a range of services to consumers and businesses such as [savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), consumer and commercial loans, credit cards, and investment products. These institutions accept deposits and primarily use the deposits to offer mortgage loans, commercial loans, and [real estate loans](https://www.investopedia.com/terms/c/commercial-real-estate-loan.asp). ## Depository vs. Repository A depository is not the same thing as a repository, although they can often be confused. A repository is where things are kept for safekeeping. But unlike a depository, the items kept in a repository are generally abstract such as knowledge. For instance, data can be kept in a software repository or a central location where files are housed. Investopedia is also considered a repository—in this case, it's a repository for financial information. ## What Is a Depository Institution? A depository institution is a financial institution whose main source of funds is deposits from customers. A commercial bank is a type of depository institution, as is a credit union or a savings and loan association. ## What Is a Non-Depository Financial Institution? A non-depository institution is a type of financial institution that does not primarily rely on customer deposits for its main income. Instead, it acts as a third party to financial transactions. One example of a non-depository institution is a life insurance company. Insurance companies accept payment for insurance products, but they do not typically hold funds for safekeeping, as a depository does. ## What Are the Benefits of a Depository Institution? There are several advantages to using a depository institution such as a bank. First, depositories provide safekeeping for assets, cash, and valuables, eliminating the risk of theft and loss. They typically pay interest on your deposits, which will grow your balance. Depositories also create liquidity by lending out money. ## The Bottom Line A depository is a place to deposit, or place, assets such as cash or securities. Depository institutions can include banks, credit unions, and savings and loans institutions. When you place your funds in a depository, the organization often will pay you interest on your deposit. It may also loan out those funds in the form of mortgages or personal loans. However, a depository must return your deposit when you request it. The Federal Deposit Insurance Corporation guarantees your deposits at participating institutions, up to certain limits.

What Is a Depository? The term depository can refer to a facility in which something is deposited for storage or safeguarding, or an institution that accepts currency deposits from customers, such as a bank or a savings association. A depository also can be an organization, bank, or institution that holds securities and assists in the trading of securities. Deposits placed in a depository must be returned in the same condition upon request. Depositories provide security and liquidity in the market. They use money deposited for safekeeping to lend to others, they invest in other securities, and they provide a funds transfer system. Key Takeaways A depository can be a facility or institution, such as a building, office, or warehouse, where something is deposited for storage or safeguarding.Depositories also may be organizations, banks, or institutions that hold currency or securities and assist in the trading of securities.They provide security, liquidity, and a means of transferring funds. Understanding Depositories Depositories are buildings, offices, and warehouses that allow consumers and businesses to deposit money, securities, and other valuable assets for safekeeping. Depositories may include banks, safehouses, vaults, financial institutions, and other organizations. Depositories serve multiple purposes for the general public. First, they eliminate the owner's risk of holding physical assets by providing a safe place to store them. For instance, banks and other financial institutions give consumers a place to deposit their money by offering time deposit and demand deposit accounts. A time deposit is an interest-bearing account with a specific date of maturity, such as a certificate of deposit (CD). A demand deposit account holds funds until they need to be withdrawn, such as with a checking or savings account. Deposits can also be securities, such as stocks or bonds. When these assets are deposited, the institution holds the securities, either in electronic form, also known as book-entry form, or in paper form, such as a physical stock certificate. Depository organizations also help create liquidity in the market. Customers give their money to a financial institution; the company holds it for a time and returns it when the customer wants it back. These institutions accept customers' money and pay interest on their deposits over time. While holding the customers' money, the institutions lend it to others in the form of mortgage or business loans, generating more interest on the money loaned than the interest they paid to customers. Example of a Depository Euroclear is a clearinghouse that acts as a central securities depository for its clients, many of whom trade on European exchanges. Most of its clients are banks, broker-dealers, and other institutions professionally engaged in managing new issues of securities, market-making, trading, or holding a wide variety of securities. Euroclear settles domestic and international securities transactions, covering bonds, equities, derivatives, and investment funds. Domestic securities from more than 40 markets are accepted in the system, covering a broad range of internationally traded fixed- and floating-rate debt instruments, convertibles, warrants, and equities. This includes domestic debt instruments, short- and medium-term instruments, equities and equity-linked instruments, and international bonds from the major markets of Europe, Asia-Pacific, Africa and the Americas. Special Considerations Transferring the ownership of shares from one investor's account to another account when a trade is executed is one of the primary functions of a depository. This helps reduce the paperwork for executing a trade and speeds up the transfer process. Another function of a depository is the elimination of the risk of holding the securities in physical form. These risks can include theft, loss, fraud, damage, or delay in deliveries. An investor who wants to purchase precious metals can purchase them in physical bullion or paper form. Gold or silver bars or coins can be purchased from a dealer and kept with a third-party depository. Investing in gold through futures contracts is not equivalent to the investor owning gold. Instead, gold is owed to the investor. A trader or hedger looking to take actual delivery on a futures contract must first establish a long (buy) futures position and wait until a short (seller) tenders a notice to delivery. With gold futures contracts, the seller is committing to deliver the gold to the buyer at the contract expiry date. The seller must have the metal—in this case, gold—in an approved depository. This is represented by holding COMEX-approved electronic depository warrants, which are required to make or take delivery. Types of Depositories The three main types of depository institutions are credit unions, savings institutions, and commercial banks. The main source of funding for these institutions is through deposits from customers. Customer deposits and accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. A depository's institutional function or type determines which agency or agencies are responsible for its oversight. Credit unions are nonprofit companies highly focused on customer services. Customers make deposits into a credit union account, which is similar to buying shares in that credit union. Credit union earnings are distributed in the form of dividends to every customer. Savings institutions are for-profit companies also known as savings and loan institutions. These institutions focus primarily on consumer mortgage lending but may also offer credit cards and commercial loans. Customers deposit money into an account, which buys shares in the company. For example, a savings institution may approve 71,000 mortgage loans, 714 real estate loans, 340,000 credit cards, and 252,000 auto and personal consumer loans while earning interest on all these products during a single fiscal year. Commercial banks are for-profit companies and are the largest type of depository institutions. These banks offer a range of services to consumers and businesses such as savings accounts, consumer and commercial loans, credit cards, and investment products. These institutions accept deposits and primarily use the deposits to offer mortgage loans, commercial loans, and real estate loans. Depository vs. Repository A depository is not the same thing as a repository, although they can often be confused. A repository is where things are kept for safekeeping. But unlike a depository, the items kept in a repository are generally abstract such as knowledge. For instance, data can be kept in a software repository or a central location where files are housed. Investopedia is also considered a repository—in this case, it's a repository for financial information. What Is a Depository Institution? A depository institution is a financial institution whose main source of funds is deposits from customers. A commercial bank is a type of depository institution, as is a credit union or a savings and loan association. What Is a Non-Depository Financial Institution? A non-depository institution is a type of financial institution that does not primarily rely on customer deposits for its main income. Instead, it acts as a third party to financial transactions. One example of a non-depository institution is a life insurance company. Insurance companies accept payment for insurance products, but they do not typically hold funds for safekeeping, as a depository does. What Are the Benefits of a Depository Institution? There are several advantages to using a depository institution such as a bank. First, depositories provide safekeeping for assets, cash, and valuables, eliminating the risk of theft and loss. They typically pay interest on your deposits, which will grow your balance. Depositories also create liquidity by lending out money. The Bottom Line A depository is a place to deposit, or place, assets such as cash or securities. Depository institutions can include banks, credit unions, and savings and loans institutions. When you place your funds in a depository, the organization often will pay you interest on your deposit. It may also loan out those funds in the form of mortgages or personal loans. However, a depository must return your deposit when you request it. The Federal Deposit Insurance Corporation guarantees your deposits at participating institutions, up to certain limits.

https://www.investopedia.com/news/stock-selloff-vocabulary-guide/

A Stock Sell-off Vocabulary Guide

<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 sell-offs are tough for long-term buy-and-hold investors to swallow. But they are a necessary and natural element of a functional marketplace. Laws of supply and demand and investor appetite fuel both uptrends and downtrends. As investors, it's important to be aware of both of these phenomena so that we can plan accordingly. </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"> Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar. Here is a cheat sheet of some of that lingo for the next time you find yourself in a downdraft. </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>Stock sell-offs are a necessary and natural element of a functional marketplace, even if they are tough for long-term buy-and-hold investors to swallow.</li><li>Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar, such as volatility, buying the dips, and short selling.</li><li>Knowing the language of financial markets can only make you smarter and a better investor.</li></ul></div></div></div> <span class="heading-toc" id="toc-bond-yields"></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"> Bond Yields </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Rising <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-yield.asp">bond yields</a> are often blamed for a sell-off in stocks. As the Fed raises overnight lending rates and the yield, or return, on U.S. Treasury bond prices rise, it makes them more attractive to investors, large and small, who are looking for a safer and less volatile place to put their money than stocks. </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"> Bond yields have been so low for so long, but they are starting to creep higher, drawing more money to them and away from stock. Aside from their effect on equities, though, there are various reasons <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/100814/why-10-year-us-treasury-rates-matter.asp">why yields matter</a>. </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-buy-the-dips"></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"> Buy the Dips </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-the-dips.asp">Buy the dips</a>" is trader slang for buying securities following a decline in prices, with the inkling that they have fallen for no apparent reason and should recover and keep rising in short order. It's kind of like an unexpected sale at your favorite retailer, except you think the value of the things you buy on that sale day will get more valuable over time. It doesn't always work out in the stock market, but people like saying it. </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-capitulation"></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"> Capitulation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In a way, you can think of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitulation.asp">capitulation</a> as ripping your computer off the desk, hurling it across the room, and throwing the mother of all tantrums. But really it's another way of saying that you can't bear the losses anymore in a particular security or market and you are going to cut your losses and sell. When markets or a particular stock sell off in heavy volume, many investors are tempted to abandon ship and sell their stakes as well, or capitulate. That only exacerbates the losses. </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-circuit-breaker"></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"> Circuit Breaker </span> </h2> <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/c/circuitbreaker.asp">circuit breaker</a> is like the breaker box in your basement. However, this one can shut off the juice at the major securities exchanges. Exchanges like the New York Stock Exchange (NYSE) and Nasdaq are sometimes compelled to flip the switch when there is too much of an imbalance between sell and buy orders. </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"> With more and more trades being pushed through computer algorithms, those imbalances can be more frequent. They last anywhere from a few minutes to several hours, but it's all in the name of smoothing out the order flow so markets can effectively match buyers and sellers. Trading is halted for 15 minutes when a Level 1 circuit breaker is triggered by a 7 percent decrease from the S&amp;P 500’s closing price. </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-correction"></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"> Correction </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> In general, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correction.asp" rel="noopener noreferrer">correction</a> is a 10% decline of the price of a security, market, or index from its most recent high. A correction should not be confused with a crash or just a bad day in the markets; these happen fairly frequently and can last anywhere from a couple of days to several months. Stocks can be in a correction before the index they are included in falls into one. </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-implied-volatility"></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"> Implied Volatility </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Implied volatility refers to the estimated changes in a security's price and is generally used when pricing options. In general, implied volatility increases when the market is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp" rel="noopener noreferrer">bearish</a>—when investors believe that the asset's price will decline over time—and decreases when the market is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp" rel="noopener noreferrer">bullish</a>—when investors believe that the price will rise over time. </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-inflation"></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"> Inflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Simply put, <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 the rate at which the level of prices for goods and services rises, which can drive the purchasing power of a currency lower. The Federal Reserve pays particular attention to rising inflation when it sets overnight lending rates or 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>, as it is known. </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"> Since the Fed has been raising rates of late and plans to continue to do so a few more times, at least, it makes borrowing costs more expensive which can impede growth and thus profits. It may sound complicated, but you can understand the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/">relationship</a> between interest rates and stock markets. </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-short-selling"></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"> Short Selling </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Basically, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short selling</a> is a bet that a security or index will decline wherein a short seller borrows shares to offer them for sale. The idea is to sell such shares, of which the short seller has no ownership, at a higher price hoping that the price falls by the time the trade needs to be settled. That would enable the short seller to acquire shares at the lower price and deliver them to the buyer, making a profit equaling the difference in prices. </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"> While, if done right, short selling can be profitable, it can amount to massive losses if the trade goes the other way. It is definitely not a strategy for beginners. </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-tariff"></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"> Tariff </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tariff.asp" rel="noopener noreferrer">Tariffs</a> are increased duties that are levied by countries on goods they import to protect domestic industries. These levies make the imported goods less attractive to domestic consumers. But even as this is expected to be a shot in the arm for the domestic economy, it has other consequences like upsetting trade partners who may retaliate, setting off a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade-war.asp" rel="noopener noreferrer">trade war</a>. When this occurs with a significant trading partner, the future of large corporations that conduct business in those countries comes under question, putting pressure on the stock markets. </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-volatility"></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"> Volatility </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Technically speaking, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp" rel="noopener noreferrer">volatility</a> is a statistical measure of the dispersion, or returns, for a given security or market index. That's another way of saying it's a measurement of change (or beta) of a security or index against its normal patterns or benchmarks it is weighed against. In the stock market, one way of measuring volatility is to look at the Chicago Board of Options Volatility Index (VIX). </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"> There are many other ways to measure volatility, depending on what you are looking at or measuring. If you think of it as a measurement of the rate of change that reflects uncertainty or risk, you are on the right track. </p></div>

Stock sell-offs are tough for long-term buy-and-hold investors to swallow. But they are a necessary and natural element of a functional marketplace. Laws of supply and demand and investor appetite fuel both uptrends and downtrends. As investors, it's important to be aware of both of these phenomena so that we can plan accordingly. Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar. Here is a cheat sheet of some of that lingo for the next time you find yourself in a downdraft. ### Key Takeaways * Stock sell-offs are a necessary and natural element of a functional marketplace, even if they are tough for long-term buy-and-hold investors to swallow. * Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar, such as volatility, buying the dips, and short selling. * Knowing the language of financial markets can only make you smarter and a better investor. ## Bond Yields Rising [bond yields](https://www.investopedia.com/terms/b/bond-yield.asp) are often blamed for a sell-off in stocks. As the Fed raises overnight lending rates and the yield, or return, on U.S. Treasury bond prices rise, it makes them more attractive to investors, large and small, who are looking for a safer and less volatile place to put their money than stocks. Bond yields have been so low for so long, but they are starting to creep higher, drawing more money to them and away from stock. Aside from their effect on equities, though, there are various reasons [why yields matter](https://www.investopedia.com/articles/investing/100814/why-10-year-us-treasury-rates-matter.asp). ## Buy the Dips "[Buy the dips](https://www.investopedia.com/terms/b/buy-the-dips.asp)" is trader slang for buying securities following a decline in prices, with the inkling that they have fallen for no apparent reason and should recover and keep rising in short order. It's kind of like an unexpected sale at your favorite retailer, except you think the value of the things you buy on that sale day will get more valuable over time. It doesn't always work out in the stock market, but people like saying it. ## Capitulation In a way, you can think of [capitulation](https://www.investopedia.com/terms/c/capitulation.asp) as ripping your computer off the desk, hurling it across the room, and throwing the mother of all tantrums. But really it's another way of saying that you can't bear the losses anymore in a particular security or market and you are going to cut your losses and sell. When markets or a particular stock sell off in heavy volume, many investors are tempted to abandon ship and sell their stakes as well, or capitulate. That only exacerbates the losses. ## Circuit Breaker A [circuit breaker](https://www.investopedia.com/terms/c/circuitbreaker.asp) is like the breaker box in your basement. However, this one can shut off the juice at the major securities exchanges. Exchanges like the New York Stock Exchange (NYSE) and Nasdaq are sometimes compelled to flip the switch when there is too much of an imbalance between sell and buy orders. With more and more trades being pushed through computer algorithms, those imbalances can be more frequent. They last anywhere from a few minutes to several hours, but it's all in the name of smoothing out the order flow so markets can effectively match buyers and sellers. Trading is halted for 15 minutes when a Level 1 circuit breaker is triggered by a 7 percent decrease from the S&P 500’s closing price. ## Correction In general, a [correction](https://www.investopedia.com/terms/c/correction.asp) is a 10% decline of the price of a security, market, or index from its most recent high. A correction should not be confused with a crash or just a bad day in the markets; these happen fairly frequently and can last anywhere from a couple of days to several months. Stocks can be in a correction before the index they are included in falls into one. ## Implied Volatility Implied volatility refers to the estimated changes in a security's price and is generally used when pricing options. In general, implied volatility increases when the market is [bearish](https://www.investopedia.com/terms/b/bearmarket.asp)—when investors believe that the asset's price will decline over time—and decreases when the market is [bullish](https://www.investopedia.com/terms/b/bullmarket.asp)—when investors believe that the price will rise over time. ## Inflation Simply put, [inflation](https://www.investopedia.com/terms/i/inflation.asp) is the rate at which the level of prices for goods and services rises, which can drive the purchasing power of a currency lower. The Federal Reserve pays particular attention to rising inflation when it sets overnight lending rates or the [Federal Funds Rate](https://www.investopedia.com/terms/f/federalfundsrate.asp), as it is known. Since the Fed has been raising rates of late and plans to continue to do so a few more times, at least, it makes borrowing costs more expensive which can impede growth and thus profits. It may sound complicated, but you can understand the [relationship](https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/) between interest rates and stock markets. ## Short Selling Basically, [short selling](https://www.investopedia.com/terms/s/shortselling.asp) is a bet that a security or index will decline wherein a short seller borrows shares to offer them for sale. The idea is to sell such shares, of which the short seller has no ownership, at a higher price hoping that the price falls by the time the trade needs to be settled. That would enable the short seller to acquire shares at the lower price and deliver them to the buyer, making a profit equaling the difference in prices. While, if done right, short selling can be profitable, it can amount to massive losses if the trade goes the other way. It is definitely not a strategy for beginners. ## Tariff [Tariffs](https://www.investopedia.com/terms/t/tariff.asp) are increased duties that are levied by countries on goods they import to protect domestic industries. These levies make the imported goods less attractive to domestic consumers. But even as this is expected to be a shot in the arm for the domestic economy, it has other consequences like upsetting trade partners who may retaliate, setting off a [trade war](https://www.investopedia.com/terms/t/trade-war.asp). When this occurs with a significant trading partner, the future of large corporations that conduct business in those countries comes under question, putting pressure on the stock markets. ## Volatility Technically speaking, [volatility](https://www.investopedia.com/terms/v/volatility.asp) is a statistical measure of the dispersion, or returns, for a given security or market index. That's another way of saying it's a measurement of change (or beta) of a security or index against its normal patterns or benchmarks it is weighed against. In the stock market, one way of measuring volatility is to look at the Chicago Board of Options Volatility Index (VIX). There are many other ways to measure volatility, depending on what you are looking at or measuring. If you think of it as a measurement of the rate of change that reflects uncertainty or risk, you are on the right track.

Stock sell-offs are tough for long-term buy-and-hold investors to swallow. But they are a necessary and natural element of a functional marketplace. Laws of supply and demand and investor appetite fuel both uptrends and downtrends. As investors, it's important to be aware of both of these phenomena so that we can plan accordingly. Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar. Here is a cheat sheet of some of that lingo for the next time you find yourself in a downdraft. Key Takeaways Stock sell-offs are a necessary and natural element of a functional marketplace, even if they are tough for long-term buy-and-hold investors to swallow.Sell-offs also conjure up a special vocabulary of finance and investing words in the media that may be unfamiliar, such as volatility, buying the dips, and short selling.Knowing the language of financial markets can only make you smarter and a better investor. Bond Yields Rising bond yields are often blamed for a sell-off in stocks. As the Fed raises overnight lending rates and the yield, or return, on U.S. Treasury bond prices rise, it makes them more attractive to investors, large and small, who are looking for a safer and less volatile place to put their money than stocks. Bond yields have been so low for so long, but they are starting to creep higher, drawing more money to them and away from stock. Aside from their effect on equities, though, there are various reasons why yields matter. Buy the Dips "Buy the dips" is trader slang for buying securities following a decline in prices, with the inkling that they have fallen for no apparent reason and should recover and keep rising in short order. It's kind of like an unexpected sale at your favorite retailer, except you think the value of the things you buy on that sale day will get more valuable over time. It doesn't always work out in the stock market, but people like saying it. Capitulation In a way, you can think of capitulation as ripping your computer off the desk, hurling it across the room, and throwing the mother of all tantrums. But really it's another way of saying that you can't bear the losses anymore in a particular security or market and you are going to cut your losses and sell. When markets or a particular stock sell off in heavy volume, many investors are tempted to abandon ship and sell their stakes as well, or capitulate. That only exacerbates the losses. Circuit Breaker A circuit breaker is like the breaker box in your basement. However, this one can shut off the juice at the major securities exchanges. Exchanges like the New York Stock Exchange (NYSE) and Nasdaq are sometimes compelled to flip the switch when there is too much of an imbalance between sell and buy orders. With more and more trades being pushed through computer algorithms, those imbalances can be more frequent. They last anywhere from a few minutes to several hours, but it's all in the name of smoothing out the order flow so markets can effectively match buyers and sellers. Trading is halted for 15 minutes when a Level 1 circuit breaker is triggered by a 7 percent decrease from the S&P 500’s closing price. Correction In general, a correction is a 10% decline of the price of a security, market, or index from its most recent high. A correction should not be confused with a crash or just a bad day in the markets; these happen fairly frequently and can last anywhere from a couple of days to several months. Stocks can be in a correction before the index they are included in falls into one. Implied Volatility Implied volatility refers to the estimated changes in a security's price and is generally used when pricing options. In general, implied volatility increases when the market is bearish—when investors believe that the asset's price will decline over time—and decreases when the market is bullish—when investors believe that the price will rise over time. Inflation Simply put, inflation is the rate at which the level of prices for goods and services rises, which can drive the purchasing power of a currency lower. The Federal Reserve pays particular attention to rising inflation when it sets overnight lending rates or the Federal Funds Rate, as it is known. Since the Fed has been raising rates of late and plans to continue to do so a few more times, at least, it makes borrowing costs more expensive which can impede growth and thus profits. It may sound complicated, but you can understand the relationship between interest rates and stock markets. Short Selling Basically, short selling is a bet that a security or index will decline wherein a short seller borrows shares to offer them for sale. The idea is to sell such shares, of which the short seller has no ownership, at a higher price hoping that the price falls by the time the trade needs to be settled. That would enable the short seller to acquire shares at the lower price and deliver them to the buyer, making a profit equaling the difference in prices. While, if done right, short selling can be profitable, it can amount to massive losses if the trade goes the other way. It is definitely not a strategy for beginners. Tariff Tariffs are increased duties that are levied by countries on goods they import to protect domestic industries. These levies make the imported goods less attractive to domestic consumers. But even as this is expected to be a shot in the arm for the domestic economy, it has other consequences like upsetting trade partners who may retaliate, setting off a trade war. When this occurs with a significant trading partner, the future of large corporations that conduct business in those countries comes under question, putting pressure on the stock markets. Volatility Technically speaking, volatility is a statistical measure of the dispersion, or returns, for a given security or market index. That's another way of saying it's a measurement of change (or beta) of a security or index against its normal patterns or benchmarks it is weighed against. In the stock market, one way of measuring volatility is to look at the Chicago Board of Options Volatility Index (VIX). There are many other ways to measure volatility, depending on what you are looking at or measuring. If you think of it as a measurement of the rate of change that reflects uncertainty or risk, you are on the right track.

https://www.investopedia.com/articles/active-trading/052715/want-trade-stocks-college-5-tips-start.asp

Want to Trade Stocks in College? 5 Tips to Start

<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"> I started researching investing at age 15 and began building an investment portfolio the year I entered college. During my college years, I learned how to manage my <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp" rel="noopener noreferrer">investments</a> without compromising my studies. Drawing from this experience, I offer five tips to help student investors make the most of their college years and their investments. </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>Be aware of your motivation to invest before you begin. </li><li>Knowing about investor psychology will prevent you from making poor investment decisions.</li><li>Consider your schedule before coming up with an investment strategy.</li><li>Use the skills you develop at school and apply them to your investment strategy.</li><li>Connect with individuals who are interested in investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-ask-yourself-why-you-want-to-be-an-investor"></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"> 1. Ask Yourself Why You Want to Be an Investor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Before delving into how to invest, it is important to consider why you want to invest. Contrary to what popular culture might have us believe, achieving <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> investment success requires patience, hard work, time, and psychological discipline. You are only in college for a few short years, and it takes serious effort to perform well academically. Ask yourself whether spending your limited time and energy on investing is the right decision for you. Weigh it against other major commitments you could pursue, such as completing a second major, learning a foreign language, working for a professor, completing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/011316/job-or-internship-guide-college-students.asp" rel="noopener noreferrer">internships</a>, or being involved in athletic and community groups. Although it is possible to do many of these things in addition to your investment and college studies, there are limits to the commitments you can realistically maintain. </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"> Different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp" rel="noopener noreferrer">investors</a> have different motivations. I know of one investor whose goal is to finance the education of 1,000 children. Others are motivated by simpler goals such as the desire to build financial wealth for themselves and their family. My own long-term objective is to develop a philanthropic fund to support critical services in my home city of Vancouver. No matter what your objectives are, having a strong sense of why you want to be an investor will contribute to your long-term resilience and success. </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"> During times of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp" rel="noopener noreferrer">financial crisis</a>, it is tempting to sell your investments at unusually low prices to avoid further losses. Similarly, in times of consistently elevated returns, it can be hard to resist buying overpriced securities whose prices continue to rise. Giving serious consideration to why<em> </em>you want to invest will encourage you to remain diligently committed to your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp" rel="noopener noreferrer">investment strategy</a> during good times and bad. </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-2-beware-of-investor-psychology"></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"> 2. Beware of Investor Psychology </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/081415/look-buy-low-sell-high-strategy.asp" rel="noopener noreferrer">buying high and selling low</a>—a recipe for financial disaster. This <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/060513/avoid-these-common-investing-psychology-traps.asp" rel="noopener noreferrer">temptation</a> is often compounded by social pressures. As investors, it is inevitable that we will experience self-doubt and fear that we are missing out on other investors' returns. However, this inclination must be resisted to avoid the temptation of seeking <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short-term-gain.asp" rel="noopener noreferrer">short-term gains</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"> College can be a particularly challenging environment in this regard. During my college's orientation day for new students, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO—fear of missing out. Even then, it occurred to me that this was terrible advice for investors. </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"> One of the best ways to prevent yourself from making poor investment decisions is by educating yourself about the nature of investor psychology. Two of my favorite books on this subject are "Animal Spirits," written by Nobel-prize winning economists <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/george-a-akerlof.asp" rel="noopener noreferrer">George A. Akerlof</a> and Robert J. Shiller, and Jason Zweig’s "Your Money and Your Brain." Studying these books will help cement your understanding of the profound role that psychology plays both in your own decision-making process and in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-market.asp" rel="noopener noreferrer">financial markets</a> as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions. </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>While it isn't illegal to invest money from a student loan, you may be responsible to repay subsidized interest if the federal government finds out.</p></div></div></div> <span class="heading-toc" id="toc-3-adopt-a-realistic-strategy-given-your-schedule"></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"> 3. Adopt a Realistic Strategy Given Your Schedule </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Conducting a thorough <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-analysis.asp" rel="noopener noreferrer">investment analysis</a> takes a significant amount of focus and time. As a student, it is unlikely that you will have the time to go in-depth in your research. It makes sense then, to adopt a strategy that you can realistically implement in your limited free time. </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"> Perhaps the simplest strategy consists of regularly investing in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp" rel="noopener noreferrer">portfolio</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversifiedfund.asp" rel="noopener noreferrer">diversified investment funds</a> such as index funds, exchange-traded funds (ETFs), or mutual funds. This approach may be advantageous for investors who are less interested in performing an in-depth analysis of individual investments and who would prefer to delegate the more laborious aspects of investing to a third party. On the other hand, investors who wish to have their funds <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp" rel="noopener noreferrer">actively managed</a> will have to <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp" rel="noopener noreferrer">pay for the service</a> in the form of higher <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/managementfee.asp" rel="noopener noreferrer">management fees</a>. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fulltimestudent.asp" rel="noopener noreferrer">Full-time students</a> who want to manage their own portfolios will need a time-efficient investment strategy. I chose to build my portfolio primarily based on businesses priced below their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidation-value.asp" rel="noopener noreferrer">liquidation value</a>. I chose this strategy because it is more amenable to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitativeanalysis.asp" rel="noopener noreferrer">quantitative analysis</a> and monitoring. For example, I created a standard investment checklist to screen investment candidates. The checklist determined the exact prices at which I would buy and sell the business’s shares. I then set automatic alerts using services such as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://ifttt.com/" rel="noopener noreferrer">IFTTT</a> and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="http://www.zignals.com/" rel="noopener noreferrer nofollow">Zignals</a> to notify me when the shares reached their specified price thresholds. Through this strategy, I was able to gain real-world investment experience without compromising my studies. </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"> For students who want the experience of hands-on investing but do not have the funds, a third option is to invest using online simulators such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.google.ca/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=0CB4QFjAA&amp;url=http%3A%2F%2Fwww.investopedia.com%2Fsimulator%2F&amp;ei=CWZUVeTtGNG6ogSEo4CABw&amp;usg=AFQjCNF9PnMnb2gcwyyzYMpXdT5DoeQalQ&amp;sig2=r6QOTIDaZjMyvvw4sox8aw&amp;bvm=bv.93112503,d.cGU" rel="noopener noreferrer">Investopedia’s Stock Simulator</a>. Simulators are a great way for investors to test out new ideas without the risk of exposing real capital. </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-4-invest-in-your-knowledge"></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"> 4. Invest in Your Knowledge </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If you lack the time or resources to invest during your college years, it is worth remembering that the best investment you can make is to develop your own knowledge. This principle holds true equally for those students who do have the time and resources to invest. </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"> Depending on your choice of major, you may find that your college studies contribute directly to your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-investing-courses-4783334" rel="noopener noreferrer">investment education</a>. Others may need creative ways to find overlap between their education as investors and their college curriculum. My own chosen major—honors history, focusing on the history of science—has no direct relationship to investing. Nonetheless, I found that many of the skills I developed, such as primary research, writing, and critical thinking, have clear applications in investment research and analysis. </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"> Regardless of your chosen field of study, if you approach your investment education in a proactive manner, many industry professionals will be open to answering your questions and supporting you in your development as an investor. I strongly encourage all student investors to attend networking events and reach out to industry professionals. </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"> Another way to build your investing knowledge is to learn from the world’s greatest investors. I chose to base my knowledge on the value investment methodology developed by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp" rel="noopener noreferrer">Warren Buffett's</a> mentor, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bengraham.asp" rel="noopener noreferrer">Benjamin Graham</a>. I recommend Benjamin Graham’s "The Intelligent Investor." Another classic is "Security Analysis," which Graham co-wrote with David Dodd in 1934. To get a sense of how <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp" rel="noopener noreferrer">value investing</a> has evolved since Graham’s time, I highly recommend studying <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="http://www.berkshirehathaway.com/letters/letters.html" rel="noopener noreferrer">the letters written by Warren Buffett</a> to the shareholders of his <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdingcompany.asp" rel="noopener noreferrer">holding company</a>, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/berkshire-hathaway.asp" rel="noopener noreferrer">Berkshire Hathaway</a> (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.a" rel="noopener noreferrer">BRK-A</a>, <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.b" rel="noopener noreferrer">BRK-B</a>). The letters explain how Buffett implemented and expanded upon Graham’s principles of value investing. These letters are particularly helpful because Buffett acknowledges and reflects upon his mistakes. Taken together, Buffett’s letters to shareholders and the classical texts of Graham and Dodd provide a well-rounded introduction to the theoretical foundations and practical applications of value investing. </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-5-keep-good-company"></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"> 5. Keep Good Company </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> One of the greatest advantages of being a student is the opportunity to connect with a diverse range of people on campus. In my experience, a network of peers with whom to discuss investing has been instrumental in developing a more nuanced investment decision-making process. The key is to find individuals who are both interested in discussing investing and willing to engage in constructive debate. </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"> Of course, this is easier said than done. I had to be open about my passion for investing to build this network. It took me until my third year of college to overcome my inhibitions and start an investing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://vancouvervalueinvesting.net/" rel="noopener noreferrer nofollow">website</a> where I share my thoughts on investing. I was amazed to find that many people who I had never assumed would be interested in investing approached me with questions and feedback about my work. For the first time, I started building a network of peers through which to discuss <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentideas.asp" rel="noopener noreferrer">investment ideas</a>. </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"> The long-term value of such communities cannot be overstated. At the same time, it is important to keep in mind that people tend to emphasize their own investment successes while hiding or downplaying their mistakes. Therefore, it is wise to approach investment discussions with a healthy degree of skepticism. </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-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"> Learning to invest during college is a challenge. Students who approach this challenge with a clear sense of purpose, a realistic investment strategy and a commitment to learning from the best can use their college years to lay a strong foundation for their investing future. Who knows? One day, students may be studying your investment philosophy. </p></div>

I started researching investing at age 15 and began building an investment portfolio the year I entered college. During my college years, I learned how to manage my [investments](https://www.investopedia.com/terms/i/investment.asp) without compromising my studies. Drawing from this experience, I offer five tips to help student investors make the most of their college years and their investments. ### Key Takeaways * Be aware of your motivation to invest before you begin. * Knowing about investor psychology will prevent you from making poor investment decisions. * Consider your schedule before coming up with an investment strategy. * Use the skills you develop at school and apply them to your investment strategy. * Connect with individuals who are interested in investing. ## 1. Ask Yourself Why You Want to Be an Investor Before delving into how to invest, it is important to consider why you want to invest. Contrary to what popular culture might have us believe, achieving [long-term](https://www.investopedia.com/terms/l/longterm.asp) investment success requires patience, hard work, time, and psychological discipline. You are only in college for a few short years, and it takes serious effort to perform well academically. Ask yourself whether spending your limited time and energy on investing is the right decision for you. Weigh it against other major commitments you could pursue, such as completing a second major, learning a foreign language, working for a professor, completing [internships](https://www.investopedia.com/articles/investing/011316/job-or-internship-guide-college-students.asp), or being involved in athletic and community groups. Although it is possible to do many of these things in addition to your investment and college studies, there are limits to the commitments you can realistically maintain. Different [investors](https://www.investopedia.com/terms/i/investor.asp) have different motivations. I know of one investor whose goal is to finance the education of 1,000 children. Others are motivated by simpler goals such as the desire to build financial wealth for themselves and their family. My own long-term objective is to develop a philanthropic fund to support critical services in my home city of Vancouver. No matter what your objectives are, having a strong sense of why you want to be an investor will contribute to your long-term resilience and success. During times of [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp), it is tempting to sell your investments at unusually low prices to avoid further losses. Similarly, in times of consistently elevated returns, it can be hard to resist buying overpriced securities whose prices continue to rise. Giving serious consideration to whyyou want to invest will encourage you to remain diligently committed to your [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp) during good times and bad. ## 2. Beware of Investor Psychology As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation of [buying high and selling low](https://www.investopedia.com/articles/investing/081415/look-buy-low-sell-high-strategy.asp)—a recipe for financial disaster. This [temptation](https://www.investopedia.com/articles/investing/060513/avoid-these-common-investing-psychology-traps.asp) is often compounded by social pressures. As investors, it is inevitable that we will experience self-doubt and fear that we are missing out on other investors' returns. However, this inclination must be resisted to avoid the temptation of seeking [short-term gains](https://www.investopedia.com/terms/s/short-term-gain.asp). College can be a particularly challenging environment in this regard. During my college's orientation day for new students, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO—fear of missing out. Even then, it occurred to me that this was terrible advice for investors. One of the best ways to prevent yourself from making poor investment decisions is by educating yourself about the nature of investor psychology. Two of my favorite books on this subject are "Animal Spirits," written by Nobel-prize winning economists [George A. Akerlof](https://www.investopedia.com/terms/g/george-a-akerlof.asp) and Robert J. Shiller, and Jason Zweig’s "Your Money and Your Brain." Studying these books will help cement your understanding of the profound role that psychology plays both in your own decision-making process and in the [financial markets](https://www.investopedia.com/terms/f/financial-market.asp) as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions. ### While it isn't illegal to invest money from a student loan, you may be responsible to repay subsidized interest if the federal government finds out. ## 3. Adopt a Realistic Strategy Given Your Schedule Conducting a thorough [investment analysis](https://www.investopedia.com/terms/i/investment-analysis.asp) takes a significant amount of focus and time. As a student, it is unlikely that you will have the time to go in-depth in your research. It makes sense then, to adopt a strategy that you can realistically implement in your limited free time. Perhaps the simplest strategy consists of regularly investing in a [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) of [diversified investment funds](https://www.investopedia.com/terms/d/diversifiedfund.asp) such as index funds, exchange-traded funds (ETFs), or mutual funds. This approach may be advantageous for investors who are less interested in performing an in-depth analysis of individual investments and who would prefer to delegate the more laborious aspects of investing to a third party. On the other hand, investors who wish to have their funds [actively managed](https://www.investopedia.com/terms/a/activemanagement.asp) will have to [pay for the service](https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp) in the form of higher [management fees](https://www.investopedia.com/terms/m/managementfee.asp). [Full-time students](https://www.investopedia.com/terms/f/fulltimestudent.asp) who want to manage their own portfolios will need a time-efficient investment strategy. I chose to build my portfolio primarily based on businesses priced below their [liquidation value](https://www.investopedia.com/terms/l/liquidation-value.asp). I chose this strategy because it is more amenable to [quantitative analysis](https://www.investopedia.com/terms/q/quantitativeanalysis.asp) and monitoring. For example, I created a standard investment checklist to screen investment candidates. The checklist determined the exact prices at which I would buy and sell the business’s shares. I then set automatic alerts using services such as [IFTTT](https://ifttt.com/) and [Zignals](http://www.zignals.com/) to notify me when the shares reached their specified price thresholds. Through this strategy, I was able to gain real-world investment experience without compromising my studies. For students who want the experience of hands-on investing but do not have the funds, a third option is to invest using online simulators such as [Investopedia’s Stock Simulator](https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.investopedia.com%2Fsimulator%2F&ei=CWZUVeTtGNG6ogSEo4CABw&usg=AFQjCNF9PnMnb2gcwyyzYMpXdT5DoeQalQ&sig2=r6QOTIDaZjMyvvw4sox8aw&bvm=bv.93112503,d.cGU). Simulators are a great way for investors to test out new ideas without the risk of exposing real capital. ## 4. Invest in Your Knowledge If you lack the time or resources to invest during your college years, it is worth remembering that the best investment you can make is to develop your own knowledge. This principle holds true equally for those students who do have the time and resources to invest. Depending on your choice of major, you may find that your college studies contribute directly to your [investment education](https://www.investopedia.com/best-investing-courses-4783334). Others may need creative ways to find overlap between their education as investors and their college curriculum. My own chosen major—honors history, focusing on the history of science—has no direct relationship to investing. Nonetheless, I found that many of the skills I developed, such as primary research, writing, and critical thinking, have clear applications in investment research and analysis. Regardless of your chosen field of study, if you approach your investment education in a proactive manner, many industry professionals will be open to answering your questions and supporting you in your development as an investor. I strongly encourage all student investors to attend networking events and reach out to industry professionals. Another way to build your investing knowledge is to learn from the world’s greatest investors. I chose to base my knowledge on the value investment methodology developed by [Warren Buffett's](https://www.investopedia.com/articles/01/071801.asp) mentor, [Benjamin Graham](https://www.investopedia.com/terms/b/bengraham.asp). I recommend Benjamin Graham’s "The Intelligent Investor." Another classic is "Security Analysis," which Graham co-wrote with David Dodd in 1934. To get a sense of how [value investing](https://www.investopedia.com/terms/v/valueinvesting.asp) has evolved since Graham’s time, I highly recommend studying [the letters written by Warren Buffett](http://www.berkshirehathaway.com/letters/letters.html) to the shareholders of his [holding company](https://www.investopedia.com/terms/h/holdingcompany.asp), [Berkshire Hathaway](https://www.investopedia.com/terms/b/berkshire-hathaway.asp) ([BRK-A](https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.a), [BRK-B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=brk.b)). The letters explain how Buffett implemented and expanded upon Graham’s principles of value investing. These letters are particularly helpful because Buffett acknowledges and reflects upon his mistakes. Taken together, Buffett’s letters to shareholders and the classical texts of Graham and Dodd provide a well-rounded introduction to the theoretical foundations and practical applications of value investing. ## 5. Keep Good Company One of the greatest advantages of being a student is the opportunity to connect with a diverse range of people on campus. In my experience, a network of peers with whom to discuss investing has been instrumental in developing a more nuanced investment decision-making process. The key is to find individuals who are both interested in discussing investing and willing to engage in constructive debate. Of course, this is easier said than done. I had to be open about my passion for investing to build this network. It took me until my third year of college to overcome my inhibitions and start an investing [website](http://vancouvervalueinvesting.net/) where I share my thoughts on investing. I was amazed to find that many people who I had never assumed would be interested in investing approached me with questions and feedback about my work. For the first time, I started building a network of peers through which to discuss [investment ideas](https://www.investopedia.com/terms/i/investmentideas.asp). The long-term value of such communities cannot be overstated. At the same time, it is important to keep in mind that people tend to emphasize their own investment successes while hiding or downplaying their mistakes. Therefore, it is wise to approach investment discussions with a healthy degree of skepticism. ## The Bottom Line Learning to invest during college is a challenge. Students who approach this challenge with a clear sense of purpose, a realistic investment strategy and a commitment to learning from the best can use their college years to lay a strong foundation for their investing future. Who knows? One day, students may be studying your investment philosophy.

I started researching investing at age 15 and began building an investment portfolio the year I entered college. During my college years, I learned how to manage my investments without compromising my studies. Drawing from this experience, I offer five tips to help student investors make the most of their college years and their investments. Key Takeaways Be aware of your motivation to invest before you begin. Knowing about investor psychology will prevent you from making poor investment decisions.Consider your schedule before coming up with an investment strategy.Use the skills you develop at school and apply them to your investment strategy.Connect with individuals who are interested in investing. 1. Ask Yourself Why You Want to Be an Investor Before delving into how to invest, it is important to consider why you want to invest. Contrary to what popular culture might have us believe, achieving long-term investment success requires patience, hard work, time, and psychological discipline. You are only in college for a few short years, and it takes serious effort to perform well academically. Ask yourself whether spending your limited time and energy on investing is the right decision for you. Weigh it against other major commitments you could pursue, such as completing a second major, learning a foreign language, working for a professor, completing internships, or being involved in athletic and community groups. Although it is possible to do many of these things in addition to your investment and college studies, there are limits to the commitments you can realistically maintain. Different investors have different motivations. I know of one investor whose goal is to finance the education of 1,000 children. Others are motivated by simpler goals such as the desire to build financial wealth for themselves and their family. My own long-term objective is to develop a philanthropic fund to support critical services in my home city of Vancouver. No matter what your objectives are, having a strong sense of why you want to be an investor will contribute to your long-term resilience and success. During times of financial crisis, it is tempting to sell your investments at unusually low prices to avoid further losses. Similarly, in times of consistently elevated returns, it can be hard to resist buying overpriced securities whose prices continue to rise. Giving serious consideration to why you want to invest will encourage you to remain diligently committed to your investment strategy during good times and bad. 2. Beware of Investor Psychology As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation of buying high and selling low—a recipe for financial disaster. This temptation is often compounded by social pressures. As investors, it is inevitable that we will experience self-doubt and fear that we are missing out on other investors' returns. However, this inclination must be resisted to avoid the temptation of seeking short-term gains. College can be a particularly challenging environment in this regard. During my college's orientation day for new students, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO—fear of missing out. Even then, it occurred to me that this was terrible advice for investors. One of the best ways to prevent yourself from making poor investment decisions is by educating yourself about the nature of investor psychology. Two of my favorite books on this subject are "Animal Spirits," written by Nobel-prize winning economists George A. Akerlof and Robert J. Shiller, and Jason Zweig’s "Your Money and Your Brain." Studying these books will help cement your understanding of the profound role that psychology plays both in your own decision-making process and in the financial markets as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions. While it isn't illegal to invest money from a student loan, you may be responsible to repay subsidized interest if the federal government finds out. 3. Adopt a Realistic Strategy Given Your Schedule Conducting a thorough investment analysis takes a significant amount of focus and time. As a student, it is unlikely that you will have the time to go in-depth in your research. It makes sense then, to adopt a strategy that you can realistically implement in your limited free time. Perhaps the simplest strategy consists of regularly investing in a portfolio of diversified investment funds such as index funds, exchange-traded funds (ETFs), or mutual funds. This approach may be advantageous for investors who are less interested in performing an in-depth analysis of individual investments and who would prefer to delegate the more laborious aspects of investing to a third party. On the other hand, investors who wish to have their funds actively managed will have to pay for the service in the form of higher management fees. Full-time students who want to manage their own portfolios will need a time-efficient investment strategy. I chose to build my portfolio primarily based on businesses priced below their liquidation value. I chose this strategy because it is more amenable to quantitative analysis and monitoring. For example, I created a standard investment checklist to screen investment candidates. The checklist determined the exact prices at which I would buy and sell the business’s shares. I then set automatic alerts using services such as IFTTT and Zignals to notify me when the shares reached their specified price thresholds. Through this strategy, I was able to gain real-world investment experience without compromising my studies. For students who want the experience of hands-on investing but do not have the funds, a third option is to invest using online simulators such as Investopedia’s Stock Simulator. Simulators are a great way for investors to test out new ideas without the risk of exposing real capital. 4. Invest in Your Knowledge If you lack the time or resources to invest during your college years, it is worth remembering that the best investment you can make is to develop your own knowledge. This principle holds true equally for those students who do have the time and resources to invest. Depending on your choice of major, you may find that your college studies contribute directly to your investment education. Others may need creative ways to find overlap between their education as investors and their college curriculum. My own chosen major—honors history, focusing on the history of science—has no direct relationship to investing. Nonetheless, I found that many of the skills I developed, such as primary research, writing, and critical thinking, have clear applications in investment research and analysis. Regardless of your chosen field of study, if you approach your investment education in a proactive manner, many industry professionals will be open to answering your questions and supporting you in your development as an investor. I strongly encourage all student investors to attend networking events and reach out to industry professionals. Another way to build your investing knowledge is to learn from the world’s greatest investors. I chose to base my knowledge on the value investment methodology developed by Warren Buffett's mentor, Benjamin Graham. I recommend Benjamin Graham’s "The Intelligent Investor." Another classic is "Security Analysis," which Graham co-wrote with David Dodd in 1934. To get a sense of how value investing has evolved since Graham’s time, I highly recommend studying the letters written by Warren Buffett to the shareholders of his holding company, Berkshire Hathaway (BRK-A, BRK-B). The letters explain how Buffett implemented and expanded upon Graham’s principles of value investing. These letters are particularly helpful because Buffett acknowledges and reflects upon his mistakes. Taken together, Buffett’s letters to shareholders and the classical texts of Graham and Dodd provide a well-rounded introduction to the theoretical foundations and practical applications of value investing. 5. Keep Good Company One of the greatest advantages of being a student is the opportunity to connect with a diverse range of people on campus. In my experience, a network of peers with whom to discuss investing has been instrumental in developing a more nuanced investment decision-making process. The key is to find individuals who are both interested in discussing investing and willing to engage in constructive debate. Of course, this is easier said than done. I had to be open about my passion for investing to build this network. It took me until my third year of college to overcome my inhibitions and start an investing website where I share my thoughts on investing. I was amazed to find that many people who I had never assumed would be interested in investing approached me with questions and feedback about my work. For the first time, I started building a network of peers through which to discuss investment ideas. The long-term value of such communities cannot be overstated. At the same time, it is important to keep in mind that people tend to emphasize their own investment successes while hiding or downplaying their mistakes. Therefore, it is wise to approach investment discussions with a healthy degree of skepticism. The Bottom Line Learning to invest during college is a challenge. Students who approach this challenge with a clear sense of purpose, a realistic investment strategy and a commitment to learning from the best can use their college years to lay a strong foundation for their investing future. Who knows? One day, students may be studying your investment philosophy.

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

Certificate of Deposit Index (CODI)

<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-the-certificate-of-deposit-index-codi"></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 the Certificate of Deposit Index (CODI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The certificate of deposit index (CODI), also known as the cost of deposit index, was the 12-month average of the most recently published dealer bid rates (yields) on nationally traded three-month certificates of deposit as reported in the H.15 Federal Reserve Statistical Release. The yields were annualized using a 360-day year. </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 CODI was published is published and made available to the public by 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 Board</a>. The index was calculated on or near the first Monday of each calendar month and is often used for setting adjustable-rate mortgages. </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"> On Dec. 5, 2013, the Federal Reserve announced the discontinuance of published rates for 1-, 3-, and 6-month CDs, which effectively ended the CODI index.<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_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 certificate of deposit index (CODI) was an official benchmark of 3-month CD rates in the U.S.</li><li>Published by the Federal Reserve, the CODI was used to reference various adjustable-rate loans such as ARM mortgages.</li><li>The CODI was discontinued in December 2013 after the Fed stopped publishing short-term CD rates.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-understanding-the-certificate-of-deposit-index"></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 the Certificate of Deposit Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Because the CODI index was a 12-month moving average, it was not as volatile as some other popular mortgage indexes such as the one-month <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor.asp">London Interbank Offered Rate</a> (LIBOR) index. It also tended to lag other mortgage indexes in the rate at which it adjusts when interest rates change. </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"> Some mortgages, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paymentoptionarm.asp">payment option ARMs</a>, offer the borrower a choice of indexes. This choice should be made with some analysis. The interest rate on an adjustable-rate mortgage is known as the fully indexed interest rate - it equals the index value plus the margin. While the index is variable, the margin is fixed for the life of the mortgage. When considering which index is most economical, don't forget about the margin. The lower an index is relative to another index, the higher the margin is likely to be. </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-arm-index-choices"></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"> ARM Index Choices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Some common <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm_index.asp">ARM indexes</a> include the prime lending rate, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cmtindex.asp">one-year constant maturity treasury</a> (CMT) value, the one-month, the Fed Funds Rate, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mtaindex.asp">MTA index</a>, which is a 12-month moving average of the one-year CMT index. To calculate your adjustable mortgage rate the formula is Index + Margin = Your Interest Rate. </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 index that an adjustable-rate mortgage is tied to is an important factor in the choice of a mortgage. For example, if a borrower believes that interest rates are going to rise in the future, the MTA index would be a more economical choice than the one-month LIBOR index because the moving average calculation of the MTA index creates a lag effect. </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 lender chooses which rate your mortgage is tied to, but you have a choice of lenders and by all means, should consider the rate that each lender uses. A few lenders even use their own cost of funds as an index, rather than using other indexes. It's wise to ask the lender where this rate is published and how it is calculated so you can compare its movement to other common indexes. </p></div>

## What Was the Certificate of Deposit Index (CODI)? The certificate of deposit index (CODI), also known as the cost of deposit index, was the 12-month average of the most recently published dealer bid rates (yields) on nationally traded three-month certificates of deposit as reported in the H.15 Federal Reserve Statistical Release. The yields were annualized using a 360-day year. The CODI was published is published and made available to the public by the [Federal Reserve Board](https://www.investopedia.com/terms/f/federalreservebank.asp). The index was calculated on or near the first Monday of each calendar month and is often used for setting adjustable-rate mortgages. On Dec. 5, 2013, the Federal Reserve announced the discontinuance of published rates for 1-, 3-, and 6-month CDs, which effectively ended the CODI index. ### Key Takeaways * The certificate of deposit index (CODI) was an official benchmark of 3-month CD rates in the U.S. * Published by the Federal Reserve, the CODI was used to reference various adjustable-rate loans such as ARM mortgages. * The CODI was discontinued in December 2013 after the Fed stopped publishing short-term CD rates. ## Understanding the Certificate of Deposit Index Because the CODI index was a 12-month moving average, it was not as volatile as some other popular mortgage indexes such as the one-month [London Interbank Offered Rate](https://www.investopedia.com/terms/l/libor.asp) (LIBOR) index. It also tended to lag other mortgage indexes in the rate at which it adjusts when interest rates change. Some mortgages, such as [payment option ARMs](https://www.investopedia.com/terms/p/paymentoptionarm.asp), offer the borrower a choice of indexes. This choice should be made with some analysis. The interest rate on an adjustable-rate mortgage is known as the fully indexed interest rate - it equals the index value plus the margin. While the index is variable, the margin is fixed for the life of the mortgage. When considering which index is most economical, don't forget about the margin. The lower an index is relative to another index, the higher the margin is likely to be. ## ARM Index Choices Some common [ARM indexes](https://www.investopedia.com/terms/a/arm_index.asp) include the prime lending rate, the [one-year constant maturity treasury](https://www.investopedia.com/terms/c/cmtindex.asp) (CMT) value, the one-month, the Fed Funds Rate, and the [MTA index](https://www.investopedia.com/terms/m/mtaindex.asp), which is a 12-month moving average of the one-year CMT index. To calculate your adjustable mortgage rate the formula is Index + Margin = Your Interest Rate. The index that an adjustable-rate mortgage is tied to is an important factor in the choice of a mortgage. For example, if a borrower believes that interest rates are going to rise in the future, the MTA index would be a more economical choice than the one-month LIBOR index because the moving average calculation of the MTA index creates a lag effect. The lender chooses which rate your mortgage is tied to, but you have a choice of lenders and by all means, should consider the rate that each lender uses. A few lenders even use their own cost of funds as an index, rather than using other indexes. It's wise to ask the lender where this rate is published and how it is calculated so you can compare its movement to other common indexes.

What Was the Certificate of Deposit Index (CODI)? The certificate of deposit index (CODI), also known as the cost of deposit index, was the 12-month average of the most recently published dealer bid rates (yields) on nationally traded three-month certificates of deposit as reported in the H.15 Federal Reserve Statistical Release. The yields were annualized using a 360-day year. The CODI was published is published and made available to the public by the Federal Reserve Board. The index was calculated on or near the first Monday of each calendar month and is often used for setting adjustable-rate mortgages. On Dec. 5, 2013, the Federal Reserve announced the discontinuance of published rates for 1-, 3-, and 6-month CDs, which effectively ended the CODI index. Key Takeaways The certificate of deposit index (CODI) was an official benchmark of 3-month CD rates in the U.S.Published by the Federal Reserve, the CODI was used to reference various adjustable-rate loans such as ARM mortgages.The CODI was discontinued in December 2013 after the Fed stopped publishing short-term CD rates. Understanding the Certificate of Deposit Index Because the CODI index was a 12-month moving average, it was not as volatile as some other popular mortgage indexes such as the one-month London Interbank Offered Rate (LIBOR) index. It also tended to lag other mortgage indexes in the rate at which it adjusts when interest rates change. Some mortgages, such as payment option ARMs, offer the borrower a choice of indexes. This choice should be made with some analysis. The interest rate on an adjustable-rate mortgage is known as the fully indexed interest rate - it equals the index value plus the margin. While the index is variable, the margin is fixed for the life of the mortgage. When considering which index is most economical, don't forget about the margin. The lower an index is relative to another index, the higher the margin is likely to be. ARM Index Choices Some common ARM indexes include the prime lending rate, the one-year constant maturity treasury (CMT) value, the one-month, the Fed Funds Rate, and the MTA index, which is a 12-month moving average of the one-year CMT index. To calculate your adjustable mortgage rate the formula is Index + Margin = Your Interest Rate. The index that an adjustable-rate mortgage is tied to is an important factor in the choice of a mortgage. For example, if a borrower believes that interest rates are going to rise in the future, the MTA index would be a more economical choice than the one-month LIBOR index because the moving average calculation of the MTA index creates a lag effect. The lender chooses which rate your mortgage is tied to, but you have a choice of lenders and by all means, should consider the rate that each lender uses. A few lenders even use their own cost of funds as an index, rather than using other indexes. It's wise to ask the lender where this rate is published and how it is calculated so you can compare its movement to other common indexes.

https://www.investopedia.com/ask/answers/032415/what-are-most-common-etfs-track-banking-sector.asp

What Common ETFs Track the Banking Sector?

<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"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund</a> (ETF) is a marketable security that tracks indexes, index funds, commodities or bonds, for example. Like mutual funds, ETFs are designed to reduce the risk for shareholders through the use of diversification. Index mutual funds and most ETFs are passively managed, seeking to match the fund's performance to a specific market index before fees and expenses.<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, in contrast to mutual funds, ETFs trade the same way as common stocks in stock exchanges. Unlike mutual funds, ETFs do not have the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value</a> (NAV) calculated at the end of each day, but ETFs are more transparent than mutual funds. Mutual funds typically disclose their holdings quarterly, while ETFs do so daily.<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-etfs-that-track-the-banking-sector"></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"> ETFs That Track the Banking Sector </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Some of the ETFs that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/030415/what-distinguishes-financial-services-sector-banks.asp">track the banking sector</a> are financial ETFs with varying degrees of exposure to banks, while others are pure-play bank ETFs. A number of these ETFs focus on the international financial services sector, while others concentrate on U.S. banking segments such as major banks, regional banks or community banks. </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"> Global Financial Sector ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Common ETFs in the global financial sector include KBW Bank ETF and iShares Global Financials ETF. </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"> As its name implies, KBW Bank ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=kbwb">KBWB</a>) is a pure-play ETF for the banking industry. Before expenses, it attempts to closely match the returns and characteristics of the KBW Bank Index, an index of geographically diverse companies representing national money center banks and regional banking institutions.<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"> Specifically, iShares Global Financials (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ixg">IXG</a>) seeks to track the investment results of an index made up of diversified global equities in the financial sector. This fund offers exposure to companies providing financial services to both commercial and retail customers, including banks, investment funds, and insurance firms.<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> <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"> U.S. Financial Services Sector ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Common ETFs for tracking U.S. financial services companies include iShares U.S. Financials ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=iyf">IYF</a>), Financial Select Sector SPDR, ProShares Ultra Financials (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=uyg">UYG</a>), and Vanguard Financials ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=vfh">VFH</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"> Financial Select Sector SPDR (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=xlf">XLF</a>) is home to 72 stocks. Holdings include major U.S. money center banks such as Wells Fargo, JPMorgan Chase, and Bank of America.<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_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Regional and Community Bank ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> For investors seeking to avoid investments in big banks, there are ETFs that specialize in U.S. regional or community banks. For example, the SPDR Regional Banking ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=kre">KRE</a>) follows the S&amp;P Regional Banks Select Industry Index.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The iShares U.S. Regional Banks ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=iat">IAT</a>) tracks the Dow Jones U.S. Select Regional Banks Index, giving investors exposure to around 35 stocks. This fund is concentrated on some of the big names in the regional banking industry, such as U.S. Bancorp, PNC and Truist.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The SPDR S&amp;P Bank ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=kbe">KBE</a>) is not a pure regional bank ETF, but the majority of its assets are regional banks, with smaller allocations to thrift and mortgage finance companies, diversified banks and other diversified financials.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> For its part, the First Trust NASDAQ ABA Community Bank Index (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=qaba">QABA</a>) holds positions in about 139 small banks.<span class="ql-inline-citation" data-cite="8"></span> Based on asset size, this ETF excludes the largest banks and thrifts. It also excludes companies with credit card or international specializations. </p></div>

An [exchange-traded fund](https://www.investopedia.com/terms/e/etf.asp) (ETF) is a marketable security that tracks indexes, index funds, commodities or bonds, for example. Like mutual funds, ETFs are designed to reduce the risk for shareholders through the use of diversification. Index mutual funds and most ETFs are passively managed, seeking to match the fund's performance to a specific market index before fees and expenses. However, in contrast to mutual funds, ETFs trade the same way as common stocks in stock exchanges. Unlike mutual funds, ETFs do not have the [net asset value](https://www.investopedia.com/terms/n/nav.asp) (NAV) calculated at the end of each day, but ETFs are more transparent than mutual funds. Mutual funds typically disclose their holdings quarterly, while ETFs do so daily. ## ETFs That Track the Banking Sector Some of the ETFs that [track the banking sector](https://www.investopedia.com/ask/answers/030415/what-distinguishes-financial-services-sector-banks.asp) are financial ETFs with varying degrees of exposure to banks, while others are pure-play bank ETFs. A number of these ETFs focus on the international financial services sector, while others concentrate on U.S. banking segments such as major banks, regional banks or community banks. ### Global Financial Sector ETFs Common ETFs in the global financial sector include KBW Bank ETF and iShares Global Financials ETF. As its name implies, KBW Bank ETF ([KBWB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=kbwb)) is a pure-play ETF for the banking industry. Before expenses, it attempts to closely match the returns and characteristics of the KBW Bank Index, an index of geographically diverse companies representing national money center banks and regional banking institutions. Specifically, iShares Global Financials ([IXG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ixg)) seeks to track the investment results of an index made up of diversified global equities in the financial sector. This fund offers exposure to companies providing financial services to both commercial and retail customers, including banks, investment funds, and insurance firms. ### U.S. Financial Services Sector ETFs Common ETFs for tracking U.S. financial services companies include iShares U.S. Financials ETF ([IYF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=iyf)), Financial Select Sector SPDR, ProShares Ultra Financials ([UYG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=uyg)), and Vanguard Financials ETF ([VFH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=vfh)). Financial Select Sector SPDR ([XLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=xlf)) is home to 72 stocks. Holdings include major U.S. money center banks such as Wells Fargo, JPMorgan Chase, and Bank of America. ### Regional and Community Bank ETFs For investors seeking to avoid investments in big banks, there are ETFs that specialize in U.S. regional or community banks. For example, the SPDR Regional Banking ETF ([KRE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=kre)) follows the S&P Regional Banks Select Industry Index. The iShares U.S. Regional Banks ETF ([IAT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=iat)) tracks the Dow Jones U.S. Select Regional Banks Index, giving investors exposure to around 35 stocks. This fund is concentrated on some of the big names in the regional banking industry, such as U.S. Bancorp, PNC and Truist. The SPDR S&P Bank ETF ([KBE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=kbe)) is not a pure regional bank ETF, but the majority of its assets are regional banks, with smaller allocations to thrift and mortgage finance companies, diversified banks and other diversified financials. For its part, the First Trust NASDAQ ABA Community Bank Index ([QABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=qaba)) holds positions in about 139 small banks. Based on asset size, this ETF excludes the largest banks and thrifts. It also excludes companies with credit card or international specializations.

An exchange-traded fund (ETF) is a marketable security that tracks indexes, index funds, commodities or bonds, for example. Like mutual funds, ETFs are designed to reduce the risk for shareholders through the use of diversification. Index mutual funds and most ETFs are passively managed, seeking to match the fund's performance to a specific market index before fees and expenses. However, in contrast to mutual funds, ETFs trade the same way as common stocks in stock exchanges. Unlike mutual funds, ETFs do not have the net asset value (NAV) calculated at the end of each day, but ETFs are more transparent than mutual funds. Mutual funds typically disclose their holdings quarterly, while ETFs do so daily. ETFs That Track the Banking Sector Some of the ETFs that track the banking sector are financial ETFs with varying degrees of exposure to banks, while others are pure-play bank ETFs. A number of these ETFs focus on the international financial services sector, while others concentrate on U.S. banking segments such as major banks, regional banks or community banks. Global Financial Sector ETFs Common ETFs in the global financial sector include KBW Bank ETF and iShares Global Financials ETF. As its name implies, KBW Bank ETF (KBWB) is a pure-play ETF for the banking industry. Before expenses, it attempts to closely match the returns and characteristics of the KBW Bank Index, an index of geographically diverse companies representing national money center banks and regional banking institutions. Specifically, iShares Global Financials (IXG) seeks to track the investment results of an index made up of diversified global equities in the financial sector. This fund offers exposure to companies providing financial services to both commercial and retail customers, including banks, investment funds, and insurance firms. U.S. Financial Services Sector ETFs Common ETFs for tracking U.S. financial services companies include iShares U.S. Financials ETF (IYF), Financial Select Sector SPDR, ProShares Ultra Financials (UYG), and Vanguard Financials ETF (VFH). Financial Select Sector SPDR (XLF) is home to 72 stocks. Holdings include major U.S. money center banks such as Wells Fargo, JPMorgan Chase, and Bank of America. Regional and Community Bank ETFs For investors seeking to avoid investments in big banks, there are ETFs that specialize in U.S. regional or community banks. For example, the SPDR Regional Banking ETF (KRE) follows the S&P Regional Banks Select Industry Index. The iShares U.S. Regional Banks ETF (IAT) tracks the Dow Jones U.S. Select Regional Banks Index, giving investors exposure to around 35 stocks. This fund is concentrated on some of the big names in the regional banking industry, such as U.S. Bancorp, PNC and Truist. The SPDR S&P Bank ETF (KBE) is not a pure regional bank ETF, but the majority of its assets are regional banks, with smaller allocations to thrift and mortgage finance companies, diversified banks and other diversified financials. For its part, the First Trust NASDAQ ABA Community Bank Index (QABA) holds positions in about 139 small banks. Based on asset size, this ETF excludes the largest banks and thrifts. It also excludes companies with credit card or international specializations.

https://www.investopedia.com/articles/forex/112315/how-buy-chinese-yuan.asp

How to Buy Chinese Yuan

<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 the Chinese economy becomes a more dominant player in international trade and the yuan continues to gain more acceptance, more and more investors are looking for ways to obtain exposure to the Chinese currency. The yuan may no longer be officially pegged to the dollar. However, its value is still carefully managed within a range.<span class="ql-inline-citation" data-cite="3"></span> The currency has been becoming more readily accessible to investors lately. Investors have several yuan investment options, including purchasing yuan directly and holding it in cash, investing in funds that hold the Chinese yuan, and buying yuan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contracts</a>. However, there are nuances to each investment. </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 the Chinese economy continues to expand, the yuan is gaining greater acceptance worldwide. </li><li>Investors can take positions in the yuan by opening a savings or deposit account with U.S. dollars, but the account is denominated in yuan.</li><li>Investors can also buy exchange traded funds (ETFs) designed to mirror the performance of the Chinese currency.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-case-for-investing-in-the-chinese-yuan"></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"> The Case for Investing in the Chinese Yuan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> In 2015 the People's Bank of China enacted a surprise historic devaluation of the yuan which spooked investors.<span class="ql-inline-citation" data-cite="4"></span> Since then, the central bank has become a bit more careful with how it manages the currency. However, the trend of decline value versus the dollar has generally continued. In 2015, the price of a dollar was around 6.20 yuan, and in 2024 more than 7.20 yuan are needed to buy a 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_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"> World's Second Largest Economy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> While the Chinese economy continues to grow, as of 2024 its growth rate is slowing. The company faces numerous economic challenges such as one of the world's worst demographic situations. Huge amounts of Chinese workers are reaching retirement age without young people to replace them. The country also faces challenges from high debt, a real estate crisis, slumping foreign investor confidence, and declining consumer confidence at home.<span class="ql-inline-citation" data-cite="6"></span> That said, China is still the world's second largest economy, and a major player on the world economic stage.<span class="ql-inline-citation" data-cite="7"></span> Its economy exhibits characteristics of both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergingmarketeconomy.asp">emerging market economy</a> and a developed one. Recently, the yuan is gaining substantially greater acceptance worldwide, due to the Chinese government seeking a large role in global economic affairs. China's commitment to attaining a more prominent position in the global financial economy is reflected in the establishment of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asian-infrastructure-investment-bank-aiib.asp">Asian Infrastructure Investment Bank</a> (AIIB) and the Contingent Reserve Arrangement, a sort of mini-IMF for the Asia-Pacific region. </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"> Currency Status </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Further bolstering the status of China, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/imf.asp">International Monetary Fund (IMF)</a> added the Chinese <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/061115/yuan-vs-rmb-understanding-difference.asp">renminbi</a> to its list of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reservecurrency.asp">reserve currencies</a> to be used, in part, for central bank transactions.<span class="ql-inline-citation" data-cite="1"></span> Renminbi and yuan are often used interchangeably as the name of China's currency. Technically, the name of the currency is renminbi and the unit of denomination is yuan. </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"> Other currencies that are considered reserve currencies include the U.S. dollar, 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>, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quid.asp">British pound</a>, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp">Japanese yen</a>. The elevation of the renminbi's status allows it to be used more frequently in global trade and international financial transactions. </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"> Capital Controls </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> However, the Chinese government still controls and closely manages the value of the yuan and has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_conrol.asp">capital controls</a> in place. These controls prevent Chinese citizens from moving money out of China, and also cause problems for the businesses of foreign companies and investors. Until China can freely float its currency and allow the free movement of capital investment in and out the country, it's unlikely that the yuan will replace the U.S. dollar as the world's reserve currency. Reserve currencies are used to price commodities, such as gold and crude oil, as well as facilitate global trade transactions in developing countries that have less stable currency regimes and financial systems. Nevertheless, it's fair to say that the Chinese currency is on the path to becoming a larger player in international transactions. </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-holding-cash-in-yuan"></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"> Holding Cash in Yuan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The Bank of China has branches in New York where individuals can open checking, money market, savings, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timedeposit.asp">certificate of deposit</a> accounts with U.S. dollars, but the accounts are denominated in yuan. There are additional locations in Chicago and Los Angeles, but they are only for corporate clients.<span class="ql-inline-citation" data-cite="8"></span> Account holders can withdraw in renminbi and in dollars. As long as they hold money in these accounts, investors benefit from any appreciation in value in the Chinese currency. </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"> EverBank (formerly TIAA Bank), through its WorldCurrency Access Deposit accounts, also offers the opportunity to establish a bank account for holding a variety of foreign currencies including Chinese yuan. The account requires a minimum $2,500 opening deposit. They are IRA-eligible, and a monthly maintenance fee may apply. Withdrawals can only be made in U.S. dollars. However, currency conversions are charged a spread of up to 1%, which is built into or added to the exchange rate conversion.<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> <span class="heading-toc" id="toc-investing-in-the-yuan-through-etfs-or-etns"></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"> Investing in the Yuan through ETFs or ETNs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Another way to invest in the yuan is through <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> designed to perform in accordance with the value of the Chinese currency. </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"> Unfortunately many ETFs and ETNs offering exposure to the Chinese yuan have been liquidated and delisted over the past few years. Options may still exist, but as of 2024 investors will have a harder time going down this route. </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-yuan-currency-futures-and-forex-trading"></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"> Yuan Currency Futures and Forex Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Investors wishing to maximize investment in the yuan through the use of <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leveraged</a> investments may consider currency futures or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">forex</a> market trading. Leveraged transactions use borrowed funds to enhance the gains or returns on an investment. However, just as leverage can magnify gains, it can also magnify losses. </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"> Yuan/renminbi currency futures are traded on the <a class="pseudoStyle" 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>. Futures options on the yuan are also available. Futures are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> since they derive their value from the underlying investment. Futures contracts can be used to speculate on currencies and commodities. However, futures have preset expiration dates and are standardized unlike forward contracts, which allow customized amounts and settlement dates. </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 limited number of forex brokers offer trading in the U.S. dollar-yuan currency pair (designated as USD/CNY). Since these types of investments are highly leveraged, they are only appropriate for investors who are willing to accept the higher level of risk that accompanies the substantially higher level of potential return. </p></div>

As the Chinese economy becomes a more dominant player in international trade and the yuan continues to gain more acceptance, more and more investors are looking for ways to obtain exposure to the Chinese currency. The yuan may no longer be officially pegged to the dollar. However, its value is still carefully managed within a range. The currency has been becoming more readily accessible to investors lately. Investors have several yuan investment options, including purchasing yuan directly and holding it in cash, investing in funds that hold the Chinese yuan, and buying yuan [futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp). However, there are nuances to each investment. ### Key Takeaways * As the Chinese economy continues to expand, the yuan is gaining greater acceptance worldwide. * Investors can take positions in the yuan by opening a savings or deposit account with U.S. dollars, but the account is denominated in yuan. * Investors can also buy exchange traded funds (ETFs) designed to mirror the performance of the Chinese currency. ## The Case for Investing in the Chinese Yuan In 2015 the People's Bank of China enacted a surprise historic devaluation of the yuan which spooked investors. Since then, the central bank has become a bit more careful with how it manages the currency. However, the trend of decline value versus the dollar has generally continued. In 2015, the price of a dollar was around 6.20 yuan, and in 2024 more than 7.20 yuan are needed to buy a dollar. ### World's Second Largest Economy While the Chinese economy continues to grow, as of 2024 its growth rate is slowing. The company faces numerous economic challenges such as one of the world's worst demographic situations. Huge amounts of Chinese workers are reaching retirement age without young people to replace them. The country also faces challenges from high debt, a real estate crisis, slumping foreign investor confidence, and declining consumer confidence at home. That said, China is still the world's second largest economy, and a major player on the world economic stage. Its economy exhibits characteristics of both [emerging market economy](https://www.investopedia.com/terms/e/emergingmarketeconomy.asp) and a developed one. Recently, the yuan is gaining substantially greater acceptance worldwide, due to the Chinese government seeking a large role in global economic affairs. China's commitment to attaining a more prominent position in the global financial economy is reflected in the establishment of the [Asian Infrastructure Investment Bank](https://www.investopedia.com/terms/a/asian-infrastructure-investment-bank-aiib.asp) (AIIB) and the Contingent Reserve Arrangement, a sort of mini-IMF for the Asia-Pacific region. ### Currency Status Further bolstering the status of China, the [International Monetary Fund (IMF)](https://www.investopedia.com/terms/i/imf.asp) added the Chinese [renminbi](https://www.investopedia.com/articles/forex/061115/yuan-vs-rmb-understanding-difference.asp) to its list of [reserve currencies](https://www.investopedia.com/terms/r/reservecurrency.asp) to be used, in part, for central bank transactions. Renminbi and yuan are often used interchangeably as the name of China's currency. Technically, the name of the currency is renminbi and the unit of denomination is yuan. Other currencies that are considered reserve currencies include the U.S. dollar, the [euro](https://www.investopedia.com/terms/e/euro.asp), the [British pound](https://www.investopedia.com/terms/q/quid.asp), and the [Japanese yen](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp). The elevation of the renminbi's status allows it to be used more frequently in global trade and international financial transactions. ### Capital Controls However, the Chinese government still controls and closely manages the value of the yuan and has [capital controls](https://www.investopedia.com/terms/c/capital_conrol.asp) in place. These controls prevent Chinese citizens from moving money out of China, and also cause problems for the businesses of foreign companies and investors. Until China can freely float its currency and allow the free movement of capital investment in and out the country, it's unlikely that the yuan will replace the U.S. dollar as the world's reserve currency. Reserve currencies are used to price commodities, such as gold and crude oil, as well as facilitate global trade transactions in developing countries that have less stable currency regimes and financial systems. Nevertheless, it's fair to say that the Chinese currency is on the path to becoming a larger player in international transactions. ## Holding Cash in Yuan The Bank of China has branches in New York where individuals can open checking, money market, savings, or [certificate of deposit](https://www.investopedia.com/terms/t/timedeposit.asp) accounts with U.S. dollars, but the accounts are denominated in yuan. There are additional locations in Chicago and Los Angeles, but they are only for corporate clients. Account holders can withdraw in renminbi and in dollars. As long as they hold money in these accounts, investors benefit from any appreciation in value in the Chinese currency. EverBank (formerly TIAA Bank), through its WorldCurrency Access Deposit accounts, also offers the opportunity to establish a bank account for holding a variety of foreign currencies including Chinese yuan. The account requires a minimum $2,500 opening deposit. They are IRA-eligible, and a monthly maintenance fee may apply. Withdrawals can only be made in U.S. dollars. However, currency conversions are charged a spread of up to 1%, which is built into or added to the exchange rate conversion. ## Investing in the Yuan through ETFs or ETNs Another way to invest in the yuan is through [exchange traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) designed to perform in accordance with the value of the Chinese currency. Unfortunately many ETFs and ETNs offering exposure to the Chinese yuan have been liquidated and delisted over the past few years. Options may still exist, but as of 2024 investors will have a harder time going down this route. ## Yuan Currency Futures and Forex Trading Investors wishing to maximize investment in the yuan through the use of [leveraged](https://www.investopedia.com/terms/l/leverage.asp) investments may consider currency futures or [forex](https://www.investopedia.com/terms/f/forex.asp) market trading. Leveraged transactions use borrowed funds to enhance the gains or returns on an investment. However, just as leverage can magnify gains, it can also magnify losses. Yuan/renminbi currency futures are traded on the [Chicago Mercantile Exchange (CME)](https://www.investopedia.com/terms/c/cme.asp). Futures options on the yuan are also available. Futures are [derivatives](https://www.investopedia.com/terms/d/derivative.asp) since they derive their value from the underlying investment. Futures contracts can be used to speculate on currencies and commodities. However, futures have preset expiration dates and are standardized unlike forward contracts, which allow customized amounts and settlement dates. A limited number of forex brokers offer trading in the U.S. dollar-yuan currency pair (designated as USD/CNY). Since these types of investments are highly leveraged, they are only appropriate for investors who are willing to accept the higher level of risk that accompanies the substantially higher level of potential return.

As the Chinese economy becomes a more dominant player in international trade and the yuan continues to gain more acceptance, more and more investors are looking for ways to obtain exposure to the Chinese currency. The yuan may no longer be officially pegged to the dollar. However, its value is still carefully managed within a range. The currency has been becoming more readily accessible to investors lately. Investors have several yuan investment options, including purchasing yuan directly and holding it in cash, investing in funds that hold the Chinese yuan, and buying yuan futures contracts. However, there are nuances to each investment. Key Takeaways As the Chinese economy continues to expand, the yuan is gaining greater acceptance worldwide. Investors can take positions in the yuan by opening a savings or deposit account with U.S. dollars, but the account is denominated in yuan.Investors can also buy exchange traded funds (ETFs) designed to mirror the performance of the Chinese currency. The Case for Investing in the Chinese Yuan In 2015 the People's Bank of China enacted a surprise historic devaluation of the yuan which spooked investors. Since then, the central bank has become a bit more careful with how it manages the currency. However, the trend of decline value versus the dollar has generally continued. In 2015, the price of a dollar was around 6.20 yuan, and in 2024 more than 7.20 yuan are needed to buy a dollar. World's Second Largest Economy While the Chinese economy continues to grow, as of 2024 its growth rate is slowing. The company faces numerous economic challenges such as one of the world's worst demographic situations. Huge amounts of Chinese workers are reaching retirement age without young people to replace them. The country also faces challenges from high debt, a real estate crisis, slumping foreign investor confidence, and declining consumer confidence at home. That said, China is still the world's second largest economy, and a major player on the world economic stage. Its economy exhibits characteristics of both emerging market economy and a developed one. Recently, the yuan is gaining substantially greater acceptance worldwide, due to the Chinese government seeking a large role in global economic affairs. China's commitment to attaining a more prominent position in the global financial economy is reflected in the establishment of the Asian Infrastructure Investment Bank (AIIB) and the Contingent Reserve Arrangement, a sort of mini-IMF for the Asia-Pacific region. Currency Status Further bolstering the status of China, the International Monetary Fund (IMF) added the Chinese renminbi to its list of reserve currencies to be used, in part, for central bank transactions. Renminbi and yuan are often used interchangeably as the name of China's currency. Technically, the name of the currency is renminbi and the unit of denomination is yuan. Other currencies that are considered reserve currencies include the U.S. dollar, the euro, the British pound, and the Japanese yen. The elevation of the renminbi's status allows it to be used more frequently in global trade and international financial transactions. Capital Controls However, the Chinese government still controls and closely manages the value of the yuan and has capital controls in place. These controls prevent Chinese citizens from moving money out of China, and also cause problems for the businesses of foreign companies and investors. Until China can freely float its currency and allow the free movement of capital investment in and out the country, it's unlikely that the yuan will replace the U.S. dollar as the world's reserve currency. Reserve currencies are used to price commodities, such as gold and crude oil, as well as facilitate global trade transactions in developing countries that have less stable currency regimes and financial systems. Nevertheless, it's fair to say that the Chinese currency is on the path to becoming a larger player in international transactions. Holding Cash in Yuan The Bank of China has branches in New York where individuals can open checking, money market, savings, or certificate of deposit accounts with U.S. dollars, but the accounts are denominated in yuan. There are additional locations in Chicago and Los Angeles, but they are only for corporate clients. Account holders can withdraw in renminbi and in dollars. As long as they hold money in these accounts, investors benefit from any appreciation in value in the Chinese currency. EverBank (formerly TIAA Bank), through its WorldCurrency Access Deposit accounts, also offers the opportunity to establish a bank account for holding a variety of foreign currencies including Chinese yuan. The account requires a minimum $2,500 opening deposit. They are IRA-eligible, and a monthly maintenance fee may apply. Withdrawals can only be made in U.S. dollars. However, currency conversions are charged a spread of up to 1%, which is built into or added to the exchange rate conversion. Investing in the Yuan through ETFs or ETNs Another way to invest in the yuan is through exchange traded funds (ETFs) designed to perform in accordance with the value of the Chinese currency. Unfortunately many ETFs and ETNs offering exposure to the Chinese yuan have been liquidated and delisted over the past few years. Options may still exist, but as of 2024 investors will have a harder time going down this route. Yuan Currency Futures and Forex Trading Investors wishing to maximize investment in the yuan through the use of leveraged investments may consider currency futures or forex market trading. Leveraged transactions use borrowed funds to enhance the gains or returns on an investment. However, just as leverage can magnify gains, it can also magnify losses. Yuan/renminbi currency futures are traded on the Chicago Mercantile Exchange (CME). Futures options on the yuan are also available. Futures are derivatives since they derive their value from the underlying investment. Futures contracts can be used to speculate on currencies and commodities. However, futures have preset expiration dates and are standardized unlike forward contracts, which allow customized amounts and settlement dates. A limited number of forex brokers offer trading in the U.S. dollar-yuan currency pair (designated as USD/CNY). Since these types of investments are highly leveraged, they are only appropriate for investors who are willing to accept the higher level of risk that accompanies the substantially higher level of potential return.

https://www.investopedia.com/ether-rallies-as-market-gets-optimistic-about-ether-etf-approval-8651614

Ether Rallies as Market Gets Optimistic About Ether ETF Approval

<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 price of ether rose more than 20% on Tuesday, before giving back some of the gains.</li><li>The price jump appears to be related to improved odds of a spot ether exchange-traded fund (ETF).</li><li>Crypto markets experienced renewed optimism for spot ether ETF approval after the SEC asked exchanges to update related filings.</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 price of ether (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD">ETH</a>), which is the native cryptocurrency of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a> network, rallied as much as 20% early Tuesday before giving up some of the gains amid renewed hope for the approval of spot ether <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/etfs-4427784">exchange-traded funds (ETFs)</a> by the U.S. Securities and Exchange Commission (SEC). </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-whats-behind-this-renewed-optimism"></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's Behind This Renewed Optimism? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> After the success of bitcoin (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD">BTC</a>) spot exchange-traded funds that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-start-trading-today-heres-what-you-need-to-know-8425024">began trading in January</a>, cryptocurrency markets wished for a similar story for ether ETFs, only to get their hopes dashed when the U.S. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104">regulator raised concerns</a> about ether's status as a security and revisited its prior apprehensions about staking. </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"> But it now looks as if the SEC is moving the application process along.<br/> </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 SEC recently requested that various exchanges update the 19b-4 filings related to the spot ether ETFs on an accelerated basis. <em>CoinDesk</em> reported.<span class="ql-inline-citation" data-cite="6"></span> That step was undertaken during the bitcoin ETF application approval process as well. </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"> Another important development was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fidelity-review-4587897">Fidelity</a> amending its ether ETF application to remove staking rewards.<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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Ether holders can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-stake-ethereum-7482623">stake or lock their tokens</a> to participate in the validation process of Ethereum network transactions and can earn rewards for doing so. </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 SEC has a problem with staking as it considers it a securities offering, and has sued crypto exchanges such as <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/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669">Coinbase</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/kraken-to-pay-30-million-shut-down-staking-business-in-sec-settlement-7107971">Kraken</a>, in the past for offering it as a service. Fidelity's removing staking from its application is viewed as a move to put the regulator at ease with the ether ETF product. </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"> And that has fueled optimism among investors and analysts.<br/> </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"> On Monday, Bloomberg analyst Eric Balchunas announced an increase in his firm's odds of the 19b-4 filings approval to 75%, which was previously set at 25%.<span class="ql-inline-citation" data-cite="1"></span> On the prediction market Polymarket, the odds of a spot ether ETF approval rose to about 60% on Tuesday, from 10% just a day prior.<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_21-0"></div> <span class="heading-toc" id="toc-when-will-there-be-a-final-decision-on-ether-etfs"></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"> When Will There Be a Final Decision on Ether ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Short answer: perhaps not anytime soon.<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"> According to Bloomberg analyst James Seyffart, the SEC has a Thursday deadline to decide on VanEck's 19b-4 filing.<span class="ql-inline-citation" data-cite="4"></span> After that, it still would take weeks or months for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec-form-s-1.asp">S-1 initial registration</a> filings to be approved and the first spot ether ETF to hit the market. </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"> But some progress is better than none for those awaiting the first spot ether ETF. And for some, the fine print is key. </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"> Removal of staking from the application was expected, according to Van Buren Capital General Partner Scott Johnsson, but the "bigger signal is that there's no changes to the commodity grantor trust structure and disclosures. All signs point to SEC laying down its arguments to ETH as security," he posted on X early Tuesday.<span class="ql-inline-citation" data-cite="5"></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 price of ether rose more than 20% on Tuesday, before giving back some of the gains. * The price jump appears to be related to improved odds of a spot ether exchange-traded fund (ETF). * Crypto markets experienced renewed optimism for spot ether ETF approval after the SEC asked exchanges to update related filings. The price of ether ([ETH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD)), which is the native cryptocurrency of the [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp) network, rallied as much as 20% early Tuesday before giving up some of the gains amid renewed hope for the approval of spot ether [exchange-traded funds (ETFs)](https://www.investopedia.com/etfs-4427784) by the U.S. Securities and Exchange Commission (SEC). ## What's Behind This Renewed Optimism? After the success of bitcoin ([BTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD)) spot exchange-traded funds that [began trading in January](https://www.investopedia.com/spot-bitcoin-etfs-start-trading-today-heres-what-you-need-to-know-8425024), cryptocurrency markets wished for a similar story for ether ETFs, only to get their hopes dashed when the U.S. [regulator raised concerns](https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104) about ether's status as a security and revisited its prior apprehensions about staking. But it now looks as if the SEC is moving the application process along. The SEC recently requested that various exchanges update the 19b-4 filings related to the spot ether ETFs on an accelerated basis. *CoinDesk* reported. That step was undertaken during the bitcoin ETF application approval process as well. Another important development was [Fidelity](https://www.investopedia.com/fidelity-review-4587897) amending its ether ETF application to remove staking rewards. Ether holders can [stake or lock their tokens](https://www.investopedia.com/how-to-stake-ethereum-7482623) to participate in the validation process of Ethereum network transactions and can earn rewards for doing so. The SEC has a problem with staking as it considers it a securities offering, and has sued crypto exchanges such as [Binance](https://www.investopedia.com/sec-files-13-charges-against-binance-and-founder-changpeng-zhao-7508246), [Coinbase](https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669), and [Kraken](https://www.investopedia.com/kraken-to-pay-30-million-shut-down-staking-business-in-sec-settlement-7107971), in the past for offering it as a service. Fidelity's removing staking from its application is viewed as a move to put the regulator at ease with the ether ETF product. And that has fueled optimism among investors and analysts. On Monday, Bloomberg analyst Eric Balchunas announced an increase in his firm's odds of the 19b-4 filings approval to 75%, which was previously set at 25%. On the prediction market Polymarket, the odds of a spot ether ETF approval rose to about 60% on Tuesday, from 10% just a day prior. ## When Will There Be a Final Decision on Ether ETFs? Short answer: perhaps not anytime soon. According to Bloomberg analyst James Seyffart, the SEC has a Thursday deadline to decide on VanEck's 19b-4 filing. After that, it still would take weeks or months for [S-1 initial registration](https://www.investopedia.com/terms/s/sec-form-s-1.asp) filings to be approved and the first spot ether ETF to hit the market. But some progress is better than none for those awaiting the first spot ether ETF. And for some, the fine print is key. Removal of staking from the application was expected, according to Van Buren Capital General Partner Scott Johnsson, but the "bigger signal is that there's no changes to the commodity grantor trust structure and disclosures. All signs point to SEC laying down its arguments to ETH as security," he posted on X early Tuesday. Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Key Takeaways The price of ether rose more than 20% on Tuesday, before giving back some of the gains.The price jump appears to be related to improved odds of a spot ether exchange-traded fund (ETF).Crypto markets experienced renewed optimism for spot ether ETF approval after the SEC asked exchanges to update related filings. The price of ether (ETH), which is the native cryptocurrency of the Ethereum network, rallied as much as 20% early Tuesday before giving up some of the gains amid renewed hope for the approval of spot ether exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC). What's Behind This Renewed Optimism? After the success of bitcoin (BTC) spot exchange-traded funds that began trading in January, cryptocurrency markets wished for a similar story for ether ETFs, only to get their hopes dashed when the U.S. regulator raised concerns about ether's status as a security and revisited its prior apprehensions about staking. But it now looks as if the SEC is moving the application process along. The SEC recently requested that various exchanges update the 19b-4 filings related to the spot ether ETFs on an accelerated basis. CoinDesk reported. That step was undertaken during the bitcoin ETF application approval process as well. Another important development was Fidelity amending its ether ETF application to remove staking rewards. Ether holders can stake or lock their tokens to participate in the validation process of Ethereum network transactions and can earn rewards for doing so. The SEC has a problem with staking as it considers it a securities offering, and has sued crypto exchanges such as Binance, Coinbase, and Kraken, in the past for offering it as a service. Fidelity's removing staking from its application is viewed as a move to put the regulator at ease with the ether ETF product. And that has fueled optimism among investors and analysts. On Monday, Bloomberg analyst Eric Balchunas announced an increase in his firm's odds of the 19b-4 filings approval to 75%, which was previously set at 25%. On the prediction market Polymarket, the odds of a spot ether ETF approval rose to about 60% on Tuesday, from 10% just a day prior. When Will There Be a Final Decision on Ether ETFs? Short answer: perhaps not anytime soon. According to Bloomberg analyst James Seyffart, the SEC has a Thursday deadline to decide on VanEck's 19b-4 filing. After that, it still would take weeks or months for S-1 initial registration filings to be approved and the first spot ether ETF to hit the market. But some progress is better than none for those awaiting the first spot ether ETF. And for some, the fine print is key. Removal of staking from the application was expected, according to Van Buren Capital General Partner Scott Johnsson, but the "bigger signal is that there's no changes to the commodity grantor trust structure and disclosures. All signs point to SEC laying down its arguments to ETH as security," he posted on X early Tuesday. Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

https://www.investopedia.com/tech-stocks-on-the-move-today-reddit-robinhood-and-more-8650156

Tech Stocks on the Move Today: Reddit, Robinhood, and More

<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"> <br/>The S&amp;P 500 Information Technology Sector index was down 0.3% at 11:45 a.m. ET Friday, while the broader S&amp;P 500 and the tech-heavy Nasdaq were flat. </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"> Reddit (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT">RDDT</a>) shares soared as the social networking site struck a deal with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI</a>) platform provider OpenAI. Doximity (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DOCS">DOCS</a>) shares surged after the network for medical professionals posted better-than-expected results and announced a <a class="pseudoStyle" data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/121415/stock-buybacks-good-thing-or-not.asp">stock buyback</a>. Robinhood Markets (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HOOD">HOOD</a>) shares took off on a double upgrade from Bank of America. </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-reddit-openai-form-partnership-to-bring-reddit-content-to-chatgpt"></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"> Reddit, OpenAI Form Partnership to Bring Reddit Content to ChatGPT </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <br/>Reddit shares were up 13% following the announcement that the company and AI giant OpenAI <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reddit-stock-soars-after-company-inks-partnership-with-chatgpt-owner-openai-8649996">struck an agreement</a> to bring Reddit’s content to OpenAI’s chatbot ChatGPT and new products. The arrangement also allows Reddit to incorporate new AI-powered features. In addition, OpenAI will become an advertising partner with Reddit.  </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-doximity-reports-better-than-expected-results-announces-500m-buyback"></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"> Doximity Reports Better-Than-Expected Results, Announces $500M Buyback </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <br/>Doximity shares jumped 17% as the medical professionals networking service reported 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 $0.25, with revenue up 6% year-over-year to $118.1 million.<span class="ql-inline-citation" data-cite="1"></span> Both exceeded estimates. Doximity also said its board approved a $500 million share repurchase program with no expiration date.  </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-robinhood-markets-gets-bofa-double-upgrade-and-price-target-hike"></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"> Robinhood Markets Gets BofA Double Upgrade and Price-Target Hike </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <br/>Robinhood Markets shares climbed 12% after Bank of America double upgraded the stock to "buy" from "underperform." In addition, the analysts increased the price target to $24 from $14. BofA noted it now views the online brokerage opposite of how it felt at its 2021 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a> because of rising retail engagement and accelerating organic growth, positive operating leverage after cost cuts, and attractive valuation. </p></div>

The S&P 500 Information Technology Sector index was down 0.3% at 11:45 a.m. ET Friday, while the broader S&P 500 and the tech-heavy Nasdaq were flat. Reddit ([RDDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT)) shares soared as the social networking site struck a deal with [artificial intelligence (AI](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp)) platform provider OpenAI. Doximity ([DOCS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DOCS)) shares surged after the network for medical professionals posted better-than-expected results and announced a [stock buyback](https://www.investopedia.com/articles/financial-advisors/121415/stock-buybacks-good-thing-or-not.asp). Robinhood Markets ([HOOD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HOOD)) shares took off on a double upgrade from Bank of America. ## Reddit, OpenAI Form Partnership to Bring Reddit Content to ChatGPT Reddit shares were up 13% following the announcement that the company and AI giant OpenAI [struck an agreement](https://www.investopedia.com/reddit-stock-soars-after-company-inks-partnership-with-chatgpt-owner-openai-8649996) to bring Reddit’s content to OpenAI’s chatbot ChatGPT and new products. The arrangement also allows Reddit to incorporate new AI-powered features. In addition, OpenAI will become an advertising partner with Reddit.  ## Doximity Reports Better-Than-Expected Results, Announces $500M Buyback Doximity shares jumped 17% as the medical professionals networking service reported adjusted [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of $0.25, with revenue up 6% year-over-year to $118.1 million. Both exceeded estimates. Doximity also said its board approved a $500 million share repurchase program with no expiration date.  ## Robinhood Markets Gets BofA Double Upgrade and Price-Target Hike Robinhood Markets shares climbed 12% after Bank of America double upgraded the stock to "buy" from "underperform." In addition, the analysts increased the price target to $24 from $14. BofA noted it now views the online brokerage opposite of how it felt at its 2021 [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) because of rising retail engagement and accelerating organic growth, positive operating leverage after cost cuts, and attractive valuation.

The S&P 500 Information Technology Sector index was down 0.3% at 11:45 a.m. ET Friday, while the broader S&P 500 and the tech-heavy Nasdaq were flat. Reddit (RDDT) shares soared as the social networking site struck a deal with artificial intelligence (AI) platform provider OpenAI. Doximity (DOCS) shares surged after the network for medical professionals posted better-than-expected results and announced a stock buyback. Robinhood Markets (HOOD) shares took off on a double upgrade from Bank of America. Reddit, OpenAI Form Partnership to Bring Reddit Content to ChatGPT Reddit shares were up 13% following the announcement that the company and AI giant OpenAI struck an agreement to bring Reddit’s content to OpenAI’s chatbot ChatGPT and new products. The arrangement also allows Reddit to incorporate new AI-powered features. In addition, OpenAI will become an advertising partner with Reddit.  Doximity Reports Better-Than-Expected Results, Announces $500M Buyback Doximity shares jumped 17% as the medical professionals networking service reported adjusted earnings per share (EPS) of $0.25, with revenue up 6% year-over-year to $118.1 million. Both exceeded estimates. Doximity also said its board approved a $500 million share repurchase program with no expiration date.  Robinhood Markets Gets BofA Double Upgrade and Price-Target Hike Robinhood Markets shares climbed 12% after Bank of America double upgraded the stock to "buy" from "underperform." In addition, the analysts increased the price target to $24 from $14. BofA noted it now views the online brokerage opposite of how it felt at its 2021 initial public offering (IPO) because of rising retail engagement and accelerating organic growth, positive operating leverage after cost cuts, and attractive valuation.

https://www.investopedia.com/feds-bank-rules-7372753

Bank Regulators Call For New Rules In Wake of Silicon Valley Bank Failure

<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"> Federal banking regulators told lawmakers for a second day that the industry needs stricter rules, such as forcing them to hold long-term debt, to guard against a repeat of this month's chaos.<br/><br/>“We need to move forward with our work to improve the resilience of the banking system,” Michael Barr, vice chair for supervision of the Federal Reserve, told the House Financial Services Committee on Wednesday. Mirroring comments day earlier to senators, Barr also suggested better<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stresstesting.asp"> stress-testing</a>, changes to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity-coverage-ratio.asp">liquidity rules</a> and implementation of the previously announced Basel III “endgame” reforms.<span class="ql-inline-citation" data-cite="1"></span><br/><br/>Republican lawmakers pushed back, saying more regulation would be costly and unneeded, and blaming the crisis on lax Fed regulators who failed to enforce existing rules on Silicon Valley Bank.<br/><br/>This week's testimony sets the stage for a debate in Congress over what, if anything, to change to prevent banks from unravelling so suddenly that the government was forced into a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-emergency-bank-measures-7254315">drastic response to backstop the banking system</a>. <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>The Fed is set to release a report on Silicon Valley Bank's failure and provide more detailed proposals on May 1.<span class="ql-inline-citation" data-cite="3"></span><br/><br/>Federal Deposit Insurance Corp. Chairman Martin Gruenberg told senators on Tuesday that regulation of banks that have more than $100 million of assets deserves “serious attention,” especially when it comes to capital requirements, liquidity and interest rate risk. He said the FDIC was reviewing the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">deposit insurance system</a> and would submit a report on May 1.<span class="ql-inline-citation" data-cite="4"></span><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"> While the FDIC insures deposits of more than $250,000, shortcomings came to light in SVB's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676">failure</a>, where more than 90% of depositors had banked more than that.  </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"> Republicans kept up their criticism on Wednesday.<br><br>“These reforms will result in additional costs on consumers, on businesses, and investors,” said Missouri Congresswoman Ann Wagner. “Examiners and your supervisors were asleep at the wheel." </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>

Federal banking regulators told lawmakers for a second day that the industry needs stricter rules, such as forcing them to hold long-term debt, to guard against a repeat of this month's chaos. “We need to move forward with our work to improve the resilience of the banking system,” Michael Barr, vice chair for supervision of the Federal Reserve, told the House Financial Services Committee on Wednesday. Mirroring comments day earlier to senators, Barr also suggested better [stress-testing](https://www.investopedia.com/terms/s/stresstesting.asp), changes to [liquidity rules](https://www.investopedia.com/terms/l/liquidity-coverage-ratio.asp) and implementation of the previously announced Basel III “endgame” reforms. Republican lawmakers pushed back, saying more regulation would be costly and unneeded, and blaming the crisis on lax Fed regulators who failed to enforce existing rules on Silicon Valley Bank. This week's testimony sets the stage for a debate in Congress over what, if anything, to change to prevent banks from unravelling so suddenly that the government was forced into a [drastic response to backstop the banking system](https://www.investopedia.com/us-emergency-bank-measures-7254315). The Fed is set to release a report on Silicon Valley Bank's failure and provide more detailed proposals on May 1. Federal Deposit Insurance Corp. Chairman Martin Gruenberg told senators on Tuesday that regulation of banks that have more than $100 million of assets deserves “serious attention,” especially when it comes to capital requirements, liquidity and interest rate risk. He said the FDIC was reviewing the [deposit insurance system](https://www.investopedia.com/terms/f/fdic-insured-account.asp) and would submit a report on May 1. While the FDIC insures deposits of more than $250,000, shortcomings came to light in SVB's [failure](https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676), where more than 90% of depositors had banked more than that.  Republicans kept up their criticism on Wednesday. “These reforms will result in additional costs on consumers, on businesses, and investors,” said Missouri Congresswoman Ann Wagner. “Examiners and your supervisors were asleep at the wheel." Do you have a news tip for Investopedia reporters? Please email us at [tips@investopedia.com](mailto:tips@investopedia.com)

Federal banking regulators told lawmakers for a second day that the industry needs stricter rules, such as forcing them to hold long-term debt, to guard against a repeat of this month's chaos.“We need to move forward with our work to improve the resilience of the banking system,” Michael Barr, vice chair for supervision of the Federal Reserve, told the House Financial Services Committee on Wednesday. Mirroring comments day earlier to senators, Barr also suggested better stress-testing, changes to liquidity rules and implementation of the previously announced Basel III “endgame” reforms.Republican lawmakers pushed back, saying more regulation would be costly and unneeded, and blaming the crisis on lax Fed regulators who failed to enforce existing rules on Silicon Valley Bank.This week's testimony sets the stage for a debate in Congress over what, if anything, to change to prevent banks from unravelling so suddenly that the government was forced into a drastic response to backstop the banking system. The Fed is set to release a report on Silicon Valley Bank's failure and provide more detailed proposals on May 1.Federal Deposit Insurance Corp. Chairman Martin Gruenberg told senators on Tuesday that regulation of banks that have more than $100 million of assets deserves “serious attention,” especially when it comes to capital requirements, liquidity and interest rate risk. He said the FDIC was reviewing the deposit insurance system and would submit a report on May 1. While the FDIC insures deposits of more than $250,000, shortcomings came to light in SVB's failure, where more than 90% of depositors had banked more than that.  Republicans kept up their criticism on Wednesday.“These reforms will result in additional costs on consumers, on businesses, and investors,” said Missouri Congresswoman Ann Wagner. “Examiners and your supervisors were asleep at the wheel." Do you have a news tip for Investopedia reporters? Please email us at tips@investopedia.com

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

Buydown: Definition, Types, Examples, and Pros & 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-a-buydown"></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 Buydown? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A buydown is a mortgage financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> or possibly its entire life.<span class="ql-inline-citation" data-cite="3"></span> A 2-1 buydown, for example, is a specific type of mortgage buydown that allows homebuyers to save on their interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well. </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 buydown allows homebuyers to obtain a lower interest rate when taking out a mortgage loan.</li><li>Buydowns can save homeowners money on interest over the life of the loan.</li><li>A buydown can involve purchasing discount points against the mortgage loan, which may require payment of an up-front fee.</li><li>Whether it makes sense to choose a buydown when buying a home can depend on the interest rate for which you qualify and how long you plan to remain in the home.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-buydowns"></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 Buydowns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Buydowns are easy to understand if you think of them as a mortgage subsidy offered by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seller.asp">seller</a> on behalf of the homebuyer. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first years, resulting in a lower monthly payment on the mortgage. Builders or sellers may offer a buydown option to help increase the chances of selling the property, by making it more affordable. </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 builder or seller of the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer’s monthly interest rate and, therefore, monthly payment. The home seller, however, usually will increase the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/purchaseprice.asp">purchase price</a> of the home to compensate for the costs of the buydown agreement. </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-tip" 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">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Homebuyers may choose an adjustable-rate mortgage (ARM) if they plan to refinance once the initial rate term ends or if they plan to sell the property before the rate adjusts.</p></div></div></div> <span class="heading-toc" id="toc-buydown-structuring"></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"> Buydown Structuring </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Buydown terms can be structured in various ways for mortgage loans. Most buydowns last for a few years, then the mortgage payments increase to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">standard rate</a> once the buydown expires. A 3-2-1 and 2-1 mortgage buydown are two common structures <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders</a> can use. </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"> 3-2-1 Buydown </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/3-2-1_buydown.asp">3-2-1 buydown</a>, the buyer pays lower payments on the loan for the first three years. For each of the first three years of the mortgage, the buyer’s interest rate would increase incrementally by 1% annually. The full interest rate would apply beginning with the fourth year of the mortgage loan. </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"> While the buyer received savings from the lower interest rate in the first three years, the difference in the payments would have been made by the seller to the lender as a subsidy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> 2-1 Buydown </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/2-1_buydown.asp">2-1 buydown</a> is structured the same as a 3-2-1 buydown; however, its discount is only available for the first two years. So you would have a 2% interest rate reduction for the first year of the mortgage, then a 1% rate discount for the second year of the mortgage. Your interest rate—and your monthly payments—would increase over time until your loan reaches its actual percentage rate. </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"> This happens in year three of the loan. At this point, your monthly mortgage payment would reflect the true loan rate. You would pay up front for the 2-1 buydown at closing, and, theoretically, the money that you save over the first two years would cancel out that payment. </p> <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-callout mntl-block" id="mntl-sc-block_26-0"><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_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Consider the interest rates for which you’re likely to qualify, based on your credit history and income, to determine if a buydown is worth it.</p></div></div></div> <span class="heading-toc" id="toc-buydown-pros-and-cons"></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"> Buydown Pros and Cons </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Whether it makes sense to use a buydown to purchase a home can depend on several things, including the amount of the mortgage, your initial interest rate, the amount you could save in interest over the initial loan term, and your estimated future income. How long you plan to stay in the home also can come into play for determining your break-even point. </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-comparisonlist mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_32-0"> <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>A buydown temporarily reduces your interest rate, saving you money and lowering your monthly payments during the initial loan term.</p></li> <li><p>Choosing a buydown may allow you to pay less for the home than the seller’s listing price.</p></li> <li><p>It could make sense for homebuyers whose income will increase in the years to come.</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>Once the buydown rate ends, your monthly payment could be higher than expected.</p></li> <li><p>A buydown may not be an option for certain property types or loan types.</p></li> <li><p>If your income doesn’t increase, then you could struggle with making monthly mortgage payments.</p></li> </ul> </div> </div></div> <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"> Pros Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li><strong>Interest savings</strong>:<strong> </strong>Choosing a buydown could save you money on interest costs during the first two years (with a 2-1 buydown) or three years (with a 3-2-1 buydown) of the mortgage.</li><li><strong>Price reduction</strong>:<strong> </strong>If a seller is offering to pay something toward the buydown, then this could reduce the cost of buying the home.</li><li><strong>Ease into higher payments</strong>:<strong> </strong>If you’re just starting your career and your income is expected to rise, then you may not have any issues with making your higher mortgage payments over time.</li> </ul> <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"> Cons Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li><strong>Ongoing affordability</strong>: Once the initial rate period ends, your monthly payments could be substantially higher than what you’re used to. That could be problematic if your income has dropped since purchasing the home.</li><li><strong>Availability</strong>:<strong> </strong>Your ability to take advantage of a buydown may be limited by the type of property involved or the type of mortgage loan for which you’re applying.</li><li><strong>Default risk</strong>:<strong> </strong>If you’re not able to make the higher payments after the initial buydown period then you could be at greater risk of losing the home to foreclosure.</li> </ul> <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-callout mntl-block" id="mntl-sc-block_40-0"><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_41-0"><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>Remember to consider both the up-front costs of buying a home, such as the down payment or closing costs, and the ongoing costs to understand how much you can afford to become a homeowner.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-buydown-mortgage"></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"> Example of a Buydown Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Here are some examples of how a buydown mortgage can work. Say you're borrowing $250,000 with a 30-year fixed-rate loan at 6.75%. You can choose between a 2-1 buydown or a 3-2-1 buydown. </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"> Here's what the loan breakdown would look like with a 2-1 buydown option: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <li>Year 1: $1,304 at 4.75% interest</li><li>Year 2: $1,459 at 5.75% interest</li><li>Year 3: $1,622 at full 6.75% interest</li> </ul> <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 buydown fee for this loan would be $5,759. Now, say you choose the 3-2-1 buydown instead. Here's what your loan payments would look like: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <li>Year 1: $1,158 at 3.75% interest</li><li>Year 2: $1,304 at 4.75% interest</li><li>Year 3: $1,459 at 5.75% interest</li><li>Year 4: $1,622 at full 6.75% interest</li> </ul> <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"> Meanwhile, the buydown fee for this loan increases to $11,324. So when considering a buydown, it's important to look beyond the initial low payment period to determine whether the costs involved in the near term are worth any interest savings you might realize.<br/> </p> <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-when-to-use-a-buydown"></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"> When to Use a Buydown </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> A buydown could make sense for buyers if it allows them to get a mortgage without significantly increasing the purchase price of the home or draining their cash reserves. Buydowns also may be more appropriate for people who have stable income set to grow over the life of the loan, making it easier to keep up with payment increases once the initial rate period ends. </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"> But again, timing matters. If you don’t plan to stay in the home for at least five years, then you might not see any real savings at all from a buydown. So consider your future plans for buying a home and how long you might stay put before committing to a mortgage buydown. </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"> Also, remember that not every mortgage is eligible for a buydown. For example, you can't use them to purchase an investment property or for cash-out refinancing. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/082616/whats-difference-between-fha-and-conventional-loans.asp">Government-backed loans</a>, such as FHA loans and USDA loans, also have specific guidelines regarding buydowns and when they can be used. </p> <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-other-ways-to-reduce-mortgage-rates"></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"> Other Ways to Reduce Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Alternatively, buyers can choose to pay for <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> to buy down their interest rate. In this scenario, the buyer pays money up front to purchase the points, and the lender reduces their interest rate as a result. Discount points can lower the interest rate on a mortgage for the life of the loan, rather than just for the first two years.<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_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> A buydown is not the same as an adjustable-rate mortgage (ARM), in which the rate is fixed for a set period of time before adjusting to a variable rate.<span class="ql-inline-citation" data-cite="2"></span> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/5-1_arm.asp">5/1 hybrid ARM</a>, for example, has a fixed rate for the first five years, with the rate adjusting annually each year after that, based on the performance of an underlying benchmark rate. </p> <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-does-a-buydown-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a Buydown Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A mortgage buydown allows a homebuyer to temporarily reduce the interest rate on their home loan for the first few years, in exchange for a fee.</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-how-many-points-can-you-buy-down-on-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Points Can You Buy Down on a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There's no specific limit on the number of points that someone can buy down on a mortgage. But the number of points an individual buyer may be allowed to buy down can depend on the type of mortgage and the loan terms.</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-is-it-worth-it-to-buy-down-points"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Worth It to Buy Down Points?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A mortgage buydown could be worth if it you are able to save money on your interest rate during the initial part of the loan term. It's important, however, to consider what you might pay for the buydown fee and how long you plan to stay in the home to gauge your total savings.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></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_73-0"> <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_74-0"> Mortgage buydowns may save you money on interest by reducing the rate you pay at the beginning of the loan. When a builder or seller contributes toward the buydown, it can make the home more affordable. Understanding how buydowns work allows you to explore more choices in the way you buy your next home. </p></div>

## What Is a Buydown? A buydown is a mortgage financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) or possibly its entire life. A 2-1 buydown, for example, is a specific type of mortgage buydown that allows homebuyers to save on their interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well. ### Key Takeaways * A buydown allows homebuyers to obtain a lower interest rate when taking out a mortgage loan. * Buydowns can save homeowners money on interest over the life of the loan. * A buydown can involve purchasing discount points against the mortgage loan, which may require payment of an up-front fee. * Whether it makes sense to choose a buydown when buying a home can depend on the interest rate for which you qualify and how long you plan to remain in the home. ## Understanding Buydowns Buydowns are easy to understand if you think of them as a mortgage subsidy offered by the [seller](https://www.investopedia.com/terms/s/seller.asp) on behalf of the homebuyer. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first years, resulting in a lower monthly payment on the mortgage. Builders or sellers may offer a buydown option to help increase the chances of selling the property, by making it more affordable. The builder or seller of the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer’s monthly interest rate and, therefore, monthly payment. The home seller, however, usually will increase the [purchase price](https://www.investopedia.com/terms/p/purchaseprice.asp) of the home to compensate for the costs of the buydown agreement. ### Tip Homebuyers may choose an adjustable-rate mortgage (ARM) if they plan to refinance once the initial rate term ends or if they plan to sell the property before the rate adjusts. ## Buydown Structuring Buydown terms can be structured in various ways for mortgage loans. Most buydowns last for a few years, then the mortgage payments increase to a [standard rate](https://www.investopedia.com/mortgage-rates-5094943) once the buydown expires. A 3-2-1 and 2-1 mortgage buydown are two common structures [mortgage lenders](https://www.investopedia.com/best-mortgage-lenders-5076852) can use. ### 3-2-1 Buydown In a [3-2-1 buydown](https://www.investopedia.com/terms/1/3-2-1_buydown.asp), the buyer pays lower payments on the loan for the first three years. For each of the first three years of the mortgage, the buyer’s interest rate would increase incrementally by 1% annually. The full interest rate would apply beginning with the fourth year of the mortgage loan. While the buyer received savings from the lower interest rate in the first three years, the difference in the payments would have been made by the seller to the lender as a subsidy. ### 2-1 Buydown A [2-1 buydown](https://www.investopedia.com/terms/1/2-1_buydown.asp) is structured the same as a 3-2-1 buydown; however, its discount is only available for the first two years. So you would have a 2% interest rate reduction for the first year of the mortgage, then a 1% rate discount for the second year of the mortgage. Your interest rate—and your monthly payments—would increase over time until your loan reaches its actual percentage rate. This happens in year three of the loan. At this point, your monthly mortgage payment would reflect the true loan rate. You would pay up front for the 2-1 buydown at closing, and, theoretically, the money that you save over the first two years would cancel out that payment. ### Important Consider the interest rates for which you’re likely to qualify, based on your credit history and income, to determine if a buydown is worth it. ## Buydown Pros and Cons Whether it makes sense to use a buydown to purchase a home can depend on several things, including the amount of the mortgage, your initial interest rate, the amount you could save in interest over the initial loan term, and your estimated future income. How long you plan to stay in the home also can come into play for determining your break-even point. Pros * A buydown temporarily reduces your interest rate, saving you money and lowering your monthly payments during the initial loan term. * Choosing a buydown may allow you to pay less for the home than the seller’s listing price. * It could make sense for homebuyers whose income will increase in the years to come. Cons * Once the buydown rate ends, your monthly payment could be higher than expected. * A buydown may not be an option for certain property types or loan types. * If your income doesn’t increase, then you could struggle with making monthly mortgage payments. ### Pros Explained * **Interest savings**:Choosing a buydown could save you money on interest costs during the first two years (with a 2-1 buydown) or three years (with a 3-2-1 buydown) of the mortgage. * **Price reduction**:If a seller is offering to pay something toward the buydown, then this could reduce the cost of buying the home. * **Ease into higher payments**:If you’re just starting your career and your income is expected to rise, then you may not have any issues with making your higher mortgage payments over time. ### Cons Explained * **Ongoing affordability**: Once the initial rate period ends, your monthly payments could be substantially higher than what you’re used to. That could be problematic if your income has dropped since purchasing the home. * **Availability**:Your ability to take advantage of a buydown may be limited by the type of property involved or the type of mortgage loan for which you’re applying. * **Default risk**:If you’re not able to make the higher payments after the initial buydown period then you could be at greater risk of losing the home to foreclosure. ### Tip Remember to consider both the up-front costs of buying a home, such as the down payment or closing costs, and the ongoing costs to understand how much you can afford to become a homeowner. ## Example of a Buydown Mortgage Here are some examples of how a buydown mortgage can work. Say you're borrowing $250,000 with a 30-year fixed-rate loan at 6.75%. You can choose between a 2-1 buydown or a 3-2-1 buydown. Here's what the loan breakdown would look like with a 2-1 buydown option: * Year 1: $1,304 at 4.75% interest * Year 2: $1,459 at 5.75% interest * Year 3: $1,622 at full 6.75% interest The buydown fee for this loan would be $5,759. Now, say you choose the 3-2-1 buydown instead. Here's what your loan payments would look like: * Year 1: $1,158 at 3.75% interest * Year 2: $1,304 at 4.75% interest * Year 3: $1,459 at 5.75% interest * Year 4: $1,622 at full 6.75% interest Meanwhile, the buydown fee for this loan increases to $11,324. So when considering a buydown, it's important to look beyond the initial low payment period to determine whether the costs involved in the near term are worth any interest savings you might realize. ## When to Use a Buydown A buydown could make sense for buyers if it allows them to get a mortgage without significantly increasing the purchase price of the home or draining their cash reserves. Buydowns also may be more appropriate for people who have stable income set to grow over the life of the loan, making it easier to keep up with payment increases once the initial rate period ends. But again, timing matters. If you don’t plan to stay in the home for at least five years, then you might not see any real savings at all from a buydown. So consider your future plans for buying a home and how long you might stay put before committing to a mortgage buydown. Also, remember that not every mortgage is eligible for a buydown. For example, you can't use them to purchase an investment property or for cash-out refinancing. [Government-backed loans](https://www.investopedia.com/ask/answers/082616/whats-difference-between-fha-and-conventional-loans.asp), such as FHA loans and USDA loans, also have specific guidelines regarding buydowns and when they can be used. ## Other Ways to Reduce Mortgage Rates Alternatively, buyers can choose to pay for [discount points](https://www.investopedia.com/terms/d/discountpoints.asp) to buy down their interest rate. In this scenario, the buyer pays money up front to purchase the points, and the lender reduces their interest rate as a result. Discount points can lower the interest rate on a mortgage for the life of the loan, rather than just for the first two years. A buydown is not the same as an adjustable-rate mortgage (ARM), in which the rate is fixed for a set period of time before adjusting to a variable rate. A [5/1 hybrid ARM](https://www.investopedia.com/terms/1/5-1_arm.asp), for example, has a fixed rate for the first five years, with the rate adjusting annually each year after that, based on the performance of an underlying benchmark rate. ## How Does a Buydown Work? A mortgage buydown allows a homebuyer to temporarily reduce the interest rate on their home loan for the first few years, in exchange for a fee. ## How Many Points Can You Buy Down on a Mortgage? There's no specific limit on the number of points that someone can buy down on a mortgage. But the number of points an individual buyer may be allowed to buy down can depend on the type of mortgage and the loan terms. ## Is It Worth It to Buy Down Points? A mortgage buydown could be worth if it you are able to save money on your interest rate during the initial part of the loan term. It's important, however, to consider what you might pay for the buydown fee and how long you plan to stay in the home to gauge your total savings. ## The Bottom Line Mortgage buydowns may save you money on interest by reducing the rate you pay at the beginning of the loan. When a builder or seller contributes toward the buydown, it can make the home more affordable. Understanding how buydowns work allows you to explore more choices in the way you buy your next home.

What Is a Buydown? A buydown is a mortgage financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage or possibly its entire life. A 2-1 buydown, for example, is a specific type of mortgage buydown that allows homebuyers to save on their interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well. Key Takeaways A buydown allows homebuyers to obtain a lower interest rate when taking out a mortgage loan.Buydowns can save homeowners money on interest over the life of the loan.A buydown can involve purchasing discount points against the mortgage loan, which may require payment of an up-front fee.Whether it makes sense to choose a buydown when buying a home can depend on the interest rate for which you qualify and how long you plan to remain in the home. Understanding Buydowns Buydowns are easy to understand if you think of them as a mortgage subsidy offered by the seller on behalf of the homebuyer. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first years, resulting in a lower monthly payment on the mortgage. Builders or sellers may offer a buydown option to help increase the chances of selling the property, by making it more affordable. The builder or seller of the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer’s monthly interest rate and, therefore, monthly payment. The home seller, however, usually will increase the purchase price of the home to compensate for the costs of the buydown agreement. Tip Homebuyers may choose an adjustable-rate mortgage (ARM) if they plan to refinance once the initial rate term ends or if they plan to sell the property before the rate adjusts. Buydown Structuring Buydown terms can be structured in various ways for mortgage loans. Most buydowns last for a few years, then the mortgage payments increase to a standard rate once the buydown expires. A 3-2-1 and 2-1 mortgage buydown are two common structures mortgage lenders can use. 3-2-1 Buydown In a 3-2-1 buydown, the buyer pays lower payments on the loan for the first three years. For each of the first three years of the mortgage, the buyer’s interest rate would increase incrementally by 1% annually. The full interest rate would apply beginning with the fourth year of the mortgage loan. While the buyer received savings from the lower interest rate in the first three years, the difference in the payments would have been made by the seller to the lender as a subsidy. 2-1 Buydown A 2-1 buydown is structured the same as a 3-2-1 buydown; however, its discount is only available for the first two years. So you would have a 2% interest rate reduction for the first year of the mortgage, then a 1% rate discount for the second year of the mortgage. Your interest rate—and your monthly payments—would increase over time until your loan reaches its actual percentage rate. This happens in year three of the loan. At this point, your monthly mortgage payment would reflect the true loan rate. You would pay up front for the 2-1 buydown at closing, and, theoretically, the money that you save over the first two years would cancel out that payment. Important Consider the interest rates for which you’re likely to qualify, based on your credit history and income, to determine if a buydown is worth it. Buydown Pros and Cons Whether it makes sense to use a buydown to purchase a home can depend on several things, including the amount of the mortgage, your initial interest rate, the amount you could save in interest over the initial loan term, and your estimated future income. How long you plan to stay in the home also can come into play for determining your break-even point. Pros A buydown temporarily reduces your interest rate, saving you money and lowering your monthly payments during the initial loan term. Choosing a buydown may allow you to pay less for the home than the seller’s listing price. It could make sense for homebuyers whose income will increase in the years to come. Cons Once the buydown rate ends, your monthly payment could be higher than expected. A buydown may not be an option for certain property types or loan types. If your income doesn’t increase, then you could struggle with making monthly mortgage payments. Pros Explained Interest savings: Choosing a buydown could save you money on interest costs during the first two years (with a 2-1 buydown) or three years (with a 3-2-1 buydown) of the mortgage.Price reduction: If a seller is offering to pay something toward the buydown, then this could reduce the cost of buying the home.Ease into higher payments: If you’re just starting your career and your income is expected to rise, then you may not have any issues with making your higher mortgage payments over time. Cons Explained Ongoing affordability: Once the initial rate period ends, your monthly payments could be substantially higher than what you’re used to. That could be problematic if your income has dropped since purchasing the home.Availability: Your ability to take advantage of a buydown may be limited by the type of property involved or the type of mortgage loan for which you’re applying.Default risk: If you’re not able to make the higher payments after the initial buydown period then you could be at greater risk of losing the home to foreclosure. Tip Remember to consider both the up-front costs of buying a home, such as the down payment or closing costs, and the ongoing costs to understand how much you can afford to become a homeowner. Example of a Buydown Mortgage Here are some examples of how a buydown mortgage can work. Say you're borrowing $250,000 with a 30-year fixed-rate loan at 6.75%. You can choose between a 2-1 buydown or a 3-2-1 buydown. Here's what the loan breakdown would look like with a 2-1 buydown option: Year 1: $1,304 at 4.75% interestYear 2: $1,459 at 5.75% interestYear 3: $1,622 at full 6.75% interest The buydown fee for this loan would be $5,759. Now, say you choose the 3-2-1 buydown instead. Here's what your loan payments would look like: Year 1: $1,158 at 3.75% interestYear 2: $1,304 at 4.75% interestYear 3: $1,459 at 5.75% interestYear 4: $1,622 at full 6.75% interest Meanwhile, the buydown fee for this loan increases to $11,324. So when considering a buydown, it's important to look beyond the initial low payment period to determine whether the costs involved in the near term are worth any interest savings you might realize. When to Use a Buydown A buydown could make sense for buyers if it allows them to get a mortgage without significantly increasing the purchase price of the home or draining their cash reserves. Buydowns also may be more appropriate for people who have stable income set to grow over the life of the loan, making it easier to keep up with payment increases once the initial rate period ends. But again, timing matters. If you don’t plan to stay in the home for at least five years, then you might not see any real savings at all from a buydown. So consider your future plans for buying a home and how long you might stay put before committing to a mortgage buydown. Also, remember that not every mortgage is eligible for a buydown. For example, you can't use them to purchase an investment property or for cash-out refinancing. Government-backed loans, such as FHA loans and USDA loans, also have specific guidelines regarding buydowns and when they can be used. Other Ways to Reduce Mortgage Rates Alternatively, buyers can choose to pay for discount points to buy down their interest rate. In this scenario, the buyer pays money up front to purchase the points, and the lender reduces their interest rate as a result. Discount points can lower the interest rate on a mortgage for the life of the loan, rather than just for the first two years. A buydown is not the same as an adjustable-rate mortgage (ARM), in which the rate is fixed for a set period of time before adjusting to a variable rate. A 5/1 hybrid ARM, for example, has a fixed rate for the first five years, with the rate adjusting annually each year after that, based on the performance of an underlying benchmark rate. How Does a Buydown Work? A mortgage buydown allows a homebuyer to temporarily reduce the interest rate on their home loan for the first few years, in exchange for a fee. How Many Points Can You Buy Down on a Mortgage? There's no specific limit on the number of points that someone can buy down on a mortgage. But the number of points an individual buyer may be allowed to buy down can depend on the type of mortgage and the loan terms. Is It Worth It to Buy Down Points? A mortgage buydown could be worth if it you are able to save money on your interest rate during the initial part of the loan term. It's important, however, to consider what you might pay for the buydown fee and how long you plan to stay in the home to gauge your total savings. The Bottom Line Mortgage buydowns may save you money on interest by reducing the rate you pay at the beginning of the loan. When a builder or seller contributes toward the buydown, it can make the home more affordable. Understanding how buydowns work allows you to explore more choices in the way you buy your next home.

https://www.investopedia.com/emergency-loans-for-bad-credit-5075539

Best Emergency Loans for Bad Credit for May 2024

<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="icon-close"><svg viewbox="0 0 14 14" xmlns="http://www.w3.org/2000/svg"><path d="M6.962 8.376l5.546 5.546 1.414-1.414-5.546-5.546 5.547-5.547L12.509.001 6.962 5.548 1.414 0 0 1.414l5.548 5.548-5.547 5.547 1.414 1.414 5.547-5.547z" fill="current" fill-rule="evenodd" opacity=".6"></path></svg></symbol> <symbol id="icon-reset"><svg fill="current" height="10" width="11" xmlns="http://www.w3.org/2000/svg"><path d="M5 8.571a3.57 3.57 0 0 0 2.982-1.606l1.185.799C8.271 9.112 6.739 10 5 10A5 5 0 1 1 5 0c1.754 0 3.296.903 4.189 2.269l1.553-.914-.502 4.758-4.404-1.871 2.12-1.248C7.313 2.049 6.229 1.429 5 1.429a3.57 3.57 0 1 0 0 7.143z" fill-rule="evenodd"></path></svg></symbol> <symbol id="litho-comparison-table__arrow-icon"><svg fill="none" height="48" width="48" xmlns="http://www.w3.org/2000/svg"><circle cx="24" cy="24" fill="var(--color-1, white)" opacity=".72" r="24"></circle><path d="M30.284 8.697c-.396-.385-1.038-.385-1.434 0L13.927 23.21c-.396.385-.396 1.009 0 1.394s1.038.385 1.434 0l14.923-14.512c.396-.385.396-1.009 0-1.394z" fill="var(--color-2, #333333)"></path><path d="M30.283 39.303c-.396.385-1.038.385-1.434 0L13.926 24.791c-.396-.385-.396-1.009 0-1.394s1.038-.385 1.434 0l14.924 14.512c.396.385.396 1.009 0 1.394z" fill="var(--color-3, #333333)"></path></svg></symbol> <symbol id="bio-icon--finance"><svg viewbox="0 0 34.4 34.4" xmlns="http://www.w3.org/2000/svg"><path d="M17.2 0a17.2 17.2 0 1 0 17.2 17.2A17.2 17.2 0 0 0 17.2 0zm-2.39 28a1.55 1.55 0 0 1-1.59-1.66 10.87 10.87 0 0 1 .43-2.56l1.83-7.41a4.39 4.39 0 0 0 .18-1.05c0-.66-.47-.64-1.57.15l-.64.44-.45-.56c1.69-1.74 3.52-3 5.15-3 1.07 0 1.45.73 1.45 1.66a14.56 14.56 0 0 1-.52 3.11l-1.78 7a4.45 4.45 0 0 0-.14 1c0 .7.52.7 1.54.06l.81-.5.44.56C18.48 26.63 16.7 28 14.81 28zm3.58-17.47a2 2 0 0 1-2.06-2 2.11 2.11 0 0 1 2.18-2.13 2 2 0 0 1 2.09 2 2.14 2.14 0 0 1-2.21 2.13z"></path></svg></symbol> <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="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 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"> After hundreds of hours of research and analysis, we chose <a data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&amp;tag.pref_partner=upgrade&amp;tag.lender=upgrade&amp;tag.docid=5075539&amp;tag.reqid=nf96673a9b0024bb2941d7d3a7e46bd1b18" rel="sponsored nofollow">Upgrade</a> as the lender that provides the best emergency loans for bad credit. It offers fast funding, a low minimum credit score, and a wide range of loan terms and amounts. </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"> All the lenders in our collection serve borrowers in a hurry (to cover an emergency auto repair, say, or an unexpected medical expense), and who have poor credit. The list names lenders with the most relaxed credit requirements (if not the most affordable rates). We have also included nationally available credit unions because they are often the most consumer-friendly. </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"> We researched 70 personal loan lenders and evaluated them on 31 factors, including cost, loan terms, borrower requirements, and additional features. We then narrowed our list of companies to the lenders best suited to provide emergency loans for borrowers with bad or poor credit. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear collapsible-summary-list collapsed product-roundup-content__collapsible-summary-list summary-list__collapsible--finance 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__collapsible-summary-list_1-0"> <span class="heading-toc" id="summary-list"></span> <h2 class="summary-list__title"> Best Emergency Loans for Bad Credit: Compare Options for May 2024 </h2> <div class="summary-list__dropdown-toggle"> <div class="summary-list__chevron"></div> <h4 class="summary-list__dropdown-toggle-header-collapsed">Show Full List View</h4> <h4 class="summary-list__dropdown-toggle-header-uncollapsed">Hide Full List View</h4> </div> <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="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&amp;tag.pref_partner=upgrade&amp;tag.lender=upgrade" rel="nofollow noopener sponsored nocaes" target="_blank">Upgrade</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 Low Minimum Credit Requirement:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&amp;tag.pref_partner=upstart&amp;tag.lender=upstart" rel="nofollow noopener sponsored nocaes" target="_blank">Upstart</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 Fast Funding :</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu" rel="nofollow noopener sponsored nocaes" target="_blank">Ent Credit Union</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 With No Credit Check:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" rel="nofollow noopener sponsored nocaes" target="_blank">OppLoans</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">Also Good for Secured Loans:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&amp;tag.pref_partner=universalcredit&amp;tag.lender=universalcredit" rel="nofollow noopener sponsored nocaes" target="_blank">Universal Credit</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 With a Co-Signer:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech" rel="nofollow noopener sponsored nocaes" target="_blank">First Tech Federal Credit Union</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 Credit Union:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu" rel="nofollow noopener sponsored nocaes" target="_blank">Patelco Credit Union</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear collapsible-summary-list collapsed product-roundup-content__collapsible-summary-list summary-list__collapsible--finance summary-list--finance summary-list--roundup summary-list --> <span class="heading-toc" id="summary-list"></span> <div class="summary-list-app__wrapper" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List"> <div class="summary-list-app__header"> <div id="summaryListApp1"></div> </div> <div class="comp summary-list-app__rows mntl-block" id="summary-list-app__rows_1-0"> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-0'] = { data: function () { return { "minimumCreditScore":"620" , "superlative":"Best Overall" , "loanAmountRange":"(100000,5000000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-1'] = { data: function () { return { "minimumCreditScore":"300" , "superlative":"Best for Low Minimum Credit Requirement" , "loanAmountRange":"(100000,5000000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-2'] = { data: function () { return { "minimumCreditScore":"619" , "superlative":"Best for Fast Funding " , "loanAmountRange":"(100000,10000000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-3'] = { data: function () { return { "superlative":"Best With No Credit Check" , "loanAmountRange":"(50000,400000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-4'] = { data: function () { return { "superlative":"Also Good for Secured Loans" , "loanAmountRange":"(100000,5000000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-5'] = { data: function () { return { "minimumCreditScore":"660" , "superlative":"Best With a Co-Signer" , "loanAmountRange":"(50000,5000000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-6'] = { data: function () { return { "minimumCreditScore":"640" , "superlative":"Best Credit Union" , "loanAmountRange":"(30000,10000000)" } }, template: `` }; </script> </div><!-- end: comp summary-list-app__rows mntl-block --> <div class="comp summary-list__no-result summary-list-app__list-empty no-results-message--personal-loans no-results-message" id="summary-list-app__list-empty_1-0"> <span class="list-empty--message">If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies:</span> <ul class="list-empty--links" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List"> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/best-home-warranties-4777763">Best Home Warranties</a></li> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">Best Emergency Loans for Bad Credit</a></li> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">Best Personal Loans for Bad Credit</a></li> </ul> </div><!-- end: comp summary-list__no-result summary-list-app__list-empty no-results-message--personal-loans no-results-message --> <div class="comp filter-app__content summary-list-app__rows summary-list--comparison-table summary-list-app__content summary-list--personal-loans filter-app-table-wrapper litho-comparison-table" data-tracking-container="true" id="summary-list--personal-loans_2-0"> <table class="litho-comparison-table__table"> <thead class="loc tableHead"> <tr class="comp summary-list-headers litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_5-0"> <th class="comp litho-comparison-table__head-text mntl-text-block" colspan="2" id="litho-comparison-table__head-text_11-0"> Company</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_12-0"> APR</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_13-0"> Credit Score est.</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_14-0"> Loan Amount</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_15-0"> More Details</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> </tr><!-- end: comp summary-list-headers litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp card-0 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0"> Best Overall</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Upgrade" class="lazyload summary-list-col__product-image smaller-image3 universal-image__image" data-src="https://www.investopedia.com/thmb/XCpP2h-d0nsnxmzdRj2-cewYSkA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Upgrade-Logo-bc0ec4b2fc0b48daaefbde361ccabe98.jpeg" height="750" width="1500"/> <noscript> <img alt="Upgrade" class="img--noscript summary-list-col__product-image smaller-image3 universal-image__image" height="750" src="https://www.investopedia.com/thmb/XCpP2h-d0nsnxmzdRj2-cewYSkA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Upgrade-Logo-bc0ec4b2fc0b48daaefbde361ccabe98.jpeg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0"> APR With Autopay Discount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0"> 8.49% - 35.99%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0"> 620</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0"> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0"> $1,000 - $50,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-upgrade" id="mntl-text-link_5-0" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&amp;tag.pref_partner=upgrade&amp;tag.lender=upgrade" id="mntl-sc-block-commerce__button_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-0 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp card-1 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-1"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-1"> Best for Low Minimum Credit Requirement</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-1"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Upstart" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/vHgD28kSI1ICOT0gnILI_zRcBEs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/upstart-f229ab62838d4a88a95cde6a6f74bc49.png" height="750" width="1500"/> <noscript> <img alt="Upstart" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/vHgD28kSI1ICOT0gnILI_zRcBEs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/upstart-f229ab62838d4a88a95cde6a6f74bc49.png" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-1"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-1"> 7.80% - 35.99%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-1"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-1"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-1"> 300</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-1"> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-1"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-1"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-1"> $1,000 - $50,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-1"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-upstart" id="mntl-text-link_5-0-1" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&amp;tag.pref_partner=upstart&amp;tag.lender=upstart" id="mntl-sc-block-commerce__button_5-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-1 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp card-2 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-2"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-2"> Best for Fast Funding </td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-2"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Ent Credit Union" class="lazyload summary-list-col__product-image smaller-image3 universal-image__image" data-src="https://www.investopedia.com/thmb/8k2x_c15bbka3DOQ5_fNi8hj_Tw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/ENT-Credit-Union-logo-e67607699e5c44969608565f3998998e.jpg" height="750" width="1500"/> <noscript> <img alt="Ent Credit Union" class="img--noscript summary-list-col__product-image smaller-image3 universal-image__image" height="750" src="https://www.investopedia.com/thmb/8k2x_c15bbka3DOQ5_fNi8hj_Tw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/ENT-Credit-Union-logo-e67607699e5c44969608565f3998998e.jpg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-2"> APR With Autopay Discount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-2"> 10.24% - 17.99%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-2"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-2"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-2"> 619</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-2"> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-2"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-2"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-2"> $1,000 - $100,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-2"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-ent-credit-union" id="mntl-text-link_5-0-2" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On ent.com" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu" id="mntl-sc-block-commerce__button_5-0-2" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-2 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> <tr class="comp card-3 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-3"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-3"> Best With No Credit Check</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-3"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="OppLoans" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" height="750" width="1500"/> <noscript> <img alt="OppLoans" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-3"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-3"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-3"> 160.00% - 179.00%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-3"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-3"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-3"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-3"> Not Disclosed</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-3"> <span class="comp tooltip-trigger summary-list__tooltip mntl-block" data-label="Estimated Minimum Credit Score" id="summary-list__tooltip_3-0"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger summary-list__tooltip mntl-block --> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-3"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-3"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-3"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-3"> $500 - $4,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-3"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-opploans" id="mntl-text-link_5-0-3" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-sc-block-commerce__button_5-0-3" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-3 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block --> <tr class="comp card-4 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--4 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-4"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-4"> Also Good for Secured Loans</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-4"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Universal Credit" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/UXNcnp1DsLuuoVN605J-c8tH3RA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Universal-Credit-logo-c4b5437854d443d3b66643d97a0aadd1.jpg" height="750" width="1500"/> <noscript> <img alt="Universal Credit" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/UXNcnp1DsLuuoVN605J-c8tH3RA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Universal-Credit-logo-c4b5437854d443d3b66643d97a0aadd1.jpg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-4"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-4"> APR With Autopay Discount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-4"> 11.69% - 35.99%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-4"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-4"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-4"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-4"> Not Disclosed</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-4"> <span class="comp tooltip-trigger summary-list__tooltip mntl-block" data-label="Estimated Minimum Credit Score" id="summary-list__tooltip_3-0-1"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger summary-list__tooltip mntl-block --> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-4"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-4"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-4"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-4"> $1,000 - $50,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-4"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-universal-credit" id="mntl-text-link_5-0-4" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&amp;tag.pref_partner=universalcredit&amp;tag.lender=universalcredit" id="mntl-sc-block-commerce__button_5-0-4" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-4 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--4 litho-comparison-table__product-row mntl-block --> <tr class="comp card-5 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--5 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-5"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-5"> Best With a Co-Signer</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-5"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="First Tech Federal Credit Union" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/W_di-_6kE6HhjyBRpau8xPOJIrE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/First_Tech_Logo_Black-ClearSpace-77144643204a4257bb72e74614a4b3a4.png" height="750" width="1500"/> <noscript> <img alt="First Tech Federal Credit Union" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/W_di-_6kE6HhjyBRpau8xPOJIrE=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/First_Tech_Logo_Black-ClearSpace-77144643204a4257bb72e74614a4b3a4.png" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-5"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-5"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-5"> 8.94% - 18.00%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-5"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-5"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-5"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-5"> 660</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-5"> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-5"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-5"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-5"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-5"> $500 - $50,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-5"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-first-tech-federal-credit-union" id="mntl-text-link_5-0-5" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech" id="mntl-sc-block-commerce__button_5-0-5" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-5 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--5 litho-comparison-table__product-row mntl-block --> <tr class="comp card-6 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--6 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-6"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-6"> Best Credit Union</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-6"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Patelco Credit Union" class="lazyload summary-list-col__product-image smaller-image3 universal-image__image" data-src="https://www.investopedia.com/thmb/0gs2PHB4LmOH9yK2dU7FmMLko7E=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/PatelcoCreditUnion-2710a2540a224fdc823143d06af54798.jpg" height="750" width="1500"/> <noscript> <img alt="Patelco Credit Union" class="img--noscript summary-list-col__product-image smaller-image3 universal-image__image" height="750" src="https://www.investopedia.com/thmb/0gs2PHB4LmOH9yK2dU7FmMLko7E=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/PatelcoCreditUnion-2710a2540a224fdc823143d06af54798.jpg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-6"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-6"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-6"> 9.30% - 17.90%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-6"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-6"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-6"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-6"> 640</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-6"> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-6"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-6"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-6"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-6"> $300 - $100,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-6"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-patelco-credit-union" id="mntl-text-link_5-0-6" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu" id="mntl-sc-block-commerce__button_5-0-6" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-6 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--6 litho-comparison-table__product-row mntl-block --> </tbody> </table> </div><!-- end: comp filter-app__content summary-list-app__rows summary-list--comparison-table summary-list-app__content summary-list--personal-loans filter-app-table-wrapper litho-comparison-table --> </div> <div class="comp product-roundup-expertise-block expertise-block" id="product-roundup-expertise-block_1-0"> <div class="expertise-block__header"> <span class="expertise-block__heading"> Why Trust Us </span> <div class="expertise-block__chevron"></div> </div> <div class="expertise-block__data-points"> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-lenders-reviewed"> 70 </span> <div class="expertise-block__data-point-content"> Lenders reviewed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-features-considered"> 31 </span> <div class="expertise-block__data-point-content"> Loan features considered </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-analyzed"> 1,680 </span> <div class="expertise-block__data-point-content"> Data points analyzed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-data-sources"> 173 </span> <div class="expertise-block__data-point-content"> Primary data sources used </div> </div> </div> <span class="expertise-block__content"> Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. <div class="expertise-block__section-link"> <a href="https://www.investopedia.com/personal-loan-review-methodology-5088280">Read our Full Methodology</a> </div> </span> </div><!-- end: comp product-roundup-expertise-block expertise-block --> <div class="comp post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"></div><!-- end: comp post-intro prm-sc-page mntl-sc-page mntl-block --> <div class="comp loan-quiz even-loan-block even-loans-quiz--finance mntl-block" id="even-loan-block_1-0"></div><!-- end: comp loan-quiz even-loan-block even-loans-quiz--finance 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 Emergency Loans for Bad Credit for May 2024</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 Emergency Loans for Bad Credit for May 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best Emergency Loans for Bad Credit for May 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_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Upgrade" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Upgrade" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-upgrade" rel="nocaes"> <span class="link__wrapper">Upgrade</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Upstart" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Upstart" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-upstart" rel="nocaes"> <span class="link__wrapper">Upstart</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Ent Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Ent Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-ent-credit-union" rel="nocaes"> <span class="link__wrapper">Ent Credit Union</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-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" data-click-action="OnPageClick-OppLoans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-3"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-OppLoans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-opploans" rel="nocaes"> <span class="link__wrapper">OppLoans</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 --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Universal Credit" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-4"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Universal Credit" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-universal-credit" rel="nocaes"> <span class="link__wrapper">Universal Credit</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 --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-First Tech Federal Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-5"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-First Tech Federal Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-first-tech-federal-credit-union" rel="nocaes"> <span class="link__wrapper">First Tech Federal Credit Union</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 --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Patelco Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-6"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Patelco Credit Union" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-patelco-credit-union" rel="nocaes"> <span class="link__wrapper">Patelco Credit Union</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 --> <li class="comp toc-items__chop mntl-text-block" data-click-action="OnPageClick-See More" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (4)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#comparison-table" rel="nocaes"> <span class="link__wrapper">Compare Providers</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp mntl-toc-list-item mntl-toc__list-item --> <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" id="mntl-toc__list-item_1-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-What Is an Emergency Loan?" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-is-an-emergency-loan" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">What Is an Emergency Loan?</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_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Choose" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-choose-the-best-emergency-loan" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">How to Choose</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-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-apply-for-an-emergency-loan-if-you-have-bad-credit" id="mntl-toc__list-item-link_1-0-3" 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_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-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-emergency-loans" id="mntl-toc__list-item-link_1-0-4" 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_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-Emergency Funds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-build-an-emergency-fund" id="mntl-toc__list-item-link_1-0-5" rel="nocaes"><span class="link__wrapper">Emergency 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_1-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-we-picked-the-best-emergency-loans-for-bad-credit" id="mntl-toc__list-item-link_1-0-6" 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 --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Learn More About Emergency Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-learn-more-about-emergency-loans" id="mntl-toc__list-item-link_1-0-7" rel="nocaes"><span class="link__wrapper">Learn More About Emergency 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 --> </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-upgrade"></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">Upgrade</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__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_5-0"> <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;"> 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mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 860px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Upgrade Logo" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/qvGmc97xSl2Z7X5uGBUWn53yapY=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Upgrade-Logo-bc0ec4b2fc0b48daaefbde361ccabe98.jpeg" height="1000" width="1500"/> <noscript> <img alt="Upgrade Logo" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/qvGmc97xSl2Z7X5uGBUWn53yapY=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Upgrade-Logo-bc0ec4b2fc0b48daaefbde361ccabe98.jpeg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 8.49% - 35.99% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $1,000 - $50,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 24 months - 84 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&amp;tag.pref_partner=upgrade&amp;tag.lender=upgrade" id="mntl-commerce-btn_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-1"> <strong>Also the best personal loan lender for:</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> <li>Repayment Terms</li><li>Secured Loans<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Upgrade is our favorite overall emergency loan option because it has competitive interest rates, offers fast funding, and is available to borrowers with fair credit. It's also the best option for flexible repayment terms (up to 84 months), and for secured loans (it offers borrowers the option of using a vehicle as collateral). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-5"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Upgrade's minimum credit score is 640.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-6"> Upgrade offers a wide range of loan amounts. You also have the option to apply with a co-borrower if your credit isn’t sufficient to qualify by yourself.<span class="ql-inline-citation" data-cite="58"></span> And you can receive your loan funds within one day of your loan being approved, making Upgrade a good choice when you’re up against a financial emergency. </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"> Many lenders we evaluated don't charge origination or late payment fees. In contrast, Upgrade charges a late fee of up to $10 if your loan payment is not paid within 15 days of the due date and origination fees go all the way up to 9.99% of the amount borrowed. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> Originally founded in 2016, Upgrade is headquartered in San Francisco, California, and has offices in Phoenix, Arizona; Atlanta, Georgia; Orange County, California; and Montreal, Quebec. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-10"> <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>Funding within one business day</p></li> <li><p>Flexible repayment terms</p></li> <li><p>Secured loans available</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>Origination fee up to 9.99%</p></li> <li><p>High maximum APR</p></li> <li><p>Charges late fees</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="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> <li>Have a 620 credit score</li><li>Be a U.S. citizen or permanent resident or have a valid visa</li><li>Be at least 18 years of age</li><li>Have a verifiable bank account and email address<span class="ql-inline-citation" data-cite="59"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-12"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/upgrade-personal-loans-review-4842832" id="tabbed-sc-block--review-link_1-0-12" rel="noopener nocaes" target="_blank"><span class="">Upgrade Personal Loans Review 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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-upstart"></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 for Low Minimum Credit Requirement</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Upstart</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-1"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.1 out of 5 stars" class="comp star-rating" id="star-rating_5-0-1"> <span class="star-rating__label">4.1</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_5-0-1" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="20%" stop-color="#333e8b"></stop> <stop offset="20%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-full star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-1);"> <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 list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Upstart logo" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/vHgD28kSI1ICOT0gnILI_zRcBEs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/upstart-f229ab62838d4a88a95cde6a6f74bc49.png" height="750" width="1500"/> <noscript> <img alt="Upstart logo" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/vHgD28kSI1ICOT0gnILI_zRcBEs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/upstart-f229ab62838d4a88a95cde6a6f74bc49.png" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 7.80% - 35.99% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $1,000 - $50,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 36 months - 60 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&amp;tag.pref_partner=upstart&amp;tag.lender=upstart" id="mntl-commerce-btn_1-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-15"> If your income has held you back from getting a personal loan, Upstart might be right for you. There’s no minimum credit score required to qualify.<span class="ql-inline-citation" data-cite="63"></span> You either must have a credit score or have graduated from or are currently enrolled in a higher education program.<span class="ql-inline-citation" data-cite="64"></span> This makes Upstart the best choice for borrowers with poor credit. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-16"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Upstart's minimum credit score is 300.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> Another benefit of getting a loan through Upstart is the lender’s competitive interest rates. The maximum interest rate is on the higher end—though it's on par for bad credit loans— but its minimum credit score is lower than any other lender we considered. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-18"> Upstart charges a late fee of 5% of the payment or $15, whichever is greater, if your payment is not received by 15 days after the due date. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> Originally founded in 2012, Upstart is headquartered in San Mateo, California, and has offices in Columbus, Ohio; and Austin, Texas.<span class="ql-inline-citation" data-cite="68"></span><span class="ql-inline-citation" data-cite="69"></span><span class="ql-inline-citation" data-cite="70"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-21"> <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>No minimum credit score</p></li> <li><p>Low minimum APR</p></li> <li><p>Funding the next business day</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>Origination fee as high as 12%</p></li> <li><p>Limited range of repayment terms</p></li> <li><p>Charges late fees</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="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-23"> <li>Have a verifiable name, date of birth, and Social Security number</li><li>Be at least 18 years of age</li><li>Meet the lender’s credit and/or education requirements</li><li>Have a U.S. mailing address</li><li>Have a valid email address</li><li>Have a verifiable source of income</li><li>Have a U.S. bank account<span class="ql-inline-citation" data-cite="64"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-23"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/upstart-personal-loans-review-4843810" id="tabbed-sc-block--review-link_1-0-23" rel="noopener nocaes" target="_blank"><span class="">Upstart Personal Loans Review 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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-ent-credit-union"></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 Fast Funding </span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Ent Credit Union</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-2"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.2 out of 5 stars" class="comp star-rating" id="star-rating_5-0-2"> <span class="star-rating__label">4.2</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_5-0-2" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="30%" stop-color="#333e8b"></stop> <stop offset="30%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-full star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-2);"> <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 list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 476px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="ENT Credit Union logo" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/-dE2QEc7xf9amIQ9p7FG6sAjN-Y=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/ENT-Credit-Union-logo-e67607699e5c44969608565f3998998e.jpg" height="1000" width="1500"/> <noscript> <img alt="ENT Credit Union logo" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/-dE2QEc7xf9amIQ9p7FG6sAjN-Y=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/ENT-Credit-Union-logo-e67607699e5c44969608565f3998998e.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 10.24% - 17.99% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $1,000 - $100,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 36 months - 84 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On ent.com" data-tracking-container="false" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu" id="mntl-commerce-btn_1-0-2" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-26"> We selected Ent Credit Union primarily because of its rapid funding—you could have your funds deposited to your account as soon as the same day you are approved—but it offers a few other compelling features, too. Loan terms extend as far out as 84 months, which can help keep payments small. It offers a wide range of loan amounts up to $100,000 (although the $1,000 minimum won’t help you if you need to cover a smaller emergency). And its minimum required credit score is among the lower ones in our database.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-27"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>Ent Credit Union's minimum credit score is 619.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-28"> You’ll need to become a member of the credit union to get a loan, of course. Unfortunately, Ent doesn’t offer a prequalification tool, so you’ll need to go through a formal application to see if you qualify, and at what terms. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-29"> Ent Credit Union was founded in 1957 to serve the Ent Air Force Base in Colorado Springs, Colorado.<span class="ql-inline-citation" data-cite="83"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-31"> <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>Same day funding</p></li> <li><p>Low minimum credit score</p></li> <li><p>Accepts co-signers and co-borrowers</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>Higher advertised minimum APR</p></li> <li><p>Credit union membership required</p></li> <li><p>No prequalification</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="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-33"> To join ENT Credit Union, you must: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-34"> <li>Live, work, worship, or attend school in one of the 21 Colorado counties that it serves</li><li>Be civilian or military personnel of the Colorado Air National Guard or Colorado Army National Guard, or be associated with Buckley Air Force Base</li><li>Be the family member of an existing Ent member</li><li>Be a member of the American Consumers Council</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-34"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870" id="tabbed-sc-block--review-link_1-0-34" rel="noopener nocaes" target="_blank"><span class="">Ent Credit Union Personal Loans Review 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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-opploans"></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 With No Credit Check</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">OppLoans</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-3"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="2.9 out of 5 stars" class="comp star-rating" id="star-rating_5-0-3"> <span class="star-rating__label">2.9</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"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-3" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="80%" stop-color="#333e8b"></stop> <stop offset="80%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-3);"> <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 class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d5d5d5;"> <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__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 10px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="OppLoans logo" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" height="750" width="1500"/> <noscript> <img alt="OppLoans logo" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 160.00% - 179.00% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $500 - $4,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 9 months - 18 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-commerce-btn_1-0-3" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-37"> OppLoans may be worth considering for borrowers with poor credit who may not be able to qualify for another personal loan. Unlike most lenders, OppLoans doesn’t rely on your creditworthiness to make a lending decision. You also won’t pay origination fees and can access your money the same day. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-38"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-3"> <p>Opploans employs non-traditional underwriting and does not disclose a minimum credit score requirement.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-39"> However, these easily accessible loans come at a high cost. OppLoans has considerably higher interest rates than many other lenders—you’ll pay an APR of 160% for your six- to nine-month loan. Additionally, repayment plans are significantly shorter. </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"> Originally founded in 2012, OppLoans has offices in Chicago, Illinois, and Henderson, Nevada.<span class="ql-inline-citation" data-cite="79"></span><span class="ql-inline-citation" data-cite="80"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-42"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading"></span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Loan decision not based solely on credit score</p></li> <li><p>No origination fees</p></li> <li><p>Same-day funding available</p></li> <li><p>No late payment fees</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"></span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Very high interest rates</p></li> <li><p>Short repayment terms</p></li> <li><p>Not available in all states</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="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-44"> <li>Be at least 18 years of age</li><li>Have a bank account</li><li>Have a verifiable source of income</li><li>Receive income through direct deposit</li><li>Available in any state except Colorado, Connecticut, Georgia, Maryland, Massachusetts, Nevada, New Hampshire, New York, Pennsylvania, South Dakota, Vermont, West Virginia</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-44"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/opploans-personal-loans-review-5069762" id="tabbed-sc-block--review-link_1-0-44" rel="noopener nocaes" target="_blank"><span class="">OppLoans Personal Loans Review for 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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-universal-credit"></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">Also Good for Secured Loans</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Universal Credit</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-4"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.2 out of 5 stars" class="comp star-rating" id="star-rating_5-0-4"> <span class="star-rating__label">4.2</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_5-0-4" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="30%" stop-color="#333e8b"></stop> <stop offset="30%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-full star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-4);"> <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 list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Universal Credit" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/UXNcnp1DsLuuoVN605J-c8tH3RA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Universal-Credit-logo-c4b5437854d443d3b66643d97a0aadd1.jpg" height="750" width="1500"/> <noscript> <img alt="Universal Credit" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/UXNcnp1DsLuuoVN605J-c8tH3RA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Universal-Credit-logo-c4b5437854d443d3b66643d97a0aadd1.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 11.69% - 35.99% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $1,000 - $50,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 36 months - 60 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&amp;tag.pref_partner=universalcredit&amp;tag.lender=universalcredit" id="mntl-commerce-btn_1-0-4" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-47"> Universal Credit, like its parent Upgrade, offers personal loans backed by vehicles. Putting up collateral like a car can help you qualify for a loan that might be out of reach, or it can help you get a better rate on a loan you do qualify for. The risk is that if you can’t pay back the loan, you could lose your car. Another positive is that Universal Credit offers prequalification, so you can check on your eligibility without dinging your credit score. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-48"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-4"> <p>Universal Credit's minimum credit score is 620.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-49"> You can also apply with a co-borrower, and it has no minimum income requirement, both of which can make it easier for people with bad credit to qualify. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-50"> Universal Credit is among the more expensive lenders in our database. It charges origination fees, and its advertised APR range tilts toward the higher end. Be sure to take advantage of prequalification to compare with at least a couple more lenders. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros and Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-52"> <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>Accepts vehicles as collateral</p></li> <li><p>Offers prequalification</p></li> <li><p>No minimum income requirement</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>Steep origination fees</p></li> <li><p>Higher APR range</p></li> <li><p>Limited repayment terms</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <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_3-0-53"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-5"> <p>Putting up something you own as collateral for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured personal loan</a> can be a great way to get lower rates and increase your approval odds. But keep in mind it's especially important to make the payments on time because if you don't, your lender can take possession of your collateral.</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> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-55"> To qualify for a loan from Universal Credit, you’ll need to be 18 years old or older and meet some other requirements:<span class="ql-inline-citation" data-cite="84"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-56"> <li>Be U.S. citizen, permanent resident, or non-permanent resident with a valid visa</li><li>Have a credit score of 620 or higher</li><li>Must have a valid bank account</li><li>Must have a valid email address</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-56"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/universal-credit-personal-loans-review-8410022" id="tabbed-sc-block--review-link_1-0-56" rel="noopener nocaes" target="_blank"><span class="">Universal Credit Personal Loans Review for 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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-first-tech-federal-credit-union"></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 With a Co-Signer</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">First Tech Federal Credit Union</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-5"> <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_5-0-5"> <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_5-0-5" 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_5-0-5);"> <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 list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="First Tech Logo" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/xjx5fhQVZIs7zNWeiVGaIEwQ4vo=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/First_Tech_Logo_Black-ClearSpace-77144643204a4257bb72e74614a4b3a4.png" height="1000" width="1500"/> <noscript> <img alt="First Tech Logo" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/xjx5fhQVZIs7zNWeiVGaIEwQ4vo=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/First_Tech_Logo_Black-ClearSpace-77144643204a4257bb72e74614a4b3a4.png" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 8.94% - 18.00% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $500 - $50,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 24 months - 84 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech" id="mntl-commerce-btn_1-0-5" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-59"> First Tech Federal Credit Union offers loan amounts from $500 to $50,000 and accepts credit scores as low as 660, which is squarely in the ‘fair’ credit range. However, the credit union accepts both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/getting-personal-loan-cosigner-7557665">co-signers</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_borrowers.asp">co-borrowers</a>, so people with truly ‘bad’ credit may still be able to get a loan with First Tech if they borrow with someone else.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-60"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-6"> <p>First Tech Federal Credit Union's minimum credit score is 660.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-61"> Like other credit unions, APRs max at 18%, half of what many banks and other lenders offer. Loan terms extend up to 84 months, which can help keep monthly payments affordable. You can also defer your first payment for up to 45 days after your loan gets funded and purchase payment protection coverage, which can cover a payment if something unexpected happens and you can’t pay it.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-63"> <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>Allows co-signers and co-borrowers</p></li> <li><p>Flexible repayment terms</p></li> <li><p>Prequalification available</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>Minimum credit score may be too high for some borrowers</p></li> <li><p>Credit union membership required</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="3"> <span class="tabbed-sc-block__text">Qualification</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-65"> <li>You must be a member before you can obtain a loan from First Tech Federal Credit Union.</li><li>To qualify for a First Tech membership, you must work or live in Lane County, Oregon, have a family or household member who is already a member, work for the state of Oregon or for an employer on the credit union’s partner list, or belong to the Computer History Museum or the Financial Fitness Association.<span class="ql-inline-citation" data-cite="85"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-65"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073" id="tabbed-sc-block--review-link_1-0-65" rel="noopener nocaes" target="_blank"><span class="">First Tech Federal Credit Union Personal Loans Review 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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_1-0-6"> <span class="heading-toc" id="toc-patelco-credit-union"></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_1-0-6"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Credit Union</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Patelco Credit Union</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-6"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.7 out of 5 stars" class="comp star-rating" id="star-rating_5-0-6"> <span class="star-rating__label">4.7</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_5-0-6" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="60%" stop-color="#333e8b"></stop> <stop offset="60%" 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_5-0-6);"> <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 list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-6"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-6"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-6"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 599px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Patelco Credit Union" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/GQh7xHVNPlxvMNahOptTzVm_DyU=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/PatelcoCreditUnion-2710a2540a224fdc823143d06af54798.jpg" height="1000" width="1500"/> <noscript> <img alt="Patelco Credit Union" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/GQh7xHVNPlxvMNahOptTzVm_DyU=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/PatelcoCreditUnion-2710a2540a224fdc823143d06af54798.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 9.30% - 17.90% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $300 - $100,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 6 months - 84 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu" id="mntl-commerce-btn_1-0-6" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <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">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-68"> Patelco is our pick for the best credit union for bad credit emergency loans, and also has more loan flexibility than many other lenders. First, Patelco offers loans ranging from $300 to $100,000. This is a huge advantage because most lenders don’t offer loans of less than $1,000 or more than $50,000. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_3-0-69"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-7"> <p>Patelco Credit Union's minimum credit score is 640.</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 --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-70"> Patelco also offers flexible loan terms and competitive interest rates. Loan terms start at just six months, which offers you access to the best interest rates. You can also spread your loan out over as long as seven years for loans of $30,000 or more, which helps reduce your monthly payment. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-71"> Patelco charges a late fee of 3% of the late payment or $5, whichever is 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_3-0-72"> Finally, Patelco offers a variety of personal loan types that might appeal to borrowers with poor credit. In addition to an unsecured personal loan, you can also choose from a secured credit builder loan, a secured savings loan, and other secured lending options.<span class="ql-inline-citation" data-cite="66"></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_3-0-73"> Originally founded in 1936, Patelco has 37 branches across Northern California.<span class="ql-inline-citation" data-cite="76"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-75"> <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>Flexible loan amounts and repayment terms</p></li> <li><p>Low minimum APR</p></li> <li><p>Offers secured and unsecured 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>Only available to credit union members</p></li> <li><p>Charges late fees</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="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-77"> <li>Be a Patelco credit union member</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-77"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504" id="tabbed-sc-block--review-link_1-0-77" rel="noopener nocaes" target="_blank"><span class="">Patelco Credit Union Personal Loans Review 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </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 js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table" id="comparison-table_1-0"> <span class="heading-toc" id="comparison-table"></span> <h2 class="litho-comparison-table__header">Compare the Best Emergency Loans for Bad Credit: Compare Options for May 2024</h2> <table class="litho-comparison-table__table litho-comparison-table__table--pivot"> <thead class="loc tableHead"> <tr class="comp litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_1-0"> <th class="comp mntl-block" id="mntl-block_1-0"> <div class="comp js-table-action prm-comparison-table__collapse-btn mntl-text-block" data-action="toggle" data-class="litho-comparison-table__header-row--collapsed" data-click-action="Collapse" data-click-tracked="true" data-target=".litho-comparison-table__header-row" id="prm-comparison-table__collapse-btn_1-0"></div><!-- end: comp js-table-action prm-comparison-table__collapse-btn mntl-text-block --> </th><!-- end: comp mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_1-0"> Best For</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0"> APR Range</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-1"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-1"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-1"> Average Origination Fee</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-2"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-2"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-2"> Late Fee</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-3"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-3"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-3"> Time to Receive Loan</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-4"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-4"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-4"> Loan Amount</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-5"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-5"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-5"> Latest Repayment</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_2-0"></th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp mntl-block" id="mntl-block_2-0"> <div class="comp js-table-action prm-comparison-table__reset-btn mntl-text-block" data-action="remove" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Reset All" data-click-tracked="true" data-target=".litho-comparison-table__product-row--hidden" id="prm-comparison-table__reset-btn_1-0"> Reset All</div><!-- end: comp js-table-action prm-comparison-table__reset-btn mntl-text-block --> </th><!-- end: comp mntl-block --> </tr><!-- end: comp litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0"> Upgrade</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0"> Best Overall</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0"> 8.49% - 35.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-1"> 1.85%–9.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-2"> $10.00</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-3"> 1 day</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-4"> $1,000 - $50,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-5"> 84 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&amp;tag.pref_partner=upgrade&amp;tag.lender=upgrade" id="mntl-sc-block-commerce__button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Upgrade" data-click-tracked="true" data-target=".litho-comparison-table__product-row--0" id="prm-comparison-table__hide-btn_1-0"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-1"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-1"> Upstart</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-1"> Best for Low Minimum Credit Requirement</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-6"> 7.80% - 35.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-7"> 0.00%–12.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-8"> 5% of the late payment amount or $15, whichever is greater</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-9"> 1 days </td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-10"> $1,000 - $50,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-11"> 60 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-1"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&amp;tag.pref_partner=upstart&amp;tag.lender=upstart" id="mntl-sc-block-commerce__button_1-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-1"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Upstart" data-click-tracked="true" data-target=".litho-comparison-table__product-row--1" id="prm-comparison-table__hide-btn_1-0-1"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-2"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-2"> Ent Credit Union</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-2"> Best for Fast Funding </td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-12"> 10.24% - 17.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-13"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-14"> $15</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-15"> 0 days</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-16"> $1,000 - $100,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-17"> 84 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-2"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On ent.com" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu" id="mntl-sc-block-commerce__button_1-0-2" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-2"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Ent Credit Union" data-click-tracked="true" data-target=".litho-comparison-table__product-row--2" id="prm-comparison-table__hide-btn_1-0-2"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-3"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-3"> OppLoans</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-3"> Best With No Credit Check</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-18"> 160.00% - 179.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-19"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-20"> $0</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-21"> 0 days</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-22"> $500 - $4,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-23"> 18 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-3"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-sc-block-commerce__button_1-0-3" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-3"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | OppLoans" data-click-tracked="true" data-target=".litho-comparison-table__product-row--3" id="prm-comparison-table__hide-btn_1-0-3"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--4 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-4"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-4"> Universal Credit</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-4"> Also Good for Secured Loans</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-24"> 11.69% - 35.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-25"> 5.25% - 9.99%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-26"> $10.00</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-27"> 1 day</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-28"> $1,000 - $50,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-29"> 60 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-4"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&amp;tag.pref_partner=universalcredit&amp;tag.lender=universalcredit" id="mntl-sc-block-commerce__button_1-0-4" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-4"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Universal Credit" data-click-tracked="true" data-target=".litho-comparison-table__product-row--4" id="prm-comparison-table__hide-btn_1-0-4"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--4 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--5 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-5"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-5"> First Tech Federal Credit Union</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-5"> Best With a Co-Signer</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-30"> 8.94% - 18.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-31"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-32"> $15.00 - $25.00</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-33"> 0 days </td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-34"> $500 - $50,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-35"> 84 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-5"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech" id="mntl-sc-block-commerce__button_1-0-5" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-5"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | First Tech Federal Credit Union" data-click-tracked="true" data-target=".litho-comparison-table__product-row--5" id="prm-comparison-table__hide-btn_1-0-5"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--5 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--6 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-6"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-6"> Patelco Credit Union</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-6"> Best Credit Union</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-36"> 9.30% - 17.90%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-37"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-38"> 3% of loan payment or $5, whichever is higher</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-39"> 0 days</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-40"> $300 - $100,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-41"> 84 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-6"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu" id="mntl-sc-block-commerce__button_1-0-6" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-6"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Patelco Credit Union" data-click-tracked="true" data-target=".litho-comparison-table__product-row--6" id="prm-comparison-table__hide-btn_1-0-6"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--6 litho-comparison-table__product-row mntl-block --> </tbody> </table> <span class="litho-comparison-table__footnote">*APR ranges for some companies include a discount for automatic payments or existing bank customers.</span> </div><!-- end: comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table --> <div class="comp 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"> Upgrade is our favorite option for emergency loans for bad credit, thanks to its fast funding, competitive interest rates, rate discounts, and more. However, you may find an even better option based on your credit score, assets, desired monthly payment, and other factors. Make sure you compare loans from several financial institutions before you borrow. </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"> If you need an emergency loan to cover an unexpected expense, and have bad credit, you have quick funding options available. While not every lender offers loans to borrowers with poor credit, you can still choose from several great options that offer flexible loan amounts and repayment terms at competitive interest rates.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-is-an-emergency-loan"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-3"> <span class="mntl-sc-block-heading__text"> What Is an Emergency Loan?<br/> </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_4-0-4"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loan-types-eligibility-pros-and-cons-8637206">emergency loan</a> is a personal loan that provides a borrower with a lump sum of money that can be used for almost any purpose—including emergencies like unexpected medical bills and urgent home repairs. Personal loans are not your only option in an emergency. And if you have bad credit, you may need to consider other types of emergency loans like payday loans, pawn loans, or car title loans (learn more about these below). Each of these options will cost significantly more than a traditional personal loan yet may be an option if your credit is poor.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-5"> <span class="mntl-sc-block-subheading__text"> Why Get an Emergency Loan When You Have Bad Credit?<br> </br></span> </h3><!-- end: comp 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_4-0-6"> If you've got bad credit, this may be the worst time to get a personal loan, since your poor credit will limit your choices and cost you more money in fees and interest. That said, if you're in a tight spot, you may not have time to wait, and an emergency loan may be your best option. It can be cheaper than options such as a payday loan or credit card cash advance. And since an emergency loan is unsecured, it doesn't require you to put up collateral, as you would with a car title loan or a pawn loan. Plus, in addition to helping you out of a jam, your loan, properly managed, can help improve your credit score, in two ways:<span class="ql-inline-citation" data-cite="86"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-7"> <li>On-time payments will improve your payment history, the biggest component of your credit score, worth 35% of it</li><li>Adding an installment loan to your profile will improve your "credit mix," which is worth about 10% of your credit score.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-8"> <span class="mntl-sc-block-subheading__text"> Best Uses for an Emergency Loan </span> </h3><!-- end: comp 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_4-0-9"> Some lenders may have restrictions on how you can use the loan, such as for investing or gambling or to pay for college tuition and fees, but most situations that we would consider "emergencies" aren't among them. Because loans to borrowers with bad credit are expensive, you should carefully consider whether or not your situation is a true emergency. Situations that might qualify include: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> <li>An emergency medical bill</li><li>A home repair or replacement of an appliance</li><li>Car repairs</li><li>Replacement for lost income to cover monthly bills</li><li>Funeral costs<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-11"> In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">Investopedia's Personal Loan Borrowers Survey</a>, when we asked current and potential borrowers what they planned to use their loan for, more borrowers said debt consolidation than for any other reason. The next most common uses were loans for home improvements, large purchases, and medical expenses.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_4-0-12"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/T6dEU/7/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Debt Consolidation a Popular Reason to Get a Personal Loan"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-13"> <span class="mntl-sc-block-subheading__text"> How to Fix Your Bad Credit Score </span> </h3><!-- end: comp 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_4-0-14"> You won't find "Bad" credit as an official credit score rating, at least not in your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO credit score</a>. Instead, your bad credit may be "Fair" or "Poor" (or just "No Credit" if your credit history is thin).<span class="ql-inline-citation" data-cite="55"></span> The table below shows average APR by credit score, updated monthly. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_4-0-15"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/lgshq/5/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0-1" title="Average APR by Credit Score"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-16"> There's no secret to improving your credit score—and there are no shortcuts, either. The credit bureaus are transparent about what goes into a credit score. Once you understand those factors, you can create a plan and begin to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/credit-repair.asp">repair your credit</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_4-0-17"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/m5FKg/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0-2" title="FICO Credit Score Components"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-18"> <li><strong>Review your credit history</strong>: Visit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">annualcreditreport.com</a> and get copies of your credit history from each of the three bureaus. Review for errors, and dispute them. Check your credit score with your bank or another lender or financial institution—many provide FICO or other scores as a free benefit.</li> <li><strong>Pay your bills on time</strong>: The biggest piece of the credit score pie is payment history and simply making payments in full (and on time) will move your credit score higher.</li> <li><strong>Pay down debt</strong>: The next biggest piece of the pie is "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization</a>." That's how much of your available credit you are using. Say you have a credit card with a $10,000 limit and you have a $5,000 balance on that card. This would result in a utilization of 50%. Reducing that percentage as much as possible will improve your utilization, and your overall credit score.</li> <li><strong>Avoid hard inquiries</strong>: Applying for new loans will have a negative effect on your credit score as lenders will review your credit file—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 inquiry</a>. This dings your credit score slightly, since adding new debt to your finances makes you a riskier borrower.</li> <li><strong>Be patient and keep at it</strong>: Improving a bad credit score won't happen overnight. But it will happen if you stick with the plan. Track your progress with one of the many <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp">free credit score monitors</a> available from credit card issuers, banks, and others.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-pullquote 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_4-0-19"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-8"> <p>"A few years ago I had a few mis-steps with my credit due to bad medical debt and some late bills. My FICO score dropped to the mid 500s. It was really bad. But paying down my credit card balances and paying all my bills within 30 days really helped. I was able to get my FICO 8 score up to 700 in just a year. It helps to pay everything off, but getting your credit utilization under 50% and 30% and eventually 10% will drive your score up quickly—even with a lot of late payments on your record."—TJ Donegan, Senior Director, Investopedia Growth &amp; Strategy</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-pullquote 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-choose-the-best-emergency-loan"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-20"> <span class="mntl-sc-block-heading__text"> How to Choose the Best Emergency Loan </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_4-0-21"> When choosing an emergency loan for bad credit, some factors to consider include how much the loan will cost, the repayment terms you can get (which will determine your monthly payment), and how quickly you can apply and get funded. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-22"> <li><strong>How much the emergency loan will cost</strong>:<strong> </strong>The cost of an emergency loan is made up of the interest rate you’re charged and the fees you’ll pay to get the loan. A loan’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a> represents the sum of these two costs as an annual percentage of the amount borrowed. You should always consider lenders offering the lowest APR.</li> <li><strong>What repayment terms you can get on the loan</strong>:<strong> </strong>Before choosing a lender, ensure it offers a repayment timeline that fits your budget. Shorter repayment terms will result in larger payments since you’ll pay off the loan more quickly. This means you’ll also end up paying less interest over time. Look for a lender that offers the shortest repayment term you can comfortably afford.</li> <li><strong>How quickly you can apply and get funded</strong>:<strong> </strong>It’s also important to evaluate how easy it is to apply for the loan and how quickly you’ll get funded. These two factors are often related since lenders that offer an easy online application process may also offer fast funding. Many of the best lenders offer approval in minutes and funding in as few as one to three business days (sometimes even the same day).</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-apply-for-an-emergency-loan-if-you-have-bad-credit"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-23"> <span class="mntl-sc-block-heading__text"> How to Apply for an Emergency Loan If You Have Bad Credit </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_4-0-24"> Before applying for an emergency loan for bad credit, gather your <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">personally identifiable information</a> (e.g., Social Security number, date of birth, address), income information, and details about the funding you need (loan amount and purpose). This will make the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">application process</a> easier, as lenders will require you to provide this information.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-25"> <li><strong>Get pre-qualified</strong>: Submit a preliminary application with basic details to see if you qualify, which won’t affect your credit if the lender uses 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>. The lender will tell you if you qualify and the rates and terms you might be able to receive. Read the terms and conditions carefully. Go through this process with at least three lenders so you can compare offers.</li> <li><strong>Submit a complete application</strong>: If the rates and terms are acceptable to you, you can proceed with the full application. At this point, the lender will perform a hard credit inquiry, which will affect your credit score. You may also be asked to provide additional documentation, like copies of pay stubs or bank statements.</li> <li><strong>Accept the terms and get funded</strong>: If you’re approved, review the final loan offer and decide if the actual terms are acceptable. The lender will send you the funds in the manner specified in your application—for instance, depositing the funds into your checking account or disbursing the funds directly to your other creditors if you're consolidating debt.</li> <li><strong>Make a plan to repay the loan</strong>: Finally, you’ll set up your account via an online portal or mobile app so you can manage your loan.<br/></li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-pullquote 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_4-0-26"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-9"> <p>"In early 2015 I used a personal loan from PNC Bank to cover some unexpected, semi-urgent, and pricey medical costs and it was well worth it. Not only did it help me pay for what I needed to in less than 30 days (they were able to approve and disburse funds quickly following an online application), but it helped me avoid putting a 5-figure charge on a credit card with a 20%+ interest rate (the only other alternative I had at the time given my age, short credit history, and lower emergency savings account balance). The loan also helped diversify my credit profile, as I only had student loans and a couple credit cards back then. I watched my score rise as I started paying it off with on-time payments, too, which was an added bonus for someone still fairly early in their credit journey."—Sienna Wrenn, Senior Editor, Investopedia Special Projects</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-pullquote mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-alternatives-to-emergency-loans"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-27"> <span class="mntl-sc-block-heading__text"> Alternatives to Emergency Loans </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_4-0-28"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured personal loan</a> is not your only option for an urgent loan, but you should carefully evaluate all of the following alternatives before choosing one. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-29"> <li><strong>Credit card cash advance</strong>: Most credit cards allow you to withdraw cash—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>. These loans can be expensive, however, with APRs as high as the card's default rate (usually around 30%). You'll also be charged a withdrawal fee of a few percentage points of the amount advanced, and interest will begin accruing immediately.</li> <li><strong>Payday loan</strong>: 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 loan</a> is an advance on your next paycheck. These short-term loans come with high interest rates and fees, resulting in APRs of 400% and more.<span class="ql-inline-citation" data-cite="48"></span> Because of their expense, they can make it hard to break the cycle of debt.</li> <li><strong>Payday Alternative Loan (PAL)</strong>: Many credit unions offer PALs, loans of up to six months for relatively modest amounts—$1,000 or less.<span class="ql-inline-citation" data-cite="49"></span> While APRs can be steep, they are capped at 28% by federal regulation.<span class="ql-inline-citation" data-cite="50"></span></li> <li><strong>Cash app</strong>: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-best-cash-advance-apps-7973242">Apps and service</a>s like <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dave-your-budgeting-buddy-4691030">Dave</a>, Earnin, and the like offer short-term cash advances of small amounts ($20 to $500), for a fee. Most of these services charge a subscription and may have other requirements, like opening a checking account, on top of the fees associated with the loan.</li> <li><strong>Title loan</strong>: A title loan, or a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/car-title-loan.asp">car title loan</a>, is a secured loan option, backed by an asset you own, usually a car. Loan amounts are tied to the market value of the car, and often capped at 50% of that value. Terms are short—30 to 180 days—and APRs are as high as 400%.<span class="ql-inline-citation" data-cite="52"></span></li> <li><strong>Home equity loan</strong>: If you need a significant amount of money, and your emergency can wait, you can tap into the equity you have in your home, if any. The process of getting a <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">home equity loan</a> or home equity line of credit can take 30 to 60 days, or more, so this isn't the solution if you are in a hurry. Rates and fees will be considerably cheaper than other alternatives here, assuming you can qualify.</li> <li><strong>401(k) loan</strong>: If you have a <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp">401(k) through your employer</a>, you may be able to borrow from it. Loans are capped at half the account's value or $50,000, whichever is lower.<span class="ql-inline-citation" data-cite="51"></span> Fund access is fast, 7-10 days. You'll have to repay the loan, with interest, within five years. The interest is paid into your account, and in effect it is like recouping some of earnings loss you experienced due to the withdrawal of funds.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-build-an-emergency-fund"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-30"> <span class="mntl-sc-block-heading__text"> How to Build an Emergency Fund </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_4-0-31"> If emergencies are unavoidable, borrowing to pay for one doesn't have to be. All you need is a dedicated savings account—<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/">an emergency fund</a>—to help see you through. But how do you build one? </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-32"> <li><strong>Set a savings goal</strong>: How much should you save? You might aim for several months worth of living expenses (just the basics), or focus on the types of emergency spending you've experienced (car repairs or a vet bill, say) and set an amount that would cover that as your goal.<span class="ql-inline-citation" data-cite="56"></span></li> <li><strong>Set up consistent savings</strong>: Find a system that works for you that makes saving automatic and consistent. One way is to set up automatic fund transfers to a dedicated savings account. The transfers do not need to be large. Consistency is the key.</li> <li><strong>Set aside windfalls</strong>: If you get a bonus at work, a tax rebate, or some other financial good luck, resist the urge to spend all of it. Send some to your emergency savings account to boost your financial cushion.</li> <li><strong>Decide where to save it</strong>: Banks and credit unions are the obvious choices. Look for <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> that will help your money grow faster.</li> <li><strong>Be careful about spending it</strong>: Not every emergency is dire, so be careful about spending your emergency fund. Regular car maintenance is not an emergency (ideally you'll budget for this); a repair to keep your car safely on the road and operable is worthy of a dip into your emergency fund.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-33"> <span class="heading-toc" id="toc-frequently-asked-questions-faqs-7ef8e6d6-4a40-4f97-914e-4632e233a84d"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">How Much Will an Emergency Loan for Bad Credit Cost?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-0"> <div class="faq-accordion__item-answer"> <p>An emergency personal loan for bad credit will usually come with the typical fees of any personal loan—mainly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan-application-fee.asp">origination fees</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance_charge.asp">interest fees</a>, and late payment fees. But those fees may be higher than a loan offered to a person with good credit.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Where Can You Get an Emergency Loan if You Have Bad Credit?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Multiple types of lenders offer emergency loans for bad credit, including: </p><ul><li>Online lenders</li><li>Credit unions</li><li>Traditional banks</li><li>Credit card companies (cash advances)</li><li>Payday lenders</li><li>Relatives and friends</li></ul><p>Remember, just because a borrowing option is available doesn’t mean it’s a good choice. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111414/how-does-interest-work-cash-advance-my-credit-card.asp">Credit card cash advances</a>, for example, are notoriously expensive and might damage your credit score by driving up your credit utilization ratio. </p><p>It’s also a good idea to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insights/080116/title-loans-vs-payday-loans-which-are-better.asp">avoid payday loans and title loans</a> whenever possible. The Consumer Financial Protection Bureau (CFPB) warns that the average two-week payday loan features a steep APR that’s equivalent to nearly 400%.<span class="ql-inline-citation" data-cite="37"></span></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">Will an Emergency Loan Impact My Credit Score?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>Some types of emergency loans can affect your credit score, while others will not. If a lender doesn’t report your account to one of the three <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">major credit bureaus</a>, the loan won’t influence your credit score—unless you default and a collection agency adds the bad debt to your credit reports at a later date. However, if a lender does share your account details with the credit bureaus, that’s a different story.</p><p>A traditional bank, credit union, and online lender generally will report account details to the credit bureaus. Payday lenders and title lenders generally do not.<span class="ql-inline-citation" data-cite="44"></span></p><p>When a lender reports an emergency loan to the credit bureaus, the way you manage the account dictates whether it will help or hurt your credit score. If you make your payments on time, the account may benefit your credit score in the long run. However, if you make late payments or become past due on your debt, that emergency loan could hurt your credit score instead.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">How Fast Can I Get an Emergency Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>Many lenders offer fast funding to qualified borrowers. Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loan lenders</a> may even deposit the funds into your bank account the same day you’re approved for financing. </p><p>On the other hand, loan funding can sometimes take several days or even up to a few weeks. Certain lenders may take longer to process your loan application or release your funds than others. There’s also a chance that your personal bank or credit union may hold the funds a lender deposits into your account for a few days before you can access the money. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">Can You Get an Emergency Loan With No Credit Check?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>Although some lenders do provide loans without credit checks, they're not recommended. Such lenders (like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loan lenders</a>) often charge steep origination or application fees and high APRs. Not only are these types of loans very expensive, but you might end up getting stuck in a payday borrowing cycle that’s difficult to escape.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-5" tabindex="-1"> <h3 class="accordion__title">What Is the Minimum Credit Score for an Emergency Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-5"> <div class="faq-accordion__item-answer"> <p>Among the lenders on our list, Upstart says it will offer loans to borrowers with credit scores of just 300, as long there are no other adverse entries in the credit report. Other lenders we researched report minimum credit scores of 580 or 560, which are considered 'Fair' and 'Poor', respectively.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-6" tabindex="-1"> <h3 class="accordion__title">How Can I Borrow Money Fast in an Emergency?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-6"> <div class="faq-accordion__item-answer"> <p>If your first priority is fast cash, you have several options, although some of them will be expensive, with high interest rates and fees.</p><ul><li><strong>A personal loan from an online lender or your bank</strong>: Some online lenders can approve and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-fast-personal-loans-7110852">fund a loan the same day</a>. Similarly, a bank or credit union you already have a relationship with may be able to approve and fund a loan in a day or two.</li><li><strong>A payday loan</strong>: Payday lenders can fund these short term loans the same day. Interest rate and fees can be exorbitant, however, and you'll have to repay it by your next payday. You'll generally <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp">need to provide some identification</a>, proof of income, and have a checking account.</li><li><strong>A pawn loan</strong>: Pawnshop lenders can provide a short-term loan, secured by your property, the same day. Rates and terms are regulated by state governments. In California, for example, pawn loans cannot be longer than 120 days and interest is capped at 3% per month.<span class="ql-inline-citation" data-cite="87"></span></li><li><strong>A credit card cash advance</strong>: If you have a credit card, chances are it allows you to access your credit as cash. You can do this at an ATM, which makes this a really fast option. (You'll need to know your card account's PIN.) Generally the amount you can withdraw is a fraction of your credit limit, and the interest rate will be higher than the standard purchase rate. You'll also pay a fee (3%-5% of the amount borrowed).</li></ul> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-7" tabindex="-1"> <h3 class="accordion__title">Companies We Reviewed</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-7"> <div class="faq-accordion__item-answer"> <p>We researched and reviewed 70 companies to find the best seven lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the companies we researched, along with links to individual company reviews, to help you learn more before making a decision: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/freedom-plus-personal-loans-review-4800935">Achieve</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/affinity-federal-credit-union-personal-loans-review-8410017">Affinity Federal Credit Union</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/alliant-credit-union-personal-loans-review-8401682">Alliant Credit Union</a>,<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-personal-loans-review-5069612"> American Express</a>,<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/avant-personal-loans-review-4802261"> Avant</a>, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/axos-bank-personal-loans-review-8408454">Axos Bank</a>, Bankers Healthcare Group,<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-egg-personal-loans-review-4802359"> Best Egg</a>,<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bethpage-federal-credit-union-personal-loans-review-8365116"> Bethpage Federal Credit Union</a>,<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blue-federal-credit-union-personal-loans-review-8374431"> Blue Federal Credit Union</a>, Boatloan.com,<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/becu-personal-loans-review-5211750"> Boeing Employees' Credit Union</a>, CapexMD,<a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citibank-personal-loans-review-4799909"> Citibank</a>, <a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/connexus-credit-union-personal-loans-review-8407390">Connexus Credit Union</a>,<a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/discover-personal-loans-review-4799530"> Discover</a>, Dividend Finance,<a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870"> ENT Credit Union</a>, Fig Loans,<a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073"> First Tech Federal Credit Union</a>, Future Family, GoodLeap, <a data-component="link" data-ordinal="16" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/greenstate-credit-union-personal-loans-review-8408463">Greenstate Credit Union</a>,<a data-component="link" data-ordinal="17" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/payoff-personal-loans-review-4842918"> Happy Money</a>, <a data-component="link" data-ordinal="18" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hiway-credit-union-personal-loans-review-8411068">Hiway Credit Union</a>,<a data-component="link" data-ordinal="19" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lake-michigan-credit-union-personal-loans-review-8384413"> Lake Michigan Credit Union</a>,<a data-component="link" data-ordinal="20" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/laurel-road-personal-loans-review-4799934"> Laurel Road</a>,<a data-component="link" data-ordinal="21" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingclub-personal-loans-review-4800191"> LendingClub</a>,<a data-component="link" data-ordinal="22" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingpoint-personal-loans-review-4842605"> LendingPoint</a>, <a data-component="link" data-ordinal="23" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingusa-personal-loans-review-8404359">LendingUSA</a>, <a data-component="link" data-ordinal="24" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/liberty-federal-credit-union-personal-loans-review-8408457">Liberty Federal Credit Union</a>,<a data-component="link" data-ordinal="25" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lightstream-personal-loans-review-4800841"> LightStream</a>, Lyon Financial, Mariner, Money Key,<a data-component="link" data-ordinal="26" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160"> Mountain America Credit Union</a>,<a data-component="link" data-ordinal="27" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484"> NASA Federal Credit Union</a>,<a data-component="link" data-ordinal="28" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366"> Navy Federal Credit Union</a>,<a data-component="link" data-ordinal="29" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/netcredit-personal-loans-review-6890038"> Netcredit</a>,<a data-component="link" data-ordinal="30" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-midwest-bank-personal-loans-review-5070056"> Old National Bank</a>,<a data-component="link" data-ordinal="31" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/onemain-financial-personal-loans-review-4843162"> OneMain Financial</a>,<a data-component="link" data-ordinal="32" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/opploans-personal-loans-review-5069762"> OppLoans</a>,<a data-component="link" data-ordinal="33" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504"> Patelco Credit Union</a>,<a data-component="link" data-ordinal="34" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/penfed-personal-loans-review-4800862"> PenFed</a>,<a data-component="link" data-ordinal="35" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personify-financial-personal-loans-review-8363570"> Personify Financial</a>,<a data-component="link" data-ordinal="36" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pnc-personal-loan-review-4846471"> PNC Bank</a>,<a data-component="link" data-ordinal="37" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/prosper-personal-loans-review-4843741"> Prosper</a>,<a data-component="link" data-ordinal="38" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reach-financial-personal-loans-review-8383953"> Reach Financial</a>,<a data-component="link" data-ordinal="39" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/regions-personal-loans-review-5072600"> Regions</a>, <a data-component="link" data-ordinal="40" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reprise-financial-personal-loans-review-8408473">Reprise</a>,<a data-component="link" data-ordinal="41" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/rocket-loans-personal-loans-review-5069748"> Rocket Loans</a>,<a data-component="link" data-ordinal="42" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/santander-bank-personal-loans-review-5211820"> Santander</a>, <a data-component="link" data-ordinal="43" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/service-credit-union-personal-loans-review-8410020">Service Federal Credit Union</a>,<a data-component="link" data-ordinal="44" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-personal-loans-review-4797398"> SoFi</a>, Southeast Financial, <a data-component="link" data-ordinal="45" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/summit-credit-union-personal-loans-review-8414132">Summit Credit Union</a>, SunPower,<a data-component="link" data-ordinal="46" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-personal-loans-review-4801451"> TD Bank</a>,<a data-component="link" data-ordinal="47" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783"> Teachers Federal Credit Union</a>, Trident Funding,<a data-component="link" data-ordinal="48" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/truist-personal-loans-review-5210721"> Truist</a>,<a data-component="link" data-ordinal="49" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-bank-personal-loans-review-4843013"> U.S. Bank</a>, <a data-component="link" data-ordinal="50" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/universal-credit-personal-loans-review-8410022">Universal Credit</a>,<a data-component="link" data-ordinal="51" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upgrade-personal-loans-review-4842832"> Upgrade</a>,<a data-component="link" data-ordinal="52" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upstart-personal-loans-review-4843810"> Upstart</a>,<a data-component="link" data-ordinal="53" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/usaa-personal-loans-review-4845449"> USAA</a>, Vantage Recreational Finance,<a data-component="link" data-ordinal="54" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wells-fargo-personal-loans-review-4842091"> Wells Fargo</a>.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-how-we-picked-the-best-emergency-loans-for-bad-credit"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-34"> <span class="mntl-sc-block-heading__text"> How We Picked the Best Emergency Loans for Bad Credit </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_4-0-35"> To evaluate and rank personal loan providers we collected hundreds of data points across 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">survey we conducted</a>. We grouped those factors into four broad areas: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-36"> <li>Loan costs (advertised APR, fees, and six other factors): 29.25%</li><li>Loan terms (loan amount, repayment term, and three other factors): 22.25%</li><li>Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%</li><li>Additional features (online application, pre-qualification, and eight other factors): 20%</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-37"> Investopedia launched in 1999, and has been helping readers find the best bad credit emergency loan companies since 2020. Learn more about how we evaluated personal loans in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-review-methodology-5088280">our complete methodology</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-learn-more-about-emergency-loans"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-38"> <span class="mntl-sc-block-heading__text"> Learn More About Emergency Loans </span> </h2><!-- end: comp 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_4-0-39"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/instant-personal-loans-how-fast-can-you-get-funds-7963254">Instant Personal Loans</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">What Is a Payday Loan?</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency-credit.asp">What Is Emergency Credit?</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-an-emergency-loan-8350807">How to Get an Emergency Loan</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-an-emergency-student-loan-7255730">How to Get an Emergency Student Loan</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">How to Apply for a Personal Loan</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-use-personal-loan-7562541">How to Use a Personal Loan</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/041415/pros-cons-personal-loans-vs-credit-cards.asp">Personal Loans vs. Credit Cards</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/payday-loans-vs-personal-loans-5214282">Payday Loans vs. Personal Loans</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/7-alternatives-personal-loan-7567417">Alternatives to Personal Loans</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/easiest-personal-loans-approved-7644059">What Are the Easiest Personal Loans to Get Approved For?</a></li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">What Is a Personal Loan?</a></li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-to-get-a-personal-loan-other-than-a-bank-7643189">Where to Get a Personal Loan</a></li> <li><a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">Best Personal Loans</a></li> <li><a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">Best Personal Loans for Bad Credit</a></li> <li><a data-component="link" data-ordinal="16" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-fast-personal-loans-7110852">Best Fast Personal Loans</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="A collage shows a woman recovering in a hospital bed and another image shows a mechanic working on the underside of a car raised up on a garage lift." class="primary-image__image mntl-primary-image--blurry" height="4167" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/3X4lbuf5joGXgFECKNY_pYaBjdg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg" srcset="https://www.investopedia.com/thmb/GHBJUt-U-IB1--iRDRQTjvTFFRE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhCgAHAPUAAAMGAAciIxszNiwpLC4rLwAsQTA2RDk3QClca0JCS1VMTFp3fXRcSHpdSmlpdid0jkN9lFZuiTiKqg6e10iBmIx6caJ4YctDEIOhs4Sruomqt4+ruqy0uLynsrC5wKLH16XE07fQ2sWtxca4xM67ydOuxMDb6dfr9Njt9Nrs9Nzu9vfUxefp6+Lv9OPv9eTw9uXx9uj19+71+fDy8fHz8gMGAAMGAAMGAAMGAAMGAAMGAAMGAAMGAAMGAAMGAAMGACwAAAAACgAHAEUISgBXCCxRggIEBAACEOCggKCEDzEKNCC44oGMDSEumGDgIIKBAx4ItkihQuAKgiAwZBCwgESHCiJGWDihAcUEGgkGzGBBEMYLFwEBADs=')" width="6250"/> <noscript> <img alt="A collage shows a woman recovering in a hospital bed and another image shows a mechanic working on the underside of a car raised up on a garage lift." class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="4167" sizes="750px" src="https://www.investopedia.com/thmb/3X4lbuf5joGXgFECKNY_pYaBjdg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg" srcset="https://www.investopedia.com/thmb/GHBJUt-U-IB1--iRDRQTjvTFFRE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>Investopedia</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </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 finance-taglines mntl-taglines" id="finance-taglines_1-0"><div class="comp mntl-taglines__group mntl-block" id="mntl-taglines__group_1-0"><div class="comp mntl-taglines__item mntl-attribution__item" id="mntl-taglines__item_1-0"> <span class="mntl-attribution__item-descriptor">Updated by</span> <div data-inline-tooltip="true" data-tooltip="Erin Gobler is personal finance coach and a writer with over decade of experience. She specializes in writing about investing, cryptocurrency, stocks, and more. 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She specializes in writing about investing, cryptocurrency, stocks, and more. Her work has been published on major financial websites including Bankrate, Fox Business, Credit Karma, The Simple Dollar, and more. </div> </div> <div class="mntl-author-tooltip__bottom"> <span class="mntl-author-tooltip__learn-more-text">Learn about our </span> <a class="mntl-author-tooltip__learn-more-link" href="/legal-4768893#editorial-policy" rel="nocaes">editorial policies</a> </div> </div></div> </div></div></div> <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-58"><p>Upgrade. 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"<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/company/upstart-network">Upstart</a>."</p></li> <li class="mntl-sources__source" id="citation-83"><p>Ent Credit Union. ”<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ent.com/about-us/who-we-are/history/">About Us</a>.”</p></li> <li class="mntl-sources__source" id="citation-79"><p>CBInsights. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cbinsights.com/company/opploans">OppLoans</a>."</p></li> <li class="mntl-sources__source" id="citation-80"><p>OppLoans. 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After hundreds of hours of research and analysis, we chose [Upgrade](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&tag.pref_partner=upgrade&tag.lender=upgrade&tag.docid=5075539&tag.reqid=nf96673a9b0024bb2941d7d3a7e46bd1b18) as the lender that provides the best emergency loans for bad credit. It offers fast funding, a low minimum credit score, and a wide range of loan terms and amounts. All the lenders in our collection serve borrowers in a hurry (to cover an emergency auto repair, say, or an unexpected medical expense), and who have poor credit. The list names lenders with the most relaxed credit requirements (if not the most affordable rates). We have also included nationally available credit unions because they are often the most consumer-friendly. We researched 70 personal loan lenders and evaluated them on 31 factors, including cost, loan terms, borrower requirements, and additional features. We then narrowed our list of companies to the lenders best suited to provide emergency loans for borrowers with bad or poor credit. ## Best Emergency Loans for Bad Credit: Compare Options for May 2024 #### Show Full List View #### Hide Full List View * **Best Overall:** [Upgrade](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&tag.pref_partner=upgrade&tag.lender=upgrade) * **Best for Low Minimum Credit Requirement:** [Upstart](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&tag.pref_partner=upstart&tag.lender=upstart) * **Best for Fast Funding :** [Ent Credit Union](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu) * **Best With No Credit Check:** [OppLoans](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) * **Also Good for Secured Loans:** [Universal Credit](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&tag.pref_partner=universalcredit&tag.lender=universalcredit) * **Best With a Co-Signer:** [First Tech Federal Credit Union](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech) * **Best Credit Union:** [Patelco Credit Union](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu) If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies: * [Best Home Warranties](https://www.investopedia.com/best-home-warranties-4777763) * [Best Emergency Loans for Bad Credit](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539) * [Best Personal Loans for Bad Credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349) | Company | | APR | Credit Score est. | Loan Amount | More Details | | --- | --- | --- | --- | --- | --- | | Best Overall | Upgrade Upgrade | APR With Autopay Discount **8.49% - 35.99%** | Recommended Minimum Credit Score **620** This lender does not disclose its minimum credit score requirements. | Loan Amount **$1,000 - $50,000** | [See Details](#toc-upgrade) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&tag.pref_partner=upgrade&tag.lender=upgrade) | | Best for Low Minimum Credit Requirement | Upstart Upstart | APR Range **7.80% - 35.99%** | Recommended Minimum Credit Score **300** This lender does not disclose its minimum credit score requirements. | Loan Amount **$1,000 - $50,000** | [See Details](#toc-upstart) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&tag.pref_partner=upstart&tag.lender=upstart) | | Best for Fast Funding | Ent Credit Union Ent Credit Union | APR With Autopay Discount **10.24% - 17.99%** | Recommended Minimum Credit Score **619** This lender does not disclose its minimum credit score requirements. | Loan Amount **$1,000 - $100,000** | [See Details](#toc-ent-credit-union) [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu) | | Best With No Credit Check | OppLoans OppLoans | APR Range **160.00% - 179.00%** | Recommended Minimum Credit Score **Not Disclosed** This lender does not disclose its minimum credit score requirements. | Loan Amount **$500 - $4,000** | [See Details](#toc-opploans) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) | | Also Good for Secured Loans | Universal Credit Universal Credit | APR With Autopay Discount **11.69% - 35.99%** | Recommended Minimum Credit Score **Not Disclosed** This lender does not disclose its minimum credit score requirements. | Loan Amount **$1,000 - $50,000** | [See Details](#toc-universal-credit) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&tag.pref_partner=universalcredit&tag.lender=universalcredit) | | Best With a Co-Signer | First Tech Federal Credit Union First Tech Federal Credit Union | APR Range **8.94% - 18.00%** | Recommended Minimum Credit Score **660** This lender does not disclose its minimum credit score requirements. | Loan Amount **$500 - $50,000** | [See Details](#toc-first-tech-federal-credit-union) [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech) | | Best Credit Union | Patelco Credit Union Patelco Credit Union | APR Range **9.30% - 17.90%** | Recommended Minimum Credit Score **640** This lender does not disclose its minimum credit score requirements. | Loan Amount **$300 - $100,000** | [See Details](#toc-patelco-credit-union) [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu) | Why Trust Us 70 Lenders reviewed 31 Loan features considered 1,680 Data points analyzed 173 Primary data sources used Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. [Read our Full Methodology](https://www.investopedia.com/personal-loan-review-methodology-5088280) Best Emergency Loans for Bad Credit for May 2024 Expand Best Emergency Loans for Bad Credit for May 2024 * [Our Top Picks](#summary-list) * [Upgrade](#toc-upgrade) * [Upstart](#toc-upstart) * [Ent Credit Union](#toc-ent-credit-union) * [OppLoans](#toc-opploans) * [Universal Credit](#toc-universal-credit) * [First Tech Federal Credit Union](#toc-first-tech-federal-credit-union) * [Patelco Credit Union](#toc-patelco-credit-union) * See More (4) * [Compare Providers](#comparison-table) * [The Bottom Line](#toc-the-bottom-line) * [What Is an Emergency Loan?](#toc-what-is-an-emergency-loan) * [How to Choose](#toc-how-to-choose-the-best-emergency-loan) * [How to Apply](#toc-how-to-apply-for-an-emergency-loan-if-you-have-bad-credit) * [Alternatives](#toc-alternatives-to-emergency-loans) * [Emergency Funds](#toc-how-to-build-an-emergency-fund) * [Methodology](#toc-how-we-picked-the-best-emergency-loans-for-bad-credit) * [Learn More About Emergency Loans](#toc-learn-more-about-emergency-loans) ### Best Overall : Upgrade Investopedia's Rating 4.6 --- ![Upgrade Logo]() :fill(white):max_bytes(150000):strip_icc()/Upgrade-Logo-bc0ec4b2fc0b48daaefbde361ccabe98.jpeg) * **APR Range:** 8.49% - 35.99% * **Loan Amount:** $1,000 - $50,000 * **Loan Terms:** 24 months - 84 months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&tag.pref_partner=upgrade&tag.lender=upgrade) **Also the best personal loan lender for:** * Repayment Terms * Secured Loans Why We Chose It Upgrade is our favorite overall emergency loan option because it has competitive interest rates, offers fast funding, and is available to borrowers with fair credit. It's also the best option for flexible repayment terms (up to 84 months), and for secured loans (it offers borrowers the option of using a vehicle as collateral). Upgrade's minimum credit score is 640. Upgrade offers a wide range of loan amounts. You also have the option to apply with a co-borrower if your credit isn’t sufficient to qualify by yourself. And you can receive your loan funds within one day of your loan being approved, making Upgrade a good choice when you’re up against a financial emergency. Many lenders we evaluated don't charge origination or late payment fees. In contrast, Upgrade charges a late fee of up to $10 if your loan payment is not paid within 15 days of the due date and origination fees go all the way up to 9.99% of the amount borrowed. Originally founded in 2016, Upgrade is headquartered in San Francisco, California, and has offices in Phoenix, Arizona; Atlanta, Georgia; Orange County, California; and Montreal, Quebec. Pros & Cons Pros * Funding within one business day * Flexible repayment terms * Secured loans available Cons * Origination fee up to 9.99% * High maximum APR * Charges late fees Qualifications * Have a 620 credit score * Be a U.S. citizen or permanent resident or have a valid visa * Be at least 18 years of age * Have a verifiable bank account and email address Read the Full [Upgrade Personal Loans Review 2024](https://www.investopedia.com/upgrade-personal-loans-review-4842832) ### Best for Low Minimum Credit Requirement : Upstart Investopedia's Rating 4.1 --- ![Upstart logo]() :fill(white):max_bytes(150000):strip_icc()/upstart-f229ab62838d4a88a95cde6a6f74bc49.png) * **APR Range:** 7.80% - 35.99% * **Loan Amount:** $1,000 - $50,000 * **Loan Terms:** 36 months - 60 months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&tag.pref_partner=upstart&tag.lender=upstart) Why We Chose It If your income has held you back from getting a personal loan, Upstart might be right for you. There’s no minimum credit score required to qualify. You either must have a credit score or have graduated from or are currently enrolled in a higher education program. This makes Upstart the best choice for borrowers with poor credit. Upstart's minimum credit score is 300. Another benefit of getting a loan through Upstart is the lender’s competitive interest rates. The maximum interest rate is on the higher end—though it's on par for bad credit loans— but its minimum credit score is lower than any other lender we considered. Upstart charges a late fee of 5% of the payment or $15, whichever is greater, if your payment is not received by 15 days after the due date. Originally founded in 2012, Upstart is headquartered in San Mateo, California, and has offices in Columbus, Ohio; and Austin, Texas. Pros & Cons Pros * No minimum credit score * Low minimum APR * Funding the next business day Cons * Origination fee as high as 12% * Limited range of repayment terms * Charges late fees Qualifications * Have a verifiable name, date of birth, and Social Security number * Be at least 18 years of age * Meet the lender’s credit and/or education requirements * Have a U.S. mailing address * Have a valid email address * Have a verifiable source of income * Have a U.S. bank account Read the Full [Upstart Personal Loans Review 2024](https://www.investopedia.com/upstart-personal-loans-review-4843810) ### Best for Fast Funding : Ent Credit Union Investopedia's Rating 4.2 --- ![ENT Credit Union logo]() :fill(white):max_bytes(150000):strip_icc()/ENT-Credit-Union-logo-e67607699e5c44969608565f3998998e.jpg) * **APR Range:** 10.24% - 17.99% * **Loan Amount:** $1,000 - $100,000 * **Loan Terms:** 36 months - 84 months [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu) Why We Chose It We selected Ent Credit Union primarily because of its rapid funding—you could have your funds deposited to your account as soon as the same day you are approved—but it offers a few other compelling features, too. Loan terms extend as far out as 84 months, which can help keep payments small. It offers a wide range of loan amounts up to $100,000 (although the $1,000 minimum won’t help you if you need to cover a smaller emergency). And its minimum required credit score is among the lower ones in our database.  Ent Credit Union's minimum credit score is 619. You’ll need to become a member of the credit union to get a loan, of course. Unfortunately, Ent doesn’t offer a prequalification tool, so you’ll need to go through a formal application to see if you qualify, and at what terms. Ent Credit Union was founded in 1957 to serve the Ent Air Force Base in Colorado Springs, Colorado. Pros & Cons Pros * Same day funding * Low minimum credit score * Accepts co-signers and co-borrowers Cons * Higher advertised minimum APR * Credit union membership required * No prequalification Qualifications To join ENT Credit Union, you must: * Live, work, worship, or attend school in one of the 21 Colorado counties that it serves * Be civilian or military personnel of the Colorado Air National Guard or Colorado Army National Guard, or be associated with Buckley Air Force Base * Be the family member of an existing Ent member * Be a member of the American Consumers Council Read the Full [Ent Credit Union Personal Loans Review 2024](https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870) ### Best With No Credit Check : OppLoans Investopedia's Rating 2.9 --- ![OppLoans logo]() :fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg) * **APR Range:** 160.00% - 179.00% * **Loan Amount:** $500 - $4,000 * **Loan Terms:** 9 months - 18 months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) Why We Chose It OppLoans may be worth considering for borrowers with poor credit who may not be able to qualify for another personal loan. Unlike most lenders, OppLoans doesn’t rely on your creditworthiness to make a lending decision. You also won’t pay origination fees and can access your money the same day. Opploans employs non-traditional underwriting and does not disclose a minimum credit score requirement. However, these easily accessible loans come at a high cost. OppLoans has considerably higher interest rates than many other lenders—you’ll pay an APR of 160% for your six- to nine-month loan. Additionally, repayment plans are significantly shorter. Originally founded in 2012, OppLoans has offices in Chicago, Illinois, and Henderson, Nevada. Pros & Cons * Loan decision not based solely on credit score * No origination fees * Same-day funding available * No late payment fees * Very high interest rates * Short repayment terms * Not available in all states Qualifications * Be at least 18 years of age * Have a bank account * Have a verifiable source of income * Receive income through direct deposit * Available in any state except Colorado, Connecticut, Georgia, Maryland, Massachusetts, Nevada, New Hampshire, New York, Pennsylvania, South Dakota, Vermont, West Virginia Read the Full [OppLoans Personal Loans Review for 2024](https://www.investopedia.com/opploans-personal-loans-review-5069762) ### Also Good for Secured Loans : Universal Credit Investopedia's Rating 4.2 --- ![Universal Credit]() :fill(white):max_bytes(150000):strip_icc()/Universal-Credit-logo-c4b5437854d443d3b66643d97a0aadd1.jpg) * **APR Range:** 11.69% - 35.99% * **Loan Amount:** $1,000 - $50,000 * **Loan Terms:** 36 months - 60 months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&tag.pref_partner=universalcredit&tag.lender=universalcredit) Why We Chose It Universal Credit, like its parent Upgrade, offers personal loans backed by vehicles. Putting up collateral like a car can help you qualify for a loan that might be out of reach, or it can help you get a better rate on a loan you do qualify for. The risk is that if you can’t pay back the loan, you could lose your car. Another positive is that Universal Credit offers prequalification, so you can check on your eligibility without dinging your credit score. Universal Credit's minimum credit score is 620. You can also apply with a co-borrower, and it has no minimum income requirement, both of which can make it easier for people with bad credit to qualify. Universal Credit is among the more expensive lenders in our database. It charges origination fees, and its advertised APR range tilts toward the higher end. Be sure to take advantage of prequalification to compare with at least a couple more lenders. Pros and Cons Pros * Accepts vehicles as collateral * Offers prequalification * No minimum income requirement Cons * Steep origination fees * Higher APR range * Limited repayment terms Putting up something you own as collateral for a [secured personal loan](https://www.investopedia.com/secured-loans-5076025) can be a great way to get lower rates and increase your approval odds. But keep in mind it's especially important to make the payments on time because if you don't, your lender can take possession of your collateral. Qualifications To qualify for a loan from Universal Credit, you’ll need to be 18 years old or older and meet some other requirements: * Be U.S. citizen, permanent resident, or non-permanent resident with a valid visa * Have a credit score of 620 or higher * Must have a valid bank account * Must have a valid email address Read the Full [Universal Credit Personal Loans Review for 2024](https://www.investopedia.com/universal-credit-personal-loans-review-8410022) ### Best With a Co-Signer : First Tech Federal Credit Union Investopedia's Rating 4.6 --- ![First Tech Logo]() :fill(white):max_bytes(150000):strip_icc()/First_Tech_Logo_Black-ClearSpace-77144643204a4257bb72e74614a4b3a4.png) * **APR Range:** 8.94% - 18.00% * **Loan Amount:** $500 - $50,000 * **Loan Terms:** 24 months - 84 months [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech) Why We Chose It First Tech Federal Credit Union offers loan amounts from $500 to $50,000 and accepts credit scores as low as 660, which is squarely in the ‘fair’ credit range. However, the credit union accepts both [co-signers](https://www.investopedia.com/getting-personal-loan-cosigner-7557665) and [co-borrowers](https://www.investopedia.com/terms/c/co_borrowers.asp), so people with truly ‘bad’ credit may still be able to get a loan with First Tech if they borrow with someone else.  First Tech Federal Credit Union's minimum credit score is 660. Like other credit unions, APRs max at 18%, half of what many banks and other lenders offer. Loan terms extend up to 84 months, which can help keep monthly payments affordable. You can also defer your first payment for up to 45 days after your loan gets funded and purchase payment protection coverage, which can cover a payment if something unexpected happens and you can’t pay it. Pros & Cons Pros * Allows co-signers and co-borrowers * Flexible repayment terms * Prequalification available Cons * Minimum credit score may be too high for some borrowers * Credit union membership required Qualification * You must be a member before you can obtain a loan from First Tech Federal Credit Union. * To qualify for a First Tech membership, you must work or live in Lane County, Oregon, have a family or household member who is already a member, work for the state of Oregon or for an employer on the credit union’s partner list, or belong to the Computer History Museum or the Financial Fitness Association. Read the Full [First Tech Federal Credit Union Personal Loans Review 2024](https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073) ### Best Credit Union : Patelco Credit Union Investopedia's Rating 4.7 --- ![Patelco Credit Union]() :fill(white):max_bytes(150000):strip_icc()/PatelcoCreditUnion-2710a2540a224fdc823143d06af54798.jpg) * **APR Range:** 9.30% - 17.90% * **Loan Amount:** $300 - $100,000 * **Loan Terms:** 6 months - 84 months [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu) Why We Chose It Patelco is our pick for the best credit union for bad credit emergency loans, and also has more loan flexibility than many other lenders. First, Patelco offers loans ranging from $300 to $100,000. This is a huge advantage because most lenders don’t offer loans of less than $1,000 or more than $50,000. Patelco Credit Union's minimum credit score is 640. Patelco also offers flexible loan terms and competitive interest rates. Loan terms start at just six months, which offers you access to the best interest rates. You can also spread your loan out over as long as seven years for loans of $30,000 or more, which helps reduce your monthly payment. Patelco charges a late fee of 3% of the late payment or $5, whichever is more. Finally, Patelco offers a variety of personal loan types that might appeal to borrowers with poor credit. In addition to an unsecured personal loan, you can also choose from a secured credit builder loan, a secured savings loan, and other secured lending options. Originally founded in 1936, Patelco has 37 branches across Northern California. Pros & Cons Pros * Flexible loan amounts and repayment terms * Low minimum APR * Offers secured and unsecured loans Cons * Only available to credit union members * Charges late fees Qualifications * Be a Patelco credit union member Read the Full [Patelco Credit Union Personal Loans Review 2024](https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504) ## Compare the Best Emergency Loans for Bad Credit: Compare Options for May 2024 | | Best For | APR Range | Average Origination Fee | Late Fee | Time to Receive Loan | Loan Amount | Latest Repayment | | Reset All | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Upgrade | Best Overall | 8.49% - 35.99% | 1.85%–9.99% | $10.00 | 1 day | $1,000 - $50,000 | 84 months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=4499a3b5-caaf-470f-9719-2c5ba9c731b9&tag.pref_partner=upgrade&tag.lender=upgrade) | Hide, not for me | | Upstart | Best for Low Minimum Credit Requirement | 7.80% - 35.99% | 0.00%–12.00% | 5% of the late payment amount or $15, whichever is greater | 1 days | $1,000 - $50,000 | 60 months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=d0e08fc1-c2ff-4dc3-a5af-fda4a1eac92a&tag.pref_partner=upstart&tag.lender=upstart) | Hide, not for me | | Ent Credit Union | Best for Fast Funding | 10.24% - 17.99% | 0.00% | $15 | 0 days | $1,000 - $100,000 | 84 months | [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=ent-cu) | Hide, not for me | | OppLoans | Best With No Credit Check | 160.00% - 179.00% | 0.00% | $0 | 0 days | $500 - $4,000 | 18 months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) | Hide, not for me | | Universal Credit | Also Good for Secured Loans | 11.69% - 35.99% | 5.25% - 9.99% | $10.00 | 1 day | $1,000 - $50,000 | 60 months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=e027b835-9233-4028-a450-f4efa5e492e2&tag.pref_partner=universalcredit&tag.lender=universalcredit) | Hide, not for me | | First Tech Federal Credit Union | Best With a Co-Signer | 8.94% - 18.00% | 0.00% | $15.00 - $25.00 | 0 days | $500 - $50,000 | 84 months | [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=first-tech) | Hide, not for me | | Patelco Credit Union | Best Credit Union | 9.30% - 17.90% | 0.00% | 3% of loan payment or $5, whichever is higher | 0 days | $300 - $100,000 | 84 months | [Check Rates](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=patelco-cu) | Hide, not for me | \*APR ranges for some companies include a discount for automatic payments or existing bank customers. ## The Bottom Line Upgrade is our favorite option for emergency loans for bad credit, thanks to its fast funding, competitive interest rates, rate discounts, and more. However, you may find an even better option based on your credit score, assets, desired monthly payment, and other factors. Make sure you compare loans from several financial institutions before you borrow. If you need an emergency loan to cover an unexpected expense, and have bad credit, you have quick funding options available. While not every lender offers loans to borrowers with poor credit, you can still choose from several great options that offer flexible loan amounts and repayment terms at competitive interest rates. ## What Is an Emergency Loan? An [emergency loan](https://www.investopedia.com/emergency-loan-types-eligibility-pros-and-cons-8637206) is a personal loan that provides a borrower with a lump sum of money that can be used for almost any purpose—including emergencies like unexpected medical bills and urgent home repairs. Personal loans are not your only option in an emergency. And if you have bad credit, you may need to consider other types of emergency loans like payday loans, pawn loans, or car title loans (learn more about these below). Each of these options will cost significantly more than a traditional personal loan yet may be an option if your credit is poor. ### Why Get an Emergency Loan When You Have Bad Credit? If you've got bad credit, this may be the worst time to get a personal loan, since your poor credit will limit your choices and cost you more money in fees and interest. That said, if you're in a tight spot, you may not have time to wait, and an emergency loan may be your best option. It can be cheaper than options such as a payday loan or credit card cash advance. And since an emergency loan is unsecured, it doesn't require you to put up collateral, as you would with a car title loan or a pawn loan. Plus, in addition to helping you out of a jam, your loan, properly managed, can help improve your credit score, in two ways: * On-time payments will improve your payment history, the biggest component of your credit score, worth 35% of it * Adding an installment loan to your profile will improve your "credit mix," which is worth about 10% of your credit score. ### Best Uses for an Emergency Loan Some lenders may have restrictions on how you can use the loan, such as for investing or gambling or to pay for college tuition and fees, but most situations that we would consider "emergencies" aren't among them. Because loans to borrowers with bad credit are expensive, you should carefully consider whether or not your situation is a true emergency. Situations that might qualify include: * An emergency medical bill * A home repair or replacement of an appliance * Car repairs * Replacement for lost income to cover monthly bills * Funeral costs In [Investopedia's Personal Loan Borrowers Survey](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574), when we asked current and potential borrowers what they planned to use their loan for, more borrowers said debt consolidation than for any other reason. The next most common uses were loans for home improvements, large purchases, and medical expenses. ### How to Fix Your Bad Credit Score You won't find "Bad" credit as an official credit score rating, at least not in your [FICO credit score](https://www.investopedia.com/terms/f/ficoscore.asp). Instead, your bad credit may be "Fair" or "Poor" (or just "No Credit" if your credit history is thin). The table below shows average APR by credit score, updated monthly. There's no secret to improving your credit score—and there are no shortcuts, either. The credit bureaus are transparent about what goes into a credit score. Once you understand those factors, you can create a plan and begin to [repair your credit](https://www.investopedia.com/terms/credit-repair.asp). 1. **Review your credit history**: Visit [annualcreditreport.com](https://www.annualcreditreport.com/index.action) and get copies of your credit history from each of the three bureaus. Review for errors, and dispute them. Check your credit score with your bank or another lender or financial institution—many provide FICO or other scores as a free benefit. 2. **Pay your bills on time**: The biggest piece of the credit score pie is payment history and simply making payments in full (and on time) will move your credit score higher. 3. **Pay down debt**: The next biggest piece of the pie is "[credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp)." That's how much of your available credit you are using. Say you have a credit card with a $10,000 limit and you have a $5,000 balance on that card. This would result in a utilization of 50%. Reducing that percentage as much as possible will improve your utilization, and your overall credit score. 4. **Avoid hard inquiries**: Applying for new loans will have a negative effect on your credit score as lenders will review your credit file—a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp). This dings your credit score slightly, since adding new debt to your finances makes you a riskier borrower. 5. **Be patient and keep at it**: Improving a bad credit score won't happen overnight. But it will happen if you stick with the plan. Track your progress with one of the many [free credit score monitors](https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp) available from credit card issuers, banks, and others. "A few years ago I had a few mis-steps with my credit due to bad medical debt and some late bills. My FICO score dropped to the mid 500s. It was really bad. But paying down my credit card balances and paying all my bills within 30 days really helped. I was able to get my FICO 8 score up to 700 in just a year. It helps to pay everything off, but getting your credit utilization under 50% and 30% and eventually 10% will drive your score up quickly—even with a lot of late payments on your record."—TJ Donegan, Senior Director, Investopedia Growth & Strategy ## How to Choose the Best Emergency Loan When choosing an emergency loan for bad credit, some factors to consider include how much the loan will cost, the repayment terms you can get (which will determine your monthly payment), and how quickly you can apply and get funded. * **How much the emergency loan will cost**:The cost of an emergency loan is made up of the interest rate you’re charged and the fees you’ll pay to get the loan. A loan’s [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp) represents the sum of these two costs as an annual percentage of the amount borrowed. You should always consider lenders offering the lowest APR. * **What repayment terms you can get on the loan**:Before choosing a lender, ensure it offers a repayment timeline that fits your budget. Shorter repayment terms will result in larger payments since you’ll pay off the loan more quickly. This means you’ll also end up paying less interest over time. Look for a lender that offers the shortest repayment term you can comfortably afford. * **How quickly you can apply and get funded**:It’s also important to evaluate how easy it is to apply for the loan and how quickly you’ll get funded. These two factors are often related since lenders that offer an easy online application process may also offer fast funding. Many of the best lenders offer approval in minutes and funding in as few as one to three business days (sometimes even the same day). ## How to Apply for an Emergency Loan If You Have Bad Credit Before applying for an emergency loan for bad credit, gather your [personally identifiable information](https://www.investopedia.com/terms/p/personally-identifiable-information-pii.asp) (e.g., Social Security number, date of birth, address), income information, and details about the funding you need (loan amount and purpose). This will make the [application process](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp) easier, as lenders will require you to provide this information.  1. **Get pre-qualified**: Submit a preliminary application with basic details to see if you qualify, which won’t affect your credit if the lender uses a [soft credit check](https://www.investopedia.com/terms/s/soft-inquiry.asp). The lender will tell you if you qualify and the rates and terms you might be able to receive. Read the terms and conditions carefully. Go through this process with at least three lenders so you can compare offers. 2. **Submit a complete application**: If the rates and terms are acceptable to you, you can proceed with the full application. At this point, the lender will perform a hard credit inquiry, which will affect your credit score. You may also be asked to provide additional documentation, like copies of pay stubs or bank statements. 3. **Accept the terms and get funded**: If you’re approved, review the final loan offer and decide if the actual terms are acceptable. The lender will send you the funds in the manner specified in your application—for instance, depositing the funds into your checking account or disbursing the funds directly to your other creditors if you're consolidating debt. 4. **Make a plan to repay the loan**: Finally, you’ll set up your account via an online portal or mobile app so you can manage your loan. "In early 2015 I used a personal loan from PNC Bank to cover some unexpected, semi-urgent, and pricey medical costs and it was well worth it. Not only did it help me pay for what I needed to in less than 30 days (they were able to approve and disburse funds quickly following an online application), but it helped me avoid putting a 5-figure charge on a credit card with a 20%+ interest rate (the only other alternative I had at the time given my age, short credit history, and lower emergency savings account balance). The loan also helped diversify my credit profile, as I only had student loans and a couple credit cards back then. I watched my score rise as I started paying it off with on-time payments, too, which was an added bonus for someone still fairly early in their credit journey."—Sienna Wrenn, Senior Editor, Investopedia Special Projects ## Alternatives to Emergency Loans An [unsecured personal loan](https://www.investopedia.com/terms/u/unsecuredloan.asp) is not your only option for an urgent loan, but you should carefully evaluate all of the following alternatives before choosing one. * **Credit card cash advance**: Most credit cards allow you to withdraw cash—a [cash advance](https://www.investopedia.com/terms/c/cashadvance.asp). These loans can be expensive, however, with APRs as high as the card's default rate (usually around 30%). You'll also be charged a withdrawal fee of a few percentage points of the amount advanced, and interest will begin accruing immediately. * **Payday loan**: A [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp) is an advance on your next paycheck. These short-term loans come with high interest rates and fees, resulting in APRs of 400% and more. Because of their expense, they can make it hard to break the cycle of debt. * **Payday Alternative Loan (PAL)**: Many credit unions offer PALs, loans of up to six months for relatively modest amounts—$1,000 or less. While APRs can be steep, they are capped at 28% by federal regulation. * **Cash app**: [Apps and service](https://www.investopedia.com/the-best-cash-advance-apps-7973242)s like [Dave](https://www.investopedia.com/dave-your-budgeting-buddy-4691030), Earnin, and the like offer short-term cash advances of small amounts ($20 to $500), for a fee. Most of these services charge a subscription and may have other requirements, like opening a checking account, on top of the fees associated with the loan. * **Title loan**: A title loan, or a [car title loan](https://www.investopedia.com/terms/c/car-title-loan.asp), is a secured loan option, backed by an asset you own, usually a car. Loan amounts are tied to the market value of the car, and often capped at 50% of that value. Terms are short—30 to 180 days—and APRs are as high as 400%. * **Home equity loan**: If you need a significant amount of money, and your emergency can wait, you can tap into the equity you have in your home, if any. The process of getting a [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp) or home equity line of credit can take 30 to 60 days, or more, so this isn't the solution if you are in a hurry. Rates and fees will be considerably cheaper than other alternatives here, assuming you can qualify. * **401(k) loan**: If you have a [401(k) through your employer](https://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp), you may be able to borrow from it. Loans are capped at half the account's value or $50,000, whichever is lower. Fund access is fast, 7-10 days. You'll have to repay the loan, with interest, within five years. The interest is paid into your account, and in effect it is like recouping some of earnings loss you experienced due to the withdrawal of funds. ## How to Build an Emergency Fund If emergencies are unavoidable, borrowing to pay for one doesn't have to be. All you need is a dedicated savings account—[an emergency fund](https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/)—to help see you through. But how do you build one? 1. **Set a savings goal**: How much should you save? You might aim for several months worth of living expenses (just the basics), or focus on the types of emergency spending you've experienced (car repairs or a vet bill, say) and set an amount that would cover that as your goal. 2. **Set up consistent savings**: Find a system that works for you that makes saving automatic and consistent. One way is to set up automatic fund transfers to a dedicated savings account. The transfers do not need to be large. Consistency is the key. 3. **Set aside windfalls**: If you get a bonus at work, a tax rebate, or some other financial good luck, resist the urge to spend all of it. Send some to your emergency savings account to boost your financial cushion. 4. **Decide where to save it**: Banks and credit unions are the obvious choices. Look for [high yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) that will help your money grow faster. 5. **Be careful about spending it**: Not every emergency is dire, so be careful about spending your emergency fund. Regular car maintenance is not an emergency (ideally you'll budget for this); a repair to keep your car safely on the road and operable is worthy of a dip into your emergency fund. ## Frequently Asked Questions * ### How Much Will an Emergency Loan for Bad Credit Cost? An emergency personal loan for bad credit will usually come with the typical fees of any personal loan—mainly [origination fees](https://www.investopedia.com/terms/l/loan-application-fee.asp), [interest fees](https://www.investopedia.com/terms/f/finance_charge.asp), and late payment fees. But those fees may be higher than a loan offered to a person with good credit. * ### Where Can You Get an Emergency Loan if You Have Bad Credit? Multiple types of lenders offer emergency loans for bad credit, including:  + Online lenders + Credit unions + Traditional banks + Credit card companies (cash advances) + Payday lenders + Relatives and friendsRemember, just because a borrowing option is available doesn’t mean it’s a good choice. [Credit card cash advances](https://www.investopedia.com/ask/answers/111414/how-does-interest-work-cash-advance-my-credit-card.asp), for example, are notoriously expensive and might damage your credit score by driving up your credit utilization ratio.  It’s also a good idea to [avoid payday loans and title loans](https://www.investopedia.com/articles/insights/080116/title-loans-vs-payday-loans-which-are-better.asp) whenever possible. The Consumer Financial Protection Bureau (CFPB) warns that the average two-week payday loan features a steep APR that’s equivalent to nearly 400%. * ### Will an Emergency Loan Impact My Credit Score? Some types of emergency loans can affect your credit score, while others will not. If a lender doesn’t report your account to one of the three [major credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp), the loan won’t influence your credit score—unless you default and a collection agency adds the bad debt to your credit reports at a later date. However, if a lender does share your account details with the credit bureaus, that’s a different story. A traditional bank, credit union, and online lender generally will report account details to the credit bureaus. Payday lenders and title lenders generally do not. When a lender reports an emergency loan to the credit bureaus, the way you manage the account dictates whether it will help or hurt your credit score. If you make your payments on time, the account may benefit your credit score in the long run. However, if you make late payments or become past due on your debt, that emergency loan could hurt your credit score instead. * ### How Fast Can I Get an Emergency Loan? Many lenders offer fast funding to qualified borrowers. Some [personal loan lenders](https://www.investopedia.com/best-personal-loans-4773300) may even deposit the funds into your bank account the same day you’re approved for financing.  On the other hand, loan funding can sometimes take several days or even up to a few weeks. Certain lenders may take longer to process your loan application or release your funds than others. There’s also a chance that your personal bank or credit union may hold the funds a lender deposits into your account for a few days before you can access the money. * ### Can You Get an Emergency Loan With No Credit Check? Although some lenders do provide loans without credit checks, they're not recommended. Such lenders (like [payday loan lenders](https://www.investopedia.com/terms/p/payday-loans.asp)) often charge steep origination or application fees and high APRs. Not only are these types of loans very expensive, but you might end up getting stuck in a payday borrowing cycle that’s difficult to escape. * ### What Is the Minimum Credit Score for an Emergency Loan? Among the lenders on our list, Upstart says it will offer loans to borrowers with credit scores of just 300, as long there are no other adverse entries in the credit report. Other lenders we researched report minimum credit scores of 580 or 560, which are considered 'Fair' and 'Poor', respectively. * ### How Can I Borrow Money Fast in an Emergency? If your first priority is fast cash, you have several options, although some of them will be expensive, with high interest rates and fees. + **A personal loan from an online lender or your bank**: Some online lenders can approve and [fund a loan the same day](https://www.investopedia.com/best-fast-personal-loans-7110852). Similarly, a bank or credit union you already have a relationship with may be able to approve and fund a loan in a day or two. + **A payday loan**: Payday lenders can fund these short term loans the same day. Interest rate and fees can be exorbitant, however, and you'll have to repay it by your next payday. You'll generally [need to provide some identification](https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp), proof of income, and have a checking account. + **A pawn loan**: Pawnshop lenders can provide a short-term loan, secured by your property, the same day. Rates and terms are regulated by state governments. In California, for example, pawn loans cannot be longer than 120 days and interest is capped at 3% per month. + **A credit card cash advance**: If you have a credit card, chances are it allows you to access your credit as cash. You can do this at an ATM, which makes this a really fast option. (You'll need to know your card account's PIN.) Generally the amount you can withdraw is a fraction of your credit limit, and the interest rate will be higher than the standard purchase rate. You'll also pay a fee (3%-5% of the amount borrowed). * ### Companies We Reviewed We researched and reviewed 70 companies to find the best seven lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the companies we researched, along with links to individual company reviews, to help you learn more before making a decision: [Achieve](https://www.investopedia.com/freedom-plus-personal-loans-review-4800935), [Affinity Federal Credit Union](https://www.investopedia.com/affinity-federal-credit-union-personal-loans-review-8410017), [Alliant Credit Union](https://www.investopedia.com/alliant-credit-union-personal-loans-review-8401682), [American Express](https://www.investopedia.com/american-express-personal-loans-review-5069612), [Avant](https://www.investopedia.com/avant-personal-loans-review-4802261), [Axos Bank](https://www.investopedia.com/axos-bank-personal-loans-review-8408454), Bankers Healthcare Group, [Best Egg](https://www.investopedia.com/best-egg-personal-loans-review-4802359), [Bethpage Federal Credit Union](https://www.investopedia.com/bethpage-federal-credit-union-personal-loans-review-8365116), [Blue Federal Credit Union](https://www.investopedia.com/blue-federal-credit-union-personal-loans-review-8374431), Boatloan.com, [Boeing Employees' Credit Union](https://www.investopedia.com/becu-personal-loans-review-5211750), CapexMD, [Citibank](https://www.investopedia.com/citibank-personal-loans-review-4799909), [Connexus Credit Union](https://www.investopedia.com/connexus-credit-union-personal-loans-review-8407390), [Discover](https://www.investopedia.com/discover-personal-loans-review-4799530), Dividend Finance, [ENT Credit Union](https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870), Fig Loans, [First Tech Federal Credit Union](https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073), Future Family, GoodLeap, [Greenstate Credit Union](https://www.investopedia.com/greenstate-credit-union-personal-loans-review-8408463), [Happy Money](https://www.investopedia.com/payoff-personal-loans-review-4842918), [Hiway Credit Union](https://www.investopedia.com/hiway-credit-union-personal-loans-review-8411068), [Lake Michigan Credit Union](https://www.investopedia.com/lake-michigan-credit-union-personal-loans-review-8384413), [Laurel Road](https://www.investopedia.com/laurel-road-personal-loans-review-4799934), [LendingClub](https://www.investopedia.com/lendingclub-personal-loans-review-4800191), [LendingPoint](https://www.investopedia.com/lendingpoint-personal-loans-review-4842605), [LendingUSA](https://www.investopedia.com/lendingusa-personal-loans-review-8404359), [Liberty Federal Credit Union](https://www.investopedia.com/liberty-federal-credit-union-personal-loans-review-8408457), [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841), Lyon Financial, Mariner, Money Key, [Mountain America Credit Union](https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160), [NASA Federal Credit Union](https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484), [Navy Federal Credit Union](https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366), [Netcredit](https://www.investopedia.com/netcredit-personal-loans-review-6890038), [Old National Bank](https://www.investopedia.com/first-midwest-bank-personal-loans-review-5070056), [OneMain Financial](https://www.investopedia.com/onemain-financial-personal-loans-review-4843162), [OppLoans](https://www.investopedia.com/opploans-personal-loans-review-5069762), [Patelco Credit Union](https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504), [PenFed](https://www.investopedia.com/penfed-personal-loans-review-4800862), [Personify Financial](https://www.investopedia.com/personify-financial-personal-loans-review-8363570), [PNC Bank](https://www.investopedia.com/pnc-personal-loan-review-4846471), [Prosper](https://www.investopedia.com/prosper-personal-loans-review-4843741), [Reach Financial](https://www.investopedia.com/reach-financial-personal-loans-review-8383953), [Regions](https://www.investopedia.com/regions-personal-loans-review-5072600), [Reprise](https://www.investopedia.com/reprise-financial-personal-loans-review-8408473), [Rocket Loans](https://www.investopedia.com/rocket-loans-personal-loans-review-5069748), [Santander](https://www.investopedia.com/santander-bank-personal-loans-review-5211820), [Service Federal Credit Union](https://www.investopedia.com/service-credit-union-personal-loans-review-8410020), [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398), Southeast Financial, [Summit Credit Union](https://www.investopedia.com/summit-credit-union-personal-loans-review-8414132), SunPower, [TD Bank](https://www.investopedia.com/td-bank-personal-loans-review-4801451), [Teachers Federal Credit Union](https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783), Trident Funding, [Truist](https://www.investopedia.com/truist-personal-loans-review-5210721), [U.S. Bank](https://www.investopedia.com/us-bank-personal-loans-review-4843013), [Universal Credit](https://www.investopedia.com/universal-credit-personal-loans-review-8410022), [Upgrade](https://www.investopedia.com/upgrade-personal-loans-review-4842832), [Upstart](https://www.investopedia.com/upstart-personal-loans-review-4843810), [USAA](https://www.investopedia.com/usaa-personal-loans-review-4845449), Vantage Recreational Finance, [Wells Fargo](https://www.investopedia.com/wells-fargo-personal-loans-review-4842091). ## How We Picked the Best Emergency Loans for Bad Credit To evaluate and rank personal loan providers we collected hundreds of data points across 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a [survey we conducted](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574). We grouped those factors into four broad areas: * Loan costs (advertised APR, fees, and six other factors): 29.25% * Loan terms (loan amount, repayment term, and three other factors): 22.25% * Borrowing requirements (credit score, membership requirement, and six other factors): 28.5% * Additional features (online application, pre-qualification, and eight other factors): 20% Investopedia launched in 1999, and has been helping readers find the best bad credit emergency loan companies since 2020. Learn more about how we evaluated personal loans in [our complete methodology](https://www.investopedia.com/personal-loan-review-methodology-5088280). ## Learn More About Emergency Loans * [Instant Personal Loans](https://www.investopedia.com/instant-personal-loans-how-fast-can-you-get-funds-7963254) * [What Is a Payday Loan?](https://www.investopedia.com/terms/p/payday-loans.asp) * [What Is Emergency Credit?](https://www.investopedia.com/terms/e/emergency-credit.asp) * [How to Get an Emergency Loan](https://www.investopedia.com/how-to-get-an-emergency-loan-8350807) * [How to Get an Emergency Student Loan](https://www.investopedia.com/how-to-get-an-emergency-student-loan-7255730) * [How to Apply for a Personal Loan](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp) * [How to Use a Personal Loan](https://www.investopedia.com/how-use-personal-loan-7562541) * [Personal Loans vs. Credit Cards](https://www.investopedia.com/articles/personal-finance/041415/pros-cons-personal-loans-vs-credit-cards.asp) * [Payday Loans vs. Personal Loans](https://www.investopedia.com/payday-loans-vs-personal-loans-5214282) * [Alternatives to Personal Loans](https://www.investopedia.com/7-alternatives-personal-loan-7567417) * [What Are the Easiest Personal Loans to Get Approved For?](https://www.investopedia.com/easiest-personal-loans-approved-7644059) * [What Is a Personal Loan?](https://www.investopedia.com/personal-loan-5076027) * [Where to Get a Personal Loan](https://www.investopedia.com/where-to-get-a-personal-loan-other-than-a-bank-7643189) * [Best Personal Loans](https://www.investopedia.com/best-personal-loans-4773300) * [Best Personal Loans for Bad Credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349) * [Best Fast Personal Loans](https://www.investopedia.com/best-fast-personal-loans-7110852) :max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg) :max_bytes(150000):strip_icc()/BestEmergencyLoan-f245aab383d24dc09ac995e92612de33.jpg) Investopedia Updated by [Erin Gobler](https://www.investopedia.com/erin-gobler-7152906) ![Erin Gobler]() :max_bytes(150000):strip_icc()/ErinGoblerHeadshot-b7d829e40dc346a988c359d1c6537549.JPG) Erin Gobler is personal finance coach and a writer with over decade of experience. She specializes in writing about investing, cryptocurrency, stocks, and more. Her work has been published on major financial websites including Bankrate, Fox Business, Credit Karma, The Simple Dollar, and more. Learn about our [editorial policies](/legal-4768893#editorial-policy) 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. Upgrade. "[Personal Loans](https://www.upgrade.com/personal-loans/)." 2. Upgrade. "[What Are the Minimum Borrower Requirements?](https://upgrade.zendesk.com/hc/en-us/articles/115004179087-What-are-the-minimum-borrower-requirements-)" 3. Upstart. "[What Are the Minimum Credit Requirements to Receive a Loan?](https://upstarthelp.upstart.com/questions/108501-what-are-the-minimum-credit-requirements-to-receive-a-loan)" 4. Upstart. "[Will I Be Eligible for a Loan?](https://upstarthelp.upstart.com/7619-borrower-eligibility/eligible-upstart-loan)" 5. Upstart. "[UPST IPO](https://info.upstart.com/ipo-letter)." 6. CBInsights. "[Upstart](https://www.cbinsights.com/company/upstart-network)." 7. LinkedIn. "[Upstart](https://www.linkedin.com/company/upstart-network)." 8. Ent Credit Union. ”[About Us](https://www.ent.com/about-us/who-we-are/history/).” 9. CBInsights. "[OppLoans](https://www.cbinsights.com/company/opploans)." 10. OppLoans. "[Contact Us](https://www.opploans.com/contact-us/)." 11. Universal Credit. “[Frequently Asked Questions About Universal Credit](https://www.universal-credit.com/faq/).” 12. First Tech Federal Credit Union. "[Become a Member](https://www.firsttechfed.com/discover/become-a-member)." 13. Patelco Credit Union. "[Personal Loans & Lines of Credit](https://www.patelco.org/credit-cards-and-loans/personal-loans/)." 14. Patelco Credit Union. "[Our Mission](https://www.patelco.org/about-patelco/who-we-are)." 15. MyFICO. "[What's in My FICO Scores?](https://www.myfico.com/credit-education/whats-in-your-credit-score)" 16. Experian. "[What Is a Good Credit Score?](https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/)" 17. California Department of Financial Protection and Innovation. “[Consumer Financial Education: Other Loans: Payday Loans](https://dfpi.ca.gov/consumer-financial-education-other-loans/).” 18. Veridan Credit Union. "[What Is a PAL Loan?](https://www.veridiancu.org/faq/12569/what-is-a-pal-loan)" 19. National Credit Union Administration. "[Permissible Loan Interest Rate Ceiling Extended](https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/permissible-loan-interest-rate-ceiling-extended-2)." 20. The Pew Charitable Trusts. "[Auto Title Loans](http://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf)," Page 3. 21. Internal Revenue Service. "[Retirement Topics—Plan Loans](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans)." 22. Consumer Financial Protection Bureau. "[An Essential Guide to Building an Emergency Fund](https://www.consumerfinance.gov/an-essential-guide-to-building-an-emergency-fund/)." 23. Consumer Financial Protection Bureau. "[What Is a Payday Loan?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/)" 24. Consumer Financial Protection Bureau. "[I Hear That Taking out a Payday Loan Can Help Rebuild My Credit or Improve My Credit Score. Is This True?](https://www.consumerfinance.gov/ask-cfpb/i-heard-that-taking-out-a-payday-loan-can-help-rebuild-my-credit-or-improve-my-credit-score-is-this-true-en-1611/)" 25. Case Text. "[California Financial Code 21800](https://casetext.com/statute/california-codes/california-financial-code/division-8-pawnbrokers/chapter-2-pawnbroker-regulations/section-21200-limitations-on-rates-and-charges)." 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After hundreds of hours of research and analysis, we chose Upgrade as the lender that provides the best emergency loans for bad credit. It offers fast funding, a low minimum credit score, and a wide range of loan terms and amounts. All the lenders in our collection serve borrowers in a hurry (to cover an emergency auto repair, say, or an unexpected medical expense), and who have poor credit. The list names lenders with the most relaxed credit requirements (if not the most affordable rates). We have also included nationally available credit unions because they are often the most consumer-friendly. We researched 70 personal loan lenders and evaluated them on 31 factors, including cost, loan terms, borrower requirements, and additional features. We then narrowed our list of companies to the lenders best suited to provide emergency loans for borrowers with bad or poor credit. Best Emergency Loans for Bad Credit: Compare Options for May 2024 Show Full List View Hide Full List View Best Overall: Upgrade Best for Low Minimum Credit Requirement: Upstart Best for Fast Funding : Ent Credit Union Best With No Credit Check: OppLoans Also Good for Secured Loans: Universal Credit Best With a Co-Signer: First Tech Federal Credit Union Best Credit Union: Patelco Credit Union If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies: Best Home Warranties Best Emergency Loans for Bad Credit Best Personal Loans for Bad Credit Company APR Credit Score est. Loan Amount More Details Best Overall APR With Autopay Discount 8.49% - 35.99% Recommended Minimum Credit Score 620 This lender does not disclose its minimum credit score requirements. Loan Amount $1,000 - $50,000 See Details Check Rates Best for Low Minimum Credit Requirement APR Range 7.80% - 35.99% Recommended Minimum Credit Score 300 This lender does not disclose its minimum credit score requirements. Loan Amount $1,000 - $50,000 See Details Check Rates Best for Fast Funding APR With Autopay Discount 10.24% - 17.99% Recommended Minimum Credit Score 619 This lender does not disclose its minimum credit score requirements. Loan Amount $1,000 - $100,000 See Details Check Rates Best With No Credit Check APR Range 160.00% - 179.00% Recommended Minimum Credit Score Not Disclosed This lender does not disclose its minimum credit score requirements. Loan Amount $500 - $4,000 See Details Check Rates Also Good for Secured Loans APR With Autopay Discount 11.69% - 35.99% Recommended Minimum Credit Score Not Disclosed This lender does not disclose its minimum credit score requirements. Loan Amount $1,000 - $50,000 See Details Check Rates Best With a Co-Signer APR Range 8.94% - 18.00% Recommended Minimum Credit Score 660 This lender does not disclose its minimum credit score requirements. Loan Amount $500 - $50,000 See Details Check Rates Best Credit Union APR Range 9.30% - 17.90% Recommended Minimum Credit Score 640 This lender does not disclose its minimum credit score requirements. Loan Amount $300 - $100,000 See Details Check Rates Why Trust Us 70 Lenders reviewed 31 Loan features considered 1,680 Data points analyzed 173 Primary data sources used Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. Read our Full Methodology Best Emergency Loans for Bad Credit for May 2024 Expand Best Emergency Loans for Bad Credit for May 2024 Our Top Picks Upgrade Upstart Ent Credit Union OppLoans Universal Credit First Tech Federal Credit Union Patelco Credit Union See More (4) Compare Providers The Bottom Line What Is an Emergency Loan? How to Choose How to Apply Alternatives Emergency Funds Methodology Learn More About Emergency Loans Best Overall : Upgrade Investopedia's Rating 4.6 APR Range: 8.49% - 35.99% Loan Amount: $1,000 - $50,000 Loan Terms: 24 months - 84 months Check Rates Also the best personal loan lender for: Repayment TermsSecured Loans Why We Chose It Upgrade is our favorite overall emergency loan option because it has competitive interest rates, offers fast funding, and is available to borrowers with fair credit. It's also the best option for flexible repayment terms (up to 84 months), and for secured loans (it offers borrowers the option of using a vehicle as collateral). Upgrade's minimum credit score is 640. Upgrade offers a wide range of loan amounts. You also have the option to apply with a co-borrower if your credit isn’t sufficient to qualify by yourself. And you can receive your loan funds within one day of your loan being approved, making Upgrade a good choice when you’re up against a financial emergency. Many lenders we evaluated don't charge origination or late payment fees. In contrast, Upgrade charges a late fee of up to $10 if your loan payment is not paid within 15 days of the due date and origination fees go all the way up to 9.99% of the amount borrowed. Originally founded in 2016, Upgrade is headquartered in San Francisco, California, and has offices in Phoenix, Arizona; Atlanta, Georgia; Orange County, California; and Montreal, Quebec. Pros & Cons Pros Funding within one business day Flexible repayment terms Secured loans available Cons Origination fee up to 9.99% High maximum APR Charges late fees Qualifications Have a 620 credit scoreBe a U.S. citizen or permanent resident or have a valid visaBe at least 18 years of ageHave a verifiable bank account and email address Read the Full Upgrade Personal Loans Review 2024 Best for Low Minimum Credit Requirement : Upstart Investopedia's Rating 4.1 APR Range: 7.80% - 35.99% Loan Amount: $1,000 - $50,000 Loan Terms: 36 months - 60 months Check Rates Why We Chose It If your income has held you back from getting a personal loan, Upstart might be right for you. There’s no minimum credit score required to qualify. You either must have a credit score or have graduated from or are currently enrolled in a higher education program. This makes Upstart the best choice for borrowers with poor credit. Upstart's minimum credit score is 300. Another benefit of getting a loan through Upstart is the lender’s competitive interest rates. The maximum interest rate is on the higher end—though it's on par for bad credit loans— but its minimum credit score is lower than any other lender we considered. Upstart charges a late fee of 5% of the payment or $15, whichever is greater, if your payment is not received by 15 days after the due date. Originally founded in 2012, Upstart is headquartered in San Mateo, California, and has offices in Columbus, Ohio; and Austin, Texas. Pros & Cons Pros No minimum credit score Low minimum APR Funding the next business day Cons Origination fee as high as 12% Limited range of repayment terms Charges late fees Qualifications Have a verifiable name, date of birth, and Social Security numberBe at least 18 years of ageMeet the lender’s credit and/or education requirementsHave a U.S. mailing addressHave a valid email addressHave a verifiable source of incomeHave a U.S. bank account Read the Full Upstart Personal Loans Review 2024 Best for Fast Funding : Ent Credit Union Investopedia's Rating 4.2 APR Range: 10.24% - 17.99% Loan Amount: $1,000 - $100,000 Loan Terms: 36 months - 84 months Check Rates Why We Chose It We selected Ent Credit Union primarily because of its rapid funding—you could have your funds deposited to your account as soon as the same day you are approved—but it offers a few other compelling features, too. Loan terms extend as far out as 84 months, which can help keep payments small. It offers a wide range of loan amounts up to $100,000 (although the $1,000 minimum won’t help you if you need to cover a smaller emergency). And its minimum required credit score is among the lower ones in our database.  Ent Credit Union's minimum credit score is 619. You’ll need to become a member of the credit union to get a loan, of course. Unfortunately, Ent doesn’t offer a prequalification tool, so you’ll need to go through a formal application to see if you qualify, and at what terms. Ent Credit Union was founded in 1957 to serve the Ent Air Force Base in Colorado Springs, Colorado. Pros & Cons Pros Same day funding Low minimum credit score Accepts co-signers and co-borrowers Cons Higher advertised minimum APR Credit union membership required No prequalification Qualifications To join ENT Credit Union, you must: Live, work, worship, or attend school in one of the 21 Colorado counties that it servesBe civilian or military personnel of the Colorado Air National Guard or Colorado Army National Guard, or be associated with Buckley Air Force BaseBe the family member of an existing Ent memberBe a member of the American Consumers Council Read the Full Ent Credit Union Personal Loans Review 2024 Best With No Credit Check : OppLoans Investopedia's Rating 2.9 APR Range: 160.00% - 179.00% Loan Amount: $500 - $4,000 Loan Terms: 9 months - 18 months Check Rates Why We Chose It OppLoans may be worth considering for borrowers with poor credit who may not be able to qualify for another personal loan. Unlike most lenders, OppLoans doesn’t rely on your creditworthiness to make a lending decision. You also won’t pay origination fees and can access your money the same day. Opploans employs non-traditional underwriting and does not disclose a minimum credit score requirement. However, these easily accessible loans come at a high cost. OppLoans has considerably higher interest rates than many other lenders—you’ll pay an APR of 160% for your six- to nine-month loan. Additionally, repayment plans are significantly shorter. Originally founded in 2012, OppLoans has offices in Chicago, Illinois, and Henderson, Nevada. Pros & Cons Loan decision not based solely on credit score No origination fees Same-day funding available No late payment fees Very high interest rates Short repayment terms Not available in all states Qualifications Be at least 18 years of ageHave a bank accountHave a verifiable source of incomeReceive income through direct depositAvailable in any state except Colorado, Connecticut, Georgia, Maryland, Massachusetts, Nevada, New Hampshire, New York, Pennsylvania, South Dakota, Vermont, West Virginia Read the Full OppLoans Personal Loans Review for 2024 Also Good for Secured Loans : Universal Credit Investopedia's Rating 4.2 APR Range: 11.69% - 35.99% Loan Amount: $1,000 - $50,000 Loan Terms: 36 months - 60 months Check Rates Why We Chose It Universal Credit, like its parent Upgrade, offers personal loans backed by vehicles. Putting up collateral like a car can help you qualify for a loan that might be out of reach, or it can help you get a better rate on a loan you do qualify for. The risk is that if you can’t pay back the loan, you could lose your car. Another positive is that Universal Credit offers prequalification, so you can check on your eligibility without dinging your credit score. Universal Credit's minimum credit score is 620. You can also apply with a co-borrower, and it has no minimum income requirement, both of which can make it easier for people with bad credit to qualify. Universal Credit is among the more expensive lenders in our database. It charges origination fees, and its advertised APR range tilts toward the higher end. Be sure to take advantage of prequalification to compare with at least a couple more lenders. Pros and Cons Pros Accepts vehicles as collateral Offers prequalification No minimum income requirement Cons Steep origination fees Higher APR range Limited repayment terms Putting up something you own as collateral for a secured personal loan can be a great way to get lower rates and increase your approval odds. But keep in mind it's especially important to make the payments on time because if you don't, your lender can take possession of your collateral. Qualifications To qualify for a loan from Universal Credit, you’ll need to be 18 years old or older and meet some other requirements: Be U.S. citizen, permanent resident, or non-permanent resident with a valid visaHave a credit score of 620 or higherMust have a valid bank accountMust have a valid email address Read the Full Universal Credit Personal Loans Review for 2024 Best With a Co-Signer : First Tech Federal Credit Union Investopedia's Rating 4.6 APR Range: 8.94% - 18.00% Loan Amount: $500 - $50,000 Loan Terms: 24 months - 84 months Check Rates Why We Chose It First Tech Federal Credit Union offers loan amounts from $500 to $50,000 and accepts credit scores as low as 660, which is squarely in the ‘fair’ credit range. However, the credit union accepts both co-signers and co-borrowers, so people with truly ‘bad’ credit may still be able to get a loan with First Tech if they borrow with someone else.  First Tech Federal Credit Union's minimum credit score is 660. Like other credit unions, APRs max at 18%, half of what many banks and other lenders offer. Loan terms extend up to 84 months, which can help keep monthly payments affordable. You can also defer your first payment for up to 45 days after your loan gets funded and purchase payment protection coverage, which can cover a payment if something unexpected happens and you can’t pay it. Pros & Cons Pros Allows co-signers and co-borrowers Flexible repayment terms Prequalification available Cons Minimum credit score may be too high for some borrowers Credit union membership required Qualification You must be a member before you can obtain a loan from First Tech Federal Credit Union.To qualify for a First Tech membership, you must work or live in Lane County, Oregon, have a family or household member who is already a member, work for the state of Oregon or for an employer on the credit union’s partner list, or belong to the Computer History Museum or the Financial Fitness Association. Read the Full First Tech Federal Credit Union Personal Loans Review 2024 Best Credit Union : Patelco Credit Union Investopedia's Rating 4.7 APR Range: 9.30% - 17.90% Loan Amount: $300 - $100,000 Loan Terms: 6 months - 84 months Check Rates Why We Chose It Patelco is our pick for the best credit union for bad credit emergency loans, and also has more loan flexibility than many other lenders. First, Patelco offers loans ranging from $300 to $100,000. This is a huge advantage because most lenders don’t offer loans of less than $1,000 or more than $50,000. Patelco Credit Union's minimum credit score is 640. Patelco also offers flexible loan terms and competitive interest rates. Loan terms start at just six months, which offers you access to the best interest rates. You can also spread your loan out over as long as seven years for loans of $30,000 or more, which helps reduce your monthly payment. Patelco charges a late fee of 3% of the late payment or $5, whichever is more. Finally, Patelco offers a variety of personal loan types that might appeal to borrowers with poor credit. In addition to an unsecured personal loan, you can also choose from a secured credit builder loan, a secured savings loan, and other secured lending options. Originally founded in 1936, Patelco has 37 branches across Northern California. Pros & Cons Pros Flexible loan amounts and repayment terms Low minimum APR Offers secured and unsecured loans Cons Only available to credit union members Charges late fees Qualifications Be a Patelco credit union member Read the Full Patelco Credit Union Personal Loans Review 2024 Compare the Best Emergency Loans for Bad Credit: Compare Options for May 2024 Best For APR Range Average Origination Fee Late Fee Time to Receive Loan Loan Amount Latest Repayment Reset All Upgrade Best Overall 8.49% - 35.99% 1.85%–9.99% $10.00 1 day $1,000 - $50,000 84 months Check Rates Hide, not for me Upstart Best for Low Minimum Credit Requirement 7.80% - 35.99% 0.00%–12.00% 5% of the late payment amount or $15, whichever is greater 1 days $1,000 - $50,000 60 months Check Rates Hide, not for me Ent Credit Union Best for Fast Funding 10.24% - 17.99% 0.00% $15 0 days $1,000 - $100,000 84 months Check Rates Hide, not for me OppLoans Best With No Credit Check 160.00% - 179.00% 0.00% $0 0 days $500 - $4,000 18 months Check Rates Hide, not for me Universal Credit Also Good for Secured Loans 11.69% - 35.99% 5.25% - 9.99% $10.00 1 day $1,000 - $50,000 60 months Check Rates Hide, not for me First Tech Federal Credit Union Best With a Co-Signer 8.94% - 18.00% 0.00% $15.00 - $25.00 0 days $500 - $50,000 84 months Check Rates Hide, not for me Patelco Credit Union Best Credit Union 9.30% - 17.90% 0.00% 3% of loan payment or $5, whichever is higher 0 days $300 - $100,000 84 months Check Rates Hide, not for me *APR ranges for some companies include a discount for automatic payments or existing bank customers. The Bottom Line Upgrade is our favorite option for emergency loans for bad credit, thanks to its fast funding, competitive interest rates, rate discounts, and more. However, you may find an even better option based on your credit score, assets, desired monthly payment, and other factors. Make sure you compare loans from several financial institutions before you borrow. If you need an emergency loan to cover an unexpected expense, and have bad credit, you have quick funding options available. While not every lender offers loans to borrowers with poor credit, you can still choose from several great options that offer flexible loan amounts and repayment terms at competitive interest rates. What Is an Emergency Loan? An emergency loan is a personal loan that provides a borrower with a lump sum of money that can be used for almost any purpose—including emergencies like unexpected medical bills and urgent home repairs. Personal loans are not your only option in an emergency. And if you have bad credit, you may need to consider other types of emergency loans like payday loans, pawn loans, or car title loans (learn more about these below). Each of these options will cost significantly more than a traditional personal loan yet may be an option if your credit is poor. Why Get an Emergency Loan When You Have Bad Credit? If you've got bad credit, this may be the worst time to get a personal loan, since your poor credit will limit your choices and cost you more money in fees and interest. That said, if you're in a tight spot, you may not have time to wait, and an emergency loan may be your best option. It can be cheaper than options such as a payday loan or credit card cash advance. And since an emergency loan is unsecured, it doesn't require you to put up collateral, as you would with a car title loan or a pawn loan. Plus, in addition to helping you out of a jam, your loan, properly managed, can help improve your credit score, in two ways: On-time payments will improve your payment history, the biggest component of your credit score, worth 35% of itAdding an installment loan to your profile will improve your "credit mix," which is worth about 10% of your credit score. Best Uses for an Emergency Loan Some lenders may have restrictions on how you can use the loan, such as for investing or gambling or to pay for college tuition and fees, but most situations that we would consider "emergencies" aren't among them. Because loans to borrowers with bad credit are expensive, you should carefully consider whether or not your situation is a true emergency. Situations that might qualify include: An emergency medical billA home repair or replacement of an applianceCar repairsReplacement for lost income to cover monthly billsFuneral costs In Investopedia's Personal Loan Borrowers Survey, when we asked current and potential borrowers what they planned to use their loan for, more borrowers said debt consolidation than for any other reason. The next most common uses were loans for home improvements, large purchases, and medical expenses. How to Fix Your Bad Credit Score You won't find "Bad" credit as an official credit score rating, at least not in your FICO credit score. Instead, your bad credit may be "Fair" or "Poor" (or just "No Credit" if your credit history is thin). The table below shows average APR by credit score, updated monthly. There's no secret to improving your credit score—and there are no shortcuts, either. The credit bureaus are transparent about what goes into a credit score. Once you understand those factors, you can create a plan and begin to repair your credit. Review your credit history: Visit annualcreditreport.com and get copies of your credit history from each of the three bureaus. Review for errors, and dispute them. Check your credit score with your bank or another lender or financial institution—many provide FICO or other scores as a free benefit. Pay your bills on time: The biggest piece of the credit score pie is payment history and simply making payments in full (and on time) will move your credit score higher. Pay down debt: The next biggest piece of the pie is "credit utilization." That's how much of your available credit you are using. Say you have a credit card with a $10,000 limit and you have a $5,000 balance on that card. This would result in a utilization of 50%. Reducing that percentage as much as possible will improve your utilization, and your overall credit score. Avoid hard inquiries: Applying for new loans will have a negative effect on your credit score as lenders will review your credit file—a hard inquiry. This dings your credit score slightly, since adding new debt to your finances makes you a riskier borrower. Be patient and keep at it: Improving a bad credit score won't happen overnight. But it will happen if you stick with the plan. Track your progress with one of the many free credit score monitors available from credit card issuers, banks, and others. "A few years ago I had a few mis-steps with my credit due to bad medical debt and some late bills. My FICO score dropped to the mid 500s. It was really bad. But paying down my credit card balances and paying all my bills within 30 days really helped. I was able to get my FICO 8 score up to 700 in just a year. It helps to pay everything off, but getting your credit utilization under 50% and 30% and eventually 10% will drive your score up quickly—even with a lot of late payments on your record."—TJ Donegan, Senior Director, Investopedia Growth & Strategy How to Choose the Best Emergency Loan When choosing an emergency loan for bad credit, some factors to consider include how much the loan will cost, the repayment terms you can get (which will determine your monthly payment), and how quickly you can apply and get funded. How much the emergency loan will cost: The cost of an emergency loan is made up of the interest rate you’re charged and the fees you’ll pay to get the loan. A loan’s annual percentage rate (APR) represents the sum of these two costs as an annual percentage of the amount borrowed. You should always consider lenders offering the lowest APR. What repayment terms you can get on the loan: Before choosing a lender, ensure it offers a repayment timeline that fits your budget. Shorter repayment terms will result in larger payments since you’ll pay off the loan more quickly. This means you’ll also end up paying less interest over time. Look for a lender that offers the shortest repayment term you can comfortably afford. How quickly you can apply and get funded: It’s also important to evaluate how easy it is to apply for the loan and how quickly you’ll get funded. These two factors are often related since lenders that offer an easy online application process may also offer fast funding. Many of the best lenders offer approval in minutes and funding in as few as one to three business days (sometimes even the same day). How to Apply for an Emergency Loan If You Have Bad Credit Before applying for an emergency loan for bad credit, gather your personally identifiable information (e.g., Social Security number, date of birth, address), income information, and details about the funding you need (loan amount and purpose). This will make the application process easier, as lenders will require you to provide this information.  Get pre-qualified: Submit a preliminary application with basic details to see if you qualify, which won’t affect your credit if the lender uses a soft credit check. The lender will tell you if you qualify and the rates and terms you might be able to receive. Read the terms and conditions carefully. Go through this process with at least three lenders so you can compare offers. Submit a complete application: If the rates and terms are acceptable to you, you can proceed with the full application. At this point, the lender will perform a hard credit inquiry, which will affect your credit score. You may also be asked to provide additional documentation, like copies of pay stubs or bank statements. Accept the terms and get funded: If you’re approved, review the final loan offer and decide if the actual terms are acceptable. The lender will send you the funds in the manner specified in your application—for instance, depositing the funds into your checking account or disbursing the funds directly to your other creditors if you're consolidating debt. Make a plan to repay the loan: Finally, you’ll set up your account via an online portal or mobile app so you can manage your loan. "In early 2015 I used a personal loan from PNC Bank to cover some unexpected, semi-urgent, and pricey medical costs and it was well worth it. Not only did it help me pay for what I needed to in less than 30 days (they were able to approve and disburse funds quickly following an online application), but it helped me avoid putting a 5-figure charge on a credit card with a 20%+ interest rate (the only other alternative I had at the time given my age, short credit history, and lower emergency savings account balance). The loan also helped diversify my credit profile, as I only had student loans and a couple credit cards back then. I watched my score rise as I started paying it off with on-time payments, too, which was an added bonus for someone still fairly early in their credit journey."—Sienna Wrenn, Senior Editor, Investopedia Special Projects Alternatives to Emergency Loans An unsecured personal loan is not your only option for an urgent loan, but you should carefully evaluate all of the following alternatives before choosing one. Credit card cash advance: Most credit cards allow you to withdraw cash—a cash advance. These loans can be expensive, however, with APRs as high as the card's default rate (usually around 30%). You'll also be charged a withdrawal fee of a few percentage points of the amount advanced, and interest will begin accruing immediately. Payday loan: A payday loan is an advance on your next paycheck. These short-term loans come with high interest rates and fees, resulting in APRs of 400% and more. Because of their expense, they can make it hard to break the cycle of debt. Payday Alternative Loan (PAL): Many credit unions offer PALs, loans of up to six months for relatively modest amounts—$1,000 or less. While APRs can be steep, they are capped at 28% by federal regulation. Cash app: Apps and services like Dave, Earnin, and the like offer short-term cash advances of small amounts ($20 to $500), for a fee. Most of these services charge a subscription and may have other requirements, like opening a checking account, on top of the fees associated with the loan. Title loan: A title loan, or a car title loan, is a secured loan option, backed by an asset you own, usually a car. Loan amounts are tied to the market value of the car, and often capped at 50% of that value. Terms are short—30 to 180 days—and APRs are as high as 400%. Home equity loan: If you need a significant amount of money, and your emergency can wait, you can tap into the equity you have in your home, if any. The process of getting a home equity loan or home equity line of credit can take 30 to 60 days, or more, so this isn't the solution if you are in a hurry. Rates and fees will be considerably cheaper than other alternatives here, assuming you can qualify. 401(k) loan: If you have a 401(k) through your employer, you may be able to borrow from it. Loans are capped at half the account's value or $50,000, whichever is lower. Fund access is fast, 7-10 days. You'll have to repay the loan, with interest, within five years. The interest is paid into your account, and in effect it is like recouping some of earnings loss you experienced due to the withdrawal of funds. How to Build an Emergency Fund If emergencies are unavoidable, borrowing to pay for one doesn't have to be. All you need is a dedicated savings account—an emergency fund—to help see you through. But how do you build one? Set a savings goal: How much should you save? You might aim for several months worth of living expenses (just the basics), or focus on the types of emergency spending you've experienced (car repairs or a vet bill, say) and set an amount that would cover that as your goal. Set up consistent savings: Find a system that works for you that makes saving automatic and consistent. One way is to set up automatic fund transfers to a dedicated savings account. The transfers do not need to be large. Consistency is the key. Set aside windfalls: If you get a bonus at work, a tax rebate, or some other financial good luck, resist the urge to spend all of it. Send some to your emergency savings account to boost your financial cushion. Decide where to save it: Banks and credit unions are the obvious choices. Look for high yield savings accounts that will help your money grow faster. Be careful about spending it: Not every emergency is dire, so be careful about spending your emergency fund. Regular car maintenance is not an emergency (ideally you'll budget for this); a repair to keep your car safely on the road and operable is worthy of a dip into your emergency fund. Frequently Asked Questions How Much Will an Emergency Loan for Bad Credit Cost? An emergency personal loan for bad credit will usually come with the typical fees of any personal loan—mainly origination fees, interest fees, and late payment fees. But those fees may be higher than a loan offered to a person with good credit. Where Can You Get an Emergency Loan if You Have Bad Credit? Multiple types of lenders offer emergency loans for bad credit, including: Online lendersCredit unionsTraditional banksCredit card companies (cash advances)Payday lendersRelatives and friendsRemember, just because a borrowing option is available doesn’t mean it’s a good choice. Credit card cash advances, for example, are notoriously expensive and might damage your credit score by driving up your credit utilization ratio. It’s also a good idea to avoid payday loans and title loans whenever possible. The Consumer Financial Protection Bureau (CFPB) warns that the average two-week payday loan features a steep APR that’s equivalent to nearly 400%. Will an Emergency Loan Impact My Credit Score? Some types of emergency loans can affect your credit score, while others will not. If a lender doesn’t report your account to one of the three major credit bureaus, the loan won’t influence your credit score—unless you default and a collection agency adds the bad debt to your credit reports at a later date. However, if a lender does share your account details with the credit bureaus, that’s a different story.A traditional bank, credit union, and online lender generally will report account details to the credit bureaus. Payday lenders and title lenders generally do not.When a lender reports an emergency loan to the credit bureaus, the way you manage the account dictates whether it will help or hurt your credit score. If you make your payments on time, the account may benefit your credit score in the long run. However, if you make late payments or become past due on your debt, that emergency loan could hurt your credit score instead. How Fast Can I Get an Emergency Loan? Many lenders offer fast funding to qualified borrowers. Some personal loan lenders may even deposit the funds into your bank account the same day you’re approved for financing. On the other hand, loan funding can sometimes take several days or even up to a few weeks. Certain lenders may take longer to process your loan application or release your funds than others. There’s also a chance that your personal bank or credit union may hold the funds a lender deposits into your account for a few days before you can access the money.  Can You Get an Emergency Loan With No Credit Check? Although some lenders do provide loans without credit checks, they're not recommended. Such lenders (like payday loan lenders) often charge steep origination or application fees and high APRs. Not only are these types of loans very expensive, but you might end up getting stuck in a payday borrowing cycle that’s difficult to escape. What Is the Minimum Credit Score for an Emergency Loan? Among the lenders on our list, Upstart says it will offer loans to borrowers with credit scores of just 300, as long there are no other adverse entries in the credit report. Other lenders we researched report minimum credit scores of 580 or 560, which are considered 'Fair' and 'Poor', respectively. How Can I Borrow Money Fast in an Emergency? If your first priority is fast cash, you have several options, although some of them will be expensive, with high interest rates and fees.A personal loan from an online lender or your bank: Some online lenders can approve and fund a loan the same day. Similarly, a bank or credit union you already have a relationship with may be able to approve and fund a loan in a day or two.A payday loan: Payday lenders can fund these short term loans the same day. Interest rate and fees can be exorbitant, however, and you'll have to repay it by your next payday. You'll generally need to provide some identification, proof of income, and have a checking account.A pawn loan: Pawnshop lenders can provide a short-term loan, secured by your property, the same day. Rates and terms are regulated by state governments. In California, for example, pawn loans cannot be longer than 120 days and interest is capped at 3% per month.A credit card cash advance: If you have a credit card, chances are it allows you to access your credit as cash. You can do this at an ATM, which makes this a really fast option. (You'll need to know your card account's PIN.) Generally the amount you can withdraw is a fraction of your credit limit, and the interest rate will be higher than the standard purchase rate. You'll also pay a fee (3%-5% of the amount borrowed). Companies We Reviewed We researched and reviewed 70 companies to find the best seven lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the companies we researched, along with links to individual company reviews, to help you learn more before making a decision: Achieve, Affinity Federal Credit Union, Alliant Credit Union, American Express, Avant, Axos Bank, Bankers Healthcare Group, Best Egg, Bethpage Federal Credit Union, Blue Federal Credit Union, Boatloan.com, Boeing Employees' Credit Union, CapexMD, Citibank, Connexus Credit Union, Discover, Dividend Finance, ENT Credit Union, Fig Loans, First Tech Federal Credit Union, Future Family, GoodLeap, Greenstate Credit Union, Happy Money, Hiway Credit Union, Lake Michigan Credit Union, Laurel Road, LendingClub, LendingPoint, LendingUSA, Liberty Federal Credit Union, LightStream, Lyon Financial, Mariner, Money Key, Mountain America Credit Union, NASA Federal Credit Union, Navy Federal Credit Union, Netcredit, Old National Bank, OneMain Financial, OppLoans, Patelco Credit Union, PenFed, Personify Financial, PNC Bank, Prosper, Reach Financial, Regions, Reprise, Rocket Loans, Santander, Service Federal Credit Union, SoFi, Southeast Financial, Summit Credit Union, SunPower, TD Bank, Teachers Federal Credit Union, Trident Funding, Truist, U.S. Bank, Universal Credit, Upgrade, Upstart, USAA, Vantage Recreational Finance, Wells Fargo. How We Picked the Best Emergency Loans for Bad Credit To evaluate and rank personal loan providers we collected hundreds of data points across 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a survey we conducted. We grouped those factors into four broad areas: Loan costs (advertised APR, fees, and six other factors): 29.25%Loan terms (loan amount, repayment term, and three other factors): 22.25%Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%Additional features (online application, pre-qualification, and eight other factors): 20% Investopedia launched in 1999, and has been helping readers find the best bad credit emergency loan companies since 2020. Learn more about how we evaluated personal loans in our complete methodology. Learn More About Emergency Loans Instant Personal Loans What Is a Payday Loan? What Is Emergency Credit? How to Get an Emergency Loan How to Get an Emergency Student Loan How to Apply for a Personal Loan How to Use a Personal Loan Personal Loans vs. Credit Cards Payday Loans vs. Personal Loans Alternatives to Personal Loans What Are the Easiest Personal Loans to Get Approved For? What Is a Personal Loan? Where to Get a Personal Loan Best Personal Loans Best Personal Loans for Bad Credit Best Fast Personal Loans Investopedia Updated by Erin Gobler Erin Gobler is personal finance coach and a writer with over decade of experience. She specializes in writing about investing, cryptocurrency, stocks, and more. Her work has been published on major financial websites including Bankrate, Fox Business, Credit Karma, The Simple Dollar, and more. Learn about our editorial policies 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. Upgrade. "Personal Loans." Upgrade. "What Are the Minimum Borrower Requirements?" Upstart. "What Are the Minimum Credit Requirements to Receive a Loan?" Upstart. "Will I Be Eligible for a Loan?" Upstart. "UPST IPO." CBInsights. "Upstart." LinkedIn. "Upstart." Ent Credit Union. ”About Us.” CBInsights. "OppLoans." OppLoans. "Contact Us." Universal Credit. “Frequently Asked Questions About Universal Credit.” First Tech Federal Credit Union. "Become a Member." Patelco Credit Union. "Personal Loans & Lines of Credit." Patelco Credit Union. "Our Mission." MyFICO. "What's in My FICO Scores?" Experian. "What Is a Good Credit Score?" California Department of Financial Protection and Innovation. “Consumer Financial Education: Other Loans: Payday Loans.” Veridan Credit Union. "What Is a PAL Loan?" National Credit Union Administration. "Permissible Loan Interest Rate Ceiling Extended." The Pew Charitable Trusts. "Auto Title Loans," Page 3. Internal Revenue Service. "Retirement Topics—Plan Loans." Consumer Financial Protection Bureau. "An Essential Guide to Building an Emergency Fund." Consumer Financial Protection Bureau. "What Is a Payday Loan?" Consumer Financial Protection Bureau. "I Hear That Taking out a Payday Loan Can Help Rebuild My Credit or Improve My Credit Score. Is This True?" Case Text. "California Financial Code 21800." Related Articles Best Fast Personal Loans for 2024 Best Bad Credit Loans for May 2024 Best Auto Repair Loans for 2024 Best Small Personal Loans for 2024 Emergency Loan: Types, Eligibility, Pros and Cons Best Personal Loans With No Credit Check for 2024 Related Terms Emergency Loan: Types, Eligibility, Pros and Cons Emergency loans are a type of personal loan that provides fast access to cash. Learn how emergency loans work and about their pros and cons. more What Is a Secured Loan? How They Work, Types, and How to Get One Secured loans are loans that require collateral to borrow. Here’s how secured loans work and where to find them. more Private Party Auto Loan: What It Is, How It Works, How to Get One A private party auto loan is a type of loan that you can use to finance the purchase of a car from an individual. Many financial institutions offer these loans, including banks, credit unions, and online lenders. more What Is a Business Auto Loan? How to Finance Company Vehicles A business auto loan is a type of secured loan that companies or individual owners can use to purchase vehicles for business purposes. It can be less expensive than an unsecured loan, and its interest costs may be tax-deductible. more Private Student Loans: What They Are, How They Work Private student loans are offered through third-party lenders, and they don't come with the protections afforded to federal student loan borrowers. more Second Mortgage: What It Is, How It Works, Lender Requirements A second mortgage is a mortgage made while the original mortgage is still in effect. Learn the requirements for a second mortgage and how to apply. more

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

What Is a Commodities Exchange? How It Works 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-commodities-exchange"></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 Commodities Exchange? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products. A commodities exchange also refers to the physical center where trading takes place. The commodities market is massive, with a nominal value of approximately $131 trillion in 2024.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Traders rarely deliver any physical commodities through a commodities exchange. Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at a predetermined expiration date. The most traded commodity futures contract is crude oil.<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_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> There are several types of modern commodities exchanges, which include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0412/the-3-best-commodities-to-invest-in.aspx">metals, fuels, and agricultural commodities exchanges</a>. </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 commodities exchange determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.</li><li>It also refers to the physical center where trading takes place.</li><li>Two of the best-known commodity exchanges in the U.S. are the Chicago Mercantile Exchange Group and the New York Mercantile Exchange.</li><li>Traders rarely take delivery of physical commodities, but trade futures contracts, agreeing to buy or sell commodities at an agreed-upon price by a predetermined date. </li><li>There are no longer active trading floors for the majority of commodities exchanges. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-commodities-exchanges"></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 Commodities Exchanges </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Commodities exchanges are the central location where commodities are traded. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity-market.asp">commodity markets</a> in the U.S. began with the trading of agricultural products such as corn, cattle, wheat, and pigs in the 19th century.<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"> Chicago was the main hub for this kind of trading, due to its geographical location near the farm belt and because it was a key east-west transit point with railroad access. Modern commodity markets trade many types of investment vehicles and are often utilized by various investors from commodity producers to investment speculators.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Two of the best-known commodity exchanges in the United States are 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</a> (CME) Group and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nymex.asp">New York Mercantile Exchange</a> (NYMEX). CME Group is the world's leading and most diverse derivatives marketplace while the NYMEX is one part of the CME Group.<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The most well-known commodity exchange in Europe is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intercontinentalexchange.asp">Intercontinental Exchange</a> (ICE). Similar to CME and NYMEX, ICE is an electronic commodity exchange with no physical trading floor. In a cost-competitive environment, electronic exchanges are more prevalent. </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 only physical commodity trading exchange left in Europe is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/londonmetalexchange.asp">London Metal Exchange</a> (LME). The LME is the world center for the trading of industrial metals—most of the world's non-ferrous metal business is transacted there.<span class="ql-inline-citation" data-cite="6"></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_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>Ensure you research the commodity market before trading to ensure there is adequate liquidity. Commodities like oats are thinly traded, therefore prices tend to be very volatile.</p></div></div></div> <span class="heading-toc" id="toc-types-of-commodities"></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"> Types of Commodities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A commodity is a basic good that is interchangeable with other commodities of the same type. They are generally used in the production of goods and services. </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"> We may not realize it, but commodities have a very important place in our everyday lives. Consider the cotton that makes up your clothing, the lumber that makes up the frame of your home, or even the metal in your electronics. </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 following is a list of some of the most traded commodities in the world. </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><strong>Crude Oil: </strong>One of the most important commodities in the world, crude oil is an unrefined petroleum product that occurs naturally. It is used to produce different products including gasoline and petrochemicals. The price for crude oil generally reported in the U.S. is based on the NYMEX futures price. Contracts are based on 1,000 barrels and trade in U.S. dollars per barrel. The third business day before the 25th calendar day of the month preceding the delivery month is the last trading day for crude oil.<span class="ql-inline-citation" data-cite="7"></span></li><li><strong>Gold:</strong> This is one of the world's most widely traded precious metals. While investors can buy and sell the physical commodity, traders typically trade gold futures contracts on commodities exchanges. Contracts are generally sized at 100 troy ounces and are priced in U.S. dollars per troy ounce. The last trading day for gold is the third last business day of the delivery month.<span class="ql-inline-citation" data-cite="8"></span></li><li><strong>Lumber: </strong>This industry has two main products for the end user—softwood and hardwood. Softwood is used primarily in construction, while hardwood is used in flooring and furniture construction, and to make panels and cabinets. Contract sizes for lumber are generally 27,500 board feet and are traded in U.S. dollars per pound. The business day immediately preceding the 16^thcalendar day of the contract month is the last trading day for lumber.<span class="ql-inline-citation" data-cite="9"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Natural Gas: </strong>This commodity is used to heat homes, help generate electricity, and also has other uses in the commercial and industrial industries. Natural gas contracts are sold by 10,000 million British thermal units (mmBtu). All contracts are traded in U.S. dollars per mmBtu. The final trading day of the month for natural gas is three business days before the first day of the delivery month.<span class="ql-inline-citation" data-cite="10"></span></li><li><strong>Cotton: </strong>Cotton is the most widely used fiber in the world. Cotton fibers are collected and made into yarn and other textiles for clothing and other household goods. Cotton contracts are sized at 50,000 pounds, and trade in U.S. dollars per pound. The very last day of trading for cotton is 17 business days from the end of the spot month.<span class="ql-inline-citation" data-cite="11"></span></li> </ul> <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"> Other commodities that trade on commodities exchanges include silver, platinum, rice, sugar, orange juice, oats, cattle, corn, copper, cocoa, soybeans, and coffee. This, however, is not an exhaustive list of what you can find on an exchange. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-how-does-a-commodities-exchange-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a Commodities Exchange Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Commodities exchanges used to operate similarly to stock exchanges, where traders would trade on a trading floor for their brokers. However, modern trading has led to that process being halted and all trading is now done electronically. While the commodities exchanges do still exist and have employees, their trading floors have been closed.</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-is-bitcoin-a-commodity"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Bitcoin a Commodity?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Surprisingly yes, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp">Commodity Futures Trading Commission</a> (CFTC) has categorized Bitcoin as a commodity. Other virtual currencies are also considered commodities under the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cea.asp">Commodity Exchange Act</a> (CEA). However, it is important to note that the CFTC's jurisdiction over physical currencies is limited to when that virtual currency is used in a derivatives contract or when there is fraud or manipulation involving a virtual currency traded in interstate commerce.<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_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-are-commodities-examples"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Commodities Examples?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some of the most heavily traded commodities include gold, oil, natural gas, and lumber. While almost anything could be considered a commodity, within the context of investing and trading, a commodity is something that offers traders liquidity and is traded on an exchange.</p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Commodities exchanges are where trading takes place for physical goods, also known as commodities. The price of these commodities can often nudge a market one way or the other, which is especially the case with heavily traded commodities such as oil and gold. Other commodities such as food may not dictate the market direction but can have a large effect on consumer pricing and sentiment. </p></div>

## What Is a Commodities Exchange? A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products. A commodities exchange also refers to the physical center where trading takes place. The commodities market is massive, with a nominal value of approximately $131 trillion in 2024. Traders rarely deliver any physical commodities through a commodities exchange. Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at a predetermined expiration date. The most traded commodity futures contract is crude oil. There are several types of modern commodities exchanges, which include [metals, fuels, and agricultural commodities exchanges](https://www.investopedia.com/financial-edge/0412/the-3-best-commodities-to-invest-in.aspx). ### Key Takeaways * A commodities exchange determines and enforces rules and procedures for trading standardized commodity contracts and related investment products. * It also refers to the physical center where trading takes place. * Two of the best-known commodity exchanges in the U.S. are the Chicago Mercantile Exchange Group and the New York Mercantile Exchange. * Traders rarely take delivery of physical commodities, but trade futures contracts, agreeing to buy or sell commodities at an agreed-upon price by a predetermined date. * There are no longer active trading floors for the majority of commodities exchanges. ## Understanding Commodities Exchanges Commodities exchanges are the central location where commodities are traded. The [commodity markets](https://www.investopedia.com/terms/c/commodity-market.asp) in the U.S. began with the trading of agricultural products such as corn, cattle, wheat, and pigs in the 19th century. Chicago was the main hub for this kind of trading, due to its geographical location near the farm belt and because it was a key east-west transit point with railroad access. Modern commodity markets trade many types of investment vehicles and are often utilized by various investors from commodity producers to investment speculators. Two of the best-known commodity exchanges in the United States are the [Chicago Mercantile Exchange](https://www.investopedia.com/terms/c/cme.asp) (CME) Group and the [New York Mercantile Exchange](https://www.investopedia.com/terms/n/nymex.asp) (NYMEX). CME Group is the world's leading and most diverse derivatives marketplace while the NYMEX is one part of the CME Group. The most well-known commodity exchange in Europe is the [Intercontinental Exchange](https://www.investopedia.com/terms/i/intercontinentalexchange.asp) (ICE). Similar to CME and NYMEX, ICE is an electronic commodity exchange with no physical trading floor. In a cost-competitive environment, electronic exchanges are more prevalent. The only physical commodity trading exchange left in Europe is the [London Metal Exchange](https://www.investopedia.com/terms/l/londonmetalexchange.asp) (LME). The LME is the world center for the trading of industrial metals—most of the world's non-ferrous metal business is transacted there. ### Ensure you research the commodity market before trading to ensure there is adequate liquidity. Commodities like oats are thinly traded, therefore prices tend to be very volatile. ## Types of Commodities A commodity is a basic good that is interchangeable with other commodities of the same type. They are generally used in the production of goods and services. We may not realize it, but commodities have a very important place in our everyday lives. Consider the cotton that makes up your clothing, the lumber that makes up the frame of your home, or even the metal in your electronics. The following is a list of some of the most traded commodities in the world. * **Crude Oil:** One of the most important commodities in the world, crude oil is an unrefined petroleum product that occurs naturally. It is used to produce different products including gasoline and petrochemicals. The price for crude oil generally reported in the U.S. is based on the NYMEX futures price. Contracts are based on 1,000 barrels and trade in U.S. dollars per barrel. The third business day before the 25th calendar day of the month preceding the delivery month is the last trading day for crude oil. * **Gold:** This is one of the world's most widely traded precious metals. While investors can buy and sell the physical commodity, traders typically trade gold futures contracts on commodities exchanges. Contracts are generally sized at 100 troy ounces and are priced in U.S. dollars per troy ounce. The last trading day for gold is the third last business day of the delivery month. * **Lumber:** This industry has two main products for the end user—softwood and hardwood. Softwood is used primarily in construction, while hardwood is used in flooring and furniture construction, and to make panels and cabinets. Contract sizes for lumber are generally 27,500 board feet and are traded in U.S. dollars per pound. The business day immediately preceding the 16th calendar day of the contract month is the last trading day for lumber. * **Natural Gas:** This commodity is used to heat homes, help generate electricity, and also has other uses in the commercial and industrial industries. Natural gas contracts are sold by 10,000 million British thermal units (mmBtu). All contracts are traded in U.S. dollars per mmBtu. The final trading day of the month for natural gas is three business days before the first day of the delivery month. * **Cotton:** Cotton is the most widely used fiber in the world. Cotton fibers are collected and made into yarn and other textiles for clothing and other household goods. Cotton contracts are sized at 50,000 pounds, and trade in U.S. dollars per pound. The very last day of trading for cotton is 17 business days from the end of the spot month. Other commodities that trade on commodities exchanges include silver, platinum, rice, sugar, orange juice, oats, cattle, corn, copper, cocoa, soybeans, and coffee. This, however, is not an exhaustive list of what you can find on an exchange. ## How Does a Commodities Exchange Work? Commodities exchanges used to operate similarly to stock exchanges, where traders would trade on a trading floor for their brokers. However, modern trading has led to that process being halted and all trading is now done electronically. While the commodities exchanges do still exist and have employees, their trading floors have been closed. ## Is Bitcoin a Commodity? Surprisingly yes, the [Commodity Futures Trading Commission](https://www.investopedia.com/terms/c/cftc.asp) (CFTC) has categorized Bitcoin as a commodity. Other virtual currencies are also considered commodities under the [Commodity Exchange Act](https://www.investopedia.com/terms/c/cea.asp) (CEA). However, it is important to note that the CFTC's jurisdiction over physical currencies is limited to when that virtual currency is used in a derivatives contract or when there is fraud or manipulation involving a virtual currency traded in interstate commerce. ## What Are Commodities Examples? Some of the most heavily traded commodities include gold, oil, natural gas, and lumber. While almost anything could be considered a commodity, within the context of investing and trading, a commodity is something that offers traders liquidity and is traded on an exchange. ## The Bottom Line Commodities exchanges are where trading takes place for physical goods, also known as commodities. The price of these commodities can often nudge a market one way or the other, which is especially the case with heavily traded commodities such as oil and gold. Other commodities such as food may not dictate the market direction but can have a large effect on consumer pricing and sentiment.

What Is a Commodities Exchange? A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products. A commodities exchange also refers to the physical center where trading takes place. The commodities market is massive, with a nominal value of approximately $131 trillion in 2024. Traders rarely deliver any physical commodities through a commodities exchange. Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at a predetermined expiration date. The most traded commodity futures contract is crude oil. There are several types of modern commodities exchanges, which include metals, fuels, and agricultural commodities exchanges. Key Takeaways A commodities exchange determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.It also refers to the physical center where trading takes place.Two of the best-known commodity exchanges in the U.S. are the Chicago Mercantile Exchange Group and the New York Mercantile Exchange.Traders rarely take delivery of physical commodities, but trade futures contracts, agreeing to buy or sell commodities at an agreed-upon price by a predetermined date. There are no longer active trading floors for the majority of commodities exchanges. Understanding Commodities Exchanges Commodities exchanges are the central location where commodities are traded. The commodity markets in the U.S. began with the trading of agricultural products such as corn, cattle, wheat, and pigs in the 19th century. Chicago was the main hub for this kind of trading, due to its geographical location near the farm belt and because it was a key east-west transit point with railroad access. Modern commodity markets trade many types of investment vehicles and are often utilized by various investors from commodity producers to investment speculators. Two of the best-known commodity exchanges in the United States are the Chicago Mercantile Exchange (CME) Group and the New York Mercantile Exchange (NYMEX). CME Group is the world's leading and most diverse derivatives marketplace while the NYMEX is one part of the CME Group. The most well-known commodity exchange in Europe is the Intercontinental Exchange (ICE). Similar to CME and NYMEX, ICE is an electronic commodity exchange with no physical trading floor. In a cost-competitive environment, electronic exchanges are more prevalent. The only physical commodity trading exchange left in Europe is the London Metal Exchange (LME). The LME is the world center for the trading of industrial metals—most of the world's non-ferrous metal business is transacted there. Ensure you research the commodity market before trading to ensure there is adequate liquidity. Commodities like oats are thinly traded, therefore prices tend to be very volatile. Types of Commodities A commodity is a basic good that is interchangeable with other commodities of the same type. They are generally used in the production of goods and services. We may not realize it, but commodities have a very important place in our everyday lives. Consider the cotton that makes up your clothing, the lumber that makes up the frame of your home, or even the metal in your electronics. The following is a list of some of the most traded commodities in the world. Crude Oil: One of the most important commodities in the world, crude oil is an unrefined petroleum product that occurs naturally. It is used to produce different products including gasoline and petrochemicals. The price for crude oil generally reported in the U.S. is based on the NYMEX futures price. Contracts are based on 1,000 barrels and trade in U.S. dollars per barrel. The third business day before the 25th calendar day of the month preceding the delivery month is the last trading day for crude oil.Gold: This is one of the world's most widely traded precious metals. While investors can buy and sell the physical commodity, traders typically trade gold futures contracts on commodities exchanges. Contracts are generally sized at 100 troy ounces and are priced in U.S. dollars per troy ounce. The last trading day for gold is the third last business day of the delivery month.Lumber: This industry has two main products for the end user—softwood and hardwood. Softwood is used primarily in construction, while hardwood is used in flooring and furniture construction, and to make panels and cabinets. Contract sizes for lumber are generally 27,500 board feet and are traded in U.S. dollars per pound. The business day immediately preceding the 16th calendar day of the contract month is the last trading day for lumber.Natural Gas: This commodity is used to heat homes, help generate electricity, and also has other uses in the commercial and industrial industries. Natural gas contracts are sold by 10,000 million British thermal units (mmBtu). All contracts are traded in U.S. dollars per mmBtu. The final trading day of the month for natural gas is three business days before the first day of the delivery month.Cotton: Cotton is the most widely used fiber in the world. Cotton fibers are collected and made into yarn and other textiles for clothing and other household goods. Cotton contracts are sized at 50,000 pounds, and trade in U.S. dollars per pound. The very last day of trading for cotton is 17 business days from the end of the spot month. Other commodities that trade on commodities exchanges include silver, platinum, rice, sugar, orange juice, oats, cattle, corn, copper, cocoa, soybeans, and coffee. This, however, is not an exhaustive list of what you can find on an exchange. How Does a Commodities Exchange Work? Commodities exchanges used to operate similarly to stock exchanges, where traders would trade on a trading floor for their brokers. However, modern trading has led to that process being halted and all trading is now done electronically. While the commodities exchanges do still exist and have employees, their trading floors have been closed. Is Bitcoin a Commodity? Surprisingly yes, the Commodity Futures Trading Commission (CFTC) has categorized Bitcoin as a commodity. Other virtual currencies are also considered commodities under the Commodity Exchange Act (CEA). However, it is important to note that the CFTC's jurisdiction over physical currencies is limited to when that virtual currency is used in a derivatives contract or when there is fraud or manipulation involving a virtual currency traded in interstate commerce. What Are Commodities Examples? Some of the most heavily traded commodities include gold, oil, natural gas, and lumber. While almost anything could be considered a commodity, within the context of investing and trading, a commodity is something that offers traders liquidity and is traded on an exchange. The Bottom Line Commodities exchanges are where trading takes place for physical goods, also known as commodities. The price of these commodities can often nudge a market one way or the other, which is especially the case with heavily traded commodities such as oil and gold. Other commodities such as food may not dictate the market direction but can have a large effect on consumer pricing and sentiment.

https://www.investopedia.com/terms/i/index-investing.asp

Investing in an index: overview, examples, and FAQ

<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-index-investing"></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 Index Investing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Index investing is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveinvesting.asp" rel="noopener noreferrer">passive investment</a> technique that attempts to generate returns similar to a broad <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketindex.asp" rel="noopener noreferrer">market index</a>. Investors use this buy-and-hold strategy to replicate the performance of a specific index—generally an equity or fixed-income index—by purchasing the component securities of the index, or investing in an index mutual fund or exchange traded fund (ETF) that itself closely tracks the underlying index. </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"> There are several advantages of index investing. For one, empirical research finds index investing tends to outperform <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp" rel="noopener noreferrer">active management</a> over a long time frame. Taking a hands-off approach to investing eliminates many of the biases and uncertainties that arise in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockpick.asp" rel="noopener noreferrer">stock-picking</a> strategy. </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"> Index investing, as well as other passive strategies, may be contrasted with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activeinvesting.asp" rel="noopener noreferrer">active investment</a>. </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>Index investing is a passive investment strategy that seeks to replicate the returns of a benchmark index.</li><li>Indexing offers greater diversification, as well as lower expenses and fees, than actively managed strategies.</li><li>Indexing seeks to match the risk and return of the overall market, on the theory that over the long-term the market will outperform any stock picker.</li><li>Complete index investing involves purchasing all of an index's components at their given portfolio weights, while less-intensive strategies involve only owning the largest index weights or a sampling of important components.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-index-investing-works"></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 Index Investing Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Index investing is an effective strategy to manage risk and gain consistent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp" rel="noopener noreferrer">returns</a>. Proponents of the strategy eschew active investing because modern financial theory claims it's impossible to "beat the market" once trading costs and taxes are taken into account. </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"> Since index investing takes a passive approach, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index funds</a> usually have lower <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/managementfee.asp">management fees</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratios</a> (ERs) than actively managed funds. The simplicity of tracking the market without a portfolio manager allows providers to maintain modest fees. Index funds also tend to be more tax-efficient than active funds because they make less frequent trades. </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"> More importantly, index investing is an effective method of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp" rel="noopener noreferrer">diversifying</a> against risks. An index fund consists of a broad basket of assets instead of a few investments. This serves to minimize <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsystematicrisk.asp" rel="noopener noreferrer">unsystematic risk</a> related to a specific company or industry without decreasing expected returns. </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 many index investors, 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</a> is the most common benchmark to evaluate performance against, as it gauges the health of the U.S. economy. Other widely followed index funds track the performance of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp" rel="noopener noreferrer">Dow Jones Industrial Average</a> (DJIA) and the corporate bond sector. </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>Active U.S. equity funds have experienced outflows every year from 2015 to 2020, according to Morningstar, with most of that withdrawn money being plowed into passive funds.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <span class="heading-toc" id="toc-index-investing-methods"></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"> Index Investing Methods </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Purchasing every stock in an index at its given component weight is the most complete way to ensure that a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp" rel="noopener noreferrer">portfolio</a> will achieve the same risk and return profile as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp" rel="noopener noreferrer">benchmark</a> itself. However, depending on the index, this can be time-consuming and quite costly to implement. </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 instance, to replicate the S&amp;P 500 index, an investor would need to accumulate positions in each of the 500 companies that are inside the index. For the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp" rel="noopener noreferrer">Russell 2000</a>, there would need to be 2000 different positions. Depending on commissions paid to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp" rel="noopener noreferrer">broker</a>, this can become cost-prohibitive. </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"> More cost-effective ways to track an index involve only owning the most heavily-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/weighted.asp" rel="noopener noreferrer">weighted</a> index components or sampling a certain proportion, say 20%, of the index's holdings. The most cost-effective way to own an index these days is to seek out an index mutual fund or <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">ETF</a> that does all of that work for you, combining the entire index essentially into a single security or share. </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-limitations-of-index-investing"></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"> Limitations of Index Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Despite gaining immense popularity in recent years, there are some limitations to index investing. Many index funds are formed on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a> basis, meaning the top holdings have an outsized weight on broad market movements. So, if, say, giants such as Amazon.com Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>) and Meta Platforms Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>), formerly Facebook Inc., experience a weak quarter it would have a noticeable impact on the entire index. </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"> This entirely passive strategy neglects a subset of the investment universe focused on market factors such as value, momentum, and quality. These factors now constitute a corner of investing called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-beta.asp">smart-beta</a>, which attempts to deliver better <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskadjustedreturn.asp">risk-adjusted returns</a> than a market-cap-weighted index. Smart-beta funds offer the same benefits of a passive strategy, with the additional upside of active management, otherwise known as alpha. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-real-world-example-of-index-investing"></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"> Real World Example of Index Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Index mutual funds have been around since the 1970s. The one fund that started it all, founded by Vanguard Chair John Bogle in 1976, remains one of the best for its overall long-term performance and low cost.<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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Over the years, the Vanguard 500 Index Fund has tracked the S&amp;P 500 faithfully, in composition and performance. For its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102715/what-are-vanguards-admiral-shares.asp">Admiral Shares</a>, the expense ratio is 0.04%, and its minimum investment is $3,000.<span class="ql-inline-citation" data-cite="1"></span> </p></div>

## What Is Index Investing? Index investing is a [passive investment](https://www.investopedia.com/terms/p/passiveinvesting.asp) technique that attempts to generate returns similar to a broad [market index](https://www.investopedia.com/terms/m/marketindex.asp). Investors use this buy-and-hold strategy to replicate the performance of a specific index—generally an equity or fixed-income index—by purchasing the component securities of the index, or investing in an index mutual fund or exchange traded fund (ETF) that itself closely tracks the underlying index. There are several advantages of index investing. For one, empirical research finds index investing tends to outperform [active management](https://www.investopedia.com/terms/a/activemanagement.asp) over a long time frame. Taking a hands-off approach to investing eliminates many of the biases and uncertainties that arise in a [stock-picking](https://www.investopedia.com/terms/s/stockpick.asp) strategy. Index investing, as well as other passive strategies, may be contrasted with [active investment](https://www.investopedia.com/terms/a/activeinvesting.asp). ### Key Takeaways * Index investing is a passive investment strategy that seeks to replicate the returns of a benchmark index. * Indexing offers greater diversification, as well as lower expenses and fees, than actively managed strategies. * Indexing seeks to match the risk and return of the overall market, on the theory that over the long-term the market will outperform any stock picker. * Complete index investing involves purchasing all of an index's components at their given portfolio weights, while less-intensive strategies involve only owning the largest index weights or a sampling of important components. ## How Index Investing Works Index investing is an effective strategy to manage risk and gain consistent [returns](https://www.investopedia.com/terms/r/return.asp). Proponents of the strategy eschew active investing because modern financial theory claims it's impossible to "beat the market" once trading costs and taxes are taken into account. Since index investing takes a passive approach, [index funds](https://www.investopedia.com/terms/i/indexfund.asp) usually have lower [management fees](https://www.investopedia.com/terms/m/managementfee.asp) and [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) (ERs) than actively managed funds. The simplicity of tracking the market without a portfolio manager allows providers to maintain modest fees. Index funds also tend to be more tax-efficient than active funds because they make less frequent trades. More importantly, index investing is an effective method of [diversifying](https://www.investopedia.com/terms/d/diversification.asp) against risks. An index fund consists of a broad basket of assets instead of a few investments. This serves to minimize [unsystematic risk](https://www.investopedia.com/terms/u/unsystematicrisk.asp) related to a specific company or industry without decreasing expected returns. For many index investors, the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) is the most common benchmark to evaluate performance against, as it gauges the health of the U.S. economy. Other widely followed index funds track the performance of the [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp) (DJIA) and the corporate bond sector. ### Active U.S. equity funds have experienced outflows every year from 2015 to 2020, according to Morningstar, with most of that withdrawn money being plowed into passive funds. ## Index Investing Methods Purchasing every stock in an index at its given component weight is the most complete way to ensure that a [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) will achieve the same risk and return profile as the [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) itself. However, depending on the index, this can be time-consuming and quite costly to implement. For instance, to replicate the S&P 500 index, an investor would need to accumulate positions in each of the 500 companies that are inside the index. For the [Russell 2000](https://www.investopedia.com/terms/r/russell2000.asp), there would need to be 2000 different positions. Depending on commissions paid to a [broker](https://www.investopedia.com/terms/b/broker.asp), this can become cost-prohibitive. More cost-effective ways to track an index involve only owning the most heavily-[weighted](https://www.investopedia.com/terms/w/weighted.asp) index components or sampling a certain proportion, say 20%, of the index's holdings. The most cost-effective way to own an index these days is to seek out an index mutual fund or [ETF](https://www.investopedia.com/terms/e/etf.asp) that does all of that work for you, combining the entire index essentially into a single security or share. ## Limitations of Index Investing Despite gaining immense popularity in recent years, there are some limitations to index investing. Many index funds are formed on a [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) basis, meaning the top holdings have an outsized weight on broad market movements. So, if, say, giants such as Amazon.com Inc. ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) and Meta Platforms Inc. ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), formerly Facebook Inc., experience a weak quarter it would have a noticeable impact on the entire index. This entirely passive strategy neglects a subset of the investment universe focused on market factors such as value, momentum, and quality. These factors now constitute a corner of investing called [smart-beta](https://www.investopedia.com/terms/s/smart-beta.asp), which attempts to deliver better [risk-adjusted returns](https://www.investopedia.com/terms/r/riskadjustedreturn.asp) than a market-cap-weighted index. Smart-beta funds offer the same benefits of a passive strategy, with the additional upside of active management, otherwise known as alpha. ## Real World Example of Index Investing Index mutual funds have been around since the 1970s. The one fund that started it all, founded by Vanguard Chair John Bogle in 1976, remains one of the best for its overall long-term performance and low cost. Over the years, the Vanguard 500 Index Fund has tracked the S&P 500 faithfully, in composition and performance. For its [Admiral Shares](https://www.investopedia.com/ask/answers/102715/what-are-vanguards-admiral-shares.asp), the expense ratio is 0.04%, and its minimum investment is $3,000.

What Is Index Investing? Index investing is a passive investment technique that attempts to generate returns similar to a broad market index. Investors use this buy-and-hold strategy to replicate the performance of a specific index—generally an equity or fixed-income index—by purchasing the component securities of the index, or investing in an index mutual fund or exchange traded fund (ETF) that itself closely tracks the underlying index. There are several advantages of index investing. For one, empirical research finds index investing tends to outperform active management over a long time frame. Taking a hands-off approach to investing eliminates many of the biases and uncertainties that arise in a stock-picking strategy. Index investing, as well as other passive strategies, may be contrasted with active investment. Key Takeaways Index investing is a passive investment strategy that seeks to replicate the returns of a benchmark index.Indexing offers greater diversification, as well as lower expenses and fees, than actively managed strategies.Indexing seeks to match the risk and return of the overall market, on the theory that over the long-term the market will outperform any stock picker.Complete index investing involves purchasing all of an index's components at their given portfolio weights, while less-intensive strategies involve only owning the largest index weights or a sampling of important components. How Index Investing Works Index investing is an effective strategy to manage risk and gain consistent returns. Proponents of the strategy eschew active investing because modern financial theory claims it's impossible to "beat the market" once trading costs and taxes are taken into account. Since index investing takes a passive approach, index funds usually have lower management fees and expense ratios (ERs) than actively managed funds. The simplicity of tracking the market without a portfolio manager allows providers to maintain modest fees. Index funds also tend to be more tax-efficient than active funds because they make less frequent trades. More importantly, index investing is an effective method of diversifying against risks. An index fund consists of a broad basket of assets instead of a few investments. This serves to minimize unsystematic risk related to a specific company or industry without decreasing expected returns. For many index investors, the S&P 500 is the most common benchmark to evaluate performance against, as it gauges the health of the U.S. economy. Other widely followed index funds track the performance of the Dow Jones Industrial Average (DJIA) and the corporate bond sector. Active U.S. equity funds have experienced outflows every year from 2015 to 2020, according to Morningstar, with most of that withdrawn money being plowed into passive funds. Index Investing Methods Purchasing every stock in an index at its given component weight is the most complete way to ensure that a portfolio will achieve the same risk and return profile as the benchmark itself. However, depending on the index, this can be time-consuming and quite costly to implement. For instance, to replicate the S&P 500 index, an investor would need to accumulate positions in each of the 500 companies that are inside the index. For the Russell 2000, there would need to be 2000 different positions. Depending on commissions paid to a broker, this can become cost-prohibitive. More cost-effective ways to track an index involve only owning the most heavily-weighted index components or sampling a certain proportion, say 20%, of the index's holdings. The most cost-effective way to own an index these days is to seek out an index mutual fund or ETF that does all of that work for you, combining the entire index essentially into a single security or share. Limitations of Index Investing Despite gaining immense popularity in recent years, there are some limitations to index investing. Many index funds are formed on a market capitalization basis, meaning the top holdings have an outsized weight on broad market movements. So, if, say, giants such as Amazon.com Inc. (AMZN) and Meta Platforms Inc. (META), formerly Facebook Inc., experience a weak quarter it would have a noticeable impact on the entire index. This entirely passive strategy neglects a subset of the investment universe focused on market factors such as value, momentum, and quality. These factors now constitute a corner of investing called smart-beta, which attempts to deliver better risk-adjusted returns than a market-cap-weighted index. Smart-beta funds offer the same benefits of a passive strategy, with the additional upside of active management, otherwise known as alpha. Real World Example of Index Investing Index mutual funds have been around since the 1970s. The one fund that started it all, founded by Vanguard Chair John Bogle in 1976, remains one of the best for its overall long-term performance and low cost. Over the years, the Vanguard 500 Index Fund has tracked the S&P 500 faithfully, in composition and performance. For its Admiral Shares, the expense ratio is 0.04%, and its minimum investment is $3,000.

https://www.investopedia.com/terms/t/treynorratio.asp

Treynor Ratio: What It Is, What It Shows, Formula To Calculate It

<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-treynor-ratio"></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 Treynor Ratio? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Treynor ratio, also known as the reward-to-volatility ratio, is a performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio. </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"> Excess return in this sense refers to the return earned above the return that could have been earned in a risk-free investment. Although there is no true risk-free investment, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp">treasury bills</a> are often used to represent the risk-free return in the Treynor ratio. </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"> Risk in the Treynor ratio refers to systematic risk as measured by a portfolio's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp">beta</a>. Beta measures the tendency of a portfolio's return to change in response to changes in return for the overall market. </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 Treynor ratio is a risk/return measure that allows investors to adjust a portfolio's returns for systematic risk.</li><li>A higher Treynor ratio result means a portfolio is a more suitable investment.</li><li>The Treynor ratio is similar to the Sharpe ratio, although the Sharpe ratio uses a portfolio's standard deviation to adjust the portfolio returns.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Treynor ratio was developed by Jack Treynor, an American economist who was one of the inventors of the Capital Asset Pricing Model (CAPM). </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-understanding-the-treynor-ratio"></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 the Treynor Ratio </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-subheading__text"> The Formula for the Treynor Ratio is: </span> </h3> <p 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;\text{Treynor Ratio}=\frac{r_p - r_f}{\beta_p}\\ &amp;\textbf{where:}\\ &amp;r_p = \text{Portfolio return}\\ &amp;r_f = \text{Risk-free rate}\\ &amp;\beta_p = \text{Beta of the portfolio}\\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Treynor Ratio </mtext> <mo> = </mo> <mfrac> <mrow> <msub> <mi> r </mi> <mi> p </mi> </msub> <mo> − </mo> <msub> <mi> r </mi> <mi> f </mi> </msub> </mrow> <mrow> <msub> <mi> β </mi> <mi> p </mi> </msub> </mrow> </mfrac> </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> <msub> <mi> r </mi> <mi> p </mi> </msub> <mo> = </mo> <mtext> Portfolio 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 rate </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> β </mi> <mi> p </mi> </msub> <mo> = </mo> <mtext> Beta of the portfolio </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{Treynor Ratio}=\frac{r_p - r_f}{\beta_p}\\ &amp;\textbf{where:}\\ &amp;r_p = \text{Portfolio return}\\ &amp;r_f = \text{Risk-free rate}\\ &amp;\beta_p = \text{Beta of the portfolio}\\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><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><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></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 mathrm">Treynor Ratio</span></span><span class="mrel">=</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="mord"><span class="mord mathit">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 mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></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"><span class="mord mathit">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 mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mbin">−</span><span class="mord"><span class="mord mathit">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 mathit mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></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 mathbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathit">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 mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Portfolio return</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathit">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 mathit mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Risk-free rate</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathit">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 mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Beta of the portfolio</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></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_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"> What Does the Treynor Ratio Reveal? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In essence, the Treynor ratio is a risk-adjusted measurement of return based on systematic risk. It indicates how much return an investment, such as a portfolio of stocks, a mutual fund, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund</a>, earned for the amount of risk the investment assumed. </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"> If a portfolio has a negative beta, however, the ratio result is not meaningful. A higher ratio result is more desirable and means that a given portfolio is likely a more suitable investment. Since the Treynor ratio is based on historical data, however, it's important to note this does not necessarily indicate future performance, and one ratio should not be the only factor relied upon for investing decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> How the Treynor Ratio Works </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Ultimately, the Treynor ratio attempts to measure how successful an investment is in providing compensation to investors for taking on investment risk. The Treynor ratio is reliant upon a portfolio's beta—that is, the sensitivity of the portfolio's returns to movements in the market—to judge risk. </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 premise behind this ratio is that investors must be compensated for the risk inherent to the portfolio, because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> will not remove it. </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"> Difference Between the Treynor Ratio and Sharpe Ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The Treynor ratio shares similarities with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sharperatio.asp">Sharpe ratio</a>, and both measure the risk and return of a 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"> The difference between the two metrics is that the Treynor ratio utilizes a portfolio beta, or systematic risk, to measure volatility instead of adjusting portfolio returns using the portfolio's standard deviation as done with the Sharpe ratio. </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"> Limitations of the Treynor Ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> A main weakness of the Treynor ratio is its backward-looking nature. Investments are likely to perform and behave differently in the future than they did in the past. The accuracy of the Treynor ratio is highly dependent on the use of appropriate benchmarks to measure beta. </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"> For example, if the Treynor ratio is used to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/010815/what-difference-between-sharpe-ratio-and-traynor-ratio.asp">measure the risk-adjusted return</a> of a domestic large-cap mutual fund, it would be inappropriate to measure the fund's beta relative to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp">Russell 2000 Small Stock index</a>. </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"> The fund's beta would likely be understated relative to this benchmark since large-cap stocks tend to be less volatile in general than small caps. Instead, the beta should be measured against an index more representative of the large-cap universe, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_1000index.asp">Russell 1000 index</a>. </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"> Additionally, there are no dimensions upon which to rank the Treynor ratio. When comparing similar investments, the higher Treynor ratio is better, all else equal, but there is no definition of how much better it is than the other investments. </p></div>

## What Is the Treynor Ratio? The Treynor ratio, also known as the reward-to-volatility ratio, is a performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio. Excess return in this sense refers to the return earned above the return that could have been earned in a risk-free investment. Although there is no true risk-free investment, [treasury bills](https://www.investopedia.com/terms/t/treasurybill.asp) are often used to represent the risk-free return in the Treynor ratio. Risk in the Treynor ratio refers to systematic risk as measured by a portfolio's [beta](https://www.investopedia.com/terms/b/beta.asp). Beta measures the tendency of a portfolio's return to change in response to changes in return for the overall market. ### Key Takeaways * The Treynor ratio is a risk/return measure that allows investors to adjust a portfolio's returns for systematic risk. * A higher Treynor ratio result means a portfolio is a more suitable investment. * The Treynor ratio is similar to the Sharpe ratio, although the Sharpe ratio uses a portfolio's standard deviation to adjust the portfolio returns. The Treynor ratio was developed by Jack Treynor, an American economist who was one of the inventors of the Capital Asset Pricing Model (CAPM). ## Understanding the Treynor Ratio ### The Formula for the Treynor Ratio is:  Treynor Ratio = r p − r f β p where: r p = Portfolio return r f = Risk-free rate β p = Beta of the portfolio \begin{aligned} &\text{Treynor Ratio}=\frac{r\_p - r\_f}{\beta\_p}\\ &\textbf{where:}\\ &r\_p = \text{Portfolio return}\\ &r\_f = \text{Risk-free rate}\\ &\beta\_p = \text{Beta of the portfolio}\\ \end{aligned} ​Treynor Ratio=βp​rp​−rf​​where:rp​=Portfolio returnrf​=Risk-free rateβp​=Beta of the portfolio​ ### What Does the Treynor Ratio Reveal? In essence, the Treynor ratio is a risk-adjusted measurement of return based on systematic risk. It indicates how much return an investment, such as a portfolio of stocks, a mutual fund, or [exchange-traded fund](https://www.investopedia.com/terms/e/etf.asp), earned for the amount of risk the investment assumed. If a portfolio has a negative beta, however, the ratio result is not meaningful. A higher ratio result is more desirable and means that a given portfolio is likely a more suitable investment. Since the Treynor ratio is based on historical data, however, it's important to note this does not necessarily indicate future performance, and one ratio should not be the only factor relied upon for investing decisions. ### How the Treynor Ratio Works Ultimately, the Treynor ratio attempts to measure how successful an investment is in providing compensation to investors for taking on investment risk. The Treynor ratio is reliant upon a portfolio's beta—that is, the sensitivity of the portfolio's returns to movements in the market—to judge risk. The premise behind this ratio is that investors must be compensated for the risk inherent to the portfolio, because [diversification](https://www.investopedia.com/terms/d/diversification.asp) will not remove it. ### Difference Between the Treynor Ratio and Sharpe Ratio The Treynor ratio shares similarities with the [Sharpe ratio](https://www.investopedia.com/terms/s/sharperatio.asp), and both measure the risk and return of a portfolio. The difference between the two metrics is that the Treynor ratio utilizes a portfolio beta, or systematic risk, to measure volatility instead of adjusting portfolio returns using the portfolio's standard deviation as done with the Sharpe ratio. ### Limitations of the Treynor Ratio A main weakness of the Treynor ratio is its backward-looking nature. Investments are likely to perform and behave differently in the future than they did in the past. The accuracy of the Treynor ratio is highly dependent on the use of appropriate benchmarks to measure beta. For example, if the Treynor ratio is used to [measure the risk-adjusted return](https://www.investopedia.com/ask/answers/010815/what-difference-between-sharpe-ratio-and-traynor-ratio.asp) of a domestic large-cap mutual fund, it would be inappropriate to measure the fund's beta relative to the [Russell 2000 Small Stock index](https://www.investopedia.com/terms/r/russell2000.asp). The fund's beta would likely be understated relative to this benchmark since large-cap stocks tend to be less volatile in general than small caps. Instead, the beta should be measured against an index more representative of the large-cap universe, such as the [Russell 1000 index](https://www.investopedia.com/terms/r/russell_1000index.asp). Additionally, there are no dimensions upon which to rank the Treynor ratio. When comparing similar investments, the higher Treynor ratio is better, all else equal, but there is no definition of how much better it is than the other investments.

What Is the Treynor Ratio? The Treynor ratio, also known as the reward-to-volatility ratio, is a performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio. Excess return in this sense refers to the return earned above the return that could have been earned in a risk-free investment. Although there is no true risk-free investment, treasury bills are often used to represent the risk-free return in the Treynor ratio. Risk in the Treynor ratio refers to systematic risk as measured by a portfolio's beta. Beta measures the tendency of a portfolio's return to change in response to changes in return for the overall market. Key Takeaways The Treynor ratio is a risk/return measure that allows investors to adjust a portfolio's returns for systematic risk.A higher Treynor ratio result means a portfolio is a more suitable investment.The Treynor ratio is similar to the Sharpe ratio, although the Sharpe ratio uses a portfolio's standard deviation to adjust the portfolio returns. The Treynor ratio was developed by Jack Treynor, an American economist who was one of the inventors of the Capital Asset Pricing Model (CAPM). Understanding the Treynor Ratio The Formula for the Treynor Ratio is:  Treynor Ratio = r p − r f β p where: r p = Portfolio return r f = Risk-free rate β p = Beta of the portfolio \begin{aligned} &\text{Treynor Ratio}=\frac{r_p - r_f}{\beta_p}\\ &\textbf{where:}\\ &r_p = \text{Portfolio return}\\ &r_f = \text{Risk-free rate}\\ &\beta_p = \text{Beta of the portfolio}\\ \end{aligned} ​Treynor Ratio=βp​rp​−rf​​where:rp​=Portfolio returnrf​=Risk-free rateβp​=Beta of the portfolio​ What Does the Treynor Ratio Reveal? In essence, the Treynor ratio is a risk-adjusted measurement of return based on systematic risk. It indicates how much return an investment, such as a portfolio of stocks, a mutual fund, or exchange-traded fund, earned for the amount of risk the investment assumed. If a portfolio has a negative beta, however, the ratio result is not meaningful. A higher ratio result is more desirable and means that a given portfolio is likely a more suitable investment. Since the Treynor ratio is based on historical data, however, it's important to note this does not necessarily indicate future performance, and one ratio should not be the only factor relied upon for investing decisions. How the Treynor Ratio Works Ultimately, the Treynor ratio attempts to measure how successful an investment is in providing compensation to investors for taking on investment risk. The Treynor ratio is reliant upon a portfolio's beta—that is, the sensitivity of the portfolio's returns to movements in the market—to judge risk. The premise behind this ratio is that investors must be compensated for the risk inherent to the portfolio, because diversification will not remove it. Difference Between the Treynor Ratio and Sharpe Ratio The Treynor ratio shares similarities with the Sharpe ratio, and both measure the risk and return of a portfolio. The difference between the two metrics is that the Treynor ratio utilizes a portfolio beta, or systematic risk, to measure volatility instead of adjusting portfolio returns using the portfolio's standard deviation as done with the Sharpe ratio. Limitations of the Treynor Ratio A main weakness of the Treynor ratio is its backward-looking nature. Investments are likely to perform and behave differently in the future than they did in the past. The accuracy of the Treynor ratio is highly dependent on the use of appropriate benchmarks to measure beta. For example, if the Treynor ratio is used to measure the risk-adjusted return of a domestic large-cap mutual fund, it would be inappropriate to measure the fund's beta relative to the Russell 2000 Small Stock index. The fund's beta would likely be understated relative to this benchmark since large-cap stocks tend to be less volatile in general than small caps. Instead, the beta should be measured against an index more representative of the large-cap universe, such as the Russell 1000 index. Additionally, there are no dimensions upon which to rank the Treynor ratio. When comparing similar investments, the higher Treynor ratio is better, all else equal, but there is no definition of how much better it is than the other investments.

https://www.investopedia.com/30-year-mortgage-rates-jump-8609511

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"> After recent falling to their lowest level since the start of February, 30-year mortgage rates shot up Thursday—adding almost two-tenths of a percentage point to a new average of 7.34%. Rates for most other new purchase loans also climbed higher. </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-square figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:83.8%;"> <img alt="Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 15, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/3cNlccuKW25M_xA3y5lbmtRsxMc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/3cNlccuKW25M_xA3y5lbmtRsxMc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png" data-srcset="https://www.investopedia.com/thmb/swBtaAg3KIvHqlVt9OC9j1_VPEI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png 750w" data-tracking-container="true" height="2080" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 15, 2024" class="img--noscript universal-image__image" height="2080" sizes="750px" src="https://www.investopedia.com/thmb/3cNlccuKW25M_xA3y5lbmtRsxMc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png" srcset="https://www.investopedia.com/thmb/swBtaAg3KIvHqlVt9OC9j1_VPEI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png 750w" width="2480"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Rates vary widely across lenders, so 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're seeking. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_6-0"> <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</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>7.34%</td> <td>7.62%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.46%</td> <td>7.56%</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>6.67%</td> <td>6.84%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.68%</td> <td>7.73%</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_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> <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_10-0"> <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_11-0"> Rates on 30-year new purchase mortgages jumped 18 basis points Thursday, raising the average to 7.34%. That's up from its recent low of 7.11% and is now closer to a peak seen three weeks ago at 7.48%. </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"> Given that 30-year rates sank into 6% territory at the start of February, Thursday's average is elevated. But rates are still dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/uqvLN/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="History of 30y average since Jun 2021"></iframe></div> <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 mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_18-0"><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_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 also climbed Thursday, by just 8 basis points. The 15-year average is now 6.67%. Current rates are pricier than the seven-month low of 6.10% we saw just before the new year—but still more affordable than last fall's 7.59%, 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 rose as well. Adding another eighth of a percentage point, the jumbo 30-year average is back up to its recent high of 6.95%. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached in 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"> Most other new purchase averages also gained ground Thursday. Aside from the 30-year flagship average, the other big climber was FHA 30-year loans, whose average added 17 basis points. The only new purchase loan average to fall Thursday was 7/6 adjustable-rate mortgages, which dipped 3 basis points on average. </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>7.34%</td> <td>+0.18</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.46%</td> <td>+0.17</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.04%</td> <td>+0.12</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>7.02%</td> <td>+0.06</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.67%</td> <td>+0.08</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.82%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.78%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.55%</td> <td>+0.08</td> </tr> <tr> <td>10/6 ARM</td> <td>7.56%</td> <td>+0.05</td> </tr> <tr> <td>7/6 ARM</td> <td>7.50%</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>7.68%</td> <td>+0.01</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.55%</td> <td>No Change</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/1YXGx/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, and this week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive 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 for 30-year loans were more subdued Thursday, inching up just 3 basis points. That reduces the gap between 30-year new purchase and refi rates to an unusually narrow 28 basis points, compared to 43 points Wednesday and 60 points Tuesday. </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"> Rate movement among refi loans was relatively minimal Thursday. The only big gainers were jumbo 30-year and jumbo 7/6 ARM refi rates, whose averages climbed 12 and 13 basis points, respectively. Moving the other way, the FHA 30-year and FHA 15-year refi averages subtracted a few 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: 150px;"></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>7.62%</td> <td>+0.03</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.56%</td> <td>-0.05</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.59%</td> <td>+0.04</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>7.37%</td> <td>+0.06</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.84%</td> <td>+0.05</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.95%</td> <td>-0.04</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.78%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.77%</td> <td>+0.06</td> </tr> <tr> <td>10/6 ARM</td> <td>7.72%</td> <td>+0.02</td> </tr> <tr> <td>7/6 ARM</td> <td>7.82%</td> <td>+0.06</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>7.73%</td> <td>+0.01</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.55%</td> <td>No Change</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-lowest-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"> Lowest 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 were Mississippi, Connecticut, Florida, Hawaii, Louisiana, New York, and Vermont, while the states with the most expensive rates were Alabama, Minnesota, Oregon, Arizona, 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/2FDaK/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="State-by-state average minimum rates"></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 opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a> stated that inflation is still too high, and they will therefore proceed cautiously on deciding <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695">when to make the first rate cut</a>. Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. </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"> After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%.<span class="ql-inline-citation" data-cite="5"></span> But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></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_74-0"> <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_75-0"> 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_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> 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 recent falling to their lowest level since the start of February, 30-year mortgage rates shot up Thursday—adding almost two-tenths of a percentage point to a new average of 7.34%. Rates for most other new purchase loans also climbed higher. ![Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 15, 2024]() :max_bytes(150000):strip_icc()/3-15-559bee854e7f4836a0e696843fc1634b.png) Rates vary widely across lenders, so 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're seeking. | National Averages of Lenders' Best Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.34% | 7.62% | | FHA 30-Year Fixed | 7.46% | 7.56% | | Jumbo 30-Year Fixed | 6.95% | 6.95% | | 15-Year Fixed | 6.67% | 6.84% | | 5/6 ARM | 7.68% | 7.73% | 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. ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages jumped 18 basis points Thursday, raising the average to 7.34%. That's up from its recent low of 7.11% and is now closer to a peak seen three weeks ago at 7.48%. Given that 30-year rates sank into 6% territory at the start of February, Thursday's average is elevated. But rates are still dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) Rates on 15-year new purchase loans also climbed Thursday, by just 8 basis points. The 15-year average is now 6.67%. Current rates are pricier than the seven-month low of 6.10% we saw just before the new year—but still more affordable than last fall's 7.59%, a peak since 2000. Jumbo 30-year rates rose as well. Adding another eighth of a percentage point, the jumbo 30-year average is back up to its recent high of 6.95%. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached in October was the most expensive jumbo 30-year average in more than 20 years. Most other new purchase averages also gained ground Thursday. Aside from the 30-year flagship average, the other big climber was FHA 30-year loans, whose average added 17 basis points. The only new purchase loan average to fall Thursday was 7/6 adjustable-rate mortgages, which dipped 3 basis points on average. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.34% | +0.18 | | FHA 30-Year Fixed | 7.46% | +0.17 | | VA 30-Year Fixed | 7.04% | +0.12 | | Jumbo 30-Year Fixed | 6.95% | +0.13 | | 20-Year Fixed | 7.02% | +0.06 | | 15-Year Fixed | 6.67% | +0.08 | | FHA 15-Year Fixed | 6.82% | +0.03 | | Jumbo 15-Year Fixed | 6.78% | No Change | | 10-Year Fixed | 6.55% | +0.08 | | 10/6 ARM | 7.56% | +0.05 | | 7/6 ARM | 7.50% | -0.03 | | Jumbo 7/6 ARM | 6.58% | +0.13 | | 5/6 ARM | 7.68% | +0.01 | | Jumbo 5/6 ARM | 6.55% | No Change | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates, and this week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive 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 for 30-year loans were more subdued Thursday, inching up just 3 basis points. That reduces the gap between 30-year new purchase and refi rates to an unusually narrow 28 basis points, compared to 43 points Wednesday and 60 points Tuesday. Rate movement among refi loans was relatively minimal Thursday. The only big gainers were jumbo 30-year and jumbo 7/6 ARM refi rates, whose averages climbed 12 and 13 basis points, respectively. Moving the other way, the FHA 30-year and FHA 15-year refi averages subtracted a few basis points. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.62% | +0.03 | | FHA 30-Year Fixed | 7.56% | -0.05 | | VA 30-Year Fixed | 7.59% | +0.04 | | Jumbo 30-Year Fixed | 6.95% | +0.12 | | 20-Year Fixed | 7.37% | +0.06 | | 15-Year Fixed | 6.84% | +0.05 | | FHA 15-Year Fixed | 6.95% | -0.04 | | Jumbo 15-Year Fixed | 6.78% | No Change | | 10-Year Fixed | 6.77% | +0.06 | | 10/6 ARM | 7.72% | +0.02 | | 7/6 ARM | 7.82% | +0.06 | | Jumbo 7/6 ARM | 6.68% | +0.13 | | 5/6 ARM | 7.73% | +0.01 | | Jumbo 5/6 ARM | 6.55% | No Change | 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. ## Lowest 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 were Mississippi, Connecticut, Florida, Hawaii, Louisiana, New York, and Vermont, while the states with the most expensive rates were Alabama, Minnesota, Oregon, Arizona, 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 opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572) stated that inflation is still too high, and they will therefore proceed cautiously on deciding [when to make the first rate cut](https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695). Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%. But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. ## 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 recent falling to their lowest level since the start of February, 30-year mortgage rates shot up Thursday—adding almost two-tenths of a percentage point to a new average of 7.34%. Rates for most other new purchase loans also climbed higher. Rates vary widely across lenders, so it's always smart to shop around for your best mortgage option and compare rates regularly, no matter the type of home loan you're seeking. National Averages of Lenders' Best Rates Loan Type New Purchase Refinance 30-Year Fixed 7.34% 7.62% FHA 30-Year Fixed 7.46% 7.56% Jumbo 30-Year Fixed 6.95% 6.95% 15-Year Fixed 6.67% 6.84% 5/6 ARM 7.68% 7.73% 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. Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages jumped 18 basis points Thursday, raising the average to 7.34%. That's up from its recent low of 7.11% and is now closer to a peak seen three weeks ago at 7.48%. Given that 30-year rates sank into 6% territory at the start of February, Thursday's average is elevated. But rates are still dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. Compare the Best Mortgage Rates Today - May 21, 2024 Rates on 15-year new purchase loans also climbed Thursday, by just 8 basis points. The 15-year average is now 6.67%. Current rates are pricier than the seven-month low of 6.10% we saw just before the new year—but still more affordable than last fall's 7.59%, a peak since 2000. Jumbo 30-year rates rose as well. Adding another eighth of a percentage point, the jumbo 30-year average is back up to its recent high of 6.95%. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached in October was the most expensive jumbo 30-year average in more than 20 years. Most other new purchase averages also gained ground Thursday. Aside from the 30-year flagship average, the other big climber was FHA 30-year loans, whose average added 17 basis points. The only new purchase loan average to fall Thursday was 7/6 adjustable-rate mortgages, which dipped 3 basis points on average. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.34% +0.18 FHA 30-Year Fixed 7.46% +0.17 VA 30-Year Fixed 7.04% +0.12 Jumbo 30-Year Fixed 6.95% +0.13 20-Year Fixed 7.02% +0.06 15-Year Fixed 6.67% +0.08 FHA 15-Year Fixed 6.82% +0.03 Jumbo 15-Year Fixed 6.78% No Change 10-Year Fixed 6.55% +0.08 10/6 ARM 7.56% +0.05 7/6 ARM 7.50% -0.03 Jumbo 7/6 ARM 6.58% +0.13 5/6 ARM 7.68% +0.01 Jumbo 5/6 ARM 6.55% No Change The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates, and this week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive 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 for 30-year loans were more subdued Thursday, inching up just 3 basis points. That reduces the gap between 30-year new purchase and refi rates to an unusually narrow 28 basis points, compared to 43 points Wednesday and 60 points Tuesday. Rate movement among refi loans was relatively minimal Thursday. The only big gainers were jumbo 30-year and jumbo 7/6 ARM refi rates, whose averages climbed 12 and 13 basis points, respectively. Moving the other way, the FHA 30-year and FHA 15-year refi averages subtracted a few basis points. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.62% +0.03 FHA 30-Year Fixed 7.56% -0.05 VA 30-Year Fixed 7.59% +0.04 Jumbo 30-Year Fixed 6.95% +0.12 20-Year Fixed 7.37% +0.06 15-Year Fixed 6.84% +0.05 FHA 15-Year Fixed 6.95% -0.04 Jumbo 15-Year Fixed 6.78% No Change 10-Year Fixed 6.77% +0.06 10/6 ARM 7.72% +0.02 7/6 ARM 7.82% +0.06 Jumbo 7/6 ARM 6.68% +0.13 5/6 ARM 7.73% +0.01 Jumbo 5/6 ARM 6.55% No Change 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. Lowest 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 were Mississippi, Connecticut, Florida, Hawaii, Louisiana, New York, and Vermont, while the states with the most expensive rates were Alabama, Minnesota, Oregon, Arizona, 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 opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair Jerome Powell stated that inflation is still too high, and they will therefore proceed cautiously on deciding when to make the first rate cut. Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%. But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. 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/s/stub-quote.asp

Stub Quote: 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-stub-quote"></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 Stub Quote? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A stub quote, also known as a placeholder quote, is an order to buy or sell shares that is deliberately set far lower or higher than the prevailing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp">market price</a>. Stub quotes are used by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketmaker.asp">market makers</a> who wish to fulfill their liquidity obligations without intending for their orders to be executed. </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>Stub quotes are limit orders placed far above or below a stock's current market price and are not intended to be immediately executed.</li><li>They are generally used by market makers in order to fulfill regulatory requirements of posting continuous two-sided markets.</li><li>On rare occasions, stub quotes can affect the market, such as in the case of the May 2010 Flash Crash.</li><li>Since November 2010, the SEC has taken steps to reduce the practice of stub quotes.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-stub-quotes-work"></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 Stub Quotes Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Stub quotes are used by market makers who are required to buy and sell shares of a security but do not want to do so at its current market price. In this situation, market makers can enter stub quotes that are so far from the prevailing market price that they are unlikely to be accepted by other market participants. </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"> Market makers and specialists are required by the exchanges they participate in to make continuous two-sided markets (i.e., a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/twowayquote.asp">two-way quote</a> with both a bid and an offer) in order to provide liquidity in the names they are active in. The stub quote allows a market maker to fulfill this duty, but in a non-committal way, which can be frowned upon. </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"> To illustrate, suppose ABC Trading is a market maker for Example Corporation, whose stock is currently trading with a <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> of $40 to $40.50 per share. As a market maker, ABC Trading is required to buy and sell a certain amount of Example Corporation stock each day. However, if ABC Trading does not want to increase its exposure to Example Corporation stock, it might circumvent its obligation by offering shares at a bid-ask spread that is far away from the best available market price, such as $4.00 to $405 per share. </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-real-world-example-of-stub-quotes"></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"> Real-World Example of Stub Quotes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Typically, stub quotes would never be executed by the market. However, they can affect the market on rare occasions. For example, stub quotes are generally regarded as having contributed to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flash-crash.asp">Flash Crash</a> of May 2010. On that day, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a> dropped nearly 1,000 points due in part to the fact that stub quotes entered by market makers were inadvertently triggered during the day’s decline. A report from the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp">Commodity Futures Trading Commission</a> (CFTC) in 2014 described the Flash Crash of May 2010 as one of the most turbulent periods in the history of financial markets. </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 November 2010, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">U.S. Securities and Exchange Commission</a> (SEC) announced new regulations scaling back the use of stub quotes by market makers. The new regulations require market makers to issue quotes that are within a certain percentage of the best available market price, which is known as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nbbo.asp">national best bid and offer</a> (NBBO). Depending on the circumstances, these quotes might be allowed to deviate by as much as 30% or as little as 8%. These rules have been in effect since December 2010. </p></div>

## What Is a Stub Quote? A stub quote, also known as a placeholder quote, is an order to buy or sell shares that is deliberately set far lower or higher than the prevailing [market price](https://www.investopedia.com/terms/m/market-price.asp). Stub quotes are used by [market makers](https://www.investopedia.com/terms/m/marketmaker.asp) who wish to fulfill their liquidity obligations without intending for their orders to be executed. ### Key Takeaways * Stub quotes are limit orders placed far above or below a stock's current market price and are not intended to be immediately executed. * They are generally used by market makers in order to fulfill regulatory requirements of posting continuous two-sided markets. * On rare occasions, stub quotes can affect the market, such as in the case of the May 2010 Flash Crash. * Since November 2010, the SEC has taken steps to reduce the practice of stub quotes. ## How Stub Quotes Work Stub quotes are used by market makers who are required to buy and sell shares of a security but do not want to do so at its current market price. In this situation, market makers can enter stub quotes that are so far from the prevailing market price that they are unlikely to be accepted by other market participants. Market makers and specialists are required by the exchanges they participate in to make continuous two-sided markets (i.e., a [two-way quote](https://www.investopedia.com/terms/t/twowayquote.asp) with both a bid and an offer) in order to provide liquidity in the names they are active in. The stub quote allows a market maker to fulfill this duty, but in a non-committal way, which can be frowned upon. To illustrate, suppose ABC Trading is a market maker for Example Corporation, whose stock is currently trading with a [bid-ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp) of $40 to $40.50 per share. As a market maker, ABC Trading is required to buy and sell a certain amount of Example Corporation stock each day. However, if ABC Trading does not want to increase its exposure to Example Corporation stock, it might circumvent its obligation by offering shares at a bid-ask spread that is far away from the best available market price, such as $4.00 to $405 per share. ## Real-World Example of Stub Quotes Typically, stub quotes would never be executed by the market. However, they can affect the market on rare occasions. For example, stub quotes are generally regarded as having contributed to the [Flash Crash](https://www.investopedia.com/terms/f/flash-crash.asp) of May 2010. On that day, the [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp) dropped nearly 1,000 points due in part to the fact that stub quotes entered by market makers were inadvertently triggered during the day’s decline. A report from the [Commodity Futures Trading Commission](https://www.investopedia.com/terms/c/cftc.asp) (CFTC) in 2014 described the Flash Crash of May 2010 as one of the most turbulent periods in the history of financial markets. In November 2010, the [U.S. Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) announced new regulations scaling back the use of stub quotes by market makers. The new regulations require market makers to issue quotes that are within a certain percentage of the best available market price, which is known as the [national best bid and offer](https://www.investopedia.com/terms/n/nbbo.asp) (NBBO). Depending on the circumstances, these quotes might be allowed to deviate by as much as 30% or as little as 8%. These rules have been in effect since December 2010.

What Is a Stub Quote? A stub quote, also known as a placeholder quote, is an order to buy or sell shares that is deliberately set far lower or higher than the prevailing market price. Stub quotes are used by market makers who wish to fulfill their liquidity obligations without intending for their orders to be executed. Key Takeaways Stub quotes are limit orders placed far above or below a stock's current market price and are not intended to be immediately executed.They are generally used by market makers in order to fulfill regulatory requirements of posting continuous two-sided markets.On rare occasions, stub quotes can affect the market, such as in the case of the May 2010 Flash Crash.Since November 2010, the SEC has taken steps to reduce the practice of stub quotes. How Stub Quotes Work Stub quotes are used by market makers who are required to buy and sell shares of a security but do not want to do so at its current market price. In this situation, market makers can enter stub quotes that are so far from the prevailing market price that they are unlikely to be accepted by other market participants. Market makers and specialists are required by the exchanges they participate in to make continuous two-sided markets (i.e., a two-way quote with both a bid and an offer) in order to provide liquidity in the names they are active in. The stub quote allows a market maker to fulfill this duty, but in a non-committal way, which can be frowned upon. To illustrate, suppose ABC Trading is a market maker for Example Corporation, whose stock is currently trading with a bid-ask spread of $40 to $40.50 per share. As a market maker, ABC Trading is required to buy and sell a certain amount of Example Corporation stock each day. However, if ABC Trading does not want to increase its exposure to Example Corporation stock, it might circumvent its obligation by offering shares at a bid-ask spread that is far away from the best available market price, such as $4.00 to $405 per share. Real-World Example of Stub Quotes Typically, stub quotes would never be executed by the market. However, they can affect the market on rare occasions. For example, stub quotes are generally regarded as having contributed to the Flash Crash of May 2010. On that day, the Dow Jones Industrial Average dropped nearly 1,000 points due in part to the fact that stub quotes entered by market makers were inadvertently triggered during the day’s decline. A report from the Commodity Futures Trading Commission (CFTC) in 2014 described the Flash Crash of May 2010 as one of the most turbulent periods in the history of financial markets. In November 2010, the U.S. Securities and Exchange Commission (SEC) announced new regulations scaling back the use of stub quotes by market makers. The new regulations require market makers to issue quotes that are within a certain percentage of the best available market price, which is known as the national best bid and offer (NBBO). Depending on the circumstances, these quotes might be allowed to deviate by as much as 30% or as little as 8%. These rules have been in effect since December 2010.

https://www.investopedia.com/terms/a/account-number.asp

What Is a Bank Account Number?

<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-bank-account-number"></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 Bank Account Number? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bank account number is a unique string of numbers and, sometimes, letters and other characters that identify a particular bank account and grant access to it. This often is one of the most important account numbers people have for transacting business. </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 bank account number is a unique identifier of the owner of a bank account and permits access to it.</li><li>In online banking, account numbers are vulnerable to fraud.</li><li>Multi-factor identification and other security measures work to protect bank account numbers, along with passwords.</li><li>You can find your bank account number on the bottom of a paper check, just after the routing number.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-bank-account-number-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 Bank Account Number Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A bank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a>'s number is located at the bottom of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/112515/top-5-reasons-banks-wont-cash-your-check.asp">paper check</a>. You'll see three sets of numbers in a computer-readable font at the bottom of the check: </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>The first set of numbers on the left is the nine-digit bank routing number.</li><li>The middle numbers are your account number.</li><li>The third number is the number of the check.<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_10-0"></div> <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/best-payroll-software-5088638">Payroll processing</a> offices use checking account numbers to set up <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a> payments for employees. </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-protecting-bank-account-numbers"></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"> Protecting Bank Account Numbers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Bank account numbers are vulnerable to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/identitytheft.asp">identity theft</a> and fraud. This is why you have to answer questions about your mother's maiden name when you try to make routine changes to an account like your bank account. The means of making it difficult for hackers to steal account numbers have in recent years taken the form of password managers along with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/twofactor-authentication-2fa.asp">multi-factor authentication, or MFA, systems</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"> Businesses now often employ a hard-to-hack master password to unlock an electronic vault of customers' bank account numbers and other sensitive data. Consumers are becoming accustomed to multifactor authentication, which adds another step before granting access to a bank account, such as requiring a fingerprint, voice activation, or a time-sensitive code sent to the cellphone number on record.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> These are just some of the means of protecting users’ bank account numbers in an increasingly vulnerable online environment. </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-important" 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>The traditional check layout applies to most personal checks, but some business checks and bank-printed checks have other formats.</p></div></div></div> <span class="heading-toc" id="toc-account-number-vs-routing-number"></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"> Account Number vs. Routing Number </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> On a paper check, the nine-digit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/routing_transit_number.asp">routing number</a> identifies specific financial institutions within the U.S. The number identifies the check as having been issued by a federal- or state-chartered bank that maintains an account with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/federal-reserve.asp">Federal Reserve</a>.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> This system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer.<span class="ql-inline-citation" data-cite="2"></span> Today, electronic services use them in much the same way for <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>, to draw a payment from a deposit at the correct institution. </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 individual's bank account number works together with the routing number to identify the right account holder at the right institution. </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-how-to-locate-your-bank-account-number"></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"> How to Locate Your Bank Account Number </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> You can find your bank account number on your monthly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-statement.asp">bank statement</a>, or by visiting a branch of your bank. </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"> If you are using a checking account, the account number is also printed on your paper checks. You can find it printed between the bank's routing number and the check number, as shown below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></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_34-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:60.6%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/n9lkkHScUYvcw9jGCTih43DDD7s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/n9lkkHScUYvcw9jGCTih43DDD7s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.jpg" data-srcset="https://www.investopedia.com/thmb/LmNNaIe_dbcaJY4oCXDSlKTe_7o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.jpg 750w" data-tracking-container="true" height="3792" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3792" sizes="750px" src="https://www.investopedia.com/thmb/n9lkkHScUYvcw9jGCTih43DDD7s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.jpg" srcset="https://www.investopedia.com/thmb/LmNNaIe_dbcaJY4oCXDSlKTe_7o=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.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> <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-find-the-account-number-on-a-check"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Find the Account Number on a Check?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can find your bank account number printed at the bottom of your paper check. This is the second sequence of numbers, printed between the nine-digit routing number and the shorter check number. This number can also be found on your account statement.<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-how-long-is-a-bank-account-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Is a Bank Account Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A bank account number is usually eight to 12 digits long, but some account numbers have up to 17 digits. Note that this is not the same as your debit card number or credit card number.<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_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-how-do-you-find-out-your-account-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Find Out Your Account Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can find your bank account number on your bank statements, printed at the bottom of a paper check, or by logging on to the bank's website. If you can't find it in these ways, try visiting a bank branch in person.</p></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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> A bank account number is a unique identifier for each account at a bank or other financial institution that you have. Along with the routing number, the bank uses this number to make payments and accept deposits. Due to the increase in identity theft and fraud, it is important to actively protect your bank account number and other banking information.<br/> </p></div>

## What Is a Bank Account Number? A bank account number is a unique string of numbers and, sometimes, letters and other characters that identify a particular bank account and grant access to it. This often is one of the most important account numbers people have for transacting business. ### Key Takeaways * A bank account number is a unique identifier of the owner of a bank account and permits access to it. * In online banking, account numbers are vulnerable to fraud. * Multi-factor identification and other security measures work to protect bank account numbers, along with passwords. * You can find your bank account number on the bottom of a paper check, just after the routing number. ## How a Bank Account Number Works A bank [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp)'s number is located at the bottom of the [paper check](https://www.investopedia.com/articles/personal-finance/112515/top-5-reasons-banks-wont-cash-your-check.asp). You'll see three sets of numbers in a computer-readable font at the bottom of the check: * The first set of numbers on the left is the nine-digit bank routing number. * The middle numbers are your account number. * The third number is the number of the check. [Payroll processing](https://www.investopedia.com/best-payroll-software-5088638) offices use checking account numbers to set up [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp) payments for employees. ## Protecting Bank Account Numbers Bank account numbers are vulnerable to [identity theft](https://www.investopedia.com/terms/i/identitytheft.asp) and fraud. This is why you have to answer questions about your mother's maiden name when you try to make routine changes to an account like your bank account. The means of making it difficult for hackers to steal account numbers have in recent years taken the form of password managers along with [multi-factor authentication, or MFA, systems](https://www.investopedia.com/terms/t/twofactor-authentication-2fa.asp). Businesses now often employ a hard-to-hack master password to unlock an electronic vault of customers' bank account numbers and other sensitive data. Consumers are becoming accustomed to multifactor authentication, which adds another step before granting access to a bank account, such as requiring a fingerprint, voice activation, or a time-sensitive code sent to the cellphone number on record. These are just some of the means of protecting users’ bank account numbers in an increasingly vulnerable online environment. ### The traditional check layout applies to most personal checks, but some business checks and bank-printed checks have other formats. ## Account Number vs. Routing Number On a paper check, the nine-digit [routing number](https://www.investopedia.com/terms/r/routing_transit_number.asp) identifies specific financial institutions within the U.S. The number identifies the check as having been issued by a federal- or state-chartered bank that maintains an account with the [Federal Reserve](https://www.investopedia.com/articles/economics/08/federal-reserve.asp). This system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer. Today, electronic services use them in much the same way for [wire transfers](https://www.investopedia.com/terms/w/wiretransfer.asp), to draw a payment from a deposit at the correct institution. The individual's bank account number works together with the routing number to identify the right account holder at the right institution. ## How to Locate Your Bank Account Number You can find your bank account number on your monthly [bank statement](https://www.investopedia.com/terms/b/bank-statement.asp), or by visiting a branch of your bank. If you are using a checking account, the account number is also printed on your paper checks. You can find it printed between the bank's routing number and the check number, as shown below. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_20202-5d1e68ee4bba4714baace78ea019ee12.jpg) Image by Sabrina Jiang © Investopedia 2020 ## How Do You Find the Account Number on a Check? You can find your bank account number printed at the bottom of your paper check. This is the second sequence of numbers, printed between the nine-digit routing number and the shorter check number. This number can also be found on your account statement. ## How Long Is a Bank Account Number? A bank account number is usually eight to 12 digits long, but some account numbers have up to 17 digits. Note that this is not the same as your debit card number or credit card number. ## How Do You Find Out Your Account Number? You can find your bank account number on your bank statements, printed at the bottom of a paper check, or by logging on to the bank's website. If you can't find it in these ways, try visiting a bank branch in person. ## The Bottom Line A bank account number is a unique identifier for each account at a bank or other financial institution that you have. Along with the routing number, the bank uses this number to make payments and accept deposits. Due to the increase in identity theft and fraud, it is important to actively protect your bank account number and other banking information.

What Is a Bank Account Number? A bank account number is a unique string of numbers and, sometimes, letters and other characters that identify a particular bank account and grant access to it. This often is one of the most important account numbers people have for transacting business. Key Takeaways A bank account number is a unique identifier of the owner of a bank account and permits access to it.In online banking, account numbers are vulnerable to fraud.Multi-factor identification and other security measures work to protect bank account numbers, along with passwords.You can find your bank account number on the bottom of a paper check, just after the routing number. How a Bank Account Number Works A bank checking account's number is located at the bottom of the paper check. You'll see three sets of numbers in a computer-readable font at the bottom of the check: The first set of numbers on the left is the nine-digit bank routing number.The middle numbers are your account number.The third number is the number of the check. Payroll processing offices use checking account numbers to set up direct deposit payments for employees. Protecting Bank Account Numbers Bank account numbers are vulnerable to identity theft and fraud. This is why you have to answer questions about your mother's maiden name when you try to make routine changes to an account like your bank account. The means of making it difficult for hackers to steal account numbers have in recent years taken the form of password managers along with multi-factor authentication, or MFA, systems. Businesses now often employ a hard-to-hack master password to unlock an electronic vault of customers' bank account numbers and other sensitive data. Consumers are becoming accustomed to multifactor authentication, which adds another step before granting access to a bank account, such as requiring a fingerprint, voice activation, or a time-sensitive code sent to the cellphone number on record. These are just some of the means of protecting users’ bank account numbers in an increasingly vulnerable online environment. The traditional check layout applies to most personal checks, but some business checks and bank-printed checks have other formats. Account Number vs. Routing Number On a paper check, the nine-digit routing number identifies specific financial institutions within the U.S. The number identifies the check as having been issued by a federal- or state-chartered bank that maintains an account with the Federal Reserve. This system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer. Today, electronic services use them in much the same way for wire transfers, to draw a payment from a deposit at the correct institution. The individual's bank account number works together with the routing number to identify the right account holder at the right institution. How to Locate Your Bank Account Number You can find your bank account number on your monthly bank statement, or by visiting a branch of your bank. If you are using a checking account, the account number is also printed on your paper checks. You can find it printed between the bank's routing number and the check number, as shown below. Image by Sabrina Jiang © Investopedia 2020 How Do You Find the Account Number on a Check? You can find your bank account number printed at the bottom of your paper check. This is the second sequence of numbers, printed between the nine-digit routing number and the shorter check number. This number can also be found on your account statement. How Long Is a Bank Account Number? A bank account number is usually eight to 12 digits long, but some account numbers have up to 17 digits. Note that this is not the same as your debit card number or credit card number. How Do You Find Out Your Account Number? You can find your bank account number on your bank statements, printed at the bottom of a paper check, or by logging on to the bank's website. If you can't find it in these ways, try visiting a bank branch in person. The Bottom Line A bank account number is a unique identifier for each account at a bank or other financial institution that you have. Along with the routing number, the bank uses this number to make payments and accept deposits. Due to the increase in identity theft and fraud, it is important to actively protect your bank account number and other banking information.

https://www.investopedia.com/terms/a/asset_management_company.asp

Asset Management Company (AMC) Definition 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-an-asset-management-company-amc"></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 an Asset Management Company (AMC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mlp.asp">master limited partnerships</a>, and more. Along with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hnwi.asp">high-net-worth individual</a> (HNWI) portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio. </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"> AMCs are colloquially referred to as money managers or money management firms. Those that offer public <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> or ETFs are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others. </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"> AMCs are generally distinguished by their <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> (AUM)—the amount of assets that they manage. </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>An asset management company (AMC) invests pooled funds from clients into a variety of securities and assets.</li><li>AMCs vary in terms of their size and operations, from personal money managers that handle high-net-worth (HNW) individual accounts and have a few hundred million dollars in AUM, to giant investment companies that offer ETFs and mutual funds and have trillions in AUM.</li><li>AMC managers are compensated via fees, usually a percentage of a client's assets under management.</li><li>Most AMCs are held to a fiduciary standard.</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:67.5%;"> <img alt="Asset Management Company (AMC)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/F5uArUq0W-BgIDtiv2AhUmd34Xw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/F5uArUq0W-BgIDtiv2AhUmd34Xw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png" data-srcset="https://www.investopedia.com/thmb/eMpDxE9Kn9I5NVl-djetSuN4iJ8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Asset Management Company (AMC)" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/F5uArUq0W-BgIDtiv2AhUmd34Xw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png" srcset="https://www.investopedia.com/thmb/eMpDxE9Kn9I5NVl-djetSuN4iJ8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.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 / Julie Bang</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-asset-management-companies-amcs"></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 Asset Management Companies (AMCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Because they have a larger pool of resources than the individual investor could access on their own, AMCs provide investors with more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> and investing options. Buying for so many clients allows AMCs to practice <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economiesofscale.asp">economies of scale</a>, often getting a price discount on their purchases. </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"> Pooling assets and paying out proportional returns also allows investors to avoid the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_investment.asp">minimum investment</a> requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds. </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"> AMC Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In most cases, AMCs charge a fee that is calculated as a percentage of the client's total AUM. This asset management fee is a defined annual percentage that is calculated and paid monthly. For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well. </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"> Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC's fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC's interests with that of the client; if the AMC's clients prosper, so does the AMC, but if the clients' portfolios make losses, the AMC's revenues will decline as well. </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"> Most AMCs set a minimum annual fee such as $5,000 or $10,000 in order to focus on clients that have a portfolio size of at least $500,000 or $1 million. In addition, some specialized AMCs such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">hedge funds</a> may charge performance fees for generating returns above a set level or that beat a benchmark. The "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/two_and_twenty.asp">two and twenty</a>" fee model is standard in the hedge fund industry. </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"> Buy Side </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Typically, AMCs are considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyside.asp">buy-side</a> firms. This status means they help their clients <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040815/what-does-asset-management-mean-regards-real-estate.asp">make investment decisions</a> based on proprietary in-house research and data analytics, while also using security recommendations from sell-side firms. </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"> Sell-side firms such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentbank.asp">investment banks</a> and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commissions</a>. </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-asset-management-companies-amcs-vs-brokerage-houses"></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"> Asset Management Companies (AMCs) vs. Brokerage Houses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">Brokerage</a> houses and AMCs overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special "private investment" or "wealth management" division or subsidiary. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways. </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"> In general, though, brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide "suitable" services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients' stated goals, they are not responsible if their clients lose money. </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"> In contrast, most asset management firms are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiduciary.asp">fiduciary</a> firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail to do so, they face criminal liability. They're held to this higher standard in large part because money managers usually have discretionary trading powers over accounts. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades. </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"> AMCs usually execute their trades through a designated broker. That brokerage also acts as the designated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/custodian.asp">custodian</a> that holds or houses an investor's account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions. </p> <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-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>Professional, legally liable management</p></li> <li><p>Portfolio diversification</p></li> <li><p>Greater investment options</p></li> <li><p>Economies of scale</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>Sizeable management fees</p></li> <li><p>High account minimums</p></li> <li><p>Risk of underperforming the market</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-example-of-an-asset-management-company-amc"></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"> Example of an Asset Management Company (AMC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As mentioned earlier, purveyors of popular mutual fund families are technically AMCs. Also, many high-profile banks and brokerages have asset management divisions, usually for HNWI or institutions. </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"> There are also private AMCs that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $10 billion in AUM.<span class="ql-inline-citation" data-cite="1"></span> Headquartered in Chicago, with 10 other offices around the U.S., and roughly 142 employees, RMB has different divisions, including:<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> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>RMB Wealth Management for wealthy retail investors</li><li>RMB Asset Management for institutional investors</li><li>RMB Retirement Solutions, which handles retirement plans for employers</li> </ol> <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 firm also has a subsidiary, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://rmbfunds.com/">RMB Funds</a>, that manages six mutual funds. </p></div>

## What Is an Asset Management Company (AMC)? An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, [master limited partnerships](https://www.investopedia.com/terms/m/mlp.asp), and more. Along with [high-net-worth individual](https://www.investopedia.com/terms/h/hnwi.asp) (HNWI) portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio. AMCs are colloquially referred to as money managers or money management firms. Those that offer public [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) or ETFs are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others. AMCs are generally distinguished by their [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM)—the amount of assets that they manage. ### Key Takeaways * An asset management company (AMC) invests pooled funds from clients into a variety of securities and assets. * AMCs vary in terms of their size and operations, from personal money managers that handle high-net-worth (HNW) individual accounts and have a few hundred million dollars in AUM, to giant investment companies that offer ETFs and mutual funds and have trillions in AUM. * AMC managers are compensated via fees, usually a percentage of a client's assets under management. * Most AMCs are held to a fiduciary standard. ![Asset Management Company (AMC)]() :max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png) Investopedia / Julie Bang ## Understanding Asset Management Companies (AMCs) Because they have a larger pool of resources than the individual investor could access on their own, AMCs provide investors with more [diversification](https://www.investopedia.com/terms/d/diversification.asp) and investing options. Buying for so many clients allows AMCs to practice [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp), often getting a price discount on their purchases. Pooling assets and paying out proportional returns also allows investors to avoid the [minimum investment](https://www.investopedia.com/terms/m/minimum_investment.asp) requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds. ### AMC Fees In most cases, AMCs charge a fee that is calculated as a percentage of the client's total AUM. This asset management fee is a defined annual percentage that is calculated and paid monthly. For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well. Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC's fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC's interests with that of the client; if the AMC's clients prosper, so does the AMC, but if the clients' portfolios make losses, the AMC's revenues will decline as well. Most AMCs set a minimum annual fee such as $5,000 or $10,000 in order to focus on clients that have a portfolio size of at least $500,000 or $1 million. In addition, some specialized AMCs such as [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) may charge performance fees for generating returns above a set level or that beat a benchmark. The "[two and twenty](https://www.investopedia.com/terms/t/two_and_twenty.asp)" fee model is standard in the hedge fund industry. ### Buy Side Typically, AMCs are considered [buy-side](https://www.investopedia.com/terms/b/buyside.asp) firms. This status means they help their clients [make investment decisions](https://www.investopedia.com/ask/answers/040815/what-does-asset-management-mean-regards-real-estate.asp) based on proprietary in-house research and data analytics, while also using security recommendations from sell-side firms. Sell-side firms such as [investment banks](https://www.investopedia.com/terms/i/investmentbank.asp) and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or [commissions](https://www.investopedia.com/terms/c/commission.asp). ## Asset Management Companies (AMCs) vs. Brokerage Houses [Brokerage](https://www.investopedia.com/terms/b/brokerage-company.asp) houses and AMCs overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special "private investment" or "wealth management" division or subsidiary. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways. In general, though, brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide "suitable" services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients' stated goals, they are not responsible if their clients lose money. In contrast, most asset management firms are [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail to do so, they face criminal liability. They're held to this higher standard in large part because money managers usually have discretionary trading powers over accounts. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades. AMCs usually execute their trades through a designated broker. That brokerage also acts as the designated [custodian](https://www.investopedia.com/terms/c/custodian.asp) that holds or houses an investor's account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions. Pros * Professional, legally liable management * Portfolio diversification * Greater investment options * Economies of scale Cons * Sizeable management fees * High account minimums * Risk of underperforming the market ## Example of an Asset Management Company (AMC) As mentioned earlier, purveyors of popular mutual fund families are technically AMCs. Also, many high-profile banks and brokerages have asset management divisions, usually for HNWI or institutions. There are also private AMCs that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $10 billion in AUM. Headquartered in Chicago, with 10 other offices around the U.S., and roughly 142 employees, RMB has different divisions, including: 1. RMB Wealth Management for wealthy retail investors 2. RMB Asset Management for institutional investors 3. RMB Retirement Solutions, which handles retirement plans for employers The firm also has a subsidiary, [RMB Funds](https://rmbfunds.com/), that manages six mutual funds.

What Is an Asset Management Company (AMC)? An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, master limited partnerships, and more. Along with high-net-worth individual (HNWI) portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio. AMCs are colloquially referred to as money managers or money management firms. Those that offer public mutual funds or ETFs are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others. AMCs are generally distinguished by their assets under management (AUM)—the amount of assets that they manage. Key Takeaways An asset management company (AMC) invests pooled funds from clients into a variety of securities and assets.AMCs vary in terms of their size and operations, from personal money managers that handle high-net-worth (HNW) individual accounts and have a few hundred million dollars in AUM, to giant investment companies that offer ETFs and mutual funds and have trillions in AUM.AMC managers are compensated via fees, usually a percentage of a client's assets under management.Most AMCs are held to a fiduciary standard. Investopedia / Julie Bang Understanding Asset Management Companies (AMCs) Because they have a larger pool of resources than the individual investor could access on their own, AMCs provide investors with more diversification and investing options. Buying for so many clients allows AMCs to practice economies of scale, often getting a price discount on their purchases. Pooling assets and paying out proportional returns also allows investors to avoid the minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds. AMC Fees In most cases, AMCs charge a fee that is calculated as a percentage of the client's total AUM. This asset management fee is a defined annual percentage that is calculated and paid monthly. For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well. Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC's fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC's interests with that of the client; if the AMC's clients prosper, so does the AMC, but if the clients' portfolios make losses, the AMC's revenues will decline as well. Most AMCs set a minimum annual fee such as $5,000 or $10,000 in order to focus on clients that have a portfolio size of at least $500,000 or $1 million. In addition, some specialized AMCs such as hedge funds may charge performance fees for generating returns above a set level or that beat a benchmark. The "two and twenty" fee model is standard in the hedge fund industry. Buy Side Typically, AMCs are considered buy-side firms. This status means they help their clients make investment decisions based on proprietary in-house research and data analytics, while also using security recommendations from sell-side firms. Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or commissions. Asset Management Companies (AMCs) vs. Brokerage Houses Brokerage houses and AMCs overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special "private investment" or "wealth management" division or subsidiary. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways. In general, though, brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide "suitable" services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients' stated goals, they are not responsible if their clients lose money. In contrast, most asset management firms are fiduciary firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail to do so, they face criminal liability. They're held to this higher standard in large part because money managers usually have discretionary trading powers over accounts. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades. AMCs usually execute their trades through a designated broker. That brokerage also acts as the designated custodian that holds or houses an investor's account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions. Pros Professional, legally liable management Portfolio diversification Greater investment options Economies of scale Cons Sizeable management fees High account minimums Risk of underperforming the market Example of an Asset Management Company (AMC) As mentioned earlier, purveyors of popular mutual fund families are technically AMCs. Also, many high-profile banks and brokerages have asset management divisions, usually for HNWI or institutions. There are also private AMCs that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $10 billion in AUM. Headquartered in Chicago, with 10 other offices around the U.S., and roughly 142 employees, RMB has different divisions, including: RMB Wealth Management for wealthy retail investorsRMB Asset Management for institutional investorsRMB Retirement Solutions, which handles retirement plans for employers The firm also has a subsidiary, RMB Funds, that manages six mutual funds.